As filed with the Securities and Exchange Commission on January 29, 1999
Registration No. 333-8869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 5
(POST-EFFECTIVE AMENDMENT NO. 3)
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
DELAWARE 6793 06-6429854
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
C/O KENMAR ADVISORY CORP.
TWO AMERICAN LANE
P.O. BOX 5150
GREENWICH, CONNECTICUT 06831
(203) 861-1000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Philip E. Pastreich
-------------------
c/o Kenmar Advisory Corp.
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831
(203) 861-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------
COPIES TO:
David R. Sawyier Michael J. Schmidtberger
Sidley & Austin Sidley & Austin
One First National Plaza 875 Third Avenue
Chicago, Illinois 60603 New York, New York 10022
----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
-----------
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act") check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of te Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
-----------
CALCULATION OF REGISTRATION FEE
================================================================================
Title of Each Class Amount Maximum Maximum Amount of
of Securities being Offering Price Aggregate Registration
to be Registered Registered Per Unit Offering Price Fee
- - --------------------------------------------------------------------------------
Units of Beneficial $73,652,917 Net Asset Value $73,652,917 $20,476
Interest
================================================================================
*As of the date hereof, under Registrant's previous Registration
Statement on Form S-1 (Registration No. 333-8869), Registrant has $23,652,917 of
registered but unsold Units and has paid $17,242 in registration fees to the
Securities and Exchange Commission. This Registration Statement carries forward
the unsold balance of $23,652,917 of Units from Registration No. 333-8869 and
registers an additional $50,000,000 of Units of Beneficial Interest. Pursuant to
the provisions of Rule 429 of the rules and regulations of the Securities and
Exchange Commission under the Securities Act of 1933, the form of prospectus set
forth herein also relates to the Registrant's Registration Statement on Form S-1
(Registration No. 333-8869) declared effective July 1, 1998 and constitutes
Post-Effective Amendment No. 3 thereto.
================================================================================
<PAGE>
KENMAR GLOBAL TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. PROSPECTUS HEADING
--- ------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.............. Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................................. Inside Cover Page; Table of Contents
3. Summary Information, The Risks You Face and
Ratio of Earnings to Fixed Charges.................. Summary; The Fund and Its Objectives; The Risks You Face
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Inside Cover Page; Plan of Distribution
6. Dilution.............................................. Not Applicable
7. Selling Security Holders.............................. Not Applicable
8. Plan of Distribution.................................. Inside Cover Page; Plan of Distribution
9. Description of Securities to Be
Registered.......................................... Cover Page; The Fund and Its Objectives; The Futures and
Forward Markets; Redemptions; The Fund and the Trustee
10. Interests of Named Experts and
Counsel............................................. Legal Matters; Experts
11. Information with Respect to the
Registrant.......................................... Summary; The Risks You Face; Investment Factors; The
Fund and Its Objectives; Charges; Kenmar Advisory Corp.;
Conflicts of Interest; The Futures and Forward Markets; The
Fund and the Trustee; Index to Financial Statements
12.Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities..................................... Not Applicable
</TABLE>
<PAGE>
KENMAR GLOBAL TRUST
$50,000,000
UNITS OF BENEFICIAL INTEREST
The Offering
The Fund trades speculatively in the U.S. and international futures and forward
contracts, which are instruments designed to hedge or speculate on various
interest rates, commodities, currencies, stock indices and other financial
instruments.
Kenmar Advisory Corp. manages the Fund's trading by allocating its assets among
multiple commodity trading advisors using different trading strategies. The
Fund's objective is to achieve significant profits while controlling performance
volatility and the risk of loss.
Units are available as of the last day of each month. Units may be redeemed as
of the last day of each month, beginning with the 6th month-end following their
sale. Units redeemed on the 6th month-end through the 12th month-end after sale
are subject to a 3% redemption charge. Units redeemed on the 13th month-end
through the 18th month-end after sale are subject to a 2% redemption charge.
The selling agents will use their best efforts to sell the units offered.
The Risks
These are speculative securities. Before you decide whether to invest, read this
entire prospectus carefully and consider "The Risks You Face" on page 9.
o The Fund is speculative and leveraged. The Fund typically commits between
10% and 20% of its assets as margin for its trading.
o Performance can be volatile. The net asset value per unit has fluctuated
in a single month as much as 13.2%.
o You could lose all or substantially all of your investment in the Fund.
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.
o No secondary market exists for the Units and redemptions are limited and
may result in redemption charges.
o Substantial expenses must be offset by trading profits and interest
income. The Fund must generate trading profits of 8.9% per annum, before
any applicable redemption charge, to break even.
o A substantial portion of the trades executed for the Fund take place on
foreign exchanges. No U.S. regulatory authority or exchange has the power
to compel the enforcement of the rules of a foreign board of trade or any
applicable foreign laws.
Minimum Investment
First-time investors: Trusts, IRAs, other tax-exempt accounts:
$5,000 $2,000
-------------
Investors are required to make representations and warranties in connection with
their investment. Each investor is encouraged to discuss the investment with
his/her individual financial and tax advisers.
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.
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.
<PAGE>
KENMAR ADVISORY CORP.
MANAGING OWNER
APRIL __, 1999
(NOT FOR USE AFTER DECEMBER __, 1999)
<PAGE>
NOTES TO COVER PAGE
(1) The Units are being continuously offered on a "best efforts" basis
without any firm underwriting commitment through registered broker-dealers
("Selling Agents") selected by Kenmar.
Units are offered at the immediately following month-end Net Asset Value
per Unit, which reflects the amount that could be realized upon redemption
(before reduction for the redemption charge, if applicable).
All Units for which subscriptions are accepted during a month are issued
as of a single closing date as of the beginning of the immediately following
month. Units participate in the profits and losses of the Fund 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 Fund.
1. Arizona -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000.
2. California -- Net worth of at least $250,000 and an annual income of at
least $65,000 or, in the alternative, a net worth of at least $500,000.
3. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000. The minimum investment
for individual retirement accounts is $2,500.
4. Maine -- Minimum subscription per investment, both initial and
subsequent, of $5,000; net worth of at least $200,000 or a net worth of at least
$50,000 and an annual income of at least $50,000. MAINE RESIDENTS MUST SIGN A
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE SPECIFICALLY
PREPARED FOR MAINE RESIDENTS, A COPY OF WHICH SHALL ACCOMPANY THIS PROSPECTUS AS
DELIVERED TO ALL MAINE RESIDENTS.
5. Massachusetts -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
6. Michigan -- Net worth of at least $225,000 or a net worth of at least
$60,000 and taxable income in 1995 of at least $60,000.
7. MINNESOTA -- "ACCREDITED INVESTORS", AS DEFINED IN RULE 501(A) UNDER
THE SECURITIES ACT OF 1933.
8. Mississippi -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
9. Missouri -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000.
10. New Hampshire -- Net worth of at least $250,000 or a net worth of at
least $125,000 and an annual income of at least $50,000.
11. North Carolina -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
-i-
<PAGE>
NOTES TO COVER PAGE (CONT'D)
12. Oklahoma-- Net worth of at least $225,000 or a net worth of $60,000
and an annual income of at least $60,000.
13. Oregon -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
14. Pennsylvania -- Net worth of a least $175,000 or a net worth of at
least $100,000 and an annual taxable income of at least $50,000.
15. South Carolina -- Net worth of at least $100,000 or a net income in
1995 some portion of which was subject to maximum federal and state income tax.
16. Tennessee -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
17. Texas -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
(2) The costs of organizing the Fund and the initial offering of the
Units, approximately $527,000, was advanced by Kenmar. This prepaid expense is
being reimbursed to Kenmar by the Fund in monthly installments equal to 0.2% of
the Fund's beginning of month Net Assets. As of October30, 1998, the Fund has
reimbursed approximately $411,000 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 Fund, will pay the Selling Agents upfront selling
commissions equal to 5% of the purchase price per Unit at the time of sale.
Notwithstanding the foregoing, Selling Agents will not receive upfront selling
commissions to the extent investors have acquired Units on the same day as or
within seventy-five (75) days after redeeming investments in Kenmar-sponsored
investment vehicles.
The Selling Agents will also receive ongoing "trailing commissions" or
installment selling commissions on Units sold by their registered
representatives. Trailing commissions will be paid to Selling Agents whose
registered representatives agree to perform certain ongoing services, are
registered with the Commodity Futures Trading Commission (the "CFTC") and have
satisfied all applicable proficiency requirements (i.e., have passed either the
Series 3 National Commodity Futures Examination or the Series 31 Futures Managed
Fund Examination). Such "trailing commissions" will equal 3.5% per annum of the
average beginning of month Net Asset Value per Unit, beginning with the
thirteenth month after sale (immediately to the extent investors have acquired
Units on the same day as or within seventy-five (75) days after redeeming
investments in Kenmar-sponsored investment vehicles) and continuing for as long
as such Unit remains outstanding. Installment selling commissions will be paid
to Selling Agents in respect of Units where there is no CFTC-qualified
registered representative to perform ongoing services. Installment selling
commissions will be calculated in the same manner as above, but will be limited
to 4.5% of the initial subscription price of such Units (9.5% to the extent
investors have acquired Units on the same day as or within seventy-five (75)
days after redeeming investments in Kenmar-sponsored investment vehicles).
Selling Agents will pass on to their registered representatives a portion of the
foregoing selling compensation and "trailing commissions," after deduction of
"due diligence" and administrative expenses incurred in connection with this
offering, in accordance with such Selling Agents' standard compensation
arrangements.
--------------------
-ii-
<PAGE>
REGULATORY NOTICES
THIS PROSPECTUS MUST BE ACCOMPANIED BY: (1) THE PROSPECTUS SUPPLEMENT, IF
ANY, CONTAINING CERTAIN INFORMATION REGARDING THE CURRENT ADVISORS; AND (2)
SUMMARY FINANCIAL INFORMATION FOR THE FUND CURRENT WITHIN 60 CALENDAR DAYS.
--------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND, KENMAR, THE SELLING AGENTS, THE
ADVISORS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
--------------------
THE BOOKS AND RECORDS OF THE FUND WILL BE MAINTAINED AT ITS PRINCIPAL
OFFICE, TWO AMERICAN LANE, GREENWICH, CONNECTICUT 06831; 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 FUND AS THE CFTC AND THE NATIONAL FUTURES ASSOCIATION (THE
"NFA") MAY REQUIRE TO BE GIVEN TO THE PARTICIPANTS IN COMMODITY POOLS SUCH AS
THE FUND 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 FUND'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 FUND NECESSARY FOR THE PREPARATION OF UNITHOLDERS'
ANNUAL FEDERAL INCOME TAX RETURNS.
--------------------
THE DIVISION OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE
COMMISSION REQUIRES THAT THE FOLLOWING STATEMENT BE PROMINENTLY SET FORTH
HEREIN: "KENMAR GLOBAL TRUST IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF
INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED, AND IS NOT SUBJECT TO REGULATION THEREUNDER."
--------------------
-iii-
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 28 THROUGH
29 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 9 THROUGH 15.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
-1-
<PAGE>
KENMAR GLOBAL TRUST
TABLE OF CONTENTS
PROSPECTUS SECTION PAGE
- - ------------------ ----
SUMMARY...................................................................... 5
Overview.................................................................... 5
Risk Factors................................................................ 5
The Fund and Its Objectives................................................ 5
"Breakeven Table"........................................................... 7
Suitability................................................................. 8
THE RISKS YOU FACE........................................................... 9
(1) Investors Must Not Rely on the Past
Performance of Either Kenmar or the Fund
in Deciding Whether to Buy Units........................................ 9
(2) (Possible Total Loss of an Investment in the
Fund....................................................................
(3) Speculative and Volatile Markets; Highly
Leveraged Trading....................................................... 9
(4) Fees and Commissions are Charged
Regardless of Profitability and are Subject to
Change.................................................................. 9
(5) Importance of Market Conditions
to Profitability........................................................ 9
(6) Discretionary Trading Strategies
May Incur Substantial Losses............................................ 9
(7) Decisions Based Upon Fundamental
Analysis May Not Result in
Profitable Trading...................................................... 9
(8) Increasing the Assets Managed by
the Advisors May Diminish
Their Returns........................................................... 10
(9) No Assurance of Advisors' Continued
Services................................................................ 10
(10) Limited Ability to Liquidate your
Investment ............................................................. 10
(11) Possible Illiquid Markets............................................... 10
(12) The Fund Does Not Acquire Any Asset
with Intrinsic Value.................................................... 10
(13) Non-Correlated, Not Negatively
Correlated, Performance Objective....................................... 11
(14) Broad Indices May Perform Quite
Differently From Individual Investments................................. 11
(15) Distortion in Profit Share and Incentive
Fee Calculations........................................................ 11
(16) Advisors Trading Independently
of Each Other May Reduce
Risk Control Potential.................................................. 11
(17) Trading on Commodity Exchanges
Outside the United States May
Present Certain Additional Risks........................................ 12
(18) Conflicts of Interest................................................... 12
(19) Unitholders Taxed Currently............................................. 12
(20) Limitation on Deductibility
of "Investment Advisory Fees"........................................... 12
(21) Taxation of Interest Income
Irrespective of Trading Losses.......................................... 12
(22) Possibility of a Tax Audit of Both
the Fund and Unitholders............................................... 13
(23) Failure of Brokerage Firms; Default
by Forward Market Participants.......................................... 13
(24) Regulatory Matters May Alter the Nature
of an Investment in the Fund........................................... 13
(25) Fund Trading is Not Transparent........................................ 13
(26) Lack of Independent Experts Representing
Investors............................................................... 14
(27) Forwards, Swaps, Hybrids and Other
Derivatives are Not Subject to CFTC
Regulation.............................................................. 14
(28) Possibility of Termination of the Fund
Before Expiration of its Stated Term.................................... 14
(29) Possible Effects of the European Monetary
Union................................................................... 14
(30) Year 2000 Issues........................................................ 14
THE FUND AND ITS OBJECTIVES.................................................. 16
Objectives.................................................................. 16
Investment Philosophy....................................................... 16
Diversification............................................................. 17
The Advisors................................................................ 20
KENMAR ADVISORY CORP......................................................... 23
Background and Principals................................................... 23
Management of Traders....................................................... 25
Fiduciary Obligations of Kenmar............................................. 25
Fiduciary and Regulatory Duties ............................................ 26
Investment of Kenmar in the Fund........................................... 26
USE OF PROCEEDS.............................................................. 27
CHARGES...................................................................... 28
Charges Paid by the Fund................................................... 28
Organizational and Initial Offering
Costs................................................................... 30
Brokerage Commissions................................................... 30
Miscellaneous Execution Costs........................................... 30
"Bid-ask" Spreads....................................................... 30
Profit Shares and Incentive Fees........................................ 30
Ongoing Operating, Selling and
Administrative Costs........................................... 32
Extraordinary Expenses.................................................. 32
Charges Paid by Kenmar...................................................... 32
Selling Commissions; "Trailing
Commissions"............................................................ 32
Consulting Fees......................................................... 32
Redemption Charges.......................................................... 33
THE CLEARING BROKERS......................................................... 33
ING BARING Futures & Options
Clearing Services......................................................... 33
PaineWebber................................................................. 33
CONFLICTS OF INTEREST........................................................ 38
General..................................................................... 38
Kenmar...................................................................... 38
The Advisors................................................................ 39
The Clearing Brokers and
Executing Brokers.......................................................... 39
Selling Agents.............................................................. 39
Proprietary Trading/Other Clients........................................... 39
-2-
<PAGE>
TABLE OF CONTENTS (CONT.)
