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 May
31, 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.
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THE UNITS ARE SPECULATIVE SECURITIES.
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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.
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SEE "RISK FACTORS" AND "CONFLICTS OF INTEREST" BEGINNING AT PAGES 10 AND 34,
RESPECTIVELY.
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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.
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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.
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UNITS OF LIMITED PRICE TO SELLING PROCEEDS
PARTNERSHIP INTEREST PUBLIC(1) COMMISSIONS(2)(3)(4) TO TRUST(1)(2)(3)(4)
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Ongoing Offering Period--Per Unit Net Asset Value None Net Asset Value
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See notes on next page
KENMAR ADVISORY CORP.
MANAGING OWNER
THE DATE OF THIS PROSPECTUS IS JULY 1, 1998
(Not for use after March 31, 1999)
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(Notes to Cover Page)
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(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 1997 of at least $60,000.
7. Minnesota--"Accredited investors", as defined in Rule 501(a)
under the Securities Actof 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.
i
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10. New Hampshire--Net worth of at least $250,000 or a net worth of at
least $125,000 and an annual income of at least $50,000.
11. North Carolina--Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
12. Oklahoma--Net worth of at least $225,000 or a net worth of
$60,000 and an annual income of at least $60,000.
13. Oregon--Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
14. Pennsylvania--Net worth of a least $175,000 or a net worth of at
least $100,000 and an annual taxable income of at least $50,000.
15. South Carolina--Net worth of at least $100,000 or a net income in
1997 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.
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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.
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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.
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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.
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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."
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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 25 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 8.
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 10 THROUGH 14.
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
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KENMAR GLOBAL TRUST
TABLE OF CONTENTS
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PROSPECTUS SECTION PAGE
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Summary ................................................................................................ 6
Overview ............................................................................................. 6
Risk Factors ......................................................................................... 6
The Trust and Its Objectives ......................................................................... 6
"Breakeven Table" .................................................................................... 8
Suitability .......................................................................................... 9
Risk Factors ........................................................................................... 10
(1) Past Performance Not Necessarily Indicative of Future Results; All or Substantially All
of an Investment Could Be Lost ................................................................ 10
(2) Speculative and Volatile Markets; Highly Leveraged Trading ...................................... 10
(3) Substantial Charges ............................................................................. 10
(4) Importance of Market Conditions to Profitability ................................................ 10
(5) Technical, Trend-Following Trading Systems Require Sustained Price Moves in
Order to Trade Profitably ..................................................................... 10
(6) Discretionary Trading Strategies May Incur Substantial Losses ................................... 11
(7) Decisions Based Upon Fundamental Analysis May Not Result in Profitable Trading .................. 11
(8) Increasing the Assets Managed by the Advisors May Diminish Their Returns ........................ 11
(9) No Assurance of Advisors' Continued Services .................................................... 11
(10) Limited Ability to Liquidate an Investment in the Units ......................................... 11
(11) Possible Illiquid Markets ....................................................................... 12
(12) "Zero-Sum" Trading; The Trust Does Not Acquire Any Asset with Intrinsic Value .................. 12
(13) Non-Correlated, Not Negatively Correlated, Performance Objective ................................ 12
(14) Broad Indices May Perform Quite Differently From Individual Investments ......................... 12
(15) Distortion in Profit Share and Incentive Fee Calculations ....................................... 12
(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 .............................................................. 13
(18) Conflicts of Interest ........................................................................... 13
(19) Unitholders Taxed Currently ..................................................................... 13
(20) Limitation on Deductibility of "Investment Advisory Fees" ...................................... 13
(21) Taxation of Interest Income Irrespective of Trading Losses ...................................... 14
(22) Possibility of a Tax Audit of Both the Trust and Unitholders .................................... 14
(23) Failure of Brokerage Firms; Default by Forward Market Participants .............................. 14
(24) Regulatory Matters May Alter the Nature of an Investment in the Trust ........................... 14
The Trust and Its Objectives ........................................................................... 15
Objectives ........................................................................................... 15
Investment Philosophy ................................................................................ 15
Diversification ...................................................................................... 16
The Advisors ......................................................................................... 18
Kenmar Advisory Corp ................................................................................... 20
Background and Principals ............................................................................ 20
Management of Traders ................................................................................ 22
Fiduciary Obligations of Kenmar ...................................................................... 22
Investment of Kenmar in the Trust .................................................................... 24
Use of Proceeds ........................................................................................ 24
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TABLE OF CONTENTS (CONT'D)
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PROSPECTUS SECTION PAGE
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Charges ................................................................................................ 25
Charges Paid by the Trust ............................................................................ 25
Organizational and Initial Offering Costs .......................................................... 26
Brokerage Commissions .............................................................................. 26
Miscellaneous Execution Costs ...................................................................... 26
"Bid-ask" Spreads ................................................................................. 27
Profit Shares and Incentive Fees ................................................................... 27
Ongoing Operating, Selling and Administrative Costs ................................................ 28
Extraordinary Expenses ............................................................................. 28
Charges Paid by Kenmar ............................................................................... 29
Selling Commissions; "Trailing Commissions" ........................................................ 29
Consulting Fees .................................................................................... 29
Redemption Charges ................................................................................... 29
The Clearing Brokers ................................................................................... 29
ING BARINGS Futures & Options Clearing Services ...................................................... 29
PaineWebber .......................................................................................... 30
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 ................................................................ 38
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
Possible Repayment of Distributions Received by Unitholders; Indemnification of the
Trust by Unitholders ............................................................................... 39
Transfers of Units Restricted ........................................................................ 40
Reports to Unitholders ............................................................................... 40
General .............................................................................................. 40
The Futures and Forward Markets ........................................................................ 41
Futures and Forward Contracts ........................................................................ 41
Hedgers and Speculators .............................................................................. 41
Commodity Exchanges .................................................................................. 41
Speculative Position and Daily Price
Fluctuation Limits ................................................................................... 42
Margins .............................................................................................. 42
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TABLE OF CONTENTS (CONT'D)
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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 ............................................................... 44
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" .................................................................. 46
IRS Audits of the Trust and Its Unitholders .......................................................... 46
State and Other Taxes ................................................................................ 46
Purchases by Employee Benefit Plans .................................................................... 46
General .............................................................................................. 46
"Plan Assets" ........................................................................................ 47
Ineligible Purchasers ................................................................................ 48
Plan of Distribution ................................................................................... 49
Subscription Procedure ............................................................................... 49
Subscribers' Representations and Warranties .......................................................... 49
Selling Agents' Compensation ......................................................................... 49
Legal Matters .......................................................................................... 50
Experts ................................................................................................ 50
Additional Information ................................................................................. 50
Recent Financial Information and Annual Reports ........................................................ 51
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 ...................................................... 99
Investment Factors ..................................................................................... 103
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TABLE OF CONTENTS (CONT'D)
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PROSPECTUS SECTION PAGE
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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 Statements of Operations For Year Ended
December 31, 1997 and For Period July 17, 1996 (inception) 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 (inception) 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 (inception) to December 31, 1996 ......................................... F-6
Kenmar Global Trust Notes to Financial Statements ...................................................... F-7-10
Kenmar Global Trust Statements of Financial Condition as of
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
Kenmar Global Trust Notes to Financial Statements ...................................................... F-15-18
Kenmar Advisory Corp. Independent Auditors' Report ..................................................... F-19
Kenmar Advisory Corp. Statements of Financial Condition as of September 30, 1997
(Audited) and March 31, 1998 (Unaudited) .............................................................. F-20
Kenmar Advisory Corp. Notes to Statement of Financial Condition ........................................ F-21-26
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)
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5
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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 inthis
Prospectus.
OVERVIEW
O EXPERIENCED MANAGING OWNER AND ADVISORS. SEE "THE TRUST AND ITS
OBJECTIVES -- THE ADVISORS" AT PAGE 18 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 16.
O DIVERSIFICATION AMONG TRADING STRATEGIES. SEE "THE TRUST AND ITS
OBJECTIVES -- INVESTMENT PHILOSOPHY" AT PAGE 15.
O INVESTING IN A MANAGED FUTURES FUND CAN BE AN EFFECTIVE WAY TO
DIVERSIFY A PORTFOLIO GLOBALLY. SEE "INVESTMENT FACTORS --
DIVERSIFYING INTO MANAGED FUTURES" AT PAGE 104.
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 108 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 10.
O THE TRUST'S TRADING IS HIGHLY LEVERAGED AND TAKES PLACE IN VERY
VOLATILE MARKETS. SEE "THE TRUST AND ITS OBJECTIVES" AT PAGE 15 AND
"RISK FACTOR(2) -- SPECULATIVE AND VOLATILE MARKETS; HIGHLY LEVERAGED
TRADING" AT PAGE 10.
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 8, "CHARGES" BEGINNING AT PAGE 25 AND "RISK FACTOR (3) --
SUBSTANTIAL CHARGES" AT PAGE 10.
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 10.
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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6
<PAGE>
- --------------------------------------------------------------------------------
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 May 1, 1998, Kenmar and its
affiliates were acting as trading manager for commodity pools and accounts with
total capital (excluding "notional" funds) of approximately $561 million, of
which approximately $78 million was invested in multi-advisor commodity pools
operated by Kenmar and $105 million in single- and multi-advisor commodity pools
operated by Kenmar.
The principal office of the Trust is c/o Kenmar Advisory Corp., Two
American Lane, Greenwich, Connecticut 06831-8150. The telephone number of the
Trust and Kenmar is (203) 861-1000.
See "Performance of Commodity Pools Operated by Kenmar" for the performance
of other commodity pools managed by Kenmar.
The Advisors
The Advisors are all well-established in the managed futures industry and
have, in the past, demonstrated the ability to make substantial profits in a
wide range of different market conditions. These Advisors, collectively,
represent a range of technical, systematic, fundamental and discretionary
methodologies, with extensive experience trading both proprietary and client
capital. Past performance is not necessarily indicative of future results. The
fact that an Advisor has traded successfully in the past does not mean that such
Advisor will do so in the future.
As of June 1, 1998, the Advisors were collectively managing approximately
$1.19 billion in managed futures accounts in which their clients (and in certain
cases the Advisors themselves) had invested, and approximately $674.5 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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7
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY (CONT'D)
"Breakeven Table"
The "Breakeven Table" below indicates the approximate percentage and dollar
returns required for the redemption value of an initial $5,000 investment in the
Units to equal the amount originally invested twelve months after issuance
(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's charges (other than
administrative expenses) are based on percentages rather than fixed dollar
amounts, i.e. (i) percentage of assets, (ii) percentage of profits or (iii)
per-trade costs (each of which will, or should, equal approximately the same
percentage of the Trust's equity, whatever its size), other than administrative
expenses (which are assumed in the "Breakeven Table" to equal the maximum
estimated percentage of the Trust's average beginning of month Net Assets). In
order for Column II in the "Breakeven Table" to present absolute dollar amount
"breakeven" figures, it has been assumed that the average beginning of month Net
Assets attributable to an initial investment during the twelve-month "breakeven"
period equals the amount of such initial investment. This is, in fact, unlikely
to be the case.
"BREAKEVEN TABLE"
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
DOLLAR RETURN
PERCENTAGE RETURN REQUIRED
EXPENSES(1) REQUIRED ($5,000 INITIAL INVESTMENT)
WHICH MUST BE OFFSET FIRST TWELVE MONTHS FIRST TWELVE MONTHS
TO "BREAK EVEN" OF INVESTMENT OF INVESTMENT
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Brokerage Commissions(2) 11.00% $ 550.00
- -----------------------------------------------------------------------------------------------
Administrative Expenses(3) 0.50% $ 25.00
- -----------------------------------------------------------------------------------------------
Miscellaneous Execution Costs(4) 0.25% $ 12.50
- -----------------------------------------------------------------------------------------------
Advisors' Profit Shares(5) 2.00% $ 100.00
- -----------------------------------------------------------------------------------------------
Kenmar Incentive Fee(6) 0.15% $ 7.50
- -----------------------------------------------------------------------------------------------
Organizational and Initial Offering Cost
Reimbursement(7) 2.40% $ 120.00
- -----------------------------------------------------------------------------------------------
Redemption Charge(8) 3.10% $ 155.00
- ----------------------------------------------------------------------------------------------
Interest Income(9) (5.00)% $ (250.00)
- -----------------------------------------------------------------------------------------------
Return On $5,000 Initial Investment Required
For "Break Even" 14.40% $ 720.00
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY (CONT'D)
NOTES to "Breakeven Table"
(1) See "Charges" at page 25 for an explanation of the expenses included in the
"Breakeven Table."
(2) Paid to Kenmar each month. Kenmar pays all floor brokerage, exchange,
clearing and NFA fees, selling compensation, trailing commissions and
Consulting Fees from this amount.
(3) Administrative expenses are paid as incurred, but for this "Breakeven
Table" such expenses are assumed to be the maximum estimated amount.
(4) Estimated; paid on a per-transaction basis. "Bid-ask" spreads are not
included due to the difficulty of determining such spreads, which may
constitute a significant cost to the Trust.
(5) Profit Shares are calculated quarterly on the basis of each Advisor's
individual performance, not the overall performance of the Trust.
Consequently, it is not possible to determine the amount of Profit Shares,
if any, that would be payable in a "breakeven" year. Kenmar believes that
2.00% of average beginning of month Net Assets is a reasonable estimate for
such Profit Shares, but the actual Profit Shares paid in a "breakeven" year
could substantially exceed such estimate.
(6) No Incentive Fee might, in fact, be due despite the approximately 3.1% Net
Asset Value gain necessary to offset the redemption charge of $155 (based
on an initial $5,000 investment). See "Charges -- Profit Shares and
Incentive Fees" at page 27. 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 FChighly 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.
- -------------------------------------------------------------------------------
9
<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.
(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.
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<PAGE>
(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. 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) 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
<PAGE>
(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.
See "Charges" at page 25. 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
12
<PAGE>
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.
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
13
<PAGE>
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.
14
<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
14. 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 European Currency Unit Mexican Peso
Belgian Franc Finnish Markka New Zealand Dollar
British Pound French Franc Norwegian Krone
Canadian Dollar Irish Punt Singapore Dollar
Danish Krone Italian Lira Spanish Peseta
Deutsche Mark Japanese Yen Swedish Krona
Dutch Guilder Malaysian Ringgit Swiss Franc
- -------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
Australian Treasury Bills Major Market Stock Index (U.S.)
Australian Treasury Bonds MEFF&S Stock Index (Spain)
CAC 40 Stock Index (France) MIBOR
Canadian Bonds Nikkei Stock Average (Japan)
DAX Stock Index (Germany) Nikkei Stock Index 300 (Japan)
Eurodollars PIBOR
Euromarks S&P 500 Stock Index (U.S.)
Euroswiss Spanish Bonds
Eurotop 100 Index (Europe) Tokyo Stock Price Index (Japan)
Euroyen U.K. Bonds
Financial Times 100 Stock Index (U.K.) U.K. Short Sterling
Financial Times 250 Stock Index (U.K.) U.S. Treasury Bills
French Bonds U.S. Treasury Bonds
German Bonds U.S. Treasury Notes
Italian Bonds Value Line Stock Index (U.S.)
Japanese Bonds
- -------------------------------------------------------------------------------
16
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METALS
- ------------------------------------------------------------------------------
Aluminum Lead Platinum Tin
Copper Nickel Silver Zinc
Gold Palladium
ENERGY PRODUCTS
- ------------------------------------------------------------------------------
Crude Oil Oil No. 2 Heating Oil Residual Fuel Oil
Electricity Heavy Fuel Oil Propane Unleaded Gasoline
Gas Natural Gas
AGRICULTURAL PRODUCTS
- ------------------------------------------------------------------------------
Cocoa Feeder Cattle Orange Juice Soy Oil
Coffee Live Cattle Pork Bellies Sugar
Corn Live Hogs Soybeans Wheat
Cotton Oats Soymeal
The Trust will trade in many, but not all, of the foregoing markets as well
as additional markets. There can be no assurance as to which markets the Trust
will, in fact, trade over time or at any given time. The Advisors do not each
trade in all of the foregoing markets. The Trust's portfolio exposure may, from
time to time, be concentrated in a limited number of markets.
KENMAR GLOBAL TRUST
MARKET SECTOR PARTICIPATION AS OF MARCH 31, 1998
[GRAPH]
This represents a snapshot allocation of assets given the portfolio of
traders for July 1, 1998. The percentage exposure to markets are anticipated to
vary substantially over time.
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THE ADVISORS
All direct investment decisions for the Trust will be made by commodity
trading advisors selected and monitored by Kenmar. See "Risk Factor (24) --
Regulatory Matters May Alter the Nature of an Investment in the Trust" at page
14. Each current 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.
<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 $14.0 million (total)
(29%) Technical, Trend-Following
Hirst Investment Management Inc. Technical, Non-Discretionary $78.8 million (total)
(9.5%)
Hyman Beck & Company, Inc. Long-Term Technical, $309.5 million (total)
(29%) Trend-Following $215.3 million (Global)
Sunrise Capital Partners, LLC Long-Term Technical, $292.8 million (total)
(9.5%) Trend Following $131.5 million (Expanded
Diversified)
Willowbridge Associates Inc. Discretionary, Fundamental $495.3 million (total)
(14%) and Technical $234.9 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 described above aggregate to 91% of the
Trust's total equity. As described herein, Kenmar has the discretion to
allocate less than 100% of the Trust's total equity and has elected to do
so at present. 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,
reallocations and allocations 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 10.
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<PAGE>
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 64 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 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
65 through 67 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 68 through 76 for
performance information relating to Hyman Beck & Company, Inc.
Sunrise Capital Partners, LLC
Sunrise Capital Partners, LLC trades 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 77
through 85 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
19
<PAGE>
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 86 through 98 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 June 30, 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 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.
The Trust's initial Advisors (Dreiss Research Corporation, Hyman Beck &
Company, Inc. and Willowbridge Associates Inc.) purchased 500 Units as of the
inception of the Trust's trading. Each of the 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.
20
<PAGE>
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 serve as Co-Chief Executive Officers and
Co-Chief Investment Officers and co-manage the Research Department. They left
Pasternak, Baum in September 1983 to form Kenmar and they have occupied their
present positions with Kenmar since that time.
Ms. Esther Eckerling Goodman (born 1952), Chief Operating Officer and
Senior Executive Vice President, joined Kenmar in July 1986 and has been
involved in the futures industry since 1974. From 1974 through 1976, she was
employed by Conti-Commodity Services, Inc. and ACLI Commodity Services, Inc., in
the areas of hedging, speculative trading and tax arbitrage. In 1976, Ms.
Goodman joined Loeb Rhoades and Company, Inc. where she was responsible for
developing and managing a managed futures program which, in 1979, became the
trading system for Westchester Commodity Management, an independent commodity
trading advisor of which Ms. Goodman was a founder and principal. From 1983
through mid-1986, Ms. Goodman was employed as a marketing executive at
Commodities Corp. (USA) of Princeton, New Jersey. Ms. Goodman was a Director of
the Managed Futures Trade Association from 1987 to 1991 and a Director of its
successor organization, the Managed Futures Association, from 1991 to 1995. She
has written several articles and has spoken before various professional groups
and organizations on the subject of managed futures. Ms. Goodman graduated from
Stanford University in 1974 with a B.A. degree.
Mr. Robert L. Cruikshank (born 1936), Executive Vice President, joined
Kenmar in March 1991. Mr. Cruikshank spent 20 years (1958-1978) at Blyth Eastman
Dillon in New York and was its Executive Vice President in charge of the
Securities Division, which included all domestic and international sales and
branch office activities, all trading departments, and the research areas. In
1979, Mr. Cruikshank jointly formed Neild, Cruikshank & Co., an independent
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
account administration, oversight and risk management, joined Kenmar in March
1989. From 1982 through 1984, Mr. DiVuolo was employed by
21
<PAGE>
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 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 14 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" at page 53.