REDEMPTIONS AND DISTRIBUTIONS................................................ 40
THE FUND AND THE TRUSTEE.................................................... 41
Principal Office; Location of Records....................................... 41
Certain Aspects of the Fund................................................ 41
The Trustee................................................................. 41
Management of Fund Affairs; Voting by
Unitholders................................................................. 42
Recognition of the Fund in Certain States................................... 42
Possible Repayment of Distributions Received
by Unitholders; Indemnification of the
Fund by Unitholders........................................................ 42
Transfers of Units Restricted .............................................. 43
Reports to Unitholders...................................................... 43
General..................................................................... 43
THE FUTURES AND FORWARD MARKETS.............................................. 44
Futures and Forward Contracts............................................... 44
Hedgers and Speculators..................................................... 44
Commodity Exchanges......................................................... 44
Speculative Position and Daily
Price Fluctuation Limits.................................................... 45
Margins..................................................................... 45
FEDERAL INCOME TAX CONSEQUENCES.............................................. 45
Partnership Tax Status of the Fund.......................................... 45
Taxation of Unitholders on
Profits or Losses of the Fund.............................................. 45
Limited Deductibility of
Fund Losses and Deductions................................................. 45
Limited Deductibility for Certain Expenses.................................. 45
Year-End Mark-to-Market of
Open Positions............................................................. 46
Tax on Capital Gains and Losses;
Interest Income......................................................... 46
Syndication Expenses........................................................ 46
"Unrelated Business Taxable
Income"................................................................. 47
IRS Audits of the Fund and Its Unitholders................................. 47
State and Other Taxes....................................................... 47
PURCHASES BY EMPLOYEE BENEFIT PLANS.......................................... 47
General..................................................................... 47
"Plan Assets"............................................................... 48
Ineligible Purchasers....................................................... 48
PLAN OF DISTRIBUTION......................................................... 49
Subscription Procedure...................................................... 49
Subscribers' Representations and
Warranties................................................................. 49
Selling Agents' Compensation................................................ 50
LEGAL MATTERS................................................................ 50
EXPERTS...................................................................... 50
ADDITIONAL INFORMATION....................................................... 51
RECENT FINANCIAL INFORMATION AND ANNUAL
REPORTS................................................................... 51
PERFORMANCE OF KENMAR GLOBAL TRUST.......................................... 52
SELECTED FINANCIAL DATA ..................................................... 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ............................................................... 54
Operational Overview; Advisor Selections.................................... 54
Liquidity................................................................... 55
Results of Operations....................................................... 55
General..................................................................... 55
Performance Summary......................................................... 56
Capital Resources........................................................... 56
INDEX OF DEFINED TERMS....................................................... 58
THE ADVISORS................................................................. 59
PERFORMANCE OF COMMODITY POOLS
OPERATED BY KENMAR ....................................................... 103
INVESTMENT FACTORS ......................................................... 107
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 Statements
of Cash Flows for Year Ended December
31, 1997 and
for Period July 17, 1996 to
December 31, 1996....................................................... F-5
KENMAR GLOBAL TRUST STATEMENTS 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 September 30, 1998 (unaudited)
and December 31, 1997 (audited)...................................... F-11
Kenmar Global Trust Statements of Operations
for the Three months Ended September 30, 1998
and 1997 and for the Nine Months Ended
September 30, 1998 and 1999. (unaudited)............................ F-12
Kenmar Global Trust Statements of Cash Flows
for the Nine months Ended September
30, 1998 (unaudited)............................................... F-13
-3-
<PAGE>
Table of Contents (cont.)
Kenmar Global Trust Statements of Changes
in Unitholders' Capital (Net Asset Value)
for the Nine months Ended September
30, 1998 and 1997 (unaudited)...................................... F-14
Kenmar Global Trust Notes to Financial
Statements (unaudited).................................................. F-15-21
Kenmar Advisory Corp. Independent
Auditors' Report........................................................ F-22
Kenmar Advisory Corp. Statement
of Financial Condition as of
September 30, 1998 .................................................... F-23
Kenmar Advisory Corp. Notes to
Statement of Financial
Condition .......................................................... F-24-31
Exhibit A--Amended and Restated
Declaration of Trust and
Trust Agreement.......................................................... TA-1
Annex--Request for Redemption
Exhibit B--Subscription Requirements....................................... SR-1
Exhibit C--Subscription Instructions,
Subscription Agreement and
Power of Attorney................................................ SA-(i)
-4-
<PAGE>
- - --------------------------------------------------------------------------------
SUMMARY
The nature of an investment in the Fund is
complex and must be carefully reviewed by any
person considering purchasing Units. The following
summary is qualified in its entirety by the
information set forth elsewhere in
this Prospectus.
--------------------
OVERVIEW
o Experienced Managing Owner and Advisors. See "The Fund and Its Objectives
-- The Advisors" at page 20 and "Kenmar Advisory Corp." at page 23.
o Access to a wide range of domestic and international markets. See "The
Fund and Its Objectives -- Diversification" at page 17.
o Diversification among trading strategies. See "The Fund and Its Objectives
-- Investment Philosophy" at page 16.
o Investing in a managed futures fund can be an effective way to globally
diversify a portfolio. See "Investment Factors -- Value of Diversifying
into Managed Futures" at page 107.
o Offering the advantages of (i) limited liability while participating in
highly leveraged trading, (ii) monthly redemption rights (beginning at the
end of the sixth month after purchase), and (iii) administrative
convenience in a fund implementing complex trading strategies in domestic
and international markets See "Investment Factors--Limited Liability" at
page 112 and "Redemptions and Distributions" at page 40.
RISK FACTORS
An investment in the Fund 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)-- Investors Must Not Rely on the Past Performance of either Kenmar or
the Fund in Deciding Whether to Buy Units" and "Risk Factor (2)--Possible
Total Loss of an Investment in the Fund" at page 9.
o The Fund's trading is highly leveraged and takes place in very volatile
markets. See "The Fund and Its Objectives" at page 16 and "Risk Factor
(3)--Speculative and Volatile Markets; Highly Leveraged Trading" at page
9.
o The Fund 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 Fund's average beginning of month
Net Assets must be earned during the first year of trading in order for
the Net Asset Value per Unit not to decline solely due to applicable
expenses. See "-- Breakeven Table," at page 7, "Charges" beginning at page
28 and "Risk Factor (4)-- Fees and Commissions are Charged Regardless of
Profitability and are Subject to Change" at page 9.
o Certain general types of market conditions -- in particular, trendless
periods without major price movements -- significantly reduce the
potential for certain Advisors to trade successfully. See "Risk Factor (5)
-- Importance of Market Conditions to Profitability" at page 9.
The Fund and Its Objectives
The Fund is a multi-advisor, multi-strategy managed futures investment.
The Fund 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 Fund has access to global
futures, forward and options trading with the ability rapidly to deploy and
redeploy its capital across different sectors of the global economy.
In addition to selecting, and allocating and reallocating Fund assets
among Advisors, Kenmar monitors and adjusts the overall leverage at which the
Fund trades; provided that the Fund's
- - --------------------------------------------------------------------------------
-5-
<PAGE>
- - --------------------------------------------------------------------------------
SUMMARY (CONT'D)
commitment to the Advisors will not exceed 100% of total Fund 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 Fund's market commitment to below its actual equity during such
periods, Kenmar could help preserve capital while awaiting more favorable market
cycles.
Under the Fund's Declaration of Trust, Wilmington Trust Company, the
Fund's Trustee, has delegated to Kenmar the exclusive management and control of
all aspects of the business of the Fund. 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 Fund 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 November 1, 1998, Kenmar and its
affiliates were acting as trading manager for commodity pools and accounts with
total capital (excluding "notional" funds) of approximately $751 million, of
which approximately $84 million was invested in commodity pools operated by
Kenmar.
The principal office of the Fund is c/o Kenmar Advisory Corp., Two
American Lane, Greenwich, Connecticut 06831. The telephone number of the Fund
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 November 1, 1998, the Advisors were collectively managing
approximately $1.43 billion in managed futures accounts in which their clients
(and in certain cases the Advisors themselves) had invested approximately $824.3
million in the trading programs being used for the Fund.
See "The Advisors" below for certain performance and other information
relating to the Advisors.
Tax Status of the Fund
In the opinion of counsel, the Fund is properly classified as a
partnership for federal income tax purposes. Unitholders will pay tax each year
on their allocable share of the Fund's taxable income, if any, whether or not
they receive any distributions from the Fund or redeem any Units. Substantially
all of the Fund's trading gains and losses will be treated as capital gains or
losses for tax purposes; interest income received by the Fund will be treated as
ordinary income. See "Federal Income Tax Consequences " at page 45.
"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). Redemptions during months 13-18 are subject
to a 2% charge. Redemptions after the 18th month are redeemed at net asset value
(no charge).
The "Breakeven Table," as presented, is not affected by the size of the
Fund. The Fund's capitalization does not directly affect the level of its
charges as a percentage of Net Asset Value, as the Fund has no fixed dollar
amount, as opposed to (i) percentage of assets, (ii) percentage of profits or
(iii) per-trade costs (each of which will, or should, equal approximately the
same percentage of the Fund's equity, whatever its size), other than
administrative expenses (which are assumed in the "Breakeven Table" to equal the
maximum estimated percentage of the Fund'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
- - --------------------------------------------------------------------------------
-6-
<PAGE>
- - --------------------------------------------------------------------------------
SUMMARY (CONT'D)
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>
- - -----------------------------------------------------------------------------------------------------------------
Percentage Return Dollar Return
Expenses (1) Required Required
Which must Be Offset First Twelve ($5,000 Initial Investment)
To "Break Even" Months First Twelve Months
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
- - -----------------------------------------------------------------------------------------------------------------
Redemption Charge (7) 3.10% $155.00
- - -----------------------------------------------------------------------------------------------------------------
Interest Income (8) (5.00)% $(250.00)
- - -----------------------------------------------------------------------------------------------------------------
Return on $5,000 initial investment required for
"break even" if units are redeemed on or before the 12% $600.00
12th month-end following sale.
=================================================================================================================
Return on $5,000 initial investment required for
"break even" if units are redeemed on the 13th month- 10.94% $547.00
end through the 18th month-end following sale.
=================================================================================================================
Return on $5,000 initial investment required for
"break even" if units are redeemed after the 18th 8.90% $445.00
month-end following sale.
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to "Breakeven Table"
(1) See "Charges" at page 28 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 Fund.
(5) Profit Shares are calculated quarterly on the basis of each
Advisor's individual performance, not the overall performance of the
Fund. 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 28 and 29, respectively.
However, for purposes of the "Breakeven Table," the Incentive Fee
has been estimated at 5% of such 3.1% gain.
- - --------------------------------------------------------------------------------
-7-
<PAGE>
- - --------------------------------------------------------------------------------
SUMMARY (cont'd)
(7) Redemption charges for purposes of this "breakeven" analysis equal
3.1% of the initial $5,000 investment because these charges would
equal 3% of the $5,155 Net Asset Value required so that after
subtraction of the 3% redemption charge, the investor would receive
net redemption proceeds of $5,000.
(8) Interest income is estimated based on current rates.
SUITABILITY
The Fund trades at a high degree of leverage in highly volatile markets.
An investment in the Units is speculative and involves a high degree of risk.
There can be no assurance that the Fund will achieve its objectives.
No subscriber may invest more than 10% of his or her readily marketable
assets in the Fund. 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.
- - --------------------------------------------------------------------------------
-8-
<PAGE>
THE RISKS YOU FACE
(1) INVESTORS MUST NOT RELY ON THE PAST PERFORMANCE OF EITHER KENMAR OR THE FUND
IN DECIDING WHETHER TO BUY UNITS
The future performance of the Fund is not predictable, and no assurance
can be given that the Fund will perform successfully in the future. Past
performance is not necessarily indicative of future results.
(2) POSSIBLE TOTAL LOSS OF AN INVESTMENT IN THE FUND
Futures and forward contracts have a high degree of price variability and
are subject to occasional rapid and substantial changes. Consequently, you could
lose all or substantially all of your investment in the Fund.
(3) SPECULATIVE AND VOLATILE MARKETS; HIGHLY LEVERAGED TRADING
The markets in which the Fund 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 Fund 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 Fund, 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 Fund 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.