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
22
<PAGE>
December 17, 1996 (the "Declaration of Trust"). The general fiduciary duties
which would otherwise be imposed on Kenmar (which would make the operation of
the Trust as described herein impracticable due to the strict prohibition
imposed by such duties on, for example, conflicts of interest on behalf of a
fiduciary in its dealings with its beneficiaries), are defined and limited in
scope by the disclosure of the business terms of the Trust, as set forth herein
and in the Declaration of Trust (to which terms all Unitholders, by subscribing
to the Units, are deemed to consent).
The Trust, as a publicly-offered "commodity pool," is subject to the
Statement of Policy of the North American Securities Administrators Association,
Inc. relating to the registration, for public offering, of commodity pool
interests (the "NASAA Guidelines"). The NASAA Guidelines explicitly prohibit a
managing owner of a commodity pool from "contracting away the fiduciary
obligation owed to [investors] under the common law." Consequently, once the
terms of a given commodity pool, such as the Trust, are established, the
managing owner is effectively precluded from changing such terms in a manner
that disproportionately benefits the managing owner, as any such change could
constitute self-dealing under common law fiduciary standards, and it is
virtually impossible to obtain the consent of existing investors to such
self-dealing (whereas, given adequate disclosure, new investors subscribing to a
pool should be deemed to evidence their consent to the business terms thereof by
the act of subscribing).
The Declaration of Trust provides that Kenmar and its affiliates shall have
no liability to the Trust or to any Unitholder for any loss suffered by the
Trust arising out of any action or inaction of Kenmar or its affiliates or their
directors, officers, shareholders, partners, members or employees (the "Kenmar
Related Parties") if the Kenmar Related Parties, in good faith, determined that
such course of conduct was in the best interests of the Trust, and such course
of conduct did not constitute negligence or misconduct by the Kenmar Related
Parties. The Trust has agreed to indemnify the Kenmar Related Parties against
claims, losses or liabilities based on their conduct relating to the Trust,
provided that the conduct resulting in the claims, losses or liabilities for
which indemnity is sought did not constitute negligence or misconduct and was
done in good faith and in a manner reasonably believed to be in the best
interests of the Trust. The NASAA Guidelines prescribe the maximum permissible
extent to which the Trust can indemnify the Kenmar Related Parties and prohibit
the Trust from purchasing insurance to cover indemnification which the Trust
itself could not undertake directly.
Fiduciary and Regulatory Duties
An investor should be aware that Kenmar has a fiduciary responsibility to
the Unitholders to exercise good faith and fairness in all dealings affecting
the Trust.
Under Delaware law, a beneficial owner of a business trust (such as a
Unitholder of the Trust) may, under certain circumstances, institute legal
action on behalf of himself and all other similarly situated beneficial owners
(a "class action") to recover damages from a managing owner of such business
trust for violations of fiduciary duties, or on behalf of a business trust (a
"derivative action") to recover damages from a third party where a managing
owner has failed or refused to institute proceedings to recover such damages. In
addition, beneficial owners may have the right, subject to applicable procedural
and jurisdictional requirements, to bring class actions in federal court to
enforce their rights under the federal securities laws and the rules and
regulations promulgated thereunder by the Securities and Exchange Commission
("SEC"). Beneficial owners who have suffered losses in connection with the
purchase or sale of their beneficial interests may be able to recover such
losses from a managing owner where the losses result from a violation by the
managing owner of the anti-fraud provisions of the federal securities laws.
Under certain circumstances, Unitholders also have the right to institute a
reparations proceeding before the CFTC against Kenmar (a registered commodity
pool operator), the Clearing Brokers (registered futures commission merchants)
and the Advisors (registered commodity trading advisors), as well as those of
their respective employees who are required to be registered under the Commodity
Exchange Act, as amended, and the rules and regulations promulgated 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
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<PAGE>
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.
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 April 30, 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.
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<PAGE>
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 $563,000,
and initial offering costs which 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. 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.
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.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
Third Parties ........... Operating, Selling, and Paid as incurred; not anticipated to exceed 0.50% of the
Administrative costs Trust's average beginning of month Net Assets per year.
Third Parties ........... Reimbursement of delivery, Actual payments to third parties; expected to be negligible.
insurance, storage and any
other extraordinary expenses;
taxes (if any)
</TABLE>
ORGANIZATIONAL AND INITIAL OFFERING COSTS
Kenmar has advanced the organizational and initial offering costs of the
Trust in a total amount of approximately $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
than $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 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.
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. 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. As of December 31, 1997, the
Trust's 11% per annum flat-rate brokerage commissions equated to round-turn
commissions of $92.
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.
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<PAGE>
"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 receives a quarterly 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 based on 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.
27
<PAGE>
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, 1998 and
through December 31, 1998 the Trust incurred a $1,000,000 loss. If 100,000 more
Units were purchased as of January 1, 1999 (at a Net Asset Value of $90 per
Unit), and the Trust earned $1,000,000 during 1999, as of December 31, 1999 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, 1999, 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.
28
<PAGE>
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" are payable
quarterly and are 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 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.
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 are subject to redemption charges of 3% (for Units redeemed on
or after the end of the sixth and on or before the end of the twelfth month
after purchase) and 2% (for Units redeemed from the beginning of the thirteenth
and on or before the end of the eighteenth month after purchase) of the Net
Asset Value per Unit as of the month-end 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 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
29
<PAGE>
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. PaineWebber is a
clearing member of all principal U.S. futures exchanges. It is registered with
the CFTC as a futures commission merchant and is a member of the NFA in such
capacity.
Except as set forth below, neither PaineWebber nor any of its principals
have been involved in any administrative, civil or criminal proceeding --
whether pending, on appeal or concluded -- within the past five years that is
material to a decision whether to invest in the Trust in light of all the
circumstances.
PaineWebber is involved in a number of proceedings concerning matters
arising in connection with the conduct of its business. Certain actions, in
which compensatory damages of $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.
30
<PAGE>
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 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
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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 PaineWebber violated the
federal securities laws. The plaintiffs seek unspecified damages, including
reimbursement for all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
limited partnerships. In the Federal Court Limited Partnership Actions, the
plaintiffs also seek treble damages under RICO.
In addition, PaineWebber and several of its present or former officers were
sued in two other purported class actions (the "Geodyne Limited Partnership
Actions") filed in the state court in Harris County, Texas. Those cases, and
Wolff v. Geodyne Resources, Inc. et. al., are similar to the other Limited
Partnership Actions except that the plaintiffs purport to sue only on behalf of
those investors who bought interests in the Geodyne Energy Partnerships, which
were a series of oil and gas partnerships that PaineWebber sold over several
years. The plaintiffs in Geodyne Limited Partnership Actions allege that
PaineWebber committed fraud and misrepresentation, breached its fiduciary
obligations to its investors and brokerage customers, and breached certain
contractual obligations. The complaints seek unspecified damages, including
reimbursement of all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
Geodyne partnerships. PaineWebber has filed an answer denying the allegations in
plaintiffs' complaints.
On January 18, 1996, PaineWebber signed and filed with the federal court a
memorandum of understanding with the plaintiffs in both the Federal Court
Limited Partnership Actions and the Geodyne Limited Partnership Actions
outlining the terms under which the parties have agreed to settle these actions.
Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited
$125 million into an escrow fund under the supervision of the United States
District Court for the Southern District of New York to be used to resolve the
Federal Court and Geodyne Limited Partnership Actions in accordance with the
definitive settlement agreement and plan of allocation which the parties
subsequently submitted to the court for its consideration and approval. The
court held hearings on the fairness of the settlement in October and November
1996. On March 20, 1997, the court issued an order approving the settlement. 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. PaineWebber, Inc., making allegations substantially
similar to those alleged in the Federal Court Limited Partnership Actions, but
limited in subject matter to the sale of the Pegasus partnerships, and without a
RICO claim. The complaint sought unspecified damages. The plaintiffs in the
Jacobson case simultaneously remained as participants in the Federal Court
Limited Partnership Actions, and subsequently dismissed the Illinois action but
objected to the proposed settlement of the Federal Court Limited Partnership
Actions. As noted above, on March 20, 1997, the court approved the fairness of
the settlement.
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The following items relate 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 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 and misleading
representations made to investors in violation of federal and state securities
laws, 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 approximately $650 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 a 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 approximately $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
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.
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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
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.
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Kenmar has a conflict of interest in "deleveraging" the Trust's market
commitment; i.e. Kenmar has an incentive to "deleverage" the Trust's market
commitment as its brokerage commissions will be calculated on the basis of the
Trust's equity and not on the amount of any reduced commitment.
Kenmar's Incentive to Select More Speculative Advisors
Because of Kenmar's potential receipt of the Incentive Fee, Kenmar may have
an incentive to select Advisors that trade in a more "risky" or speculative
manner than Kenmar would otherwise consider to be desirable. Kenmar's Incentive
Fee is based on annual New Overall Appreciation (if any) and could comprise a
significant component of Kenmar's net overall return from the Trust.
Accordingly, Kenmar has a potential incentive to select Advisors that trade in a
more speculative manner because high risk trading strategies have the potential
to lead to high returns. The Incentive Fee permits Kenmar to share in any New
Overall Appreciation but without having to participate in the same manner in any
losses of the Trust.
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, directly or indirectly, 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
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over which their personnel may have discretionary trading authority) may take
positions in the futures markets opposite to those of the Trust or may compete
with the Trust for the same positions. The Clearing Brokers and executing
brokers may have a conflict of interest in their execution of trades for the
Trust and for other customers. Kenmar will, however, not retain any clearing
broker for the Trust which Kenmar has reason to believe would knowingly or
deliberately favor any other customer over the Trust with respect to the
execution of commodity trades.
The Clearing Brokers and executing brokers will benefit from executing
orders for other clients, whereas the Trust may be harmed to the extent that the
Clearing Brokers and executing brokers have fewer resources to allocate to the
Trust's account due to the existence of such other clients.
Certain officers or employees of the Clearing Brokers and executing brokers
may be members of United States commodities exchanges and/or serve on the
governing bodies and standing committees of such exchanges, their clearinghouses
and/or various other industry organizations. In such capacities, these officers
or employees may have a fiduciary duty to the exchanges, their clearinghouses
and/or such various other industry organizations which could compel such
employees to act in the best interests of these entities, perhaps to the
detriment of the Trust.
SELLING AGENTS
The Selling Agents to be selected for the Trust will receive substantial
initial, 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
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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, 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.
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PRINCIPAL OFFICE; LOCATION OF RECORDS
The Trust is organized under the Delaware Business Trust Act. The Trust is
administered by Kenmar, whose office is located Two American Lane, Greenwich,
Connecticut 06831-8150 (telephone: (203) 861-1000). The records of the Trust,
including a list of the Unitholders and their addresses, are located at the
foregoing address, and available for inspection and copying (upon payment of
reasonable reproduction costs) by Unitholders or their representatives for any
purposes reasonably related to the Unitholder's interest as a beneficial owner
of the Trust during regular business hours as provided in the Declaration of
Trust. (Section 10). Kenmar will maintain and preserve the books and records of
the Trust for a period of not less than six years.
CERTAIN ASPECTS OF THE TRUST
The Trust is the functional equivalent of a limited partnership;
prospective investors should not anticipate any legal or practical protections
under the Delaware Business Trust Act greater than those available to limited
partners of a limited partnership.
No special custody arrangements are applicable to the Trust that would not
be applicable to a limited partnership, and the existence of a trustee should
not be taken as an indication of any additional level of management or
supervision over the Trust. To the greatest extent permissible under Delaware
law, the Trustee acts in an entirely passive role, delegating all authority over
the operation of the Trust to Kenmar. Kenmar is the functional equivalent of a
sole general partner in a limited partnership. (Sections 5(a), 9 and 18).
Although units of beneficial interest in a trust need not carry any voting
rights, the Declaration of Trust gives Unitholders voting rights comparable to
those typically extended to limited partners in publicly-offered futures funds.
(Section 18).
THE TRUSTEE
Wilmington Trust Company, a Delaware banking corporation, is the sole
Trustee of the Trust. The Trustee's principal offices are located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001. The
Trustee is unaffiliated with Kenmar or the Selling Agents. The Trustee's duties
and liabilities with respect to the offering of the Units and the administration
of the Trust are limited to its express obligations under the Declaration of
Trust. See "Exhibit A--Amended and Restated Declaration of Trust."
The rights and duties of the Trustee, Kenmar and the Unitholders are
governed by the provisions of the Delaware Business Trust Act and by the
Declaration of Trust. See "Exhibit A--Amended and Restated Declaration of
Trust."
The Trustee serves as the Trust's sole trustee in the State of Delaware.
The Trustee will accept service of legal process on the Trust in the State of
Delaware and will make certain filings under the Delaware Business Trust Act.
The Trustee does not owe any other duties to the Trust, Kenmar or the
Unitholders. The Trustee is permitted to resign upon at least 60 days' notice to
the Trust, provided, that any such resignation will not be effective until a
successor Trustee is appointed by Kenmar. The Declaration of Trust provides that
the Trustee is compensated by the Trust, and is indemnified by the Trust against
any expenses it incurs relating to or arising out of the formation, operation or
termination of the Trust or the performance of its duties pursuant to the
Declaration of Trust, except to the extent that such expenses result from the
gross negligence or willful misconduct of the Trustee. Kenmar has the discretion
to replace the Trustee.
Only Kenmar has signed the Registration Statement of which this Prospectus
is a part, and only the assets of the Trust and Kenmar are subject to issuer
liability under the federal securities laws for the information contained in
this Prospectus and under federal and state laws with respect to the issuance
and sale of the Units. Under such laws, neither the Trustee, either in its
capacity as Trustee or in its individual capacity, nor any director, officer or
controlling person of the Trustee is, or has any liability as, the issuer or a
director, officer or controlling person of the issuer of the Units. The
Trustee's liability in connection with the issuance and sale of the Units is
limited solely to the express obligations of the Trustee set forth in the
Declaration of Trust.
Under the Declaration of Trust, the Trustee has delegated to Kenmar the
exclusive management and control of all aspects of the business of the Trust.
The Trustee will have no duty or liability to supervise or monitor the
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performance of Kenmar, nor will the Trustee have any liability for the acts or
omissions of Kenmar. In addition, Kenmar has been designated as the "tax matters
partner" of the Trust for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). The Unitholders have no voice in the operations of the
Trust, other than certain limited voting rights as set forth in the Declaration
of Trust. In the course of its management, Kenmar may, in its sole and absolute
discretion, appoint an affiliate or affiliates of Kenmar as additional managing
owners (except where Kenmar has been notified by the Unitholders that it is to
be replaced as the managing owner) and retain such persons, including affiliates
of Kenmar, as it deems necessary for the efficient operation of the Trust.
(Section 2).
Because the Trustee has delegated substantially all of its authority over
the operation of the Trust to Kenmar, the Trustee itself is not registered in
any capacity with the CFTC.
MANAGEMENT OF TRUST AFFAIRS; VOTING BY UNITHOLDERS
The Unitholders take no part in the management or control, and have no
voice in the operations of the Trust or its business. (Section 9). Unitholders
may, however, remove and replace Kenmar as the managing owner of the Trust, and
may amend the Declaration of Trust, except in certain limited respects, by the
affirmative vote of a majority of the outstanding Units then owned by
Unitholders (as opposed to by Kenmar and its affiliates). The owners of a
majority of the outstanding Units then owned by Unitholders may also compel
dissolution of the Trust. (Section 18(b)). The owners of 10% of the outstanding
Units then owned by Unitholders have the right to bring a matter before a vote
of the Unitholders. (Section 18(c)). Kenmar has no power under the Declaration
of Trust to restrict any of the Unitholders' voting rights. (Section 18(c)). Any
Units purchased by Kenmar or its affiliates, as well as Kenmar's general
liability interest in the Trust, are non-voting. (Section 7).
Kenmar has the right unilaterally to amend the Declaration of Trust
provided that any such amendment is for the benefit of and not adverse to the
Unitholders or the Trustee and also in certain unusual circumstances -- for
example, if doing so is necessary to effect the intent of the Trust's tax
allocations or to comply with certain regulatory requirements. (Section 18(a)).
In the event that Kenmar or the Unitholders vote to amend the Declaration
of Trust in any material respect, the amendment will not become effective prior
to all Unitholders' having an opportunity to redeem their Units. (Section
18(c)).
RECOGNITION OF THE TRUST IN CERTAIN STATES
A number of states do not have "business trust" statutes such as that under
which the Trust has been formed in the State of Delaware. It is possible,
although unlikely, that a court in such a state could hold that, due to the
absence of any statutory provision to the contrary in such jurisdiction, the
Unitholders, although entitled under Delaware law to the same limitation on
personal liability as stockholders in a private corporation for profit organized
under the laws of the State of Delaware, are not so entitled in such state. To
protect Unitholders against any loss of limited liability, the Declaration of
Trust provides that no written obligation may be undertaken by the Trust unless
such obligation is explicitly limited so as not to be enforceable against any
Unitholder personally. Furthermore, the Trust itself indemnifies all Unitholders
against any liability that such Unitholders might incur in addition to that of a
beneficial owner. Kenmar is itself generally liable for all obligations of the
Trust and would use its assets to satisfy any such liability before such
liability would be enforced against any Unitholder individually.
POSSIBLE REPAYMENT OF DISTRIBUTIONS RECEIVED BY UNITHOLDERS; INDEMNIFICATION OF
THE TRUST BY UNITHOLDERS
The Units are limited liability investments; investors may not lose more
than the amount that they invest plus any profits recognized on their
investment. (Section 8(e)). However, Unitholders could be required, as a matter
of bankruptcy law, to return to the Trust's estate any distribution they
received at a time when the Trust was in fact insolvent or in violation of the
Declaration of Trust. In addition, although Kenmar is not aware of this
provision ever having been invoked in the case of any public futures fund,
Unitholders agree in the Declaration of Trust that they will indemnify the Trust
for any harm suffered by it as a result of (i) Unitholders' actions unrelated to
the business of the 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)).
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The foregoing repayment of distributions and indemnity provisions (other
than the provision for Unitholders indemnifying the Trust for taxes imposed upon
it by the state or municipality in which particular Unitholders reside, which is
included only as a formality due to the fact that many states do not have
business trust statutes so that the tax status of the Trust in such states
might, theoretically, be challenged -- although Kenmar is unaware of any
instance in which this has actually occurred) are commonplace in
publicly-offered commodity pools as well as other trusts and limited
partnerships.
TRANSFERS OF UNITS RESTRICTED
A Unitholder may, subject to compliance with applicable federal and state
securities laws, assign his Units upon notice to the Trust and Kenmar. No
assignment will be effective in respect of the Trust or Kenmar until the first
day of the month succeeding the month in which such notice is received. No
assignee may become a substituted Unitholder except with the consent of Kenmar
and upon execution and delivery of an instrument of transfer in form and
substance satisfactory to Kenmar. No Units may be transferred where, after the
transfer, either the transferee or the transferor would hold less than the
minimum number of Units equivalent to an initial minimum purchase, except for
transfers by gift, inheritance, intrafamily transfers, family dissolutions, and
transfers to affiliates (Section 11).
There are, and will be, no certificates for the Units. Any transfers of
Units will be reflected on the books and records of the Trust. Transferors and
transferees of Units will each receive notification from Kenmar to the effect
that such transfers have been duly reflected as notified to Kenmar. (Section
11).
REPORTS TO UNITHOLDERS
Each month Kenmar reports such information as the CFTC may require to be
given to the participants in "commodity pools" such as the Trust and any such
other information as Kenmar may deem appropriate. There are similarly
distributed to Unitholders, not later than March 30 of each year, certified
financial statements and, not later than March 15 of each year, the tax
information related to the Trust necessary for the preparation of their annual
federal income tax returns. (Section 10).
Kenmar will notify Unitholders of any change in the fees paid by the Trust
or of any material changes in the basic investment policies or structure of the
Trust. Any such notification shall include a description of Unitholders' voting
rights. (Section 10).
GENERAL
In compliance with the Statement of Policy of the North American Securities
Administrators Association, Inc. relating to the registration of commodity pool
programs under state securities or "Blue Sky" laws, the Declaration of Trust
provides that: (i) the executing and clearing commissions paid by the Trust
shall be reasonable (Section 9), and Kenmar shall include in the annual reports
containing the Trust's certified financial statements distributed to Unitholders
each year the approximate round-turn equivalent rate paid on the Trust's trades
during the preceding year, as well as the actual amounts paid by Kenmar for the
Trust's execution and clearing costs (Section 10); (ii) no rebates or give-ups,
among other things, may be received from the Trust by any of the Selling Agents
in respect of sales of the Units, and such restriction may not be circumvented
by any reciprocal business arrangements among any Selling Agents or any of their
respective affiliates and the Trust (Section 9); (iii) no trading advisor of the
Trust (including Kenmar) may participate directly or indirectly in any per-trade
commodity brokerage commissions generated by the Trust (Section 9); (iv) any
agreement between the Trust and Kenmar or any affiliates of Kenmar must be
terminable by the Trust upon no more than 60 days' written notice (Section 9);
(v) the Trust may make no loans, and the funds of the Trust will not be
commingled with the funds of any other person (deposit of Trust assets with a
commodity broker, clearinghouse or currency dealer does not constitute
commingling for these purposes) (Section 9); and (vi) the Trust will not employ
the trading technique commonly known as "pyramiding."
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THE FUTURES AND FORWARD MARKETS
FUTURES AND FORWARD CONTRACTS
Commodity futures contracts in the United States are required to be made on
approved commodity exchanges and call for the future delivery of various
commodities at a specified time and place. These contractual obligations,
depending on whether one is a buyer or a seller, may be satisfied either by
taking or making physical delivery of an approved grade of the particular
commodity (or, in the case of some contracts, by cash settlement) or by making
an offsetting sale or purchase of an equivalent commodity futures contract on
the same exchange prior to the designated date of delivery. Certain futures
contracts call for cash settlement rather than settlement by delivery, and the
Trust will, in any event, offset virtually all of its futures contracts prior to
any actual delivery occurring.
Currencies may be purchased or sold for future delivery through banks or
dealers pursuant to what are commonly referred to as "spot" or "forward"
contracts. Spot contracts settle two days after the trade date; forward
contracts have more delayed settlements. Spot and forward contracts are commonly
referred to collectively as "cash" contracts. In trading cash currency contracts
for the Trust, banks or dealers act as principals and include their anticipated
profit and costs in the prices they quote; such mark-ups are known as "bid-ask"
spreads. Brokerage commissions are typically not charged in cash trading.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade in commodity futures are
"hedgers" and "speculators." Commercial interests that market or process
commodities use the futures markets to a significant extent for hedging. Hedging
is a protective procedure designed to minimize losses that may occur because of
price fluctuations, for example, between the time a merchandiser or processor
makes a contract to sell a raw or processed commodity and the time he must
perform the contract. The commodity markets enable the hedger to shift the risk
of price fluctuations to the speculator. The speculator, unlike the hedger,
generally expects neither to deliver nor receive the physical commodity; rather,
the speculator risks his capital with the hope of making profits from price
fluctuations in commodity futures contracts. Speculators, such as the Trust,
rarely take or make delivery of the physical commodity but rather close out
their futures positions by entering into offsetting purchases or sales of
futures contracts. The Trust does not anticipate taking or making delivery of
any physical commodities.
COMMODITY EXCHANGES
Commodity exchanges provide centralized market facilities for trading in
futures contracts relating to specified commodities. Each of the commodity
exchanges in the United States has an associated "clearinghouse." Once trades
made between members of an exchange have been confirmed, the clearinghouse
becomes substituted for the clearing member acting on behalf of each buyer and
each seller of contracts traded on the exchange and in effect becomes the other
party to the trade. Thereafter, each clearing member firm party to the trade
looks only to the clearinghouse for performance. Clearinghouses do not deal with
customers, but only with member firms, and the "guarantee" of performance under
open positions provided by the clearinghouse does not run to customers. If a
customer's commodity broker becomes bankrupt or insolvent, or otherwise defaults
on such broker's obligations to such customer, the customer in question may not
receive all amounts owing to such customer in respect of his trading, despite
the clearinghouse fully discharging all of its obligations.
The 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
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denominated and United States dollars, as well as the possibility that exchange
controls could be imposed in the future.
SPECULATIVE POSITION AND DAILY PRICE FLUCTUATION LIMITS
The CFTC and the United States exchanges have established limits, referred
to as "speculative position limits," on the maximum net long or net short
position that any person (other than a hedger) may hold or control in futures
contracts or options on futures contracts in particular commodities. A number of
financial markets have replaced "position limits" with "position
accountability," and the cash currency markets are not subject to such limits.
However, speculative position limits continue to be applicable in a number of
important markets. These limits may restrict an Advisor's ability to acquire
positions which such Advisor otherwise would acquire on behalf of the Trust.
Most United States exchanges limit by regulations the maximum permissible
fluctuation in commodity futures contract prices during a single trading day.
These regulations establish what are commonly referred to as "daily limits."
Daily limits restrict the maximum amount by which the price of a futures
contract may vary either up or down from the previous day's settlement price.
Because these limits apply on a day-to-day basis, they do not limit ultimate
losses, but may reduce or eliminate liquidity. Daily limits are generally not
applicable to currency futures or to forward contracts.
MARGINS
Margins represent a security deposit to assure futures traders' performance
under their open positions. When a position is established, "margin" is
deposited and at the close of each trading day "variation margin" is either
credited or debited from a trader's account, representing the unrealized gain or
loss on open positions during the day. If "variation margin" payments cause a
trader's "margin" to fall below "maintenance margin" levels, a "margin call"
will be made requiring the trader to deposit additional margin or have his
position closed out.
FEDERAL INCOME TAX CONSEQUENCES
Kenmar has been advised by its counsel, Sidley & Austin, that, in its
opinion, the following Summary correctly describes the material federal income
tax consequences, as of the date hereof, to the Trust and the material federal
income tax consequences, as of the date hereof, to a United States individual
taxpayer who invests in the Trust. This Summary is based on current statutes,
regulations and administrative rulings, any of which could be changed at any
time. This Summary does not address the income tax consequences to
non-individual taxpayers who invest in the Trust, which may vary. Such investors
should consult their own tax advisers.
THE TRUST'S PARTNERSHIP TAX STATUS
Kenmar has been advised by its counsel, Sidley & Austin, that, in its
opinion, the Trust is properly classified as a partnership for federal income
tax purposes; consequently, the Unitholders individually, not the Trust itself,
are subject to tax. Kenmar believes that all of the income 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.
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A Unitholder's share of such items for federal income tax purposes
generally is determined by the allocations made pursuant to the Declaration of
Trust unless such items so allocated do not have "substantial economic effect"
or are not in accordance with the Unitholders' interests in the Trust. Under the
Declaration of Trust, allocations are generally made in proportion to
Unitholders' capital accounts (each Unit sharing equally in the Net Assets of
the Trust), and therefore such allocations should have substantial economic
effect. However, in cases in which a Unitholder redeems part or all of his
interest in the Trust, the allocations of capital gain or loss specified in the
Declaration of Trust will not be in proportion to capital accounts. Because such
allocations are consistent with the economic effect of the Declaration of Trust
that bases the amount to be paid to a redeeming Unitholder upon his share of the
realized and unrealized gains and losses at the time his Units are redeemed,
Kenmar intends to file the Trust's tax returns based upon the allocations
specified in the Declaration of Trust. In the opinion of Sidley & Austin, the
foregoing allocations should be upheld if audited by the Internal Revenue
Service (the "IRS"). Nevertheless, a legal opinion is not binding on the IRS,
and it is not certain that such allocation would, in fact, be respected upon
audit. If such allocations were challenged and not sustained, some or all of a
redeeming Unitholder's capital gain or loss that is the subject of such
allocations would be increased (solely for tax purposes).
LIMITATIONS ON DEDUCTIBILITY OF TRUST LOSSES BY UNITHOLDERS
The amount of any Trust loss (including capital loss) that a Unitholder is
entitled to include in his personal income tax return is limited to his tax
basis for his interest in the Trust as of the end of the Trust's taxable year in
which such loss occurred. Generally, a Unitholder's tax basis for his interest
in the Trust is the amount paid for such interest reduced (but not below zero)
by his share of any Trust distributions, realized losses and expenses and
increased by his share of the Trust's realized income, including gains.
A Unitholder that is subject to the "at risk" limitations (generally,
non-corporate taxpayers and closely-held corporations) may not deduct losses of
the Trust (including capital losses) to the extent that they exceed the amount
he has "at risk" with respect to his interest in the Trust at the end of the
year. The amount that a Unitholder has "at risk" is generally the same as his
adjusted basis as described above, except that it does not include any amount
that he has borrowed on a nonrecourse basis or from a person who has an interest
in the Trust or a person related to such person.
Losses denied under the foregoing basis or "at risk" limitations are
suspended and may be deducted in subsequent years, subject to these and other
applicable limitations.
Because of the limitations imposed upon the deductibility of capital losses
(see "-- Tax on Capital Gains and Losses," below), a Unitholder's distributive
share of any capital losses of the Trust will not materially reduce the federal
income tax payable on his ordinary income (including his allocable share of the
Trust's interest income).
TREATMENT OF INCOME AND LOSS UNDER THE "PASSIVE ACTIVITY LOSS RULES"
The Code contains rules (the "Passive Activity Loss Rules") designed to
prevent the deduction of losses from "passive activities" against income not
derived from such activities, including income from investment activities not
constituting a trade or business, such as interest and dividends ("Portfolio
Income"), and salary. The trading activities of the Trust do not constitute a
"passive activity," with the result that income derived from the Trust's trading
activities constitutes Portfolio Income or other income not from a passive
activity. Thus, losses resulting from a Unitholder's "passive activities" cannot
be offset against such income, and net losses from Trust operations are
deductible in computing the taxable income of such Unitholder (subject to other
limitations on the deductibility of such losses, in particular the annual
limitation applicable to non-corporate investors that no more than $3,000 of
capital losses can be deducted against ordinary income).
CASH DISTRIBUTIONS AND REDEMPTIONS OF UNITS
Cash received from the Trust by a Unitholder as a distribution with respect
to his Units or in redemption of less than all of his Units generally is not
reportable as taxable income by a Unitholder, except as described below. Rather,
such distribution or withdrawal reduces (but not below zero) the total tax basis
of all of the Units held by the Unitholder after the distribution or withdrawal.
Any cash distribution in excess of a Unitholder's adjusted tax basis for all of
his Units is taxable to him as gain from the sale or exchange of such Units.
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Redemption for cash of the entire interest held by a Unitholder results in
the recognition of gain or loss for federal income tax purposes. Such gain or
loss is equal to the difference, if any, between the amount of the cash
distribution and the Unitholder's adjusted tax basis for his interest.
GAIN OR LOSS ON SECTION 1256 CONTRACTS
Under the "mark-to-market" system of taxing futures and certain option
contracts traded on United States exchanges and certain foreign currency forward
contracts ("Section 1256 Contracts"), any unrealized profit or loss on positions
in such Section 1256 Contracts which are open as of the end of a taxpayer's
fiscal year is treated as if such profit or loss had been realized for tax
purposes as of such time. In general, 60% of the net gain or loss which is
generated as a result of the "mark-to-market" system is treated as long-term
capital gain or loss, and the remaining 40% of such net gain or loss is treated
as short-term capital gain or loss.
GAIN OR LOSS ON NON-SECTION 1256 CONTRACTS
Except as described below with respect to Section 988 transactions entered
into by a qualified fund, gain or loss with respect to contracts that are
non-Section 1256 Contracts is taken into account for tax purposes only when
realized.
Foreign currency transactions ("Section 988 transactions") include entering
into or acquiring any forward contract, futures contract or similar instrument
if the amount paid or received is denominated in terms of a foreign currency
other than the taxpayer's functional currency or if the underlying property to
which the contract or instrument ultimately relates is a foreign currency other
than the taxpayer's functional currency. In general, foreign currency gain or
loss on Section 988 transactions is treated as ordinary income or loss 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
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certain threshold amount (the "3% phase-out"). Moreover, such Aggregate
Investment Expenses are miscellaneous itemized deductions which are not
deductible by a non-corporate taxpayer in calculating its alternative minimum
tax liability.
Kenmar will -- barring administrative, regulatory or statutory
clarification to the contrary -- treat the Profit Shares and Incentive Fee, as
well as other ordinary expenses of the Trust, as ordinary business deductions
not subject to the 2% floor. It is the standard practice in the managed futures
industry to treat such charges as not being subject to the 2% floor, and Kenmar
intends, barring contrary clarification by statute, regulation or administrative
statement, to continue to treat them as not being so. Further, based upon the
trading activities of the Trust described in this Prospectus, in the opinion of
Sidley & Austin, the Trust should be treated as engaged in the conduct of a
trade or business for federal income tax purposes, and, as a result, the
ordinary and necessary business expenses incurred by the Trust in conducting its
commodity futures trading business should not be subject to the foregoing 2%
floor. However, the IRS could contend that some or all of these charges should
be characterized as "investment advisory fees" or brokerage commissions incurred
by the Trust. To the extent the characterization of these payments as brokerage
commissions were to be sustained, the amounts recharacterized would reduce the
amount of capital gain (or increase the amount of capital loss) realized with
respect to the Trust's trading activities, rather than the Unitholders' ordinary
income. To the extent the characterization of these payments as investment
advisory expenses were to be sustained, each non-corporate Unitholder's pro rata
share of the amounts so characterized would be deductible only to the extent
that such non-corporate Unitholder's Aggregate Investment Expenses exceeded the
2% floor and, when combined with certain other itemized deductions, exceeded the
3% phase-out. In addition, each non-corporate Unitholder's distributive share of
income from the Trust would be increased (solely for tax purposes) by such
Unitholder's pro rata share of the amounts so recharacterized.
INTEREST INCOME
Interest received by the Trust is taxed as ordinary income.
The Trust's trading generates almost exclusively capital gain or loss.
Capital losses can be deducted against ordinary income, in the case of
non-corporate taxpayers, only to the extent of $3,000 per year. Accordingly, the
Trust could incur significant capital losses but an investor, nevertheless,
could be required to pay substantial taxes in respect of such investor's
allocable share of the Trust's interest income and other ordinary income. See
"Risk Factor -- (21) Taxation of Interest Income Irrespective of Trading Losses"
at page 14.
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.)
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"UNRELATED BUSINESS TAXABLE INCOME"
In the opinion of Sidley Austin, income earned by the Trust will not
constitute "unrelated business taxable income" under Section 511 of the Code to
employee benefit plans and other tax-exempt entities which purchase Units,
provided that the Units held by such plans and entities are not "debt-financed"
within the meaning of Section 514 of the Code. Kenmar intends that the Trust
will continue to trade so as not to generate "unrelated business taxable
income."
IRS AUDITS OF THE TRUST AND ITS UNITHOLDERS
The tax treatment of Trust-related items is determined at the Trust level
rather than at the Unitholder level. Kenmar acts as "tax matters partner" with
the authority to determine the Trust's responses to an audit, except that Kenmar
does not have the authority to settle tax controversies on behalf of any
Unitholder who files a statement with the IRS stating that Kenmar has no
authority to settle Trust tax controversies on such Unitholder's behalf. The
limitations period for assessment of deficiencies and claims for refunds with
respect to items related to the Trust is three years after the Trust's return
for the taxable year in question is filed, but Kenmar has the authority to, and
may, extend such period with respect to all Unitholders.
If an audit results in an adjustment, all Unitholders may be required to
pay additional taxes, plus interest, and, possibly, tax penalties and additions
to tax. There can be no assurance that the Trust's or a Unitholder's tax return
will not be audited by the IRS or that no adjustments to such returns will be
made as a result of such an audit.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described above, the
Trust and the Unitholders may be subject to various state and other taxes.
Certain of such taxes could, if applicable, have a significant effect on the
amount of tax payable in respect of an investment in the Trust.
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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'" above. In addition, because they are not
taxpaying entities, employee benefit plans are not subject to paying annual tax
on their profits (if any) from the Trust.
As a matter of policy, Kenmar will attempt to limit subscriptions to the
Trust from any employee benefit plan to no more than 10% of the value of the
readily marketable assets of such plan (irrespective of the net worth of the
beneficiary or beneficiaries of such plans).
GENERAL
The following section sets forth certain consequences under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code,
which a fiduciary of an "employee benefit plan" as defined in and
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subject to ERISA or of a "plan" as defined in Section 4975 of the Code who has
investment discretion should consider before deciding to invest the plan's
assets in the Trust (such "employee benefit plans" and "plans" being referred to
herein as "Plans," and such fiduciaries with investment discretion being
referred to herein as "Plan Fiduciaries"). The following summary is not intended
to be complete, but only to address certain questions under ERISA and the Code
which are likely to be raised by the Plan Fiduciary's own counsel.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code together refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Such
plans and accounts include, but are not limited to, corporate pension and profit
sharing plans, "simplified employee pension plans," KEOGH plans for
self-employed individuals (including partners), individual retirement accounts
described in Section 408 of the Code and medical plans.
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in the Trust, including the
role that an investment in the Trust would play in the Plan's overall investment
portfolio. Each Plan Fiduciary, before deciding to invest in the Trust, must be
satisfied that such investment is prudent for the Plan, that the investments of
the Plan, including the investment in the Trust, are diversified so as to
minimize the risk of large losses and that an investment in the Trust complies
with the Plan and related trust.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT WITH ITS OWN
LEGAL AND TAX ADVISERS BEFORE DOING SO. AN INVESTMENT IN THE TRUST IS
SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. THE TRUST IS NOT INTENDED AS A
COMPLETE INVESTMENT PROGRAM.
"PLAN ASSETS"
A regulation issued under ERISA (the "ERISA Regulation") contains rules for
determining when an investment by a Plan in an equity interest of an entity will
result in the underlying assets of such entity being considered to constitute
assets of the Plan for purposes of ERISA and Section 4975 of the Code (i.e.,
"plan assets"). Those rules provide that assets of an entity will not be
considered assets of a Plan which purchases an equity interest in the entity if
certain exceptions apply, including an exception applicable if the equity
interest purchased is a "publicly-offered security" (the "Publicly-Offered
Security Exception").
The Publicly-Offered Security Exception applies if the equity interest is a
security that is (1) "freely transferable," (2) part of a class of securities
that is "widely held" and (3) either (a) part of a class of securities
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
or (b) sold to the Plan as part of a public offering pursuant to an effective
registration statement under the Securities Act of 1933 and the class of which
such security is a part is registered under the Securities Exchange Act of 1934
within 120 days (or such later time as may be allowed by the 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
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Securities Act of 1933, and the Units will be registered under the Securities
Exchange Act of 1934 within 120 days (or such later time as may be allowed by
the SEC after the end of the fiscal year of the Trust in which the offering of
Units occurred.
Second, it appears that the Units are freely transferable because the
minimum investment is not more than $5,000 and Unitholders may assign their
economic interests in the Trust by giving written notice to Kenmar, provided
such assignment would not violate any federal or state securities laws and would
not adversely affect the tax status of the Trust. As described in the second
preceding paragraph, the ERISA Regulation provides that if a security is part of
an offering in which the minimum investment is $10,000 or less, a restriction on
substitution of a limited partner of a partnership, including a general partner
consent requirement, will not prevent a finding that the security is freely
transferable, provided that the economic benefits of ownership can be
transferred without such consent. Although this provision, read literally,
applies only to partnerships, Kenmar believes that because the determination as
to whether a security is freely transferable is based on the facts and
circumstances, the fact that the Units, which are issued by a trust rather than
a partnership, have an identical restriction should not affect a finding that
the Units are freely transferable.