(4) FEES AND COMMISSIONS ARE CHARGED REGARDLESS OF PROFITABILITY AND ARE SUBJECT
TO CHANGE
The Fund is subject to substantial charges payable irrespective of
profitability in addition to performance fees which are payable based on the
Fund's profitability. Included in these charges are brokerage fees and operating
expenses. On the Fund's forward trading, "bid-ask" spreads are incorporated into
the pricing of the Fund's forward contracts by the counterparties in addition to
the brokerage fees paid by the Fund. It is not possible to quantify the
"bid-ask" spreads paid by the Fund because the Fund cannot determine the profit
its counterparty is making on the forward trades into which it enters.
Consequently, the Fund's expenses could, over time, result in significant losses
to your investment.
(5) IMPORTANCE OF MARKET CONDITIONS TO PROFITABILITY
The trading systems used by certain Advisors for the Fund are technical,
trend-following methods. The profitability of trading under these systems
depends on, among other things, the occurrence of significant price trends which
are sustained movements, up or down, in futures and forward prices. Such trends
may not develop; there have been periods in the past without price trends.
The likelihood of the Units being profitable could be materially
diminished during periods when events external to the markets themselves have an
important impact on prices. During such periods, Advisors historic price
analysis could establish positions on the wrong side of the price movements
caused by such events.
(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
-9-
<PAGE>
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
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) INCREASE IN ASSETS UNDER MANAGEMENT MAY AFFECT TRADING DECISIONS
Many of the Advisors' current equity under management is at or near its
all-time high. No Advisor has agreed to limit the amount of additional equity
which it may manage, and each is actively engaged in seeking major new accounts.
The more equity an Advisor manages, the more difficult it may be for that
Advisor to trade profitably because of the difficulty of trading larger
positions without adversely affecting prices and performance. Accordingly, such
increases in equity under management may require one or more of the Advisors to
modify trading decisions for the Fund which could have a detrimental effect on
your investment.
(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 Fund for any length of time. There is severe
competition for the services of qualified Advisors, and the Fund 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 Fund's account under the terms of its Advisory Agreement. In
addition, Kenmar must allocate Advisor availability among its different funds,
including the Fund, and may, accordingly, allocate to the Fund less (and perhaps
none) of an Advisor's available capacity than Kenmar might otherwise consider to
be in the best interests of the Fund. 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 37. Kenmar may not be able to obtain
the services of the Advisor group that Kenmar would otherwise consider to be
most advantageous for the Fund.
(10) LIMITED ABILITY TO LIQUIDATE YOUR INVESTMENT
There is no secondary market for the Units. While the Units have
redemption rights, there are restrictions, and possible fees assessed. For
example, 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.
Transfers of Units are subject to limitations, such as 30 days advance
notice of any intent to transfer. Also, Kenmar may deny a request to transfer if
it determines that the transfer may result in adverse legal or tax consequences
for the Fund.
(11) POSSIBLE ILLIQUID MARKETS
Futures and forward positions cannot always be liquidated at the desired
price. It is difficult to execute a trade at a specific price when there is a
relatively small volume of buy and sell orders in a market. A market disruption,
such as when foreign governments may take or be subject to political actions
which disrupt the markets in their currency or major exports, can also make it
difficult to liquidate a position.
Unexpected market illiquidity has caused major losses in recent years in
such sectors as emerging markets and mortgage-backed securities. There can be no
assurance that market illiquidity will not cause losses for the Fund. The large
size of the positions which the Advisors acquire for the Fund increases the risk
of illiquidity by both making its positions more difficult to liquidate and
increasing the losses incurred while trying to do so.
(12) THE FUND DOES NOT ACQUIRE ANY ASSET WITH INTRINSIC VALUE
-10-
<PAGE>
Futures trading is 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 Fund 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 Fund trades unprofitably.
(13) NON-CORRELATED, NOT NEGATIVELY CORRELATED, PERFORMANCE OBJECTIVE
Historically, managed futures have been generally
non-correlated to the performance of other asset classes such as stocks
and bonds. Non-correlation means that there is no statistically valid
relationship between the past performance of futures and forward contracts on
the one hand and stocks or bonds on the other hand. Non-correlation should not
be confused with negative correlation, where the performance would be exactly
opposite between two asset classes. Because of this non-correlation, the Fund
cannot be expected to be automatically profitable during unfavorable periods
for the stock market, or vice versa. The futures and forward markets are
fundamentally different from the securities markets in that for every gain
in futures and forward trading, there is an equal and offsetting loss. If the
Fund does not perform in a manner non-correlated with the general financial
markets or does not perform successfully, you will obtain no
diversification benefits by investing in the Units and the Fund may have no
gains to offset your losses from other investments.
(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 Fund'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 Fund 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 Fund 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 Fund account managed by each Advisor and by the
Fund, respectively. See "Charges" at page 28. Certain investors' Units could be
subject to Profit Shares and Incentive Fees despite having declined in Net Asset
Value from their purchase price. The Fund'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 Fund accounts in ways that
could significantly reduce the risk control potential that Kenmar had analyzed
to be an important feature of a particular Advisor combination. Two Advisors
may, from time to time, take opposite positions for the Fund, eliminating any
possibility of the Fund profiting from these positions considered as a whole.
There are substantial opportunity costs to Kenmar's multi-advisor strategy.
Furthermore, the Fund'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.
-11-
<PAGE>
(17) TRADING ON COMMODITY EXCHANGES OUTSIDE THE UNITED STATES IS NOT SUBJECT TO
U.S. REGULATION
The Advisors may engage in a significant amount of trading on commodity
exchanges outside the United States on behalf of the Fund. 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 Fund
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
Fund'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
Kenmar has a conflict of interest because it acts as the managing owner
for the Fund.
The fact that Kenmar will receive an annual Incentive Fee equal to 5% of
any New Overall Appreciation (as defined herein) 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 Fund, but not 5% of its losses.
Selling Agents will be entitled to ongoing compensation as a result of
their clients remaining in the Fund, so a conflict exists between the agent's
interest in maximizing compensation and in advising their clients to make
investment decisions in the client's best interests.
Other conflicts are also present in the operation of the Fund. See
"Conflicts of Interest."
(19) UNITHOLDERS TAXED CURRENTLY
Unitholders are subject to tax each year on their allocable share of the
Fund'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 Fund.
See "Federal Income Tax Consequences" at page 45.
In comparing the Fund'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 Fund, 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 Fund's income or gains, the Fund 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
Fund as "investment advisory fees" which may be subject to substantial
restrictions on deductibility for federal income tax purposes. In the absence of
further regulatory or statutory clarification, Kenmar is not classifying these
expenses as "investment advisory fees," but this is a position to which the
Internal Revenue Service may object. If a substantial portion of the Fund's fees
were characterized as "investment advisory fees," an investment in the Fund
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 Fund. However,
losses on the Fund'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
-12-
<PAGE>
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
Fund despite incurring a financial loss on their Units.
(22) POSSIBILITY OF A TAX AUDIT OF BOTH THE FUND AND UNITHOLDERS
There can be no assurance that the Fund'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 FUND; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT
INVESTORS. SEE "FEDERAL INCOME TAX CONSEQUENCES" AT PAGE 45.
(23) FAILURE OF BROKERAGE FIRMS; DEFAULT BY CLEARING BROKER
The Commodity Exchange Act requires a clearing broker to segregate all
funds received from customers from such broker's proprietary assets. If the
clearing broker fails to do so, the assets of the Fund might not be fully
protected in the event of the bankruptcy of the clearing broker. Furthermore, in
the event of the clearing broker's bankruptcy, the Fund could be limited to
recovering only a pro rata share of all available funds segregated on behalf of
the clearing broker's combined customer accounts, even though certain property
specifically traceable to the Fund (for example, Treasury bills deposited by the
Fund with the clearing broker as margin) was held by the clearing broker. The
clearing broker has been the subject of certain regulatory and private causes of
action. The material actions are described under "The Clearing Broker."
Furthermore, dealers in forward contracts are not regulated by the
Commodity Exchange Act and are not obligated to segregate customer assets. As a
result, you do not have such basic protections with respect to the Fund's
trading in forward contracts.
(24) REGULATORY MATTERS MAY ALTER THE NATURE OF AN INVESTMENT IN THE FUND
Due to the publicly-offered character of the Fund, 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 Fund, 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 Fund.
Considerable regulatory attention has been focused on non-traditional
investment pools, in particular commodity pools such as the Fund, 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 Fund.
The futures markets are subject to comprehensive statutes, regulations, and
margin requirements. In addition, the CFTC and the exchanges are authorized to
take extraordinary actions in the event of a market emergency, including, for
example, the retroactive implementation of speculative position limits or higher
margin requirements, the establishment of daily price limits and the suspension
of trading. The regulation of futures and forward transactions in the United
States is a rapidly changing area of law and is subject to modification by
government and judicial action. The effect of any future regulatory change on
the Fund is impossible to predict, but could be substantial and adverse.
(25) FUND TRADING IS NOT TRANSPARENT TO INVESTORS
The Advisors make the Fund's trading decisions. While Kenmar receives
daily trade confirmations from the clearing broker and foreign exchange dealers,
the Fund's trading results are reported to the Unitholders monthly. Accordingly,
an investment in the Fund does not offer the Unitholders the same transparency,
i.e., an ability to
-13-
<PAGE>
review all investment positions daily, that a personal trading account offers.
(26) LACK OF INDEPENDENT EXPERTS REPRESENTING INVESTORS
Kenmar has consulted with counsel, accountants and other experts regarding
the formation and operation of this Fund. No counsel has been appointed to
represent the Unitholders in connection with the offering of the Units.
Accordingly, each prospective investor should consult his own legal, tax and
financial advisers regarding the desirability of an investment in the Fund.
(27) FORWARDS, SWAPS, HYBRIDS AND OTHER DERIVATIVES ARE NOT SUBJECT TO CFTC
REGULATION
The Fund trades foreign exchange contracts in the interbank market. In the
future, the Fund may also trade swap agreements, hybrid instruments and other
off-exchange contracts. Swap agreements involve trading income streams such as
fixed rate or floating rate interest. Hybrids are instruments which combine
features of a security with those of a futures contract. The dealer market for
off-exchange instruments is becoming more liquid. There is no exchange or
clearing-house for these contracts and they are not regulated by the CFTC. The
Fund will not receive the protections which are provided by the CFTC's
regulatory scheme.
(28) POSSIBILITY OF TERMINATION OF THE FUND BEFORE EXPIRATION OF ITS STATED TERM
As managing owner, Kenmar may withdraw from the Fund upon 120 days'
notice, which would cause the Fund to terminate unless a substitute managing
owner were obtained. Other events, such as a long-term substantial loss suffered
by the Fund, could also cause the Fund to terminate before the expiration of its
stated term. This could cause you to liquidate your investments and upset the
overall maturity and timing of your investment portfolio. If the registrations
with the CFTC or memberships in the National Futures Association of Kenmar or
the clearing broker were revoked or suspended, such entity would no longer be
able to provide services to the Fund.
(29) POSSIBLE EFFECTS OF THE EUROPEAN MONETARY UNION
The conversion of most major European currencies to a single
euro-currency, or market anticipation of, or reaction to, that conversion or to
any nation's withdrawal from the European Monetary Union, may adversely affect
the trading opportunities, or trading results generally, of currency traders,
including the Fund's Advisors.
The conversion to a single euro-currency is a very significant and novel
political and economic event and there can be no certainty about its direct or
indirect future effects on currency markets. Investors should be aware that a
risk exists that unforeseen effects of the European Monetary Union could result
in trading losses.
(30) YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment funds
and financial business organizations, the Fund could be adversely affected if
the computer systems used by Kenmar or the Fund's service providers do not
properly address this problem prior to January 1, 2000. Currently, Kenmar does
not anticipate that the transition to the 21st century will have any material
effect on the Fund.
Kenmar has established a "Y2K Task Force" consisting of representatives of
its information technology, research, accounting, compliance and trading
departments to specifically address all Year 2000 issues in a timely manner.
Actions taken have included an analysis of all in-house software and hardware to
determine Year 2000 compliance. Kenmar is currently in the process of requesting
confirmation from all third parties with which they and the Fund have a material
relationship that said parties have taken the same actions. In-house compliance
for all mission-critical software is in progess. Testing of corrected software
has already begun. Contingency plans are being established for all non-mission
critical systems. No direct costs have been or are expected to be incurred in
addressing the Year 2000 Problem. Kenmar has addressed all of the issues as a
part of their ongoing
-14-
<PAGE>
operations, so the Fund will not be required to reimburse Kenmar for any
expenses incurred.
Despite the corrective measures that Kenmar has implemented, no assurance
can be given that the Fund's service providers have anticipated every step
necessary to avoid any adverse effect on the Fund attributable to the Year 2000
Problem. A most likely worst case scenario would be one in which trading of
contracts on behalf of the Fund becomes impossible as a result of the Year 2000
Problem. Kenmar would be able to assess such a situation in advance of the
December 31, 1999 deadline and either liquidate all positions prior to that date
and/or establish relationships with additional counterparties. Further,
prospective Investors should understand that the failure of third parties, such
as futures exchanges, clearing organizations or regulators, to resolve the Year
2000 Problem in a timely manner could result in a material financial risk to the
Fund.
-15-
<PAGE>
THE FUND 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 Fund'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 Fund. The fact that the Fund 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 Fund 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 Fund may
provide positive returns even when United States stock and bond markets are
experiencing flat to negative performances.
The Fund is structured to substantially 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 Fund's trading profits or losses and the Fund's
expenses for the period) as well as all tax information relating to the Fund
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 Fund 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 Fund 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 Fund may from time to time require.
Kenmar believes that the most effective means of controlling the risks of
the Fund'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 Fund 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 Fund" at page
13. It is not anticipated that Kenmar will make frequent adjustments to the
group of Advisors for the Fund.
-16-
<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 Fund
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 Fund 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 11.
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.