Third, Kenmar expects that immediately after the initial offering, the
Units will be owned by at least 100 investors independent of the Trust and of
each other.
INELIGIBLE PURCHASERS
Units may not be purchased with the assets of a Plan if Kenmar, any of the
Advisors, the Selling Agents, any Clearing Broker, the Escrow Agent, any of the
brokers through which any Advisor requires the Trust to trade, the Trust or any
of their respective affiliates, any of their respective employees or any
employees of their respective affiliates: (a) has investment discretion with
respect to the investment of such Plan assets; (b) has authority or
responsibility to give or regularly gives investment advice with respect to such
Plan assets, for a fee, and pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such Plan assets and that such advice will be based on the particular investment
needs of the Plan; or (c) is an employer maintaining or contributing to such
Plan. A party that is described in clause (a) or (b) of the preceding sentence
is a fiduciary under ERISA and the Code with respect to the Plan, and any such
purchase might result in a "prohibited transaction" under ERISA and the Code.
Except as otherwise set forth, the foregoing statements regarding the
consequences under ERISA and the Code of an investment in the Trust are based on
the provisions of the Code and ERISA as currently in effect, and the existing
administrative and judicial interpretations thereunder. No assurance can be
given that administrative, judicial or legislative changes will not occur that
will not make the foregoing statements incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE TRUST, KENMAR, ANY ADVISOR, ANY CLEARING BROKER, THE
SELLING AGENTS OR ANY OTHER PARTY THAT THIS INVESTMENT MEETS SOME OR ALL OF THE
RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN
OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH
INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL
ADVISERS AS TO THE PROPRIETY OF AN INVESTMENT IN THE UNITS IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
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PLAN OF DISTRIBUTION
SUBSCRIPTION PROCEDURE
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 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.
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
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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.
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.
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RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS
Pursuant to applicable CFTC regulations, prospective subscribers must
receive recent financial information (current within 60 calendar days) relating
to the Trust, as well as its most recent Annual Report (due by March 30 of each
year, in respect of the prior year), together with this Prospectus, unless the
material that would otherwise be included in such Report or information has been
otherwise included herein.
PERFORMANCE OF KENMAR GLOBAL TRUST
The performance of the Trust is dependent upon the performance of its
Advisors. The Advisors' results are affected by general market conditions as
well as numerous other factors. Because the Advisors' strategies are proprietary
and confidential, it is difficult to provide any meaningful description of the
Trust's operations since the inception of trading operations (May 22, 1997)
other than simply by presenting its performance record. PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS. The performance information set forth
below is current as of May 31, 1998.
SUMMARY PERFORMANCE INFORMATION
Type of fund: multi-advisor; publicly-offered
Inception of trading: May 1997
Aggregate subscriptions: $16,177,215
Current capitalization: $14,549,626
Current Net Asset Value per Unit: $98.84
Largest monthly drawdown: (6.18)% (4/98)
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 1.20 (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 Return (1.26) 0.11
(5 months) (8 months)
- --------------------------------------------------------------------------------
NOTES TO PERFORMANCE INFORMATION
In reviewing the foregoing description of the Trust's performance,
prospective investors should understand that such performance is "net" of all
fees and charges and includes interest income. The Trust's fees and charges are
more fully described under "Charges."
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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.
THREE MONTHS ENDED
MARCH 31, 1998 YEAR ENDED PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ----------------- -----------------
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
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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 decisions (including allocations of additional
subscriptions) by Kenmar. The allocations below 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 June 30, 1999, and may be renewed on the same terms at
Kenmar's option for up to two additional one-year terms.
MAY 22, 1997
ADVISOR (INCEPTION) JULY 1, 1998
- ------- ------------- ------------
Chesapeake Capital Corporation ............. 25% 0%
Dreiss Research Corporation ................ 15% 29%
Hirst Investment Management Inc. ........... 0% 9.5%
Hyman Beck & Company, Inc. ................. 25% 29%
Sunrise Capital Partners, LLC .............. 0% 9.5%
Willowbridge Associates Inc. ............... 25% 14%
Witter & Lester ............................ 10% 0%
Total ...................................... 100% 91%
The July 1, 1998 allocations described above aggregate to 91% of the
Trust's total equity. As described herein, Kenmar has the discretion to allocate
less than 100% of the Trust's total equity, and has elected to do so at present
in connection with the allocation of Trust equity to two replacement Advisors,
Hirst Investment Management Inc. and Sunrise Capital Partners, LLC. The
allocation of less than 100% of Trust equity to the Advisors represents a
deleveraging of the Trust's trading, which may have the effect of preserving
equity during unfavorable market cycles (but which also reduces the upside
potential of the Trust during favorable conditions). Kenmar receives brokerage
commissions based on total Trust equity, not allocated equity. See "Conflicts of
Interest--Kenmar."
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 18. 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 18.
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 (11) -- "Possible Illiquid
Markets" at page 12. 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
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equal to the "daily limit," positions in such futures contract can neither be
taken nor liquidated unless traders are willing to effect trades at or within
the limit. Futures contract prices have occasionally moved the daily limit for
several consecutive days with little or no trading. Such market conditions could
prevent the Trust from promptly liquidating its positions and result in
restrictions on redemptions. Since commencement of trading by the Trust, there
has never been a time when illiquidity has affected a material portion of any
Trust assets. See "Redemptions and Distributions" at page 36.
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.
Kenmar has not made, and has no intention of making, any distributions of
the Trust's profits or capitalto 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 execution 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.
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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.
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, tropicals and meats.
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 May 31,
1998, the Trust's Net Asset Value per Unit decreased from $100.00 to $98.84 and
the Compound Rate of Return since inception, through May 1998, is approximately
(1.08)%. To date, the performance of the Trust has not met Kenmar's
expectations. See "Performance of Kenmar Global Trust" at 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 Kenmar, as well as assumptions made by,
and information currently available to, 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. See "Risk Factors"
beginning at page 10.
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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 .............................................................. 21
CFTC .............................................................. -ii-
Clearing Brokers .................................................. 29
Code .............................................................. 39
Declaration of Trust Agreement .................................... 55
Employee benefit plan ............................................. 46
ERISA ............................................................. 46
ING BARINGS Futures & Options Clearing House ...................... 29
IRS ............................................................... 43
Kenmar ............................................................ Cover page
Kenmar Related Parties ............................................ 23
Loss Carryforward ................................................. 27
NASAA Guidelines .................................................. 23
Net Asset Value ................................................... 55
New Overall Appreciation .......................................... 27
New Trading Profits ............................................... 27
NFA ............................................................... -iii-
Passive Activity Loss Rules ....................................... 43
PaineWebber ....................................................... 29
Portfolio Income .................................................. 43
Publicly Offered Security Exception ............................... 47
SEC ............................................................... 23
Selling Agents .................................................... -i-
Trust ............................................................. Cover page
Unitholders ....................................................... 55
Unit .............................................................. 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 interpretation. Discretionary traders, on the
other hand, while they may utilize
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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 April 30, 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 April 30,
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 April 30, 1998.
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 April
30, 1998.
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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 April 30, 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 April 30, 1998. In the case of programs traded by
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 April 30, 1998. In the case of programs traded
by 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 ADMINISTRATION
14 Penryn Avenue 300 International Parkway, Suite 184
City Beach 6015, W. Australia Heathrow, Florida 32746
(61) 93857593 (407) 805-0897
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.
Allan Leonard, Director and Vice President. 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.
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Arthur R. von Waldburg, Director and Corporate Secretary. Arthur R. von
Waldburg graduated with a Bachelor of Science Degree in Aeronautical Engineering
from the Massachusetts Institute of Technology in 1967. For the past 15 years,
Mr. von Waldburg has been President of Panoramic Software. Mr. von Waldburg does
trading systems research exclusively for the benefit of Dreiss Research. Mr. von
Waldburg has no control over or involvement with trading decisions of Dreiss
Research or any other commodity trading advisor.
Gary T. Hirst, Director. Dr. Gary T. 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 (cum laude) and from
University of Miami in 1975 with a B.S. degree (magna cum laude) in Computer
Science. Dr. Hirst is President, Chief Investment Officer and Director of Hirst
Investment Management Inc., a commodity trading advisor registered with the
CFTC. Dr. Hirst has no control over or involvement with the trading decisions of
Dreiss Research.
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.
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
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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 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 April 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.
63
<PAGE>
DREISS RESEARCH CORPORATION TRADING PROGRAM
The following summary information (determined pursuant to the Fully-Funded
Subset Method) presents the composite performance record of Dreiss Research's
Trading Program from January 1993 through April 30, 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: 44
Aggregate assets (excluding "notional" equity) overall: $14,083,922
Aggregate assets (including "notional" equity) overall: $27,220,788
Aggregate assets (excluding "notional" equity) in program: $14,083,922
Aggregate assets (including "notional" equity) in program: $27,220,788
Largest monthly drawdown: (19.13)%(6/97)
Largest peak-to-valley drawdown: (38.28)%(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 6.81 (1.50) 1.46 (4.97) (2.62)* 3.79*
- --------------------------------------------------------------------------------------------
February 1.70 11.39 (11.64) 9.33 1.69* 1.96*
- --------------------------------------------------------------------------------------------
March 0.05 (2.66) 8.41 13.66 1.80* 0.66 *
- --------------------------------------------------------------------------------------------
April 0.78 (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 of Return 9.53 (22.45) 26.86 59.76 38.09 36.12
(4 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.
64
<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."
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.
65
<PAGE>
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.
66
<PAGE>
<TABLE>
<CAPTION>
DSP GLOBAL DIVERSIFIED
The following summary information (determined pursuant to the Fully-Funded
Subset Method) presentsthe composite performance record of Hirst's DSP Global
Diversified Program from October 1995 throughApril 1998.
<S> <C>
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: 50
Aggregate assets (excluding "notional" equity) overall: $ 27,173,431
Aggregate assets (including "notional" equity) overall: $ 78,807,408
Aggregate assets (excluding "notional" equity) in program: $ 27,173,431
Aggregate assets (including "notional" equity) in program: $ 78,807,408
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
</TABLE>
- --------------------------------------------------------------------------------
MONTHLY PERFORMANCE 1998(%) 1997(%) 1996(%) 1995(%)
- --------------------------------------------------------------------------------
January 2.11 13.50 6.84 --
- --------------------------------------------------------------------------------
February (0.07) 8.62 (7.84) --
- --------------------------------------------------------------------------------
March 2.84 (2.77) (1.29) --
- --------------------------------------------------------------------------------
April (2.33) (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 of Return 2.49 24.74 54.05 44.36
(4 months)
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
67
<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.
Troy W. Buckner is a principal of HB&Co. Mr. Buckner is responsible for
research activities at HB&Co. Prior to joining HB&Co. in June 1995, Mr. Buckner
was a principal at Classic Capital, Inc., an international investment management
firm, where he designed systematic trading programs from January 1994 to June
1995. From December 1989 to January 1994, Mr. Buckner was self-employed as an
independent trader while developing an advanced architecture useful in the
modeling of financial and commodity market prices. From March 1989 to December
1989, Mr. Buckner traded energy futures contracts for George E. Warren Corp., an
energy trading firm. From June 1986 to March 1989, Mr. Buckner was employed by
Salomon Brothers Inc, a securities brokerage and investment firm, where he
specialized in the sale of stock market portfolios as well as futures and option
strategies. Mr. Buckner graduated from the University of Delaware with a B.S.
degree in Finance in 1984 and earned an M.B.A. degree from the University of
Chicago in 1986.
David B. Fuller is Chief Financial Officer and a principal of HB&Co. Mr.
Fuller is responsible for accounting and administration. Prior to joining HB&Co.
in March 1994, Mr. Fuller was employed by Link Strategic Investors, Inc., an
international investment management firm ("Link"), where, at the time of his
departure, he held the position of Senior Financial Officer. Prior to joining
Link in January 1993, Mr. Fuller was the Senior Financial Officer for Bearbull
Investment Products (U.S.A.), an international investment management firm. From
January 1989 to July 1991, Mr. Fuller was Controller of Rayner & Stonington,
L.P., a registered commodity trading advisor, where he was responsible for
accounting and financial reporting. From October 1984 to December 1988 Mr.
Fuller was Controller and Assistant Treasurer of Gill and Duffus Inc., members
of the Coffee, Sugar & Cocoa Exchange, Inc. Mr. Fuller began his career in 1978
as a staff accountant for Krieger & Schissel, a public accounting firm and is a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants. Mr. Fuller graduated from
Lehigh University in May 1978 with a B.S. degree in Accounting.
68
<PAGE>
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 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.
John S. Ryan is a principal of HB&Co. and 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.
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
69
<PAGE>
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 differentdata 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 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
70
<PAGE>
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. trades the Global Portfolio on behalf of the Trust. HB&Co.'s Global
Portfolio participates in many of the internationally-traded futures and forward
markets not necessarily represented in the Diversified Portfolio or the FX
Portfolio. The Global Portfolio trades a portfolio of over 30 futures and
forward markets worldwide with a concentration in world interest rate and other
financial markets.
THE DIVERSIFIED PORTFOLIO
HB&Co.'s Diversified Portfolio offers access to international markets not
typically represented in a traditional investment portfolio. The Diversified
Portfolio trades a portfolio of over 40 diverse futures, forward and cash
markets and offers diversification into global financial and tangible assets
including agricultural items, energy products, interest rates and stock indices,
foreign currencies and metals.
THE FX PORTFOLIO
HB&Co.'s FX Portfolio trades in the world currency markets. The FX
Portfolio may trade up to a total of 40 non-U.S. crossrates (trading non-U.S.
currencies vs. other non-U.S. currencies) and outrights (trading non-U.S.
currencies vs. the U.S. dollar).
THE SHORT-TERM 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 Original Portfolio and Short-Term Select Portfolio may be
referenced together as the "Short-Term Portfolio."
71
<PAGE>
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 April 30, 1998, HB&Co. was managing
approximately $247 million (excluding "notional" equity) of customer funds in
the futures and forwards markets. The performance information set forth below is
current as of April 30, 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 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.
72
<PAGE>
THE GLOBAL PORTFOLIO
HB&Co. trades 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 April 1998.
<TABLE>
<CAPTION>
<S> <C>
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): $247,426,543
Aggregate assets in all programs (including "notional" equity): $309,513,863
Aggregate assets in Global Portfolio (excluding "notional" equity): $194,906,409
Aggregate assets in Global Portfolio (including "notional" equity): $215,323,280
Largest monthly drawdown: (12.77)% (12/96)
Largest peak-to-valley drawdown: (13.90)% (7/94-2/95)
Number of profitable closed accounts: 25
Number of unprofitable closed accounts: 17
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
MONTHLY PERFORMANCE 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January (0.15) 8.76 3.97 (6.35) (0.45) (3.79)
- ---------------------------------------------------------------------------------------------
February (0.41) 1.69 (8.23) 9.02 (7.45) 8.65
- ---------------------------------------------------------------------------------------------
March (0.08) (0.23) (1.21) 18.77 12.48 2.10
- ---------------------------------------------------------------------------------------------
April (3.56) (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 Rate of Return (4.18) 24.38 10.82 29.12 3.81 14.63
4 months)
- ---------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
73
<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 April 1998.
<TABLE>
<CAPTION>
<S> <C>
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): $247,426,543
Aggregate assets in all programs (including "notional" equity): $309,513,863
Aggregate assets in Diversified Program (excluding "notional" equity): $884,087
Aggregate assets in Diversified Program (including "notional" equity): $5,119,880
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: 26
1998 compound rate of return: (3.36)% (4 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%
</TABLE>
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 April 1998.
<TABLE>
<CAPTION>
<S> <C>
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): $247,426,543
Aggregate assets in all programs (including "notional" equity): $309,513,863
Aggregate assets in FX Program (excluding "notional" equity): $8,110,027
Aggregate assets in FX Program (including "notional" equity): $17,841,692
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: (7.90)% (4 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%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAMS.
74
<PAGE>
ASSET ALLOCATION PORTFOLIO
The following summary performance information and table reflect the
composite performance results of the Asset Allocation Portfolios directed by
HB&Co. for the five-year period January 1993 through April 1998.
<TABLE>
<CAPTION>
<S> <C>
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): $247,426,543
Aggregate assets in all programs (including "notional" equity): $309,513,863
Aggregate assets in Asset Allocation program (excluding "notional" equity): $9,723,061
Aggregate assets in Asset Allocation program (including "notional" equity): $51,167,726
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: (10.23)% (4 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%
</TABLE>
THE SHORT-TERM ORIGINAL PORTFOLIO
The following summary performance information reflects the composite
performance results of the Short-Term Original Portfolios directed by HB&Co, for
the period April 1996 through April, 1998.
<TABLE>
<CAPTION>
<S> <C>
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): $247,426,543
Aggregate assets in all programs (including "notional" equity): $309,513,863
Aggregate assets in Short-Term Original program (excluding "notional" equity): $30,982,918
Aggregate assets in Short-Term Original program (including "notional" equity): $42,170,403
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: (13.05)% (4 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
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAMS.
75
<PAGE>
THE SHORT-TERM SELECT PORTFOLIO
The following summary performance information reflects the composite
performance results of the Short-Term Select Portfolios directed by HB&Co, for
the period September 1997 through April, 1998.
<TABLE>
<CAPTION>
<S> <C>
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Short-Term Select 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): $247,426,543
Aggregate assets in all programs (including "notional" equity): $309,513,863
Aggregate assets in Short-Term Select program (excluding "notional" equity): $12,543,102
Aggregate assets in Short-Term Select program (including "notional" equity): $29,058,608
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: 1
1998 compound rate of return: (12.74)% (4 months)
1997 compound rate of return: 0.73% (4 months)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAM.
76
<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 an Associate Professor of Radiology. 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 September 1997 as a Professor
of Radiology at the University of California, San Diego, where he 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.
77
<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.
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
78
<PAGE>
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.
79
<PAGE>
SUNRISE EXPANDED DIVERSIFIED PROGRAM
Sunrise Capital Partners will trade this program on behalf of the Trust,
commencing July 1, 1998. The following summary information (determined pursuant
to the Fully-Funded Subset Method) presents the performance record of the
Sunrise Expanded Diversified Program for the five-year period January 1993
through April 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: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
Aggregate assets (excluding "notional" equity) in program: $110,000,000
Aggregate assets (including "notional" equity) in program: $131,500,000
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
- --------------------------------------------------------------------------------
Month 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
- --------------------------------------------------------------------------------
January 1.4 4.6 0.5 (8.5) (1.3) (8.3)
- --------------------------------------------------------------------------------
February 3.7 8.6 (5.8) 4.7 (3.5) 17.4
- --------------------------------------------------------------------------------
March 2.7 1.5 4.5 19.1 0.2 (1.7)
- --------------------------------------------------------------------------------
April 1.5 (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 (1.5) 0.9 (2.7) 2.5 (4.6)
- --------------------------------------------------------------------------------
October (1.2) 6.9 0.8 10.8 (11.8)
- --------------------------------------------------------------------------------
November 1.8 1.3 (0.8) 3.9 (6.0)
- --------------------------------------------------------------------------------
December 2.3 2.7 5.2 (3.2) 11.5
- --------------------------------------------------------------------------------
Compound Annual 9.1 20.7 19.3 11.5 1.6 1.5
Rate of Return (4 months)
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
80
<PAGE>
<TABLE>
<CAPTION>
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 April 1998.
<S> <C>
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: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
Aggregate assets (excluding "notional" equity) in program: $69,700,000
Aggregate assets (including "notional" equity) in program: $81,900,000
Largest monthly drawdown: (13.68)% (11/93)
Largest peak-to-valley drawdown: (58.60)% (7/93-1/95)
Number of profitable closed accounts: 11
Number of unprofitable closed accounts: 7
1998 compound rate of return: (3.1)% (4 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)%
</TABLE>
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 throughApril 1998.
<TABLE>
<CAPTION>
<S> <C>
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: 2
Aggregate assets (excluding "notional" equity) overall: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
Aggregate assets (excluding "notional" equity) in program: $59,800,000
Aggregate assets (including "notional" equity) in program: $59,800,000
Largest monthly drawdown: (12.04)% (1/94)
Largest peak-to-valley drawdown: (44.47)% (7/93-1/95)
Number of profitable closed accounts: 7
Number of unprofitable closed accounts: 3
1998 compound rate of return: 6.4% (4 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%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
81
<PAGE>
<TABLE>
<CAPTION>
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 April 1998.
<S> <C>
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: 24
Aggregate assets (excluding "notional" equity) overall: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
Aggregate assets (excluding "notional" equity) in program: $53,300,000
Aggregate assets (including "notional" equity) in program: $87,200,000
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: 7.8% (4 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%
</TABLE>
SUNRISE CAPITAL MANAGEMENT, INC. -- CLOSED PROGRAMS
LIMITED CIMCO[S] PROGRAM
The following summary information presents the composite performance record
of the Sunrise Limited CIMCO[S] Program for the period January 1993 through
March 1994.
<TABLE>
<CAPTION>
<S> <C>
Name of CTA: Sunrise Capital Management
Name 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: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
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%)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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<TABLE>
<CAPTION>
LIMITED CURRENCY PROGRAM
The following summary information presents the composite performance record
of the Sunrise Limited Currency Program for the period January 1993 through
September 1993.
<S> <C>
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: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
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: 1
Number of unprofitable closed accounts: 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)
</TABLE>
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. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
[Remainder of page left blank intentionally.]
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<TABLE>
<CAPTION>
DIVERSIFIED PROGRAM
The following summary information presents the composite performance record
of CMI's Diversified Program for the period January 1993 through August 1997.
Performance information is calculated based on the fully-funded subset method.
<S> <C>
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 (ceased trading in August 1997)
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
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% (8 months)
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%
</TABLE>
FINANCIAL PROGRAM
<TABLE>
<CAPTION>
The following summary information presents the composite performance record
of CMI's Financial Program for the period January 1993 through September 1997.
Performance information is calculated based on the fully-funded subset method.
<S> <C>
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 (ceased trading in September 1997)
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
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)% (9 months)
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%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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<PAGE>
<TABLE>
<CAPTION>
GLOBAL FOREX PROGRAM
The following summary information presents the corporate performance of
CMI's Global Forex Program for the period January 1993 through June 1997.
Performance information is calculated based on the fully-funded subset method.
<S> <C>
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: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
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)% (6 months)
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)%
</TABLE>
SIERRA SHORT-TERM PROGRAM
<TABLE>
<CAPTION>
The following summary information presents the composite performance of
CMI's Sierra Short-Term Program for the period January 1993 through February
1995. Performance information is calculated based on the fully-funded subset
method.
<S> <C>
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: $292,800,000
Aggregate assets (including "notional" equity) overall: $360,400,000
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% (2 months)
1994 compound rate of return: (1.4)%
1993 compound rate of return: (23.7)%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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WILLOWBRIDGE ASSOCIATES INC.
BACKGROUND AND MANAGEMENT
Willowbridge Associates Inc. ("Willowbridge") is a Delaware corporation
organized on January 29, 1988. Willowbridge's main business address is 101
Morgan Lane, Suite 180, Plainsboro, New Jersey 08536 and its telephone number is
(609) 936-1100. Willowbridge has been registered pursuant to the Commodity
Exchange Act as a commodity pool operator and a commodity trading advisor and
has been a commodity pool operator and commodity trading advisor member of the
NFA since May 3, 1988. The registration of Willowbridge with the CFTC and
Willowbridge's membership in NFA must not be taken as an indication that any
such agency or self-regulatory body has recommended or approved Willowbridge or
the Trust. The primary activity of Willowbridge is to buy, sell (including short
sales), spread or otherwise trade in commodity futures contracts, options on
futures contracts, forward contracts, commodity options, physical commodities,
currencies and other commodity instruments. Willowbridge may, to a limited
extent, also trade in other instruments. In addition, Doublewood, Inc.
("Doublewood") and Union Spring Asset Management, Inc. ("Union Spring") are
registered commodity pool operators and commodity trading advisors and NFA
members affiliated with Willowbridge. 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
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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 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
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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.
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, riskis
reduced while allowing the System to continue to participate in the markets,
albeit a reduced level. Afterthe portfolio has been traded at half, the rule
will then determine when to increase positions to again trade at thefull 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
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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 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.
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Titan's portfolio composition generally is the same as Vulcan's, although
the number of days Titan will hold a position, based on an average of the number
of days the initial base position would be held combined with the number of days
any additional positions would be held, is generally 15 days. It is intended
that approximately 15-40% of the assets under management pursuant to Titan
normally will be committed as margin for commodity interest trading, but from
time to time the percentage of assets committed may be substantially more or
less. For accounts with less than $1 million in assets, Willowbridge may not be
able to trade the full Titan portfolio.
ARGO TRADING SYSTEM
The Argo Trading System ("Argo") commenced trading in 1987. Argo
essentially incorporates Vulcan's concepts of pattern recognition,
support/resistance levels and counter-trend liquidations to trade a portfolio
similar to Vulcan. However, Argo has a relatively slower time horizon than
Vulcan and attempts to capture longer-term price moves in a manner similar to
Titan. It is intended that Argo's positions will generally be held from 20 to 30
trading days with approximately 15-40% of assets under management normally
committed as margin for commodity interest trading, but from time to time the
percentage of assets committed may be substantially more or less. For accounts
with less than $1 million in assets, Willowbridge may not be able to trade the
full Argo portfolio.
REX TRADING SYSTEM
The Rex Trading System ("Rex"), which commenced trading in 1988, is an
options buying and selling system. Through proprietary statistical analysis of
various technical factors, Rex attempts to determine whether the options for a
particular commodity are intrinsically cheap or expensive. When Rex detects an
underpriced option, either a put or a call option will be purchased, depending
upon the signal generated. Likewise, when Rex detects an over-priced option,
either a put or a call option will be sold.
Rex uses a complex set of money-management rules to control its risk. After
a position is established, the position is monitored and, if called for,
liquidated through the application of a variety of rules that are based on
volatility, trends, time-decay and delta levels. The position generally is
carried until Rex determines that the option has become intrinsically cheap (for
short positions) or expensive (for long positions).
Rex currently is applied to trading options on futures contracts in the
following 15 commodities:
Grains ........................... Soybeans, Corn, Oats
Precious Metals .................. Gold, Silver
Financial Instruments ............ Treasury Bonds, Treasury Notes,
Standard & Poor's 500 Stock Index
Currencies ....................... Deutschemark, Swiss Franc, Pound Sterling,
Japanese Yen
General .......................... Crude Oil, Copper, Sugar, Live Cattle
The above list is provided only as an indication of markets traded since
Willowbridge removes or adds contracts to the list from time to time. For
accounts with less than $1 million in assets, Willowbridge may not be able to
trade the full Rex portfolio.
It is intended that approximately 15-40% of the assets under management
pursuant to Rex normally will be committed as margin or applied to premiums on
option trades, although from time to time the percentage of assets so committed
may be substantially more or less.
90
<PAGE>
SIREN TRADING SYSTEM
The Siren Trading System ("Siren"), which commenced trading January 1991,
is a system based on the principles of market profiles and other techniques that
utilize real time price information. Siren can best be characterized as a top
and bottom picking system. Siren tries to determine acquisition and distribution
patterns that often signal the end and reversal of a major trend bias. When it
identifies such a change, it will attempt to initiate a countervailing position.
Similar to Titan, Siren's time frame is generally 18 to 25 trading days. The
Siren portfolio includes:
Grains ........................ Corn, Wheat, Soybeans, Soybean Meal,
Soybean Oil, Oats, Rough Rice
Precious Metals ............... Gold, Silver
Financial Instruments ......... Treasury Bills, Treasury Bonds, Treasury
Notes, Eurodollars, Australian Treasury
Bills, Australian Treasury Bonds,
Italian Bonds, Euro-Lira
Currencies .................... Pound Sterling, Deutschemark, Canadian Dollar,
Swiss Franc, Japanese Yen
General ....................... Crude Oil, Heating Oil, Unleaded Gasoline,
Natural Gas, Copper, Sugar, Coffee, Cocoa,
Cotton, Live Cattle, Live Hogs, Pork Bellies
The above list is provided only as an indication of markets traded since
Willowbridge removes or adds contracts to the list from time to time. For
accounts with less than $1 million in assets, Willowbridge may not be able to
trade the full Siren portfolio.
It is intended that approximately 15-40% of the assets under management
pursuant to Siren normally will be committed as margin for commodity interest
trading, but from time to time the percentage of assets committed may be
substantially more or less.
THE MTECH TRADING APPROACH
The MTech Trading Approach ("MTech"), which commenced trading January 1991,
is a highly discretionary and judgmental trading approach relying primarily on
Mr. Gan's subjective analysis of the markets. Trading decisions are made on
technical as well as fundamental analysis. MTech currently trades the United
States and international futures, forward, spot and options markets. Mr. Gan
reserves the right to change the portfolio composition of MTech.
It is intended that approximately 15-40% of the assets under management
pursuant to MTech normally will be committed as margin for commodity interest
trading, but from time to time the percentage of assets committed may be
substantially more or less.
MTech's minimum account size is U.S. $2,000,000 on January 1 of each
calendar year, and accounts may be opened on that date in increments of U.S.
$2,000,000, with each increment of U.S. $2,000,000 considered a unit of
investment. Thereafter, accounts may be opened at the current net asset value of
a unit, 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
91
<PAGE>
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.
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.
92
<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 April 1998, of which the figure for
April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: 25
Aggregate assets (excluding "notional" equity) overall: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $234,903,506
Aggregate assets (including "notional" equity) in program: $258,266,506
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: 9
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
MONTHLY PERFORMANCE 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 (1.15) 6.23 4.63 31.21 0.04 (5.40)
- ---------------------------------------------------------------------------------------------
April (17.49) (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 Rate of Return (13.93) 1.12 31.06 31.28 (19.68) 22.30
(4 months)
- ---------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
93
<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 April 1998, of which the
figure for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: 15
Aggregate assets (excluding "notional" equity) overall: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $24,626,770
Aggregate assets (including "notional" equity) in program: $41,433,754
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: (17.15)% (4 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%
</TABLE>
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 April 1998 of which the figure
for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: 8
Aggregate assets (excluding "notional" equity) overall: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $16,321,445
Aggregate assets (including "notional" equity) in program: $32,025,835
Largest monthly drawdown: (16.19)% (2/98)
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: (11.19)% (4 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%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
94
<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 April 1998 of which the figure
for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: ($115,101)
Aggregate assets (including "notional" equity) in program: $1,058,864
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: (5.96)% (4 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)%
</TABLE>
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 April 1998, of which the figure
for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: 49
Aggregate assets (excluding "notional" equity) overall: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $138,564,657
Aggregate assets (including "notional" equity) in program: $177,701,415
Largest monthly drawdown: (20.49)% (2/96)
Largest peak-to-valley drawdown: (31.13)% (5/96-7/96)
Number of profitable closed accounts: 67
Number of unprofitable closed accounts: 15
1998 compound rate of return: (8.65)% (4 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%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
95
<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 April 1998 of which the figure
for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: 10
Aggregate assets (excluding "notional" equity) overall: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $7,629,664
Aggregate assets (including "notional" equity) in program: $34,825,387
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: (25.42)% (4 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%
</TABLE>
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 April 1998, of which the
figure for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: 2
Aggregate assets (excluding "notional" equity) overall: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $11,078,392
Aggregate assets (including "notional" equity) in program: $23,052,838
Largest monthly drawdown: (17.14)% (2/98)
Largest peak-to-valley drawdown: (28.76%) (4/97-3/98)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 7
1998 compound rate of return: (26.77)% (4 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%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
96
<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 April 1998, of which the figure
for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $14,285,086
Aggregate assets (including "notional" equity) in program: $19,752,510
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: (13.76)% (4 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%
</TABLE>
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 April 1998, of which the
figure for April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $(81,766)
Aggregate assets (including "notional" equity) in program: $12,519,659
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: (7.34)% (4 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)%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
97
<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 April 1998, of which the figure for
April 1998 is an estimate.
<TABLE>
<CAPTION>
<S> <C>
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: $495,287,332
Aggregate assets (including "notional" equity) overall: $685,476,596
Aggregate assets (excluding "notional" equity) in program: $47,881,547
Aggregate assets (including "notional" equity) in program: $83,646,696
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: (20.17)% (4 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%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
98
<PAGE>
PERFORMANCE OF COMMODITY POOLS OPERATED BY KENMAR
GENERAL
The performance information included herein is presented in accordance with
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, 1993. 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 April 30, 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.
-----------------
99
<PAGE>
ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
<S> <C>
Kenmar -- Total assets under management as of May 1, 1998 $105 million
Kenmar -- Total assets under multi-advisor management as of May 1, 1998 $78 million
Kenmar and affiliates -- Total assets under management as of May 1, 1998 $561 million
(excluding notional funds)
Kenmar and affiliates-- Total assets under management as of May 1, 1998 $652 million
(including notional funds)
</TABLE>
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.]
100
<PAGE>
<TABLE>
<CAPTION>
%
WORST
AGGRE- MONTHLY
TYPE GATE CURRENT CURRENT DRAW-
OF START CLOSE SUB- TOTAL NAV PER DOWN &
POOL DATE DATE SCRIPT. NAV UNIT MONTH
---- ------ ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
Kenmar Performance Partners L.P. .... ** 08/85 N/A 261,893,213 57,938,068 13,334.75 (19.12)
4/98
Kenmar Capital Partners Ltd. ........ * 07/95 N/A 3,557,775 1,673,894 1,001.94 (6.19)
4/98
SINGLE ADVISOR POOLS
The Dennis Fund L.P. "A" ........... single 09/96 N/A 11,233,600 10,986,793 1,488.33 (10.75)
8/97
The Dennis Fund L.P. "B" ........... single 04/97 N/A 10,072,142 9,966,872 1,443.43 (10.70)
8/97
GK International Currency
Fund L.P. .......................... single 04/91 12/93 2,312,504 0 903.45 (5.75)
12/93
Dennis Friends & Family L.P. ........ single 05/97 N/A 338,437 423,170 1,248.01 (14.97)
8/97
The Hirst Investment Fund L.P. ...... single 10/97 N/A 3,071,062 3,070,257 1,038.94 (2.79)
4/98
POOLS FOR RESEARCH AND
DEVELOPMENT OF TRADERS
Kenmar Venture Partners L.P. ........ * 03/87 N/A 2,625,000 4,468,822 4,541.00 (29.70)
10/89
GLH Strategic Performance L.P. ...... single 08/93 10/94 1,143,233 0 717.41 (9.45)
1/94
Oberdon Partners L.L.C. ............. single 4/97 N/A 1,607,000 2,377,577 1,517.10 (6.04)
8/97
<CAPTION>
%
WORST
PEAK-TO-
VALLEY YEAR-
DRAWDOWN TO-
& PERIOD 1993 1994 1995 1996 1997 DATE
---------- ---- ---- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
Kenmar Performance Partners L.P. .... (33.20) 48.30 (9.79) 8.12 3.04 (2.1) (7.12)
11/90-5/92
Kenmar Capital Partners Ltd. ........ (8.26) -- -- 2.26 (1.87) 3.05 (3.11)
2/96-8/96
SINGLE ADVISOR POOLS
The Dennis Fund L.P. "A" ........... (25.63) -- -- -- 8.14 18.70 15.95
2/97-8/97
The Dennis Fund L.P. "B" ........... (17.63) -- -- -- -- 18.75 15.11
4/97-8/97
GK International Currency
Fund L.P. .......................... (18.40) (16.37) -- -- -- -- --
9/92-12/93
Dennis Friends & Family L.P. ........ (19.96) -- -- -- -- 0.24 24.50
6/97-8/97
The Hirst Investment Fund L.P. ...... (2.79) (2.79) .57
4/98
POOLS FOR RESEARCH AND
DEVELOPMENT OF TRADERS
Kenmar Venture Partners L.P. ........ (48.75) 57.92 3.27 5.55 14.72 36.00 .46
11/90-4/92
GLH Strategic Performance L.P. ...... (29.41) (8.09) (21.95) -- -- -- --
9/93-10/94
Oberdon Partners L.L.C. ............. (6.96) -- -- -- -- 43.37 5.82
7/97-10/97
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
101
<PAGE>
Notes 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 April 30,
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 April 30, 1998.
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
through April 30, 1998.
102
<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)
[PIE CHART TO COME]
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.
103
<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-correlation is not negative
correlation. The performance of the Trust is anticipated to be generally
unrelated, but may frequently be similar, to the performance of the general
equity markets.
The 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 light 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 $1,000.
DIVERSIFYING INTO MANAGED FUTURES
JANUARY 1980-DECEMBER 1997
[GRAPH TO COME]
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/Corporate 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
104
<PAGE>
all indices was calculated 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.
A Managed Futures fund provides three benefits to an investor's overall
portfolio:
* Potential for reduced volatility and/or enhanced returns
* Profit potential in any market environment
* 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.
- ----------
* 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.
105
<PAGE>
MANAGED FUTURES VERSUS THE WORST
DECLINES IN STOCKS AND BONDS SINCE 1980
[BAR CHART TO COME]
Managed Futures: MAR Fund /Pool Qualified Universe Index
US Bonds: Lehman Brother's Government /Corporate Bond Index
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 46.4% 32.5% 31.0% 10.4%
1981 19.6% -5.0% -1.0% 7.2%
1982 23.1% 21.6% -0.9% 31.1%
1983 -7.6% 22.5% 24.6% 8.0%
1984 4.2% 6.2% 7.9% 15.0%
1985 21.8% 31.7% 56.7% 21.4%
1986 -11.5% 18.6% 69.9% 15.6%
1987 46.9% 5.2% 24.9% 2.3%
1988 8.4% 16.5% 28.6% 7.6%
1989 10.1% 31.6% 10.8% 14.3%
1990 19.5% -3.5% -23.2% 5.7%
1991 10.7% 30.3% 12.5% 15.0%
1992 1.0% 7.7% -11.9% 7.5%
1993 15.2% 10.0% 32.9% 8.8%
1994 -2.2% 1.4% 8.0% -2.0%
1995 9.7% 37.5% 11.6% 15.1%
1996 11.9% 22.8% 5.9% 4.1%
1997 8.1% 33.5% 2.0% 7.8%
YTD 1998 2.4% 13.9% 14.7% 1.5%
- ----------
* See "Notes To Comparative Performance And Correlation Charts" at the end of
this section.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
106
<PAGE>
WORST PEAK-TO-VALLEY LOSS
1980 THROUGH DECEMBER 1997
[BAR CHART TO COME]
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 Reports
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 may 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.
107
<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.
108
<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-15-18
KENMAR ADVISORY CORP.
Independent Auditor's Report ......................................... F-19
Statements of Financial Condition as of September 30, 1997
(audited) and March 31, 1998 (unaudited) ............................ F-20
Notes to Statements of Financial Condition ........................... F-21-26
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 (Net Asset Value) 12,377,321 2,000
----------- ------
$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 PERIOD
ENDED 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
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
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
============ ======
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
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
UNITHOLDERS' CAPITAL
----------------------------------------
TOTAL
NUMBER OF MANAGING OTHER
UNITS OWNER UNITHOLDERS TOTAL
---------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Balances at July 17, 1996 (inception).. 0.000 $ 0 $ 0 $ 0
Additions ............................. 20.000 400 1,600 2,000
----------- -------- ----------- -----------
Balances at December 31, 1996 ......... 20.000 400 1,600 2,000
Additions ............................. 128,219.163 125,800 12,721,762 12,847,562
Net income for the year
ended December 31, 1997 .............. 1,279 125,131 126,410
Redemptions ........................... (4,588.333 0 (450,887) (450,887)
Offering costs ........................ (1,509) (146,255) (147,764)
----------- -------- ----------- -----------
Balances at December 31, 1997 ......... 123,650.830 $125,970 $12,251,351 $12,377,321
=========== ======== =========== ===========
<CAPTION>
NET ASSET VALUE PER UNIT
DECEMBER 31,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
$100.10 $100.00
======= =======
</TABLE>
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 Commodity Futures Trading Commission, 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. 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.