-17-
<PAGE>
Through Kenmar's Advisor selections, the Fund will have the flexibility to
access world markets, including but not limited to:
CURRENCIES
- - --------------------------------------------------------------------------------
Australian Dollar
Belgian Franc
British Pound
Canadian Dollar
Danish Krone
Deutsche Mark
Dutch Guilder
EURO CURRENCY
European Currency Unit
Finnish Markka
French Franc
Irish Punt
Italian Lira
Japanese Yen
Malaysian Ringgit
Mexican Peso
New Zealand Dollar
Norwegian Krone
Singapore Dollar
Spanish Peseta
Swedish Krona
Swiss Franc
S. African Rand - FNX
FINANCIAL INSTRUMENTS
- - --------------------------------------------------------------------------------
Australian Treasury Bills
Australian Treasury Bonds
CAC 40 Stock Index (France)
Canadian Bonds
DAX Stock Index (Germany)
Eurodollars
Euromarks
Euroswiss
Eurotop 100 Index (Europe)
Euroyen
Financial Times 100 Stock Index (U.K.)
Financial Times 250 Stock Index (U.K.)
French Bonds
German Bonds
Italian Bonds
Japanese Bonds
Swiss Bonds - Eurex
Major Market Stock Index (U.S.)
MEFF&S Stock Index (Spain)
MIBOR
Nikkei Stock Average (Japan)
Nikkei Stock Index 300 (Japan)
PIBOR
S&P 500 Stock Index (U.S.)
Spanish Bonds
Tokyo Stock Price Index (Japan)
U.K. Bonds
U.K. Short Sterling
U.S. Treasury Bills
U.S. Treasury Bonds
U.S. Treasury Notes
Value Line Stock Index (U.S.)
METALS
- - --------------------------------------------------------------------------------
Aluminum
Copper
Gold
Lead
Nickel
Palladium
Platinum
Silver
Tin
Zinc
ENERGY PRODUCTS
- - --------------------------------------------------------------------------------
Crude Oil
Electricity
Gas Oil
Heavy Fuel Oil
Natural Gas
No. 2 Heating Oil
Propane
Residual Fuel Oil
Unleaded Gasoline
-18-
<PAGE>
Agricultural Products
- - --------------------------------------------------------------------------------
Cocoa
Coffee
Corn
Cotton
Feeder Cattle
Live Cattle
Live Hogs
Oats
Orange Juice
Pork Bellies
Soybeans
Soymeal
Soy Oil
Sugar
Wheat
Lumber - CME
The Fund 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 Fund will,
in fact, trade over time or at any given time. The Advisors do not each trade in
all of the foregoing markets. The Fund's portfolio exposure may, from time to
time, be concentrated in a limited number of markets.
This chart below represents a snapshot allocation of asset given the portfolio
of traders as of October 1998. The percentage exposure to markets will vary
substantially over time as traders assess the various Sectors
KENMAR GLOBAL TRUST
MARKET SECTOR PARTICIPATION AS OF OCTOBER 1998
[The following table was depicted as a pie chart in the printed material]
CURRENCIES 14%
MEATS 1%
TROPICALS 12%
GRAINS 5%
METALS 12%
ENERGIES 7%
US STOCK I 1%
PACK RIM IN 4%
EURO STOCK 1%
U.S. RATES 15%
PAC RIM RA 5%
EURO-RATES 23%
-19-
<PAGE>
The Advisors
All direct investment decisions for the Fund 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 Fund" at page
13. Each initial Advisor is, and it is anticipated that any subsequent Advisor,
if any, will be, registered with and regulated by the CFTC. The registration of
the Advisors with the CFTC and their membership in the NFA must not be taken as
an indication that any such agency or self-regulatory body has recommended or
approved the Advisors or the Fund.
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 Fund's market emphasis as Kenmar believes performance and
market conditions indicate that such a change could be advantageous for the
Fund. 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 current asset allocations for the
Fund.
-20-
<PAGE>
<TABLE>
<CAPTION>
Advisor and Approximate Assets
Current General Under Management
% Allocation* Strategy Type November 1, 1998**
------------- ------------- ------------------
<S> <C> <C>
Dreiss Research Corporation Pattern-Recognition, Long-Term $14.7 million (total)
(19%) Technical, Trend-Following
Hirst Investment Management Inc. Technical, Non-Discretionary $41.7 million (total)
(23%)
Hyman Beck & Company, Inc. Long-Term Technical, $265.5 million (total)
(25%) Trend-Following $216.3 million (Global)
Sunrise Capital Partners, LLC Long-Term Technical, $406.1 million (total)
(21%) Trend Following $205.7 million (Expanded
Diversified Program)
Willowbridge Associates Inc. Discretionary, Fundamental $668.9 million (total)
(12%) and Technical $346.4 million (XLIM)
</TABLE>
- - ---------------
*The Advisors and asset allocations for the Fund in effect as of
January 1, 1999, are more specifically described under "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The allocations
set forth above are approximate, and will be affected by (i) the profit and loss
generated by each Advisor in relation to the performance of the other Advisors
for the Fund and (ii) any subsequent reallocation decision by Kenmar. The
initial allocations to the Advisors at the commencement of the Fund's trading
operations, allocations and reallocations of subsequent subscription amounts are
described under "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
** Excluding "notional" funds. "Notional" funds represent the
difference between the level at which a trader is instructed to trade an account
and the capital actually committed to the account. "Notional" funds do not
represent assets under management, but they do indicate the level of equity
which a trader has been instructed to consider itself to be managing in
determining the magnitude of positions taken.
Advisor Summaries
More complete descriptions and performance summaries for the Advisors
described in this section of the Prospectus are included under "The Advisors" at
page 58. Read that section of the Prospectus carefully before deciding whether
to invest in the Fund. See "The Risks You Face -- (1) Investors Must Not Rely on
the Past Performance of Either Kenmar or the Fund in Deciding Whether to Buy
Units" and -- (2) Possible Total Loss of an Investment in the Fund" at page 9.
-21-
<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 63 through 67 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
68 through 69 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 Fund, 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 70 through 78 for
performance information relating to Hyman Beck & Company, Inc.
SUNRISE CAPITAL PARTNERS, LLC
Sunrise Capital Partners, LLC will trade its Expanded Diversified Program
on behalf of the Fund. Sunrise Capital Partners, LLC utilizes technical
trend-following systems trading a wide continuum of time windows. Relying on
technical analysis Sunrise Capital Partners, LLC believes that future price
movements in all markets may be more accurately anticipated by analyzing
historical price movements within a quantitative framework rather attempting to
predict or forecast changes in price through fundamental economic analysis. The
trading methodologies employed by Sunrise Capital Partners LLC are based on
programs analyzing a large number of interrelated mathematical and statistical
formulas and techniques which are quantitative, proprietary in nature and which
have been either learned or developed by principals of Sunrise Capital Partners,
LLC. Sunrise Capital Partners, LLC's trading system consists of multiple,
independent and parallel systems, each designed and tested to seek out and
extract different market inefficiencies on different time horizons. See pages 79
through 88 for performance information relating to Sunrise Capital Partners,
LLC.
WILLOWBRIDGE ASSOCIATES INC.
Willowbridge Associates Inc. utilizes its XLIM Trading Approach on behalf
of the Fund. The XLIM Trading Approach is traded on a discretionary basis by
Philip L. Yang. Trading decisions are based primarily on Mr. Yang's analysis of
technical factors, fundamentals and market action. The XLIM Trading Approach
trades are selected from a wide variety of futures contracts, forwards, spot and
options contracts on United States and international markets, including but not
limited to, financial instruments, currencies, precious and base metals and
agricultural commodities. Mr. Yang reserves the right to change the portfolio
composition of the XLIM Trading Approach. See pages 89 through 101 for
performance information relating to Willowbridge Associates Inc.
-22-
<PAGE>
The Advisory Agreements
The Advisory Agreements among the Fund, Kenmar and three of the Fund'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 Fund and
Kenmar have entered into Advisory Agreements with two additional Advisors, Hirst
Investment Management Inc. and Sunrise Capital Partners, LLC (which received
allocations of Fund assets as of July 1, 1998). The Hirst Investment Management
Inc. and Sunrise Capital Partners, LLC Advisory Agreements have an initial term
through December 31, 1999, and may be renewed on the same terms at Kenmar's
option for up to two additional one-year terms. Kenmar will (when it considers
doing so to be in the best interests of the Fund) generally attempt to negotiate
advisory agreements with comparable terms for all of the Advisors chosen for the
Fund. 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 Fund 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 Fund and was done in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Fund. Each Advisory Agreement further provides that this indemnity provision
will not increase the liability of any Unitholder to the Fund beyond the amount
of such Unitholder's capital and profits, if any, in the Fund (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 Fund or to
any of the Unitholders in connection with their management of assets of the Fund
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 Fund.
Three of the Fund's initial Advisors (Dreiss Research Corporation, Hyman
Beck & Company, Inc. and Willowbridge Associates Inc.), and/or its affiliates
and principals, purchased 500 Units as of the inception of the Fund's trading.
Each of the foregoing initial Advisors has agreed to maintain this investment
for as long as it continues to act as an Advisor. Hirst Investment Management
Inc and Sunrise Capital Partners, LLC do not currently intend to purchase Units.
KENMAR ADVISORY CORP.
BACKGROUND AND PRINCIPALS
Kenmar Advisory Corp. is a Connecticut corporation originally incorporated
as a New York corporation in September 1983 and subsequently reorganized as a
Connecticut corporation in January 1996. 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 , 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
Fund.
No administrative, civil, or criminal action has ever been brought against
Kenmar, any of its principals or the Fund.
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
-23-
<PAGE>
1982, Mr. Shewer became co-manager of Pasternak, Baum's F.O.B. Corn Department.
In 1983, Mr. Shewer was made Vice President and Director of Pasternak, Baum. Mr.
Shewer graduated from Syracuse University with a B.S. degree in 1975.
Mr. Marc S. Goodman (born 1948), President, joined Pasternak, Baum in
September 1974 and was a Vice President and Director from July 1981 until
September 1983. While at Pasternak, Baum, Mr. Goodman was largely responsible
for business development outside of the United States, for investment of its
corporate retirement funds, and for selecting trading personnel. Mr. Goodman has
conducted extensive business in South America, Europe and the Far East. Mr.
Goodman graduated from the Bernard M. Baruch School of Business of the City
University of New York with a B.B.A. in 1969 and an M.B.A. in 1971 in Finance
and Investments, where he was awarded an Economics and Finance Department
Fellowship from September 1969 through June 1971.
Messrs. Shewer and Goodman left Pasternak, Baum in September 1983 to form
Kenmar and they have occupied their present positions with Kenmar since that
time.
Ms. Esther Eckerling Goodman (born 1952), Chief Operating Officer and
Senior Executive Vice President, joined Kenmar in July 1986 and has been
involved in the futures industry since 1974. From 1974 through 1976, she was
employed by Conti-Commodity Services, Inc. and ACLI Commodity Services, Inc., in
the areas of hedging, speculative trading and tax arbitrage. In 1976, Ms.
Goodman joined Loeb Rhoades and Company, Inc. where she was responsible for
developing and managing a managed futures program which, in 1979, became the
trading system for Westchester Commodity Management, an independent commodity
trading advisor of which Ms. Goodman was a founder and principal. From 1983
through mid-1986, Ms. Goodman was employed as a marketing executive at
Commodities Corp. (USA) of Princeton, New Jersey. Ms. Goodman was a Director of
the Managed Futures Trade Association from 1987 to 1991 and a Director of its
successor organization, the Managed Futures Association, from 1991 to 1995. She
has written several articles and has spoken before various professional groups
and organizations on the subject of managed futures. Ms. Goodman graduated from
Stanford University in 1974 with a B.A. degree.
Mr. Robert L. Cruikshank (born 1936), Executive Vice President, joined
Kenmar in March 1991. Mr. Cruikshank spent 20 years (1958-1978) at Blyth Eastman
Dillon in New York and was its Executive Vice President in charge of the
Securities Division, which included all domestic and international sales and
branch office activities, all trading departments, and the research areas. In
1979, Mr. Cruikshank jointly formed Neild, Cruikshank & Co., an independent
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.
Mr. Thomas J. DiVuolo (born 1960), Senior Vice President responsible for
research, risk management and account oversight, joined Kenmar in March 1989.
From 1982 through 1984, Mr. DiVuolo was employed by Balfour Maclaine
International Ltd. working in the commodity accounting and compliance areas.
From 1984 through 1986 he was employed at E.F. Hutton and Company, Inc. as a
manager of commodity regulatory reporting. From 1986 until he joined Kenmar in
1989, Mr. DiVuolo worked for Lloyds International Trading, a commodity trading
division of Lloyds Bank. Mr. DiVuolo graduated from Wagner College in 1990 with
an M.B.A. degree in Finance and from Pace University with a B.B.A. degree in
Public Accounting in 1982.
Mr. Gary J. Yannazzo (born 1953), Senior Vice President and Chief
Financial Officer, joined Kenmar in August 1997. From March 1992 to July 1995,
he was Senior Vice President and Controller of Metallgesellschaft Corp., a
diversified commodity marketing and trading company, with thirty worldwide
subsidiaries and $5 billion in annual revenues. From January 1990 through
February 1992, Mr. Yannazzo was President, Chief Executive Officer and part
owner of Holland Mortgage Corporation. From December 1982 through November 1989,
Mr. Yannazzo was First Vice President of Security Capital Corporation, a
publicly traded financial services company and affiliate of Smith Barney, Inc.
From June 1975 through November 1982, Mr. Yannazzo was with Arthur Andersen &
Co., serving as an Audit Manager from June 1980. From August 1995 until he
joined Kenmar, Mr. Yannazzo was a private consultant, engaged
-24-
<PAGE>
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 Fund'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
Fund" at page 13.
Naturally, these activities require a strong emphasis on trading and
market research. Kenmar operates and updates continuously a database that tracks
over 600 different trading programs offered by traders around the globe. Added
to these quantitative data are qualitative assessments based on detailed trader
interviews and analysis of trades, trading performance and trading strategies.
FIDUCIARY OBLIGATIONS OF KENMAR
Nature of Fiduciary Obligations; Conflicts of Interest
As managing owner of the Fund, 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 Fund, consistent with the
terms of the Fund's Declaration of Trust and its Amended and Restated
Declaration of Trust and Trust Agreement dated as of December 17, 1996 (the
"Declaration of Trust"). The Fund is referred to as the "Trust" in the
Declaration of Trust attached hereto as Exhibit A. The general fiduciary duties
which would otherwise be imposed on Kenmar (which would make the operation of
the Fund 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 Fund, 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 Fund, 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 Fund, 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 Fund or to any Unitholder for any loss suffered by the
Fund 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
-25-
<PAGE>
interests of the Fund, and such course of conduct did not constitute negligence
or misconduct by the Kenmar Related Parties. The Fund has agreed to indemnify
the Kenmar Related Parties against claims, losses or liabilities based on their
conduct relating to the Fund, 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 Fund. The NASAA Guidelines prescribe
the maximum permissible extent to which the Fund can indemnify the Kenmar
Related Parties and prohibit the Fund from purchasing insurance to cover
indemnification which the Fund 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 Fund.
Under Delaware law, a beneficial owner of a business trust (such as a
Unitholder of the Fund) 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 Fund which are, on their face, inconsistent with Kenmar's fiduciary
duties. One of the purposes underlying the disclosures set forth in this
Prospectus is to disclose to all prospective Unitholders these conflicts of
interest so that Kenmar may have the opportunity to obtain investors' informed
consent to such conflicts. Prospective investors who are not willing to consent
to the various conflicts of interest described under "Conflicts of Interest" and
elsewhere are ineligible to invest in the Fund. 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 38.
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 FUND
Kenmar has purchased and will maintain a 1% interest in the Fund in its
capacity as managing owner. Robert L. Cruikshank, a principal of Kenmar, has
invested $100,000 in the Fund. Marc S. Goodman, the President of Kenmar, has
invested $5,500 in the Fund through an individual retirement account, and
Kenneth A. Shewer, the Chairman of Kenmar, has invested $5,200 in the Fund
through an individual retirement account.
-26-
<PAGE>
USE OF PROCEEDS
The proceeds of the offering of the Units are used by the Fund to engage
in the speculative trading on futures, forward, options and related markets
through allocating such proceeds to the Advisors.
To the extent the Fund trades in futures contracts on U.S. exchanges, the
assets deposited by the Fund 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 Fund 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 October 31, 1998, the Fund estimates:
(i) up to approximately 77% of the Net Asset Value of the Fund is 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 4% of the Fund's assets is used to margin foreign
futures contracts; and
(iii) approximately 29% in bank deposits.
In addition, assets of the Fund not required to margin positions may be
maintained in United States bank accounts opened in the name of the Fund and may
be held in United States Treasury bills (or other securities approved by the
CFTC for investment of customer funds).
The Fund receives all of the interest income earned on its assets.
-27-
<PAGE>
CHARGES
CHARGES PAID BY THE FUND
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- - --------- ----------------- -----------------
Kenmar Reimbursement of Kenmar has advanced total costs
organizational and of approximately $527,000. Such
initial offering costs advanced costs are being
reimbursed to Kenmar in monthly
installments of 0.2% of the
Fund's beginning of month Net
Assets. As of October 31, 1998
the remaining balance is
approximately $116,000.
Kenmar Brokerage commissions Flat-rate monthly commissions of
0.917% of the Fund's beginning
of month Net Assets (an 11%
annual rate). Such commissions
cover all floor brokerage,
exchange, clearing and NFA fees
incurred in the Fund's trading.
Third Parties Miscellaneous execution Paid as incurred; not
costs anticipated to exceed 0.25% of
average beginning of month Net
Assets per year.
Counterparties "Bid-ask" spreads Each counterparty with which the
Fund trades receives "bid-ask"
spreads on the forward trades
executed on behalf of the Fund.
Advisors Profit Shares Paid by the Fund 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 Fund. 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 Fund 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.
-28-
<PAGE>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- - --------- ----------------- -----------------
Third Parties Operating, Selling and Paid as incurred; not
Administrative costs anticipated to exceed 0.50% of
the Fund's average beginning of
month Net Assets per year.
Third Parties Reimbursement of Actual payments to third
delivery, insurance, parties; expected to be
storage and any other negligible.
extraordinary expenses;
taxes (if any)
------------------------
-29-
<PAGE>
ORGANIZATIONAL AND INITIAL OFFERING COSTS
Kenmar has advanced the organizational and initial offering costs of the
Fund in a total amount of approximately $527,000. The Fund is reimbursing Kenmar
for such costs in monthly installments of 0.2% of the Fund's beginning of month
Net Assets, which reimbursements began with the first month of trading
operations (May 1997). As of October 31, 1998, the remaining balance is
approximately $116,000.
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 Fund
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 Fund'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 Fund's behalf, and pays
floor brokerage, exchange, clearing and NFA fees with respect to executing the
Fund's trades. NFA transaction fees are assessed on the Fund'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 Fund will not be increased during the period
in which early redemption charges are in effect. Due to the ongoing offering of
the Units, this representation entails that Kenmar will likely never be able to
raise brokerage commissions unless Kenmar waives such charges.
As of December 31, 1998, the Fund's 11% per annum flat-rate brokerage
commissions (such 11% includes execution, advisory fees, trails and fees to
Kenmar) equated to round-turn commissions of $92. The round-turn equivalent of
the Fund's flat-rate commissions will vary with the frequency with which the
Advisors place orders for the Fund's account managed by each of them. Kenmar
reports, in the annual reports distributed by Kenmar to Unitholders, the
approximate round-turn equivalent rate paid by the Fund on its trading during
the previous year.
MISCELLANEOUS EXECUTION COSTS
Kenmar pays all floor brokerage, exchange, NFA and clearing fees relating
to the execution of the Fund'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 Fund 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 Fund's average beginning of month Net
Assets in any fiscal year.
"BID-ASK" SPREADS
Many of the Fund'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 Fund pays such
"spreads" does not result in a reduction in the flat-rate brokerage commissions
paid by the Fund (however, forward trades were not included in the number of
round-turns executed by the Fund in determining the approximate round-turn
equivalent of the Fund's flat-rate commissions).
PROFIT SHARES AND INCENTIVE FEES
Calculation of New Trading Profit and New Overall Appreciation
Each Advisor will receive Profit Share equal to 20% of the New Trading
Profit generated by such Advisor.
New Trading Profit is calculated with respect to each Advisor's Trust
account and New Overall Appreciation is calculated with respect to the Fund as a
whole on the basis of the cumulative performance of such account or the Fund,
respectively, and not on a Unit-by-Unit basis. For example, if the Fund 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
-30-
<PAGE>
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 Fund its Profit Share equal to the percentage described above of any
cumulative New Trading Profit generated by such Advisor, as of the calendar
quarter-end of determination, in excess of: (i) the highest level of cumulative
Trading Profit as of any previous calendar quarter-end generated by such
Advisor, or (ii) $0, if higher (the "high water mark"). "Trading Profit" (i)
includes gross realized gains and losses on closed positions and the change in
unrealized gains and losses on open positions from the preceding period, (ii)
does not include interest income, (iii) is reduced by annual brokerage
commissions of 4.5% -- 7.0%, not 11%, of average beginning of month Net Assets,
plus execution costs other than floor brokerage, exchange, clearing and NFA
fees, and (iv) is not reduced by Incentive Fees, administrative expenses,
organizational and initial offering cost reimbursements or extraordinary costs
(such as taxes or litigation costs). "Overall Appreciation" is calculated, not
on a per-Unit basis, but on the basis of the overall trading profits and losses
of the Fund, 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 Fund. "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 Fund 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 Fund as
a whole, the Incentive Fee attributable to the amount of capital withdrawn (net
of the proceeds of any additional Units issued as of the date of such
withdrawal) will be paid out to Kenmar.
For example, assume that the Fund 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 Fund 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
-31-
<PAGE>
Fund 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 Fund as a whole. For
example, assume that 100,000 Units were initially sold as of June 1, 1998 and
through December 31, 1998 the Fund 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 Fund earns $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 Fund is responsible for actual payments to third parties, estimated at
no more than 0.50% of the Fund's average beginning of month Net Assets per year.
EXTRAORDINARY EXPENSES
The Fund is responsible for any extraordinary charges (such as taxes)
incidental to its trading. In Kenmar's experience such charges have been
negligible.
------------------------
Kenmar sends each Unitholder a monthly statement that includes a
description of performance during the prior month and sets forth, among other
things, the brokerage commissions, Incentive Fee and Profit Share accruals
during such month and on a year-to-date basis.
CHARGES PAID BY KENMAR
The following costs relating to the sale of the Units and the operation of
the Fund are paid by Kenmar.
SELLING COMMISSIONS; "TRAILING COMMISSIONS"
Kenmar pays, from its own funds, the 5% selling commissions due in respect
of the Units. Furthermore, Kenmar pays significant "trailing commissions" to
eligible selling agents who sell Units which remain outstanding for more than
twelve months (immediately to the extent investors have acquired Units on the
same day as or within seventy-five (75) days after redeeming investments in
Kenmar-sponsored investment vehicles). Such "trailing commissions" will be
payable quarterly and will be accrued monthly at 0.2917 of 1% (a 3.5% annual
rate) of the beginning of month Net Asset Value of such Units for as long as
they remain outstanding. Selling Agents will pass on to their registered
representatives a portion of the foregoing selling compensation and "trailing
commissions," after deduction of "due diligence" and administrative expenses
incurred in connection with this offering, in accordance with such Selling
Agents' standard compensation arrangements. See "Plan of Distribution -- Selling
Agents' Compensation" at page 50.
CONSULTING FEES
Each Advisor receives a Consulting Fee, monthly in arrears, payable by
Kenmar not the Fund, equal to 0.167% of the beginning of month Net Assets of the
-32-
<PAGE>
Fund allocated to such Advisor's management (a 2% annual rate).
REDEMPTION CHARGES
Units redeemed on or prior to the end of the eighteenth month after such
Units are issued will be subject to redemption charges of 3% (for Units redeemed
on or after the end of the sixth and on or before the end of the twelfth month
after purchase) and 2% (for Units redeemed from the beginning of the thirteenth
and on or before the end of the eighteenth month after purchase) of the Net
Asset Value per Unit at which they are redeemed. Such charges will be paid to
Kenmar. Investors acquiring Units on the same day as or within seventy-five (75)
days after redeeming investments in Kenmar-sponsored investment vehicles will be
deemed to have held such Units for the duration of their participation in such
Kenmar-sponsored investment vehicles for purposes of calculating the required
six-month holding period following purchases of such Units. Such investor will
not be subject to a Kenmar Global Fund 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 Fund's clearing brokers are ING (U.S.) Securities Futures & Options
Clearing Services ("ING BARINGS") and PaineWebber Incorporated ("PaineWebber")
(each, a "Clearing Broker" or together, the "Clearing Brokers"). Neither ING
BARINGS nor PaineWebber has been involved in the organization of the Fund and
neither takes any part in the Fund's ongoing management. Neither ING BARINGS nor
PaineWebber is affiliated with Kenmar, and neither is responsible for the
activities of Kenmar.
ING BARINGS
ING BARINGS is a duly registered futures commission merchant and a member
of the NFA. ING BARINGS is also registered as a broker dealer and is a member of
the National Association of Securities Dealers. ING BARINGS is a clearing firm
of each of the principal U.S. futures exchanges and the Chicago Board of Options
Exchange. ING BARINGS is a wholly-owned subsidiary of ING Bank N.V. in
Amsterdam, one of the largest financial institutions in the world. ING BARINGS
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 may be involved in legal actions, some of
which may seek significant damages. With the exception of the action noted
below, during the past five years preceding the date hereof, there have been no
administrative, civil or criminal actions against ING BARINGS or any of its
principals -- whether pending, on appeal or concluded -- which is material in
light of all circumstances.
In 1998, a former client filed a demand for arbitration at the NFA seeking
a significant award. It is alleged that the claimants' liquidation of positions
on a foreign futures exchange in the volatile period of October 1997 resulted in
losses. ING BARINGS is vigorously defending the claim, which it believes to be
baseless.
PAINEWEBBER
PaineWebber's principal office is located at 1000 Harbor Boulevard,
Weehawken, New Jersey 07087; telephone: (201) 902-3000. Paine Webber is a
clearing member of all principal U.S. futures exchanges. It is registered with
the CFTC as a futures commission merchant and is a member of the NFA in such
capacity.
Except as set forth below, neither PaineWebber nor any of its principals
have been involved in any administrative, civil or criminal proceeding --
whether pending, on appeal or concluded -- within the past five years that is
material to a decision whether to invest in the Fund 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
-33-
<PAGE>
al., Civ. Action 90--4420 (D.N.J.), filed on or about May 13, 1991 naming it and
other entities and individuals as defendants. The First Amended Complaint
alleges conspiracy and aiding and abetting violations of: (1) one or more
provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO");
(2) one or more provisions of the Interstate Land Sales Full Disclosure Act; and
(3) the common law, on behalf of all persons (excluding defendants) who
purchased lots and/or houses from General Development Corporation ("GDC") or one
of its affiliates and who are members of an association known as the North Port
Out-of-State Lot Owners Association.
The secondary liability claims in the First Amended Complaint relating to
PaineWebber are premised on allegations that PaineWebber served as (1) the
co-lead underwriter in connection with the April 8, 1988 offering by GDC of
12-7/8% senior subordinated notes pursuant to a Registration Statement and
Prospectus and (2) the underwriter for a 1989 offering of Adjustable Rate
General Development Residential Mortgage Pass-Through Certificates, Series
1989-A, which plaintiffs contend enabled GDC to acquire additional financial
resources for the perpetuation of (and/or aided and abetted) an alleged scheme
to defraud purchasers of GDC lots and/or houses. The First Amended Complaint
requests certain declaratory relief, equitable relief, compensatory damages of
not less than $500 million, punitive damages of not less than three times
compensatory damages, treble damages with respect to the RICO count,
pre-judgment and post-judgment interest on all sums awarded, and attorneys'
fees, costs, disbursement and expert witness fees.