F-7
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Commodity Futures Trading
Commission regulations and various exchange and broker requirements. Margin
requirements are satisfied by the deposit of cash with such brokers. The Trust
earns interest income on its 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.
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
F-8
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. TRADING ACTIVITIES AND RELATED RISKS--(CONTINUED)
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.
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
=========== ===========
F-9
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. TRADING ACTIVITIES AND RELATED RISKS--(CONTINUED)
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>
<TABLE>
<CAPTION>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997 (AUDITED)
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)
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
----------- ------
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
=========== ======
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>
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
============ ========= ============ ============
<CAPTION>
NET ASSET VALUE PER UNIT
------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1998 1997 1997 1996
--------- ------------ --------- ------------
<S> <C> <C> <C>
$104.09 $100.10 $100.00 $100.00
======= ======= ======= =======
</TABLE>
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 Commodity Futures Trading Commission, 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-15
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(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. 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 Commodity Futures Trading
Commission regulations and various exchange and broker requirements. Margin
requirements are satisfied by the deposit of cash with such brokers. The Trust
earns interest income on its 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.
F-16
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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 three months ended March 31, 1998 and
the related fair values as of March 31, 1998 and December 31, 1997 are as
follows:
FOR THE THREE
MONTHS ENDED AS OF AS OF
MARCH 31, MARCH 31, DECEMBER 31,
1998 1998 1997
-------- ------ ------
Exchange traded futures and
options on futures contracts ...... $850,000 $656,000 $847,000
Forward contracts ................... 10,000 1,000 3,000
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.
F-17
<PAGE>
<TABLE>
<CAPTION>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 6. TRADING ACTIVITIES AND RELATED RISKS--(CONTINUED)
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:
MARCH 31, 1998 DECEMBER 31, 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.
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-18
<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.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
December 17, 1997
F-19
<PAGE>
KENMAR ADVISORY CORP.
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 (AUDITED) 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-20
<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
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-21
<PAGE>
KENMAR ADVISORY CORP.
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>
VALUE AT INCOME VALUE AT
SEPTEMBER (LOSS) SEPTEMBER
30, 1996 ADDITIONS ALLOCATION 30, 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Kenmar Performance Partners L.P. .................... $684,643 $ 0 $100,563 $ 785,206
Kenmar Venture Partners Limited Partnership ......... 74,607 0 38,099 112,706
The Dennis Fund Limited Partnership ................. 7,000 142,000 19,685 168,685
Kenmar Global Trust ................................. 0 116,200 (650) 115,550
Oberdon Partners L.L.C .............................. 0 25,000 4,109 29,109
-------- -------- -------- ----------
$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.
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
F-22
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION--(CONTINUED)
SEPTEMBER 30, 1997
NOTE 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS--(CONTINUED)
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
===========
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.
F-23
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION--(CONTINUED)
SEPTEMBER 30, 1997
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
==========
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.
F-24
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION--(CONTINUED)
SEPTEMBER 30, 1997
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.
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-25
<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-26
<PAGE>
APPENDIX I
GLOSSARY
SEE "INDEX OF DEFINED TERMS."
BLUE SKY GLOSSARY
The following definitions are included in this Appendix I in compliance with the
requirements of various state securities administrators who review public
futures fund offerings for compliance with the "Guidelines for the Registration
of Commodity Pool Programs" Statement of Policy promulgated by the North
American Securities Administrators Association, Inc. The following definitions
are reprinted verbatim from such Guidelines and may, accordingly, not in all
cases be relevant to an investment in the Trust.
Definitions -- As used in the Guidelines, the following terms have the following
meanings:
Administrator -- The official or agency administering the security laws of a
state.
Advisor -- Any person who for any consideration engages in the business of
advising others, either directly or indirectly, as to the value, purchase, or
sale of commodity contracts or commodity options.
Affiliate -- An Affiliate of a Person means: (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person; (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote, by such Person; (c) any Person, directly or
indirectly, controlling, controlled by, or under common control of such Person;
(d) any officer, director or partner of such Person; or (e) if such Person is an
officer, director or partner, any Person for which such Person acts in any such
capacity.
Capital Contributions -- The total investment in a Program by a Participant or
by all Participants, as the case may be.
Commodity Broker -- Any Person who engages in the business of effecting
transactions in commodity contracts for the account of others or for his own
account.
Commodity Contract -- A contract or option thereon providing for the delivery or
receipt at a future date of a specified amount and grade of a traded commodity
at a specified price and delivery point.
Cross Reference Sheet -- A compilation of the Guideline sections, referenced to
the page of the prospectus, Program agreement, or other exhibits, and
justification of any deviation from the Guidelines.
Net Assets -- The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles. Net Assets
shall include any unrealized profits or losses on open positions, and any fee or
expense including Net Asset fees accruing to the Program.
Net Asset Value Per Program Interest -- The Net Assets divided by the number of
Program Interests outstanding.
Net Worth -- The excess of total assets over total liabilities as determined by
generally accepted accounting principles. Net Worth shall be determined
exclusive of home, home furnishings and automobiles.
New Trading Profits -- The excess, if any, of Net Assets at the end of the
period over Net Assets at the end of the highest previous period or Net Assets
at the date trading commences, whichever is higher, and as further adjusted to
eliminate the effect on Net Assets resulting from new Capital Contributions,
redemptions, or capital distributions, if any, made during the period decreased
by interest or other income, not directly related 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
APPI-1
<PAGE>
(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 27 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>
<TABLE>
<CAPTION>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
PAGE
----
<S> <C>
1. Declaration of Trust ....................................................... TA-1
2. The Trustee ................................................................ TA-2
(a) Term; Resignation .................................................... TA-2
(b) Powers ............................................................... TA-2
(c) Compensation and Expenses of the Trustee ............................. TA-2
(d) Indemnification ...................................................... TA-2
(e) Successor Trustee .................................................... TA-3
(f) Liability of the Trustee ............................................. TA-3
(g) Reliance by the Trustee and the Managing Owner; Advice of Counsel .... TA-4
(h) Not Part of Trust Estate ............................................. TA-4
3. Principal Office ........................................................... TA-4
4. Business ................................................................... TA-4
5. Term, Dissolution, Fiscal Year and Net Asset Value ......................... TA-5
(a) Term ................................................................. TA-5
(b) Dissolution .......................................................... TA-5
(c) Fiscal Year .......................................................... TA-5
(d) Net Asset Value; Net Asset Value per Unit ............................ TA-5
6. Net Worth of Managing Owner ................................................ TA-5
7. Capital Contributions; Units ............................................... TA-5
8. Allocation of Profits and Losses ........................................... TA-6
(a) Capital Accounts and Allocations ..................................... TA-6
(b) Allocation of Profit and Loss for Federal Income Tax Purposes ........ TA-6
(c) Incentive Fees; Profit Shares ........................................ TA-8
(d) Expenses ............................................................. TA-8
(e) Limited Liability of Unitholders ..................................... TA-9
(f) Return of Capital Contributions ...................................... TA-9
9. Management of the Trust ..................................................... TA-9
10. Audits and Reports to Unitholders ........................................... TA-11
11. Assignability of Units ...................................................... TA-11
12. Redemptions ................................................................. TA-12
13. Offering of Units ........................................................... TA-13
14. Additional Offerings ........................................................ TA-13
</TABLE>
TA-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
15. Special Power of Attorney ................................................... TA-14
16. Withdrawal of a Unitholder .................................................. TA-14
17. Standard of Liability; Indemnification ...................................... TA-14
(a) Standard of Liability for the Managing Owner ......................... TA-14
(b) Indemnification of the Managing Owner by the Trust ................... TA-15
(c) Indemnification of the Trust by the Unitholders ...................... TA-16
18. Amendments; Meetings ........................................................ TA-16
(a) Amendments with Consent of the Managing Owner ........................ TA-16
(b) Amendments and Actions without Consent of the Managing Owner ......... TA-16
(c) Meetings; Other Voting Matters ....................................... TA-16
(d) Consent by Trustee ................................................... TA-17
19. Governing Law ............................................................... TA-17
20. Miscellaneous ............................................................... TA-17
(a) Notices .............................................................. TA-17
(b) Binding Effect ....................................................... TA-17
(c) Captions ............................................................. TA-17
21. Benefit Plan Investors ...................................................... TA-17
22. Certain Definitions ......................................................... TA-18
23. No Legal Title to Trust Estate .............................................. TA-19
24. Legal Title ................................................................. TA-19
25. Creditors ................................................................... TA-20
</TABLE>
TA-ii
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This Amended and Restated Declaration of Trust and Trust Agreement (the
"Declaration of Trust Agreement") is made as of December 17, 1996, by and among
Kenmar Advisory Corp., a Connecticut corporation (the "Managing Owner"),
Wilmington Trust Company, a Delaware banking corporation, as trustee (the
"Trustee") and each other party who becomes a party to this Declaration of Trust
Agreement as an owner of a unit ("Unit") of beneficial interest of the Trust or
who becomes a party to this Declaration of Trust as a Unitholder by execution of
a Subscription Agreement and Power of Attorney Signature Page or otherwise and
who is shown in the books and records of the Trust as a Unitholder
(individually, a "Unitholder" and, collectively, the "Unitholders").
WITNESSETH:
WHEREAS, the Managing Owner, the Trustee and a private partnership of which
the Managing Owner is a general partner, as the initial beneficial owner, formed
a business trust pursuant to and in accordance with the Delaware Business Trust
Act, 12 Del. C. 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 3810of 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.
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
TA-1
<PAGE>
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.
(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.
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(f) Liability of the Trustee. Except as otherwise provided in this Section
2, in accepting the trust created hereby, Wilmington Trust Company acts solely
as Trustee hereunder and not in its individual capacity, and all persons having
any claim against the Trustee by reason of the transactions contemplated by this
Declaration of Trust and any other agreement to which the Trust is a party shall
look only to the Trust Estate for payment or satisfaction thereof. The Trustee
shall not be liable or accountable hereunder or under any other agreement to
which the Trust is a party, except for the Trustee's own gross negligence or
willful misconduct. In particular, but not by way of limitation:
(i) the Trustee shall have no liability or responsibility for the
validity or sufficiency of this Declaration of Trust or for the form,
character, genuineness, sufficiency, value or validity of the Trust Estate;
(ii) the Trustee shall not be liable for any actions taken or omitted
to be taken by it in accordance with the instructions of the Managing Owner
or any Unitholder;
(iii) the Trustee shall not have any liability for the acts or
omissions of the Managing Owner;
(iv) the Trustee shall not be liable for its failure to supervise the
performance of any obligations of the Managing Owner, any commodity broker,
any Selling Agents or any additional Selling Agents;
(v) no provision of this Declaration of Trust shall require the
Trustee to expend or risk funds or otherwise incur any financial liability
in the performance of any of its rights or powers hereunder if the Trustee
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
or provided to it;
(vi) under no circumstances shall the Trustee be liable for
indebtedness evidenced by or other obligations of the Trust arising under
this Declaration of Trust or any other agreements to which the Trust is a
party;
(vii) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Declaration of Trust, or to
institute, conduct or defend any litigation under this Declaration of Trust
or any other agreements to which the Trust is a party, at the request,
order or direction of the Managing Owner or any Unitholders unless the
Managing Owner or such Unitholders have offered to the Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities
that may be incurred by the Trustee (including, without limitation, the
reasonable fees and expenses of its counsel) therein or thereby; and
(viii) notwithstanding anything contained herein to the contrary, the
Trustee shall not be required to take any action in any jurisdiction other
than in the State of Delaware if the taking of such action will (a) require
the consent or approval or authorization or order of or the giving of
notice to, or the registration with or taking of any action in respect of,
any state or other governmental authority or agency of any jurisdiction
other than the State of Delaware, (b) result in any fee, tax or other
governmental charge under the laws of any jurisdiction or any political
subdivision thereof in existence as of the date hereof other than the State
of Delaware becoming payable by the Trustee or (c) subject the Trustee to
personal jurisdiction other than in the State of Delaware for causes of
action arising from personal acts unrelated to the consummation by the
Trustee of the transactions contemplated hereby.
(g) Reliance by the Trustee and the Managing Owner; Advice of Counsel.
(i) In the absence of bad faith, the Trustee and the Managing Owner
may conclusively rely upon certificates or opinions furnished to the
Trustee or the Managing Owner and conforming to the requirements of this
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
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Managing Owner may for all purposes hereof rely on a certificate, signed by
the president or any vice president or by the treasurer or other authorized
officers of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Trustee or the Managing
Owner for any action taken or omitted to be taken by either of them in good
faith in reliance thereon.
(ii) In the exercise or administration of the trust hereunder and in
the performance of its duties and obligations under this Declaration of
Trust, the Trustee, at the expense of the Trust, (i) may act directly or
through its agents, attorneys, custodians or nominees pursuant to
agreements entered into with any of them, and the Trustee shall not be
liable for the conduct or misconduct of such agents, attorneys, custodians
or nominees if such agents, attorneys, custodians or nominees shall have
been selected by the Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with
reasonable care by the Trustee; provided that the Trustee shall not
allocate any of its internal expenses or overhead to the account of the
Trust. The Trustee shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the opinion or advice of any
such counsel, accountant or other such persons.
(h) Not Part of Trust Estate. Amounts paid to the Trustee from the Trust
Estate, if any, pursuant to this Section 2 shall be deemed not to be part of the
Trust Estate immediately after such payment.
3. Principal Office.
The address of the principal office of the Trust shall be c/o the Managing
Owner, Two American Lane, Greenwich, Connecticut 06831-8150; telephone: (203)
861-1000. The Trustee is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration.
The Trustee shall receive service of process on the Trust in the State of
Delaware at the foregoing address. In the event Wilmington Trust Company resigns
or is removed as the Trustee, the Trustee of the Trust in the State of Delaware
shall be the successor Trustee.
4. Business.
The Trust's business and purpose is to trade, buy, sell, swap or otherwise
acquire, hold or dispose of futures and forward contracts for commodities,
financial instruments, stock indices, metals, energy contracts and currencies,
any rights pertaining thereto and any options thereon or on physical
commodities, as well as securities and any rights pertaining thereto and any
options thereon, and to engage in all activities necessary, convenient or
incidental thereto. The Trust may also engage in "hedge," arbitrage and cash
trading of any of the foregoing instruments. The Trust may engage in such
business and purpose either directly or through joint ventures, entities or
partnerships, provided that the Trust's participation in any of the foregoing
has no adverse economic or liability consequences for the Unitholders, which
consequences would not be present had the Trust engaged in that same business or
purpose directly.
5. Term, Dissolution, Fiscal Year
(a) Term. The term of the Trust commenced on the day on which the
Certificate of Trust was filed with the Secretary of State of the State of
Delaware pursuant to the provisions of the Act and shall end upon the first to
occur of the following: (1) December 31, 2026; (2) receipt by the Managing Owner
of an approval to dissolve the Trust at a specified time by Unitholders owning
Units representing more than fifty percent (50%) of the outstanding Units then
owned by Unitholders, notice of which is sent by certified mail return receipt
requested to the Managing Owner not less than 90 days prior to the effective
date of such dissolution; (3) death, insanity, bankruptcy, retirement,
resignation, expulsion, withdrawal, insolvency or dissolution of the Managing
Owner or any other event that causes the Managing Owner to cease to be a
managing owner unless (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.
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(b) Dissolution. Upon the occurrence of an event causing the dissolution of
the Trust, the Trust shall be dissolved and its affairs wound up. At any time
that the Trust does not have a Managing Owner, the Unitholders by majority vote
may appoint a liquidator.
(c) Fiscal Year. The fiscal year of the Trust shall begin on January 1 of
each year and end on the following December 31.
(d) Net Asset Value; Net Asset Value per Unit. Net Assets of the Trust are
its assets less its liabilities determined in accordance with generally accepted
accounting principles. If a contract cannot be liquidated on the day with
respect to which Net Assets are being determined, the settlement price on the
first subsequent day on which the contract can be liquidated shall be the basis
for determining the liquidating value of such contract for such day, or such
other value as the Managing Owner may deem fair and reasonable. The liquidating
value of a commodity futures or option contract not traded on a commodity
exchange shall mean its liquidating value as determined by the Managing Owner on
a basis consistently applied for each different variety of contract. Accrued
Profit Shares and Incentive Fees (as described in the Prospectus, as defined in
Section 9 hereof) shall reduce Net Asset Value, even though such Profit Shares
and Incentive Fees may never, in fact, be paid. Net Asset Value per Unit is the
Net Assets of the Trust divided by the number of Units outstanding as of the
date of determination.
6. Net Worth of Managing Owner.
The Managing Owner agrees that at all times so long as it remains managing
owner of the Trust, it will maintain its Net Worth at an amount not less than
$1,000,000.
The requirements of the preceding paragraph may be modified if the Managing
Owner obtains an opinion of counsel for the Trust that a proposed modification
will not adversely affect the classification of the Trust as a partnership for
federal income tax purposes and if such modification will reflect or exceed
applicable state securities and Blue Sky laws and qualify under any guidelines
or statements of policy promulgated by any body or agency constituted by the
various state securities administrators having jurisdiction in the premises.
7. Capital Contributions; Units.
The Unitholders' respective capital contributions to the Trust shall be as
shown on the books and records of the Trust. The Initial Unitholder will
withdraw upon the admission of additional Unitholders.
The Managing Owner, so long as it is generally liable for the obligations
of the Trust, or any substitute managing owner, shall invest in the Trust, as a
general liability interest, sufficient capital so that the Managing Owner will
have at all times a capital account equal to 1% of the total capital accounts of
the Trust (including the Managing Owner's). The Managing Owner may withdraw any
interest it may have in excess of such requirement, and may redeem as of any
month-end any interest which it may acquire on the same terms as any Unitholder,
provided that it must maintain the minimum interest described in the preceding
sentence.
The requirements of the preceding paragraph may be modified if the Managing
Owner obtains an opinion of counsel for the Trust that a proposed modification
will not adversely affect the classification of the Trust as a partnership for
federal income tax purposes and if such modification will reflect or exceed
applicable state securities and Blue Sky laws and qualify under any guidelines
or statements of policy promulgated by any body or agency constituted by the
various state securities administrators having jurisdiction in the premises.
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
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the last day of each month, any increase or decrease in the Trust's Net
Assets as compared to the last such determination of Net Assets shall be
credited or charged equally to the capital accounts of all Units then
outstanding; provided that for purposes of maintaining such capital accounts,
amounts paid or payable to the Managing Owner for items such as brokerage
commissions and Incentive Fees shall be treated as if paid or payable to a third
party and shall not be credited to the capital account of the interest held by
the Managing Owner.
For purposes of this Section 8, unless specified to the contrary, Units
redeemed as of the end of any month shall be considered outstanding as of the
end of such month.
(b) Allocation of Profit and Loss for Federal Income Tax Purposes. As of
the end of each fiscal year, the Trust's income and expense and capital gain or
loss shall be allocated among the Unitholders pursuant to the following
provisions of this Section 8(b) for federal income tax purposes. For purposes of
this Section 8(b), capital gain and capital loss shall be allocated separately
and not netted.
(1) First, items of ordinary income and expense (other than the Incentive
Fee and Profit Shares which shall be allocated as set forth in Section 8(b)(2))
shall be allocated pro rata among the Units outstanding as of the end of each
month in which the items of ordinary income and expense accrue.