On December 27, 1993, the District Court entered an order dismissing
plaintiffs' First Amended Complaint against PaineWebber and the majority of the
other defendants for failure to state a claim upon which relief can be granted.
On November 8, 1994, the United States Court of Appeals for the Third
Circuit affirmed the District Court's order dismissing this action against
PaineWebber. On November 18, 1994, plaintiffs filed a Petition for Rehearing and
Suggestion for Rehearing En Banc with the Third Circuit.
On April 4, 1995, the United States Court of Appeals for the Third Circuit
entered an order vacating its order of November 8, 1994, and granted plaintiffs'
application for rehearing and remanded the case to the District Court for
reconsideration. Following the remand by the Third Circuit Court of Appeals, on
August 24, 1995, the District Court entered an order dismissing the action as to
all defendants. On February 20, 1996, plaintiffs filed a notice of appeal from
the District Court's order dismissing the action. On September 16, 1996, the
Third Circuit Court of Appeals heard arguments on plaintiffs' appeal. The court
has not to yet ruled on the appeal.
In July 1994, PaineWebber, together with numerous unrelated firms, were
named as defendants in a series of purported class action complaints that have
since been consolidated for pre-trial purposes in the United States District
Court for the Southern District of New York under the caption In Re NASDAQ
Market-Maker Antitrust and Securities Litigation , MDL Docket No. 1023. The
refiled consolidated complaint in these actions alleges that the defendant firms
engaged in activities as market makers on the NASDAQ over-the-counter market
that violated the federal antitrust laws. The plaintiffs seek declaratory and
injunctive relief, damages in an amount to be determined and subject to trebling
and additional relief. On December 18, 1995, PaineWebber filed its answer to
plaintiffs' refiled consolidated complaint. The parties are presently engaged in
pre-trial discovery. On November 26, 1996, the Court conditionally certified a
class of retail investors who bought or sold certain NASDAQ securities through
defendants (and in limited cases through non-defendants) during certain periods
of time. The United States District Court for the Southern District of New York
granted 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.
-34-
<PAGE>
On July 16, 1996, PaineWebber 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 was scheduled for
late September.
A series of purported class actions concerning PaineWebber's sale and
sponsorship of various limited partnership investments have been filed against
PaineWebber and PaineWebber Group Inc. (together hereinafter, "PaineWebber")
among others, by partnership investors since November 1994. Several such actions
(the "Federal Court Limited Partnership Actions") were filed in the United
States District Court for the Southern District of New York, one was filed in
the United States District Court for the Southern District of Florida and one
complaint (the "New York Limited Partnership Action") was filed in the Supreme
Court of the State of New York. The time to answer or otherwise move with
respect to these complaints has not yet expired.
The complaints in all of these cases make substantially similar
allegations that, in connection with the sale of interests in approximately 50
limited partnerships between 1980 and 1992, PaineWebber (1) failed to provide
adequate disclosure of the risks involved with each partnership; (2) made false
and misleading representations about the safety of the investments and the
anticipated performance of the partnerships; and (3) marketed the partnerships
to investors for whom such investments were not suitable. The plaintiffs, who
are suing on behalf of all persons who invested in limited partnerships sold by
PaineWebber between 1980 and 1992, also allege that, following the sale of the
partnership units, PaineWebber misrepresented financial information about the
partnerships' value and performance.
The Federal Court Limited Partnership Actions also allege that PaineWebber
violated RICO, and certain of them also claim that Paine Webber violated the
federal securities laws. The plaintiffs seek unspecified damages, including
reimbursement for all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
limited partnerships in the Federal Court Limited Partnership Actions the
plaintiffs also seek treble damages under RICO.
In addition, PaineWebber and several of its present or former officers
were sued in two other purported class actions (the "Geodyne Limited Partnership
Actions") filed in the state court in Harris County, Texas. Those cases, and
Wolff v. Geodyne Resources, Inc. et. al., are similar to the other Limited
Partnership Actions except that the plaintiffs purport to sue only on behalf of
those investors who bought interests in the Geodyne Energy Partnerships, which
were a series of oil and gas partnerships that PaineWebber sold over several
years. The plaintiffs in Geodyne Limited Partnership Actions allege that
PaineWebber committed fraud and misrepresentation, breached its fiduciary
obligations to its investors 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
-35-
<PAGE>
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 Hamilton, collectively, make allegations on
behalf of approximately 65 named plaintiffs that are substantially similar to
those in the Federal Court Limited Partnership Actions except that the
plaintiffs purport to bring only state law claims, principally for common law
fraud, negligent misrepresentation, breach of fiduciary duty, violations of the
Texas Securities Act, and violations of the Texas Deceptive Trade Practices Act,
on behalf of those investors who bought interests in Pegasus aircraft leasing
partnerships and in unspecified other limited partnerships and investments. The
plaintiffs seek unspecified damages. All three actions have been removed to
federal court and the two Mallia actions have been transferred to the United
States District Court for the Southern District of New York. The Hamilton action
has been dismissed with the consent of the parties on the grounds it is
duplicative of the two Mallia actions now before the federal court in New York.
In April 1995, two investors in the Pegasus limited partnership filed a
purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Jacobson v. Paine Webber, Inc., making allegations substantially
similar to those alleged in the Federal Court Limited Partnership Actions, but
limited in subject matter to the sale of Pegasus partnerships, and without a
RICO claim. The complaint sought unspecified damages. The plaintiffs in the
Jacobson case simultaneously remained as participants in the Federal Court
Limited Partnership Actions, and subsequently dismissed the Illinois action but
objected to the proposed settlement of the Federal Court Limited Partnership
Actions. As noted above, on March 20, 1997, the court approved the fairness of
the settlement.
THE FOLLOWING ITEMS RELATED TO MATTERS INVOLVING KIDDER, PEABODY AND CO.
INCORPORATED WHICH WAS ACQUIRED BY PAINEWEBBER 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
PaineWebber, together with other unrelated individuals and firms, has been named
as a defendant in certain actions pending in the United States District Court of
New York for the Southern District of New York brought on behalf of individuals
and two purported classes of investors in three funds (the "Funds") managed by
Askin Capital Management, L.P. and David J. Askin (collectively, the "Askin
Parties"). The actions are Primavera Familienstiftung v. David J. Askin, et al.,
Docket No. 95 Civ. 8905; ABF Capital Management, et al., v. Askin Capital
Management, L.P., Docket No. 96 Civ. 2978; and Montpellier Resources, Limited et
al., v. Askin Capital Management, L.P., et al., Docket No. 97 Civ. 1856; Richard
Johnson as Trustee for the Demeter Trust, et al. v. Askin Capital Management
L.P., et al., Docket No. 97 Civ. 4335. The plaintiffs have alleged, among other
things, that Kidder, Peabody and other brokerage firms aided and abetted false
state securities bylaws, used the Funds as an outlet for otherwise unmarketable
tranches of collateralized mortgage obligations, and violated various rules of
the New York Stock Exchange and National Association of Securities Dealers.
Collectively in the four lawsuits, the plaintiffs claim damages of approximate
$650 million, as well as unspecified punitive damages. As a result of various
decisions by the District Court, the only claim remaining in these cases against
Kidder, Peabody is for aiding and abetting the Askin Parties' fraud on the
investors. The parties are presently engaged in pre-trial discovery. No trial
date has been set.
In separate but related action now pending in the United States Bankruptcy
Court for the Southern District of New York captioned ABF Capital Management, et
al., v. Kidder, Peabody & Co. Incorporated, a group of investors in the Funds
have sought to equitably subordinate, pursuant to Section 510[c] of the
Bankruptcy Code, certain recoveries received by Kidder, Peabody, amounting to
approximate $15.5 million, in connection with the settlement of Kidder,
Peabody's claim in the Funds' bankruptcy proceedings. This action is also at an
early stage; no trial date has been set.
Kidder, Peabody is a defendant, along with other unrelated individuals and
entities, in Richard A. Lippe et. al. v. Bairnco Corp. et al., 96 Civ. 7600, in
the United States District Court for the Southern District of New York brought
by the Trustee of the Keene Creditors' Trust ("KCT"). This action originally was
-36-
<PAGE>
filed on June 8, 1995 as Adversary Proceeding No. 95/9393A in the Bankruptcy
Court for the Southern District of New York. On April 10, 1997, the District
Court ordered the withdrawal of the Bankruptcy Court. KCT was established
pursuant to the Plan of Reorganization approved in connection with the
bankruptcy proceedings related to Keene Corporation ("Keene"). The KCT claims
against Kidder, Peabody arise from fairness opinions rendered by Kidder,
Peabody's during the 1980 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 RICO. KCT seeks damages from
Kidder, Peabody and other unrelated individuals and firms in excess of $700
million. On September 15, 1997, Kidder Peabody filed a motion to dismiss the
complaint. KCT has not yet filed its opposition to the motion.
In addition to the foregoing private litigation, the following
administrative and exchange proceedings may be considered material.
On February 4, 1994, the Alabama Securities Commission issued
Administrative Order CV-93-0020. PaineWebber consented, without admitting or
denying the allegations to findings of violations of the Alabama Securities Act,
to place on the branch order ticket or other record of transactions before any
order for purchase or sale of securities through a block trading desk is
executed, a name or designation of the accounts for which such orders are to be
executed and the number of shares or contracts ordered for each account for two
years from the date of the Alabama order as to trades placed through its block
trading desk by registered representatives in Birmingham, Alabama. The
registered representatives are required to deliver a copy of the branch order
ticket to the branch office manager or to his or her designee prior to the time
the order is placed with a block desk. The Alabama Securities Commission will be
provided with a copy of a consultant's report concerning respondent's policies,
practices and procedures prepared pursuant to an SEC order on February 18, 1993
and the affidavit of PaineWebber attesting to the implementation of the
recommendations contained in such consultant's report. PaineWebber is required
to certify that all supervisory and managerial personnel in its Birmingham
office have attended the two day seminar required by the SEC order. PaineWebber
was to pay a fine of $87,000 as partial reimbursement for the Alabama Securities
Commission's cost for examining the matter.
On September 27, 1995, in matter number 94-078-S, the State of Vermont
Department of Banking, Insurance and Securities entered an Administrative
Consent Order alleging that between 1984 and 1988 PaineWebber did not reasonably
supervise two former investment executives with respect to certain outside
activities and limited partnership investment recommendations. Without admitting
or denying the allegations, PaineWebber agreed, among other things, to pay an
administrative fine of $100,000.
On or about January 18, 1996, PaineWebber consented, without admitting or
denying the findings therein, to the entry of an Order by the SEC which imposed
a censure, a cease and desist order, a $5 million civil penalty and various
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.
On June 9, 1998, the Kansas Securities Commission bought an administrative
action alleging that during the period approximately May 1993 through February
1994, a registered representative who was terminated by the firm; recommended
certain securities transaction that were not suitable for certain clients and
PaineWebber failed to reasonably supervise its former employee.
------------------------
Additional or replacement clearing brokers may be appointed in respect of
the Fund's account in the future.
-37-
<PAGE>
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 Fund.
Prospective investors should be aware that Kenmar presently intends to
assert that Unitholders have, by subscribing to the Fund, 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 Fund 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 Fund. 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 Fund the less frequently an Advisor trades in the futures markets (Kenmar
being required to pay substantially all of the Fund's futures trading costs from
the flat-rate brokerage commissions received by Kenmar from the Fund). Kenmar
retains any excess fees generated if the actual brokerage commissions paid by
the Fund 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 Fund, and certain Advisors, which it might otherwise be in the
best interests of the Fund to retain, being willing to accept only certain fee
arrangements.
Kenmar has a conflict of interest in "deleveraging" the Fund's market
commitment; i.e. Kenmar has an incentive to "deleverage" the Fund's market
commitment as its brokerage commissions will be calculated on the basis of the
Fund'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 Fund. 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 Fund.
An affiliate of Kenmar has a marketing relationship with Hirst Investment
Management Inc., pursuant to which Kenmar receives fees in connection with
certain accounts managed by Hirst Investment Management Inc. While Kenmar will
not receive any fee, direct or indirect, from Hirst Investment Management Inc.
in respect of the Fund's account, Kenmar may have a conflict of interest in
allocating Fund 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 Fund 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 Fund.
-38-
<PAGE>
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 Fund's accounts.
The Advisors may have a conflict of interest in rendering advice to the
Fund 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 Fund's account. The Advisors may have financial incentives to favor
certain accounts over the Fund.
Brokers and Dealers Selected by Advisors
Certain of the Advisors have required, as a condition of their
participation in the Fund, that their Fund 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 Fund.
Certain of the Advisors may execute a number of the trades for their Fund
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
Fund. In addition, various accounts traded through the Clearing Brokers and
executing brokers (and over which their personnel may have discretionary trading
authority) may take positions in the futures markets opposite to those of the
Fund or may compete with the Fund for the same positions. The Clearing Brokers
and executing brokers may have a conflict of interest in their execution of
trades for the Fund and for other customers. Kenmar will, however, not retain
any clearing broker for the Fund which Kenmar has reason to believe would
knowingly or deliberately favor any other customer over the Fund with respect to
the execution of commodity trades.
The Clearing Brokers and executing brokers will benefit from executing
orders for other clients, whereas the Fund may be harmed to the extent that the
Clearing Brokers and executing brokers have fewer resources to allocate to the
Fund'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 Fund.
SELLING AGENTS
The Selling Agents to be selected for the Fund 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 Fund or may compete with the Fund 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 Fund. 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 Fund's account, prospective investors should be aware that
- - -- as a result of a neutral
-39-
<PAGE>
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 Fund.
REDEMPTIONS AND DISTRIBUTIONS
The Fund is intended as a medium-to long-term "buy and hold" investment.
The Fund's objective is to achieve significant profits over time while
controlling the risk of loss. However, there can be no assurance that the Fund
will meet its objectives, and Unitholders may exacerbate their losses by "buying
and holding" an investment in the Units in the event that the Fund sustains a
prolonged period of losses.
A Unitholder may cause the Fund 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 Fund. Redemptions may be requested for a
minimum of the lesser of $1,000 or ten (10) Units provided that, for investors
redeeming less than all their Units, such investors' remaining Units must have
an aggregate Net Asset Value of at least $500. Fractional Units may be redeemed
only upon the redemption of an investor's entire interest in the Fund. The Net
Assets of the Fund 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 Fund 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
Fund 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 Fund from banks or other
persons, the Fund 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 Fund 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.
-40-
<PAGE>
Kenmar has not made, and has no intention of making, any distribution from
the Fund's profits or capital to Unitholders.
UNITHOLDERS NEED NOT REDEEM ALL THEIR UNITS IN ORDER TO REDEEM SOME OF
THEIR UNITS.
THE FUND AND THE TRUSTEE
The following summary describes in brief certain aspects of the operation
of the Fund and the Trustee's and Kenmar's respective responsibilities
concerning the Fund. Prospective investors should carefully review the
Declaration of Trust attached hereto as Exhibit A and consult with their own
advisers concerning the implications to such prospective subscribers of
investing in a Delaware business trust. The section references below are to
sections in the Declaration of Trust.
PRINCIPAL OFFICE; LOCATION OF RECORDS
The Fund is organized under the Delaware Business Trust Act. The Fund is
administered by Kenmar, whose office is located Two American Lane, Greenwich,
Connecticut 06831 (telephone: (203) 861-1000). The records of the Fund,
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 Fund during regular business hours as provided in the Declaration of
Trust. (Section 10). Kenmar will maintain and preserve the books and records of
the Fund for a period of not less than six years.
CERTAIN ASPECTS OF THE FUND
THE FUND 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 Fund 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 Fund. To the greatest extent permissible under Delaware
law, the Trustee acts in an entirely passive role, delegating all authority over
the operation of the Fund 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 Fund. 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 Fund 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 Fund's sole trustee in the State of Delaware.
The Trustee will accept service of legal process on the Fund 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 Fund, Kenmar or the
Unitholders. The Trustee is permitted to resign upon at least 60 days' notice to
the Fund, 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 Fund, and is indemnified by the Fund against
any expenses it incurs relating to or arising out of the formation, operation or
termination of the Fund 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 Fund and Kenmar are subject to issuer
liability
-41-
<PAGE>
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 Fund. The
Trustee will have no duty or liability to supervise or monitor the performance
of Kenmar, nor will the Trustee have any liability for the acts or omissions of
Kenmar. In addition, Kenmar has been designated as the "tax matters partner" of
the Fund for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). The Unitholders have no voice in the operations of the Fund, 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 Fund. (Section
2).
Because the Trustee has delegated substantially all of its authority over
the operation of the Fund to Kenmar, the Trustee itself is not registered in any
capacity with the CFTC.
MANAGEMENT OF FUND AFFAIRS; VOTING BY UNITHOLDERS
The Unitholders take no part in the management or control, and have no
voice in the operations of the Fund or its business. (Section 9). Unitholders
may, however, remove and replace Kenmar as the managing owner of the Fund, 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 Fund. (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 Fund, 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 Fund'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 FUND IN CERTAIN STATES
A number of states do not have "business trust" statutes such as that
under which the Fund 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 Fund unless
such obligation is explicitly limited so as not to be enforceable against any
Unitholder personally. Furthermore, the Fund 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
Fund 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 FUND 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
-42-
<PAGE>
matter of bankruptcy law, to return to the Fund's estate any distribution they
received at a time when the Fund 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 Fund
for any harm suffered by it as a result of (i) Unitholders' actions unrelated to
the business of the Fund, (ii) transfers of their Units in violation of the
Declaration of Trust, or (iii) taxes imposed on the Fund by the states or
municipalities in which such investors reside (Sections 8(d) and 17(c)).
The foregoing repayment of distributions and indemnity provisions (other
than the provision for Unitholders indemnifying the Fund 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 Fund 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 Fund and Kenmar. No
assignment will be effective in respect of the Fund 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 Fund. 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 Fund 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 Fund 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 Fund
or of any material changes in the basic investment policies or structure of the
Fund. 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 Fund shall be reasonable (Section 9), and Kenmar shall include in
the annual reports containing the Fund's certified financial statements
distributed to Unitholders each year the approximate round-turn equivalent rate
paid on the Fund's trades during the preceding year, as well as the actual
amounts paid by Kenmar for the Fund's execution and clearing costs (Section 10);
(ii) no rebates or give-ups, among other things, may be received from the Fund
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 Fund
(Section 9); (iii) no trading advisor of the Fund (including Kenmar) may
participate directly or indirectly in any per-trade commodity brokerage
commissions generated by the Fund (Section 9); (iv) any agreement between the
Fund and Kenmar or any affiliates of Kenmar must be terminable by the Fund upon
no more than 60 days' written notice (Section 9); (v) the Fund may make no
loans, and the funds of the Fund will not be commingled with the funds of any
other person (deposit of Fund assets with a commodity broker, clearinghouse or
currency dealer does not constitute commingling for these purposes) (Section 9);
and (vi) the Fund will not employ the trading technique commonly known as
"pyramiding."
-43-
<PAGE>
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
Fund 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 Fund, 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 Fund,
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 Fund 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 Fund 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 Fund 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 Fund engages in transactions on foreign exchanges,
it is subject to the risk of fluctuations in the exchange rate between the
currencies in which the contracts traded on such foreign exchanges are
denominated and United States dollars, as well as the possibility that exchange
controls could be imposed in the future.
-44-
<PAGE>
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 Fund.
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
The following constitutes the opinion of Sidley & Austin and summarizes
the material federal income tax consequences to United States taxpayers who are
individuals.
PARTNERSHIP TAX STATUS OF THE FUND
The Fund is a partnership for federal income tax purposes and, based on
the type of income expected to be earned by the Fund, it will not be treated as
a "publicly-traded partnership." Therefore, the Fund will not pay federal income
tax.
TAXATION OF UNITHOLDERS ON PROFITS OR LOSSES OF THE FUND
Each Unitholder must pay tax on his share of the Fund's income and gains.
Such share must be included each year in a Unitholder's taxable income whether
or not such Unitholder has redeemed Units. In addition, a Unitholder may be
subject to payment of taxes on the Fund's interest income even though the Net
Asset Value per Unit has decreased due to trading losses. See "-- Tax on Capital
Gains and Losses; Interest Income," below.
The Fund provides each Unitholder with an annual schedule of his share of
tax items. The Fund generally allocates these items equally to each Unit.
However, when a Unitholder redeems Units, the Fund allocates capital gains or
losses so as to reduce or eliminate any difference between the redemption
proceeds and the tax accounts of such Units.
LIMITED DEDUCTIBILITY OF FUND LOSSES AND DEDUCTIONS
A Unitholder may not deduct Fund losses or deductions in excess of his tax
basis in his Units as of year-end. Generally, a Unitholder's tax basis in his
Units is the amount paid for such Units reduced (but not below zero) by his
share of any Fund distributions, losses and deductions and increased by his
share of the Fund's income and gains.
LIMITED DEDUCTIBILITY FOR CERTAIN EXPENSES
Individual taxpayers are subject to material limitations on their ability
to deduct investment advisory fees, unreimbursed expenses of an employee, and
certain other expenses of producing income not resulting from the conduct of a
trade or business. There is substantial uncertainty as to whether various
expenses incurred in connection with the type of trading in applying this tax
provision. For tax reporting purposes, the Managing Owner currently intends to
treat the ordinary expenses of the Fund as ordinary business expenses not
subject to the limitations described below. However, the IRS might contend that
the
-45-
<PAGE>
management fees, the incentive fee and other expenses of the Fund constitute
"investment advisory fees" subject to the limitations.
For individuals who itemize deductions, the expenses of producing income,
including "investment advisory fees," are to be aggregated with unreimbursed
employee business expenses and certain other expenses of producing income
(collectively, the "Aggregate Investment Expenses"), and such Aggregate
Investment Expenses will be deductible only to the extent in excess of 2% of the
individual's adjusted gross income. In addition, Aggregate Investment Expenses
in excess of the 2% threshold, when combined with certain other itemized
deductions, are subject to a reduction generally equal to 3% of the individual's
adjusted gross income in excess of a certain threshold amount. Moreover, such
Aggregate Investment Expenses are miscellaneous itemized deductions, which are
not deductible by an individual in calculating his or her alternative minimum
tax liability.
If the management fees, the incentive fee and other expenses of the Fund
were determined to constitute "investment advisory fees," an individual
Unitholder's pro rata share of the amounts so characterized would be included in
Aggregate Investment Expenses potentially subject to the deduction limitations
described above. In addition, each individual Unitholder's share of income from
the Fund would be increased (solely for tax purposes) by such Unitholder's pro
rata share of the amounts so characterized. Any such characterization by the IRS
could require Unitholders to file amended tax returns and pay additional taxes,
plus interest. It is unlikely that tax penalties would be imposed on account of
such an IRS characterization.
YEAR-END MARK-TO-MARKET OF OPEN POSITIONS
Section 1256 Contracts are futures, futures options traded on U.S.
exchanges and stock index options. Section 1256 Contracts that remain open at
the end of each year are treated for tax purposes as if such positions had been
sold and any gain or loss recognized. The gain or loss on Section 1256 Contracts
is characterized as 40% short-term capital gain or loss and 60% long-term
capital gain or loss regardless of how long any given position has been held.
Non-U.S. exchange-traded futures are generally non-Section 1256 Contracts. Gain
or loss on any non-Section 1256 Contracts will be recognized when sold by the
Fund and will be primarily short-term gain or loss. Certain of the foreign
currency contracts generate ordinary income or loss.
Tax on Capital Gains and Losses; Interest Income
As described under "-- Year-End Mark-to-Market of Open Positions," the
Fund's trading, not including its cash management which generates primarily
ordinary income, generates 60% long-term capital gains or losses and 40%
short-term capital gains or losses from its Section 1256 Contracts and primarily
short-term capital gain or loss from any non-Section 1256 Contracts. Individuals
pay tax on long-term capital gains at a maximum rate of 20%. Short-term capital
gains are subject to tax at the same rates as ordinary income, with a maximum
rate of 39.6% for individuals.
Individual taxpayers may deduct capital losses only to the extent of their
capital gains plus $3,000. Accordingly, the Fund could incur significant losses
but a Unitholder could be required to pay taxes on his share of the Fund's
interest income.
If an individual taxpayer incurs a net capital loss for a year, he may
elect to carry back (up to three years) the portion of such loss which consists
of a net loss on Section 1256 Contracts. A taxpayer may deduct such losses only
against net capital gain for a carryback year to the extent that such gain
includes gains on Section 1256 Contracts. To the extent that a taxpayer could
not use such losses to offset gains on Section 1256 Contracts in a carryback
year, the taxpayer may carry forward such losses indefinitely as losses on
Section 1256 Contracts.
SYNDICATION EXPENSES
Neither the Fund nor any Unitholder will be entitled to any deduction for
the Fund's syndication expenses, including the one-time upfront organizational
charge paid to the Managing Owner and any amount paid by the Managing Owner to
any additional placement agents, nor can such expenses be amortized by the Fund
or any Unitholder.
-46-
<PAGE>
UNRELATED BUSINESS TAXABLE INCOME
Tax-exempt Unitholders will not be required to pay tax on their share of
income or gains of the Fund, provided that such Unitholders do not purchase
Units with borrowed funds.
IRS AUDITS OF THE FUND AND ITS UNITHOLDERS
The IRS is required to audit Fund-related items at the Fund level rather
than the Unitholder level. The Managing Owner is the Fund's "tax matters
partner" with general authority to determine the Fund's responses to a tax
audit. If an audit of the Fund results in an adjustment, all Unitholders may be
required to pay additional taxes plus interest as well as penalties.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described above, the
Fund and its Unitholders may be subject to various state and other taxes.
--------------------
Prospective investors are urged to consult their tax advisors before
deciding whether to invest.
PURCHASES BY EMPLOYEE BENEFIT PLANS
Although there can be no assurance that an investment in the Fund, or any
other managed futures product, will achieve the investment objectives of an
employee benefit plan in making such investment, futures investments have
certain features which may be of interest to such a plan. For example, the
futures markets are one of the few investment fields in which employee benefit
plans can participate in leveraged strategies without being required to pay tax
on "unrelated business taxable income." See "Federal Income Tax Consequences --
'Unrelated Business Taxable Income'" at page 45. In addition, because they are
not taxpaying entities, employee benefit plans are not subject to paying annual
tax on their profits (if any) from the Fund.
As a matter of policy, Kenmar will attempt to limit subscriptions to the
Fund from any employee benefit plan to no more than 10% of the value of the
readily marketable assets of such plan (irrespective of the net worth of the
beneficiary or beneficiaries of such plans).
GENERAL
The following section sets forth certain consequences under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code,
which a fiduciary of an "employee benefit plan" as defined in and subject to
ERISA or of a "plan" as defined in Section 4975 of the Code who has investment
discretion should consider before deciding to invest the plan's assets in the
Fund (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 Fund, including the role
that an investment in the Fund would play in the Plan's overall investment
portfolio. Each Plan Fiduciary, before deciding to invest in the Fund, must be
satisfied that such investment is prudent for the Plan, that the investments of
the Plan, including the investment in the Fund, are diversified so as to
minimize the risk of large losses and that an investment in the Fund complies
with the Plan and related trust.
-47-
<PAGE>
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT WITH ITS OWN LEGAL
AND TAX ADVISERS BEFORE DOING SO. AN INVESTMENT IN THE FUND IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK. THE FUND IS NOT INTENDED AS A COMPLETE
INVESTMENT PROGRAM.
"PLAN ASSETS"
A regulation issued under ERISA (the "ERISA Regulation") contains rules
for determining when an investment by a Plan in an equity interest of an entity
will result in the underlying assets of such entity being considered to
constitute assets of the Plan for purposes of ERISA and Section 4975 of the Code
(i.e., "plan assets"). Those rules provide that assets of an entity will not be
considered assets of a Plan which purchases an equity interest in the entity if
certain exceptions apply, including an exception applicable if the equity
interest purchased is a "publicly-offered security" (the "Publicly-Offered
Security Exception").