(2) Second, any Incentive Fee or Profit Shares paid to the Managing Owner
or the Advisors shall be allocated among the Units outstanding at any time
during the fiscal year based upon the ratio that each such Unit's Net Incentive
Fee or Net Profit Share (the excess, if any, of the aggregate of all Incentive
Fees or Profit Shares, as the case may be, allocated to the capital account
relating to such Unit over the aggregate of all "reversals" of Incentive Fees or
Profit Shares, as the case may be, allocated to such Unit) bears to the Net
Incentive Fee or Net Profit Share, as the case may be, of all Units; provided
that the Managing Owner may allocate Incentive Fees and Profit Shares first to
Units whose Net Asset Value was reduced by accrued Incentive Fees and Profit
Shares upon redemption, in an amount up to the amount of such reduction.
(3) Third, capital gain or loss shall be allocated as follows:
(A) There shall be established a tax account with respect to each
outstanding Unit. The balance of each tax account shall be the amount paid to
the Trust for each Unit. As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of income or
gain allocated to each Unit pursuant to Sections 8(b)(1) and 8(b)(3)(C).
(ii) Each tax account shall be decreased by the amount of expense or
loss allocated to each Unit pursuant to Sections 8(b)(1), 8(b)(2) and
8(b)(3)(E) and by the amount of any distributions paid out with respect to
the Units other than upon redemption.
(iii) When a Unit is redeemed, the tax account attributable to such
Unit (determined after making all allocations described in this Section
8(b)) shall be eliminated.
(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
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tax accounts (determined after making the allocations described in Sections
8(b)(1) and 8(b)(2), but prior to making the allocations described in this
Section 8(b)(3)(D) or Section 8(b)(3)(B)) allocable to the Units so redeemed
over the amount received in respect of such Units (before taking into account
any early redemption charges) (a "Negative Excess"). In the event the aggregate
amount of available Capital Loss required to be allocated pursuant to this
Section 8(b)(3)(D) is less than the aggregate amount required to be so
allocated, the aggregate amount of available Capital Loss shall be allocated
among all such Unitholders in the ratio that each such Unitholder's Negative
Excess bears to the aggregate Negative Excess of all such Unitholders.
(E) Capital Loss remaining after the allocation described in Section
8(b)(3)(D) shall be allocated among all Unitholders who hold Units outstanding
as of the end of the applicable fiscal year (other than Units redeemed as of the
end of the last day of such fiscal year) whose tax accounts with respect to such
Units are in excess of their capital accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2)) with respect to such
Units in the ratio that each such Unitholder's negative excess bears to the
aggregate negative excess of all such Unitholders. Capital Loss remaining after
the allocation described in the preceding sentence shall be allocated among all
Unitholders described in such sentence in proportion to their holdings of such
Units.
(F) For purposes of this Section 8(b), "Capital Gain" or "Capital Loss"
shall mean gain or loss characterized as gain or loss from the sale or exchange
of a capital asset, by the Code, including, but not limited to, gain or loss
required to be taken into account pursuant to Section 1256 thereof.
(4) The allocation of profit and loss for federal income tax purposes set
forth herein is intended to allocate taxable profit and loss among Unitholders
generally in the ratio and to the extent that profit and loss are allocated to
such Unitholders so as to eliminate, to the extent possible, any disparity
between the Unitholder's capital account and his tax account, consistent with
principles set forth in Section 704 of the Code, including without limitation a
"Qualified Income Offset."
(5) The allocations of profit and loss to the Unitholders in respect of the
Units shall not exceed the allocations permitted under Subchapter K of the Code,
as determined by the Managing Owner, whose determination shall be binding.
(c) Incentive Fees; Profit Shares. Incentive Fees shall be payable to the
Managing Owner as of the end of each calendar year and upon redemption of Units.
Incentive Fees shall equal 5% of New Overall Appreciation (if any)
calculated as of each fiscal year-end and upon redemption of Units. New Overall
Appreciation shall be calculated, not on a per-Unit basis, but on the basis of
the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
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
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day such Units are redeemed and Profit Shares with respect to Units redeemed as
of the end of any month that ends a calendar quarter shall be paid to an Advisor
in the same manner and at the same time as if such Units had not been redeemed.
In the event assets are withdrawn from an Advisor's account or the Trust as
a whole (other than to pay expenses), any loss carryforward shall be
proportionally reduced for purposes of calculating subsequent Profit Shares and
Incentive Fees. Loss carryforward reductions shall not be restored as a result
of subsequent additions of capital.
The Managing Owner may adjust the allocations set forth in this Section
8(c), in the Managing Owner's discretion, if the Managing Owner believes that
doing so will achieve more equitable allocations or allocations more consistent
with the Code.
(d) Expenses. The Managing Owner shall pay, without reimbursement, the
selling and "trailing commissions" relating to the offering of the Units. The
Trust shall pay the Managing Owner brokerage commissions at the rate of 11% per
annum of the average beginning of month Net Assets of the Trust. The Trust shall
bear all administrative costs, ongoing offering costs and any taxes applicable
to it and any charges incidental to trading, including agency brokerage
commissions (e.g., "bid-ask" spreads). In no event shall organizational and
offering expenses, including selling commissions and redemption fees, exceed 15%
of the capital contributions to the Trust. Any unreimbursed organizational and
initial offering expenses as of the date of the Trust's dissolution shall not be
reimbursed to the Managing Owner from the proceeds resulting from such
dissolution. However, none of the Managing Owner's "overhead" expenses incurred
in connection with the administration of the Trust (including, but not limited
to, salaries, rent and travel expenses) shall be charged to the Trust. Any goods
and services provided to the Trust by the Managing Owner shall be provided at
rates and terms at least as favorable as those which may be obtained from third
parties in arm's-length negotiations. All of the expenses which are for the
Trust's account shall be billed directly to the Trust. Appropriate reserves may
be created, accrued and charged against Net Assets for contingent liabilities,
if any, as of the date any such contingent liability becomes known to the
Managing Owner. Such reserves shall reduce Net Asset Value for all purposes.
(e) Limited Liability of Unitholders. Each Unit, when purchased in
accordance with this Declaration of Trust and Trust Agreement, shall, except as
otherwise provided by law, be fully paid and nonassessable. Any provisions of
this Declaration of Trust and Trust Agreement to the contrary notwithstanding,
except as otherwise provided by law, no Unitholder shall be liable for Trust
obligations in excess of the capital contributed by such Unitholder, plus his
share of undistributed profits and assets.
(f) Return of Capital Contributions. No Unitholder or subsequent assignee
shall have any right to demand the return of his capital contribution or any
profits added thereto, except through redeeming Units or upon dissolution of the
Trust, in each case as provided herein and in accordance with the Act. In no
event shall a Unitholder or subsequent assignee be entitled to demand or receive
property other than cash.
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
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Trust and Trust Agreement) the Managing Owner and any affiliated person or
entity, as the Managing Owner in its sole judgment shall deem advisable for the
conduct and operation of the business of the Trust, provided, that no such
arrangement shall allow brokerage commissions paid by the Trust in excess of the
amount described in the Prospectus or as permitted under applicable North
American Securities Administrators Association, Inc. Guidelines for the
Registration of Commodity Pool Programs ("NASAA Guidelines") in effect as of the
date of the Prospectus (i.e., 80% of the published retail rate plus pit
brokerage fees, or 14% annually -- including pit brokerage and service fees --
of the Trust's average Net Assets, excluding the assets not directly related to
trading activity), whichever is higher. The Managing Owner shall reimburse the
Trust, on an annual basis, to the extent that the Trust's brokerage commissions
paid to the Managing Owner and the Annual Incentive Fee, as described in the
Prospectus, have exceeded 14% of the Trust's average Net Assets during the
preceding year. The Managing Owner is hereby specifically authorized to enter
into, on behalf of the Trust, the Advisory Agreements and the Selling Agreement
as described in the Prospectus. The Managing Owner shall not enter into an
Advisory Agreement with any trading advisor that does not satisfy the relevant
experience (i.e., ordinarily a minimum of three years) requirements under the
NASAA Guidelines. The Trust's brokerage commissions may not be increased (i)
during any period when redemption charges are in effect or (ii) without prior
written notice to Unitholders within sufficient time for the exercise of their
redemption rights prior to such increase becoming effective. Such notification
shall contain a description of Unitholder's voting and redemption rights and a
description of any material effect of such increase.
In addition to any specific contract or agreements described herein, the
Trust may enter into any other contracts or agreements specifically described in
or contemplated by the Prospectus without any further act, approval or vote of
the Unitholders, notwithstanding any other provisions of this Declaration of
Trust and Trust Agreement, the Act or any applicable law, rule or regulations.
The Managing Owner shall be under a fiduciary duty to conduct the affairs
of the Trust in the best interests of the Trust. The Unitholders will under no
circumstances be deemed to have contracted away the fiduciary obligations owed
them by the Managing Owner under the common law. The Managing Owner's fiduciary
duty includes, among other things, the safekeeping of all Trust funds and assets
and the use thereof for the benefit of the Trust. The Managing Owner shall at
all times act with integrity and good faith and exercise due diligence in all
activities relating to the conduct of the business of the Trust and in resolving
conflicts of interest. The Trust's brokerage arrangements shall be
non-exclusive, and the brokerage commissions paid by the Trust shall be
competitive. The Trust shall seek the best price and services available for its
commodity transactions.
The Managing Owner is hereby authorized to perform all other duties imposed
by Sections 6221 through 6232 of the Code on the Managing Owner as the "tax
matters partner" of the Trust.
The Trust shall make no loans to any party, and the funds of the Trust will
not be commingled with the funds of any other person or entity (deposit of funds
with a commodity broker, clearinghouse or forward dealer or entering into joint
ventures or partnerships shall not be deemed to constitute "commingling" for
these purposes). The Managing Owner shall make no loans to the Trust unless
approved by the Unitholders in accordance with Section 18(a) of this Declaration
of Trust and Trust Agreement. If the Managing Owner makes a loan to the Trust,
the Managing Owner shall not receive interest in excess of its 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
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owning Units representing more than fifty percent (50%) of all Units then owned
by the Unitholders. Any agreements between the Trust and the Managing Owner or
any affiliate of the Managing Owner (as well as any agreements between the
Managing Owner or any affiliate of the Managing Owner and any trading advisor)
shall be terminable without penalty by the Trust upon no more than 60 days'
written notice. All sales of Units in the United States will be conducted by
registered brokers.
The Trust is prohibited from employing the trading technique commonly known
as "pyramiding." A trading manager or advisor of the Trust taking into account
the Trust's open trade equity on existing positions in determining generally
whether to acquire additional commodity positions on behalf of the Trust will
not be considered to be engaging in "pyramiding."
The Managing Owner may take such other actions on behalf of the Trust as
the Managing Owner deems necessary or desirable to manage the business of the
Trust.
The Managing Owner shall reimburse the Trust for any advisory fees paid by
the Trust to any trading advisor over the course of any fiscal year, to the
extent that the fees paid during such year exceed the 6% annual management fees
and the 15% quarterly incentive fees (calculating New Trading Profit, as defined
in the Prospectus, after all expenses and without including interest income)
contemplated by the NASAA Guidelines (as the NASAA Guidelines permit such limits
to be adjusted). Any such reimbursement shall be made on a present value basis,
fully compensating the Trust for having made payments at any time during the
year which would not otherwise have been due from it. The Managing Owner shall
disclose any such reimbursement in the Annual Report delivered to Unitholders.
The Managing Owner is engaged, and may in the future engage, in other
business activities and shall not be required to refrain from any other activity
nor forego any profits from any such activity, whether or not in competition
with the Trust. Unitholders may similarly engage in any such other business
activities. The Managing Owner shall devote to the Trust such time as the
Managing Owner may deem advisable to conduct the Trust's business and affairs.
10. Audits and Reports to Unitholders.
The Trust books shall be audited annually by an independent certified
public accountant. The Trust will use its best efforts to cause each Unitholder
to receive (i) within 90 days after the close of each fiscal year certified
financial statements of the Trust for the fiscal year then ended, (ii) within 90
days of the end of each fiscal year (but in no event later than March 15 of each
year) such tax information as is necessary for a Unitholder to complete his
federal income tax return and (iii) such other annual and monthly information as
the CFTC may by regulation require. The Managing Owner shall include in the
Annual Reports sent to Unitholders an approximate estimate (calculated as
accurately as may be reasonably practicable) of the round-turn equivalent
brokerage commission rate paid by the Trust during the preceding year. The Trust
shall notify Unitholders within seven business days of any material change (i)
in the agreements with the Trust's advisors, including any modification in the
method of calculating the advisory fee and (ii) in the compensation of any party
relating to the Trust. Unitholders or their duly authorized representatives may
inspect the Trust books and records during normal business hours upon reasonable
written notice to the Managing Owner and obtain copies of such records
(including by post upon payment of reasonable mailing costs); upon payment of
reasonable reproduction costs provided, however, upon request by the Managing
Owner, the Unitholder shall represent that the inspection and/or copies of such
records will not be for commercial purposes unrelated to such Unitholder's
interest as a beneficial owner of the Trust. The Managing Owner shall have the
right to keep confidential from the Unitholders, 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
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to assess whether the rates charged the Trust are competitive in light of the
services it receives. If, as a result of such review, the Managing Owner
determines that such rates are not competitive in light of the services provided
to the Trust, the Managing Owner will notify the Unitholders, setting forth the
rates charged to the Trust and several funds which are, in the Managing Owner's
opinion, comparable to the Trust.
11. Assignability of Units.
Each Unitholder expressly agrees that he will not voluntarily assign,
transfer or dispose of, by gift or otherwise, any of his Units or any part or
all of his right, title and interest in the capital or profits of the Trust in
violation of any applicable federal or state securities laws or without giving
written notice to the Managing Owner. No assignment, transfer or disposition by
an assignee of Units or of any part of his right, title and interest in the
capital or profits of the Trust shall be effective against the Trust or the
Managing Owner until the Managing Owner receives the written notice of the
assignment; the Managing Owner shall not be required to give any assignee any
rights hereunder prior to receipt of such notice. The Managing Owner may, in its
sole discretion, waive any such notice. No such assignee, except with the
consent of the Managing Owner, which consent may be withheld in the absolute
discretion of the Managing Owner, may become a substituted Unitholder, nor will
the estate or any beneficiary of a deceased Unitholder or assignee have any
right to redeem Units from the Trust except by redemption as provided in Section
12 hereof. Each Unitholder agrees that with the consent of the Managing Owner
any assignee may become a substituted Unitholder without need of the further act
or approval of any Unitholder. If the Managing Owner withholds consent, an
assignee shall not become a substituted Unitholder, and shall not have any of
the rights of a Unitholder, except that the assignee shall be entitled to
receive that share of capital and profits and shall have that right of
redemption to which his assignor would otherwise have been entitled. No
assignment, transfer or disposition of Units shall be effective against the
Trust or the Managing Owner until the first day of the month succeeding the
month in which the Managing Owner receives notice of such assignment, transfer
or disposition. No Units may be transferred where, after the transfer, either
the transferee or the transferor would hold less than the minimum number of
Units equivalent to an initial minimum purchase, except for transfers by gift,
inheritance, intrafamily transfers, family dissolutions, and transfers to
Affiliates.
12. Redemptions.
A Unitholder or any assignee of Units of whom the Managing Owner has
received written notice as described above may redeem all or any of his Units
(such redemption being herein referred to as a "redemption") effective as of the
close of business (as determined by the Managing Owner) on the last day of any
month, beginning with the end of the sixth month after such Units are sold;
provided that: (i) all liabilities, contingent or otherwise, of the Trust
(including the Trust's allocable share of the liabilities, contingent or
otherwise, of any entities in which the Trust invests), except any liability to
Unitholders on account of their capital contributions, have been paid or there
remains property of the Trust sufficient to pay them; and (ii) the Managing
Owner shall have timely received a request for redemption, as provided in the
second following paragraph.
Units redeemed on or before the end of the twelfth full calendar month and
after the end of the twelfth full month but on or before the end of the
eighteenth full calendar month after the date as of which such Units begin to
participate in the profits and losses of the Trust are subject to early
redemption charges of 3% and 2%, respectively, of the Net Asset Value at which
they are redeemed. Such charges will be paid to the Managing Owner. In the event
that a Unitholder acquires Units at more than one month-end, such Units will be
treated on a "first-in, first-out" basis for purposes of determining whether
such Units are redeemable and whether early redemption charges apply.
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
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Units of whom it has received written notice as described above, by first-class
mail, postage prepaid, not later than ten business days prior to such Special
Redemption Date, together with instructions as to the procedure such Unitholder
or assignee must follow to have his interest (only entire, not partial,
interests may be so redeemed unless otherwise determined by the Managing Owner)
in the Trust redeemed on such date. Upon redemption pursuant to a Special
Redemption Date, a Unitholder or any other assignee of whom the Managing Owner
has received written notice as described above, shall receive from the Trust an
amount equal to the Net Asset Value of his interest in the Trust, determined as
of the close of business (as determined by the Managing Owner) on such Special
Redemption Date. No redemption charges shall be assessed on any such Special
Redemption Date. As in the case of a regular redemption, an assignee shall not
be entitled to redemption until the Managing Owner has received written notice
(as described above) of the assignment, transfer or disposition under which the
assignee claims an interest in the Units to be redeemed. If, after such Special
Redemption Date, the Net Assets of the Trust are at least $250,000 and the Net
Asset Value of a Unit is in excess of $25, the Trust may, in the discretion of
the Managing Owner, resume trading. The Managing Owner may at any time and in
its discretion declare a Special Redemption Date, should the Managing Owner
determine that it is in the best interests of the Trust to do so. The Managing
Owner in its notice of a Special Redemption Date may, in its discretion,
establish the conditions, if any, under which other Special Redemption Dates
must be called, which conditions may be determined in the sole discretion of the
Managing Owner, irrespective of the provisions of this paragraph. The Managing
Owner may also, in its discretion, declare additional regular redemption dates
for Units and permit certain Unitholders to redeem at other than month-end.
Redemption payments will be made within fifteen business days after the
month-end of redemption (and notice that the redemption has occurred will be
provided to Unitholders within ten business days after such month-end), except
that under special circumstances, including, but not limited to, inability to
liquidate commodity positions as of a redemption date or default or delay in
payments due the Trust from commodity brokers, banks or other persons or
entities, the Trust may in turn delay payment to Unitholders or assignees
requesting redemption of their Units of the proportionate part of the Net Asset
Value of such Units equal to that proportionate part of the Trust's aggregate
Net Asset Value represented by the sums which are the subject of such default or
delay.
Only whole Units may be redeemed, except upon complete redemption of an
investor's Units, unless the Managing Owner specifically otherwise consents.
Redemptions may be requested for a minimum of the lesser of $1,000 or ten (10)
Units provided that, for investors redeeming less than all their Units, such
investors remaining units equal at least $500.
The Managing Owner may require a Unitholder to redeem all or a portion of
such Unitholder's Units if the Managing Owner considers doing so to be desirable
for the protection of the Trust, and will use best efforts to do so to the
extent necessary to prevent the Trust from being deemed to hold "plan assets"
under the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code, with respect to any "employee benefit plan"
subject to ERISA or with respect to any plan or account subject to Section 4975
of the Code.
13. Offering of Units.
The Managing Owner on behalf of the Trust shall (i) cause to be filed a
Registration Statement or Registration Statements, and such amendments thereto
as the Managing Owner deems advisable, with the Securities and Exchange
Commission for the registration and ongoing public offering of the Units, (ii)
use its best efforts to qualify and to keep qualified Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the Managing Owner shall deem advisable and (iii) take such action with respect
to the matters described in (i) and (ii) as the Managing Owner shall deem
advisable or necessary.
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
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defined in Section 5(d) hereof) at the time of sale (unless the new Unit's
participation in the profits and losses of the Trust is appropriately adjusted).
No Unitholder shall have any preemptive, preferential or other rights with
respect to the issuance or sale of any additional Units, other than as set forth
in the preceding sentence.
The Trust may offer different series or classes of Units having different
economic terms than previously offered series or classes of Units; provided that
the issuance of such a new series or class of Units shall in no respect
adversely affect the holders of outstanding Units; and provided further that the
assets attributable to each such series or class shall, to the maximum extent
permitted by law, be treated as legally separate and distinct pools of assets,
and the assets attributable to one such series or class be prevented from being
used in any respect to satisfy or discharge any debt or obligation of any other
such series or class.
15. Special Power of Attorney.
Each Unitholder by his execution of this Declaration of Trust and Trust
Agreement does hereby irrevocably constitute and appoint the Managing Owner and
each officer of the Managing Owner, with power of substitution, as his true and
lawful attorney-in-fact, in his name, place and stead, to execute, acknowledge,
swear to (and deliver as may be appropriate) on his behalf and file and record
in the appropriate public offices and publish (as may in the reasonable judgment
of the Managing Owner be required by law): (i) this Declaration of Trust and
Trust Agreement, including any amendments and/or restatements hereto duly
adopted as provided herein; (ii) certificates in various jurisdictions, and
amendments and/or restatements thereto, and of assumed name or of doing business
under a fictitious name with respect to the Trust; (iii) all conveyances and
other instruments which the Managing Owner deems appropriate to qualify or
continue the Trust in the State of Delaware and the jurisdictions in which the
Trust may conduct business, or which may be required to be filed by the Trust or
the Unitholders under the laws of any jurisdiction or under any amendments or
successor statutes to the Act, to reflect the dissolution or termination of the
Trust or the Trust being governed by any amendments or successor statutes to the
Act or to reorganize or refile the Trust in a different jurisdiction; and (iv)
to file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust. The Power of Attorney granted herein shall
be irrevocable and deemed to be a power coupled with an interest (including,
without limitation, the interest of the other Unitholders in the Managing Owner
being able to rely on the Managing Owner's authority to act as contemplated by
this Section 15) 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 thatcauses 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
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or appraisal of the assets of the Trust and any right to an audit or examination
of the books of the Trust. Nothing in this Section 16 shall, however, waive any
right given elsewhere in this Declaration of Trust and Trust Agreement for a
Unitholder to be informed of the Net Asset Value of his Units, to receive
periodic reports, audited financial statements and other information from the
Managing Owner or the Trust or to redeem or transfer Units.
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The Managing Owner and
its Affiliates, as defined below, shall have no liability to the Trust or to any
Unitholder for any loss suffered by the Trust which arises out of any action or
inaction of the Managing Owner or its Affiliates if the Managing Owner, in good
faith, determined that such course of conduct was in the best interests of the
Trust and such course of conduct did not constitute negligence or misconduct of
the Managing Owner or its Affiliates.
(b) Indemnification of the Managing Owner by the Trust. To the fullest
extent permitted by law, subject to this Section 17, the Managing Owner and its
Affiliates shall be indemnified by the Trust against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims sustained by
them in connection with the Trust; provided that such claims were not the result
of negligence or misconduct on the part of the Managing Owner or its Affiliates,
and the Managing Owner, in good faith, determined that such conduct was in the
best interests of the Trust; and provided further that Affiliates of the
Managing Owner shall be entitled to indemnification only for losses incurred by
such Affiliates in performing the duties of the Managing Owner and acting wholly
within the scope of the authority of the Managing Owner.
Notwithstanding anything to the contrary contained in the preceding two
paragraphs, the Managing Owner and its Affiliates and any persons acting as
Selling Agents for the Units shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission, the California Department of
Corporations, the Massachusetts Securities Division, the Pennsylvania Securities
Commission, the Tennessee Securities Division, the Texas Securities Board and
any other state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
The Trust shall not bear the cost of that portion of any insurance which
insures any party against any liability the indemnification of which is herein
prohibited.
For the purposes of this Section 17, the term "Affiliates" shall mean any
person acting on behalf of or performing services on behalf of the Trust who:
(1) directly or indirectly controls, is controlled by, or is under common
control with the Managing Owner; or (2) owns or controls 10% or more of the
outstanding voting securities of the Managing Owner; or (3) is an officer or
director of the Managing Owner; or (4) if the Managing Owner is an officer,
director, partner or trustee, is any entity for which the Managing Owner acts in
any such capacity.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of any legal action
initiated against the Managing Owner by a Unitholder are prohibited.
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.
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In no event shall any indemnification permitted by this subsection (b) of
Section 17 be made by the Trust unless all provisions of this Section for the
payment of indemnification have been complied with in all respects. Furthermore,
it shall be a precondition of any such indemnification that the Trust receive a
determination of qualified independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion shall not,
however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Trust hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Trust under this
subsection (b) of this Section 17 subject a Unitholder to any liability in
excess of that contemplated by subsection (e) of Section 8 hereof.
(c) Indemnification of the Trust by the Unitholders. In the event the Trust
is made a party to any claim, dispute or litigation or otherwise incurs any loss
or expense as a result of or in connection with any Unitholder's activities,
obligations or liabilities unrelated to the Trust's business, such Unitholder
shall indemnify and reimburse the Trust for all loss and expense incurred,
including reasonable attorneys' fees.
18. Amendments; Meetings.
(a) Amendments with Consent of the Managing Owner. If at any time during
the term of the Trust the Managing Owner shall deem it necessary or desirable to
amend this Declaration of Trust and Trust Agreement, the Managing Owner may
proceed to do so, provided that such amendment shall be effective only if
embodied in an instrument approved by the Managing Owner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the Managing Owner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The Managing Owner may amend this Declaration of Trust and Trust
Agreement without the consent of the Unitholders in order (i) to clarify any
clerical inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Declaration of Trust and Trust Agreement and the
Prospectus), (ii) to effect the intent of the tax allocations proposed herein to
the maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations, (iii) to attempt to ensure
that the Trust is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Trust as a trust in any jurisdiction, (v) to delete or add any provision of
or to this Declaration of Trust and Trust Agreement required to be deleted or
added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state "Blue Sky" official or similar official or in order
to opt to be governed by any amendment or successor statute to the Act, (vi) to
make any amendment to this Declaration of Trust and Trust Agreement which the
Managing Owner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Unitholders, or that
is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the Managing Owner, to prevent the Trust or the
Managing Owner or its directors, officers or controlling persons from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, or to prevent the assets of the Trust from being considered for any
purpose of ERISA or Section 4975 of the Code to constitute assets of any
"employee benefit plan" as defined in and subject to ERISA or of any "plan"
subject to Section 4975 of the Code.
(b) Amendments and Actions without Consent of the Managing Owner. In any
vote called by the Managing Owner or pursuant to section (c) of this Section 18,
upon the affirmative vote (which may be in person or by proxy) of more than
fifty percent (50%) of the Units then owned by Unitholders, the following
actions may be taken, irrespective of whether the Managing Owner concurs: (i)
this Declaration of Trust and Trust Agreement may be amended, provided, however,
that approval of all Unitholders shall be required in the case of amendments
changing or altering this Section 18, extending the term of the Trust, or
materially changing the Trust's basic investment policies or structure; in
addition, reduction of the capital account of any Unitholder or assignee or
modification of the percentage of profits, losses or distributions to which a
Unitholder or an assignee is entitled hereunder shall not be effected by any
amendment or supplement to this Declaration of Trust and Trust Agreement without
such Unitholder's or assignee's 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.
TA-15
<PAGE>
(c) Meetings; Other Voting Matters. Any Unitholder upon request addressed
to the Managing Owner shall be entitled to obtain from the Managing Owner, upon
payment in advance of reasonable reproduction and mailing costs, a list of the
names and addresses of record of all Unitholders and the number of Units held by
each (which shall be mailed by the Managing Owner to the Unitholder within ten
days of the receipt of the request); provided, that the Managing Owner may
require any Unitholder requesting such information to submit written
confirmation that such information will not be used for commercial purposes.
Upon receipt of a written proposal, signed by Unitholders owning Units
representing at least 10% of the Units then owned by Unitholders, that a meeting
of the Trust be called to vote upon any matter upon which the Unitholders may
vote pursuant to this Declaration of Trust and Trust Agreement, the Managing
Owner shall, by written notice to each Unitholder of record sent by certified
mail within 15 days after such receipt, call a meeting of the Trust. Such
meeting shall be held at least 30 but not more than 60 days after the mailing of
such notice, and such notice shall specify the date of, a reasonable place and
time for, and the purpose of such meeting.
The Managing Owner may not restrict the voting rights of Unitholders as set
forth herein.
In the event that the Managing Owner or the Unitholders vote to amend this
Declaration of Trust and Trust Agreement in any material respect, the amendment
will not become effective prior to all Unitholders having an opportunity to
redeem their Units.
(d) Consent by Trustee. The Trustee's written consent to any amendment of
this Declaration of Trust and Trust Agreement shall be required, such consent
not to be unreasonably withheld; provided, however, that the Trustee may, in its
sole discretion, withhold its consent to any such amendment that would adversely
affect any right, duty or liability of, or immunity or indemnity in favor of,
the Trustee under this Declaration of Trust and Trust Agreement or any of the
documents contemplated hereby to which the Trustee is a party, or would cause or
result in any conflict with or breach of any terms, conditions or provisions of,
or default under, the charter documents or by-laws of the Trustee or any
document contemplated thereby to which the Trustee is a party.
19. Governing Law.
The validity and construction of this Declaration of Trust and Trust
Agreement shall be determined and governed by the laws of the State of Delaware
without regard to principles of conflicts of law; provided, however, that causes
of action for violations of federal or state securities laws shall not be
governed by this Section 19.
20. Miscellaneous.
(a) Notices. All notices under this Declaration of Trust and Trust
Agreement shall be in writing and shall be effective upon personal delivery, or
if sent by first class mail, postage prepaid, addressed to the last known
address of the party to whom such notice is to be given, upon the deposit of
such notice in the United States mail.
(b) Binding Effect. This Declaration of Trust and Trust Agreement shall
inure to and be binding upon all of the parties, all parties indemnified under
Sections 2 and 17 hereof, and their respective successors and assigns,
custodians, estates, heirs and personal representatives. For purposes of
determining the rights of any Unitholder or assignee hereunder, the Trust and
the Managing Owner may rely upon the Trust records as to who are Unitholders and
assignees, and all Unitholders and assignees agree that their rights shall be
determined and they shall be bound thereby.
(c) Captions. Captions in no way define, limit, extend or describe the
scope of this Declaration of Trust and Trust Agreement nor the effect of any of
its provisions. Any reference to "persons" in this Declaration of Trust and
Trust Agreement shall also be deemed to include entities, unless the context
otherwise requires.
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
TA-16
<PAGE>
the Trust has been duly authorized and approved by all necessary parties; (e)
none of Kenmar, any advisor to the Trust, any selling agent, the clearing
broker, the escrow agent, any broker through which any advisor requires the
Trust to trade, the Trustee, any of their respective affiliates or any of their
respective agents or employees: (i) has investment discretion with respect to
the investment of assets of the Plan used to purchase the Units; (ii) has
authority or responsibility to or regularly gives investment advice with respect
to the assets of the Plan used to purchase the Units for a fee and pursuant to
an agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to the Plan and that such advice will be based
on the particular investment needs of the Plan; or (iii) is an employer
maintaining or contributing to the Plan; and (f) the Plan Fiduciary: (i) is
authorized to make, and is responsible for, the decision for the Plan to invest
in the Trust, including the determination that such investment is consistent
with the requirement imposed by Section 404 of ERISA that Plan investments be
diversified so as to the risks of large losses; (ii) is independent of Kenmar,
any advisor to the Trust, any selling agent, the clearing broker, the escrow
agent, any broker through which any Advisor requires the Trust to trade, the
Trustee and any of their respective affiliates; and (iii) is qualified to make
such investment decision.
22. Certain Definitions.
This Declaration of Trust and Trust Agreement contains certain provisions
required by the NASAA Guidelines. The terms used in such provisions are defined
as follows (the following definitions are included verbatim from the NASAA
Guidelines and, accordingly, may not in all cases be relevant to this
Declaration of Trust and Trust Agreement):
Administrator. The official or agency administering the securities
laws of a state.
Advisor. Any Person who for any consideration engages in the business
of advising others, either directly or indirectly, as to the value,
purchase, or sale of Commodity Contracts or commodity options.
Affiliate. An Affiliate of a Person means: (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such Person; (b) any
Person 10% or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held with power to vote, by such
Person; (c) any Person, directly or indirectly, controlling,
controlled by, or under common control with such Person; (d) any
officer, director or partner of such Person; or (e) if such Person is
an officer, director or partner, any Person for which such Person acts
in any such capacity.
Capital Contributions. The total investment in a Program by a
Participant or by all Participants, as the case may be.
Commodity Broker. Any Person who engages in the business of effecting
transactions in Commodity Contracts for the account of others or for
his own account.
Commodity Contract. A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade
of a traded commodity at a specified price and delivery point.
Cross Reference Sheet. A compilation of the Guidelines sections,
referenced to the page of the prospectus, Program agreement, or other
exhibits, and justification of any deviation from the Guidelines.
Net Assets. The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open
positions, and any fee or expense including Net Asset fees accruing to
the Program.
Net Asset Value Per Program Interest. The Net Assets divided by the
number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth
shall be determined exclusive of home, home furnishings and
automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period
or Net Assets at the date trading commences, whichever is higher, and
as further adjusted to eliminate the effect on Net Assets resulting
from new Capital Contributions, redemptions, or capital distributions,
if any, made during the period decreased by interest or other income,
TA-17
<PAGE>
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.
25. Creditors.
No creditors of any Unitholders shall have any right to obtain possession
of, or otherwise exercise legal or equitable remedies with respect to, the Trust
Estate.
TA-18
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Declaration of
Trust and Trust Agreement as of the day and year first above written.
WILMINGTON TRUST COMPANY as Trustee
By: /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-19
<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-20
<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
V Credit my brokerage account V 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))
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<PAGE>
EXHIBIT B
KENMAR GLOBAL TRUST
----------
SUBSCRIPTION REQUIREMENTS
By executing a Subscription Agreement and Power of Attorney Signature Page
for Units of Beneficial Interest ("Units") of KENMAR GLOBAL TRUST (the "Trust"),
each purchaser ("Purchaser") of Units irrevocably subscribes for Units at Net
Asset Value, as described in the Trust's Prospectus dated July 1, 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.
(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
SR-1
<PAGE>
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 1997 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.
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
1997 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.
SR-2
<PAGE>
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 REQUIREMENTS
ANY PERSON CONSIDERING PURCHASING UNITS SHOULD CAREFULLY READ AND REVIEW
THE PROSPECTUS OF THE TRUST DATED JULY 1, 1998, TOGETHER WITH THE SUMMARY
FINANCIAL INFORMATION RELATING TO THE TRUST CURRENT WITHIN 60 CALENDAR DAYS
WHICH ACCOMPANIED THE PROSPECTUS.
The Units are speculative and involve a high degree of risk. No person may
invest more than 10% of his or her readily marketable assets in the Trust.
EXISTING UNITHOLDERS WHO ARE SUBSCRIBING FOR ADDITIONAL UNITS SHOULD CHECK
ITEM 1(B) AND FOLLOW THE INSTRUCTIONS INDICATED, INCLUDING INITIALING AND
SIGNING WHERE APPROPRIATE, AND MUST RECEIVE A CURRENT PROSPECTUS FOR THE TRUST
AND CAREFULLY REVIEW THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY AS WELL AS
EXHIBIT B--SUBSCRIPTION REQUIREMENTS. SUCH UNITHOLDERS' SELLING AGENT
REPRESENTATIVES MUST RECONFIRM BY COMPLETING ITEM 6 THAT SUCH UNITHOLDERS
CONTINUE TO MEET THE STANDARDS AND REQUIREMENTS SET FORTH HEREIN AND IN EXHIBIT
B--SUBSCRIPTION REQUIREMENTS IN ORDER FOR SUCH UNITHOLDERS TO BE ELIGIBLE TO
PURCHASE ADDITIONAL UNITS.
-----------------
TYPE OR PRINT USING BLACK INK ONLY, AS FOLLOWS (PRESS FIRMLY):
Item 1--Enter appropriate subscriber status (new or existing)
Item 2--Enter the subscription amount.
Item 3--Check the appropriate category identifying type of Purchaser.
Item 4--Enter the exact name in which the Units are to be held. Enter
basic Purchaser information, including the Social Security Number or
Taxpayer ID Number.
The Signature Page is self-explanatory for most types of investors;
however, we have provided specific instructions for the following types of
investors:
Trust--Enter the Trust name and the trustee's name, followed by "Trustee."
If applicable, enter the custodian's name, followed by "Custodian." Be sure to
furnish the Taxpayer ID Number of the Trust.
Custodian Under Uniform Gifts to Minors Act--Complete Item 4 with the name
of minor followed by "UGMA." Enter the custodian's name, followed by
"Custodian." Be sure to furnish the minor's Social Security Number.
Partnership or Corporation--The Partnership or Corporation name is
required. Also, enter an officer's or partner's name. Be sure to furnish the
Taxpayer ID Number of the Partnership or Corporation.
Special Note: Trust agreements, corporate papers and other appropriate
documents may be required for selling agent approval.
Item 5--The investor(s) must execute the Subscription Agreement and
Power of Attorney Signature Page (Item 5) and review the representation
relating to backup withholding tax underneath the signature and telephone
number lines. The investor(s) must initial each of the three (3) paragraphs
under "Acknowledgments by Purchaser" and the 4th paragraph, if applicable.
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.
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KENMAR GLOBAL TRUST
UNITS OF BENEFICIAL INTEREST
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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
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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 July 1, 1998 (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
toprior 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 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,
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disability, insolvency or dissolution or any delivery by me of an assignment of
the whole or any portion ofmy 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.
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SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE)
1. Subscriber Status (check)
(a) [ ] New Subscriber(s)--complete Items 1 through 5 and have Selling
Agent representative or branch manager
complete item 6.
(b) [ ] Existing Owner(s)--complete Items 1, 2, 3, 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 $2,000for IRAs/ERISA or for 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
[ ] Joint Tenants with Right of Survivorship
[ ] Tenants in Common
[ ] Grantor or Other Revocable Trust
[ ] Community Property
[ ] Trust other than a Grantor or Revocable Trust
[ ] Estate
[ ] Partnership
[ ] UGMA/UTMA (Minor)
[ ] Corporation
Non-taxable Investors (check one):
NOTE: Please indicate name and address of Custodian or Trustee
in 4(c) below.
[ ] IRA [ ] Profit Sharing
[ ] IRA Rollover [ ] Defined Benefit
[ ] Pension [ ] Other (specify)
[ ] SEP
4. Basic Information.
(a) Full name of account as it should appear in our records:
_____________________________________________________________________
_____________________________________________________________________
Bus. Tel. No: _____________________ Res. Tel. No.: __________________
Social Security No. or Tax I.D. No.: ________________________________
Custodian Taxpayer I.D. No. (for IRAs only): ________________________
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SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE--CONTINUED)
(b) Primary Residence: __________________________________________________
_____________________________________________________________________
Mailing Address if Different: ______________________________________
_____________________________________________________________________
(c) Name and Address of Trustee or Custodian:
_____________________________________________________________________
_____________________________________________________________________
5. Acknowledgments by Purchaser [Please Initial, as applicable.]
_______ I/(We) have received the Prospectus dated July 1, 1998 (the
initial "Prospectus"), including the initial 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 initial 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.
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 Date
Purchaser
EXECUTING AND DELIVERING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE SHALL IN NO RESPECT BE DEEMED TO CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF
1934. I ACKNOWLEDGE THAT I HAVE RECEIVED, IN ADDITION TO THE PROSPECTUS DATED
JULY 1, 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: V.
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.
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SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE--CONTINUED)
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
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
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