The Publicly-Offered Security Exception applies if the equity interest is
a security that is (1) "freely transferable," (2) part of a class of securities
that is "widely held" and (3) either (a) part of a class of securities
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
or (b) sold to the Plan as part of a public offering pursuant to an effective
registration statement under the Securities Act of 1933 and the class of which
such security is a part is registered under the Securities Exchange Act of 1934
within 120 days (or such later time as may be allowed by the SEC) after the end
of the fiscal year of the issuer in which the offering of such security
occurred. The ERISA Regulation states that the determination of whether a
security is "freely transferable" is to be made based on all relevant facts and
circumstances. The ERISA Regulation specifies that, in the case of a security
that is part of an offering in which the minimum investment is $10,000 or less,
the following requirements, alone or in combination, ordinarily will not affect
a finding that the security is freely transferable: (i) a requirement that no
transfer or assignment of the security or rights in respect thereof be made that
would violate any federal or state law; (ii) a requirement that no transfer or
assignment be made without advance written notice given to the entity that
issued the security; and (iii) any restriction on substitution of an assignee as
"a limited partner of a partnership, including a general partner consent
requirement, provided that the economic benefits of ownership of the assignor
may be transferred or assigned without regard to such restriction or consent"
(other than compliance with any of the foregoing restrictions). Under the ERISA
Regulation, a class of securities is "widely held" only if it is of a class of
securities owned by 100 or more investors independent of the issuer and of each
other. A class of securities will not fail to be widely held solely because
subsequent to the initial offering the number of independent investors falls
below 100 as a result of events beyond the issuer's control.
Kenmar expects that the Publicly Offered Security Exception will apply
with respect to the Units. First, the Units are being sold only as part of a
public offering pursuant to an effective registration statement under the
Securities Act of 1933, and the Units will be registered under the Securities
Exchange Act of 1934 within 120 days (or such later time as may be allowed by
the SEC after the end of the fiscal year of the Fund 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 Fund 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 Fund. 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 Fund 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 Fund to
-48-
<PAGE>
trade, the Fund 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 Fund 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 FUND, KENMAR, ANY ADVISOR, ANY CLEARING BROKER, THE
SELLING AGENTS OR ANY OTHER PARTY THAT THIS INVESTMENT MEETS SOME OR ALL OF THE
RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN
OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH
INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL
ADVISERS AS TO THE PROPRIETY OF AN INVESTMENT IN THE UNITS IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
PLAN OF DISTRIBUTION
SUBSCRIPTION PROCEDURE
Units are continuously being offered to the public -- on a "best-efforts"
basis -- at their month-end Net Asset Value per Unit. The minimum investment is
$5,000 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 $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 Fund must execute a new Subscription Agreement and Power of
Attorney Signature Pages and verify their continued suitability to make
additional investments and must have received a current Prospectus for the Fund.
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
-49-
<PAGE>
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 Fund. PaineWebber
and the Fund'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 Fund (i.e., the first day of the month
immediately following the month during which the subscription for such Unit is
accepted), the Selling Agent who sold such Unit will begin to receive ongoing
"trailing commissions" (payable quarterly) to be accrued monthly at 0.2917 of 1%
(a 3.5% annual rate) of the beginning of month Net Asset Value of such Unit --
provided, that CFTC-qualified registered representatives of the Selling Agent
have satisfied applicable proficiency requirements and agree to perform certain
ongoing services with respect to such Units. Such ongoing "trailing
commissions," once begun, will continue for as long as such Unit remains
outstanding. If there is no CFTC-qualified registered representative to perform
ongoing services, then the Selling Agent will be paid installment selling
commissions that may not exceed a lifetime total of 4.5% of the initial
subscription price of the Units in question (9.5% to the extent investors have
acquired Units on the same day as or within seventy-five (75) days after
redeeming investments in Kenmar-sponsored investment vehicles). Selling Agents
will pay a portion of such commissions to their eligible representatives. No
Selling Agent will receive upfront selling commissions, trailing commissions or
on-going selling commissions which exceed the amounts set forth above.
Kenmar, not the Fund, 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 Fund. Sidley & Austin has prepared the section "Federal Income Tax
Consequences " and "Purchases By Employee Benefit Plans" with respect to ERISA.
Sidley & Austin has not represented, nor will it represent, either the Fund or
the Unitholders in matters relating to the Fund.
EXPERTS
Arthur F. Bell, Jr. & Associates, L.L.C. have been selected as the Fund's
independent auditors. The statements of financial condition of the Fund 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.
-50-
<PAGE>
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, 1998 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 Fund with the SEC in Washington, D.C. This Prospectus does not contain all
of the information set forth in such Registration Statement, certain portions of
which have been omitted pursuant to the rules and regulations of the SEC,
including, without limitation, certain exhibits thereto (for example, the forms
of the Selling Agreement, the Advisory Agreements, and the Customer Agreement).
The descriptions contained herein of agreements included as exhibits to the
Registration Statement are necessarily summaries; the exhibits themselves may be
inspected without charge at the public reference facilities maintained by the
SEC in Washington, D.C., and copies of all or part thereof may be obtained from
the Commission upon payment of the prescribed fees. The SEC maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of such
site is http://www.sec.gov.
RECENT FINANCIAL INFORMATION AND
ANNUAL REPORTS
Pursuant to applicable CFTC regulations, prospective subscribers must
receive recent financial information (current within 60 calendar days) relating
to the Fund, 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.
[Remainder of page left blank intentionally.]
-51-
<PAGE>
PERFORMANCE OF KENMAR GLOBAL TRUST
The performance of the Fund 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
Fund's operations since the inception of trading operations (May 22, 1997) other
than simply by presenting its performance record. PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS. Other than estimated information, the
performance information set forth below is current as of October 31, 1998.
Summary Performance Information
Type of fund: multi-advisor; publicly-offered
Inception of trading: May 1997
Aggregate subscriptions: $21,726,915
Current capitalization: $21,786,537
Current Net Asset Value per Unit: $ 115.90
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 2.22 (2.30)
- - --------------------------------------------------------------------------------
July (0.88) 7.11
- - --------------------------------------------------------------------------------
August 13.22 (4.79)
- - --------------------------------------------------------------------------------
September 4.40 0.52
- - --------------------------------------------------------------------------------
October (2.09) (2.18)
- - --------------------------------------------------------------------------------
November (0.74)
- - --------------------------------------------------------------------------------
December 3.25
- - --------------------------------------------------------------------------------
Compound Rate of 15.78 0.10
Return (10 months) (8 months)
================================================================================
-52-
<PAGE>
NOTES TO PERFORMANCE INFORMATION
In reviewing the foregoing description of the Fund's performance,
prospective investors should understand that such performance is "net" of all
fees and charges and includes interest income. The Fund's fees and charges are
more fully described under "Charges."
In addition, the following terms used in describing the Fund's performance
are defined as follows:
"Drawdown" means losses experienced by the Fund 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 Fund 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 Fund'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 Fund 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 Fund as of and
for the nine months ended September 30, 1998. The Fund commenced trading
operations on May 22, 1997. See "Index to Financial Statements" at page F-1.
<TABLE>
<CAPTION>
Year Ended
Nine Months Ended December 31,
September 30, 1998 ----------- Period Ended
(unaudited) 1997 December 31, 1996
----------- ---- -----------------
<S> <C> <C> <C>
Total Assets $21,205,637 $12,782,763 $2,000
Total Partner's Capital 19,996,186 12,377,321 2,000
Gains from Trading 4,974,966 675,878
Interest Income 549,361 293,033
Total Expenses 2,341,106 842,501
Net Income 3,183,221 126,410
Net Income Per Unit (Based on
weighted average number of
units outstanding) 22.26 1.24
Increase in Net Asset Value Per Unit 18.27 0.10
</TABLE>
-53-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONAL OVERVIEW; ADVISOR SELECTIONS
The Fund'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 Fund's past performance is not
necessarily indicative of its future results.
The Advisors and asset allocations for the Fund in effect as of January 1,
1999 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 Fund and (ii) any subsequent
reallocation decision by Kenmar.
ADVISOR MAY 22, 1997 (INCEPTION) JANUARY 1, 1999
Chesapeake Capital Corporation 25% 0%
Dreiss Research Corporation 15% 19%
Hirst Investment Management Inc. 0% 23%
Hyman Beck & Company, Inc. 25% 25%
Sunrise Capital Partners, LLC 0% 21%
Willowbridge Associates Inc. 25% 12%
Witter & Lester 10% 0%
Total 100% 100%
-54-
<PAGE>
Any decision to terminate or reallocate assets among Trading Advisors is
based on a combination of numerous factors, as described under "The Fund and Its
Objectives -- The Advisors" at page 20. Kenmar's Advisor selection procedures
are described under "Kenmar -- Management of Traders" at page 25. The Advisors'
trading methods are described under "The Fund and Its Objectives -- The
Advisors" at page 20.
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 Fund and Its Objectives -- The
Advisors." Kenmar will notify investors monthly as to month-end allocations.
LIQUIDITY
The Fund's investment in futures , forwards, options and related markets
may, from time to time, be illiquid. See "The Risks You Face (12) -- "Possible
Illiquid Markets" at page 10. Most United States exchanges limit fluctuations in
certain futures interest prices during a single day by regulations referred to
as "daily price fluctuations limits" or "daily limits." Pursuant to such
regulations, during a single trading day no trades may be executed at prices
beyond the daily limit in such futures interests. If the price for a particular
contract has increased or decreased by an amount equal to the "daily limit,"
positions in such futures contract can neither be taken nor liquidated unless
traders are willing to effect trades at or within the limit. Futures contract
prices have occasionally moved the daily limit for several consecutive days with
little or no trading. Such market conditions could prevent the Fund from
promptly liquidating its positions and result in restrictions on redemptions.
Since commencement of trading by the Fund, there has never been a time when
illiquidity has affected a material portion of any Fund assets. See "Redemptions
and Distributions" at page 40.
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 Fund's trading, in general, the Fund'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 Fund is trading,
whether such illiquidity is caused by any of the above reasons or otherwise, the
Fund 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 Fund 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 Fund. Certain foreign exchanges may be substantially
more prone to periods of illiquidity than United States exchanges. Further,
certain Advisors trade forward contracts which are not traded on exchanges;
rather banks and dealers act as principals in these markets. The CFTC does not
regulate trading on non-U.S. futures markets or in forward contracts.
RESULTS OF OPERATIONS
General
Kenmar believes that multi-advisor futures funds should be regarded as
medium-to long-term (i.e., three to five year) investments, but it is difficult
to identify trends in the Fund's operations and virtually impossible to make any
predictions regarding future results based on the limited results to date.
-55-
<PAGE>
Kenmar has not made, and has no intention of making, any distributions of
the Fund's profits or capital to Unitholders.
The Fund 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 Fund, brokerage
commissions and miscellaneous executions costs and administrative expenses. Such
reimbursement and brokerage commissions are payable based upon the Net Asset
Value of the Fund and are payable without regard to the profitability of the
Fund. As a result, it is possible that the Fund may incur a net loss when
trading profits are not substantial enough to avoid depletion of the Fund's
assets from such fees and expenses. Thus, due to the nature of the Fund's
business, the success of the Fund 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
Fund can only be discussed in the context of the overall trading activities of
the Fund, the Advisors' trading activities on behalf of the Fund as a whole and
how the Fund has performed in the past.
The Fund commenced trading operations on May 22, 1997. Set forth below are
the results of operations of the Fund for the period from December 31, 1997
through September 30, 1998.
As of the quarter ending September 30, 1998, the Net Asset Value of the
Fund was $19,996,186, an increase of approximately 31.57% from its Net Asset
Value of $15,197,940 at June 30, 1998. The Fund's subscriptions and redemptions
for the quarter ended September 30, 1998 totaled $2,759,592 and $646,119,
respectively. For the quarter ended September 30, 1998, the Fund had revenues
comprised of $1,945,436 in realized gains, $2,023,463 in change in unrealized
trading gains, and $106,345 in interest income for the same period in 1997.
Total income for the third quarter of 1998 increased by $3,601,596 from the same
period in 1997, while total expenses increased by $936,850 between these
periods. The Net Asset Value per Unit at September 30, 1998 increased 17.16%
from $101.03 at June 30, 1998 to $118.37 at September 30, 1998. The Fund's
positive performance for the quarter ended September 30, 1998 resulted primarily
from gains in currencies, global interest rates, grains and meats.
The Net Asset Value of the Fund increased $7,618,865 or 61.56% from
December 31, 1997 through September 30, 1998. The Fund's subscriptions and
redemptions for the nine months ended September 30, 1998 totaled $6,525,844 and
$1,674,179, respectively. For the nine months ended September 30, 1998, the
Fund had revenues comprised of $3,538,619 in realized gains, $1,436,347 in
change in unrealized gains and $549,361 in interest income compared to revenues
comprised of ($25,851) in realized losses, $322,915 in change in unrealized
gains and $151,305 in interest income for the same period in 1997. The total
income for the first nine months of 1998 increased by $5,075,958 from the same
period in 1997 while expenses increased by $1,907,666 between these periods. The
Net Asset Value per Unit at September 30, 1998 increased 18.25% from $100.10 at
December 31,1997 to $118.37 at September 30, 1998. The Fund's positive
performance for the first nine months of 1998 resulted primarily from gains in
European and US interest rates, European stock indices, grains, tropicals and
meats.
PERFORMANCE SUMMARY
The most directly relevant information relating to the results of
operations of a managed futures fund, such as the Fund, is the actual
performance record. During the period May 22, 1997 (inception) through October
31, 1998, the Fund's Net Asset Value per Unit increased from $100.00 to $115.90
and the Compound Rate of Return for 1998, through October, is approximately
15.78%, as set forth on page 52.
CAPITAL RESOURCES
The Fund 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.
-56-
<PAGE>
There are three primary factors that affect the Fund'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 Fund
(the "Unitholders"); and (iii) the capital invested or redeemed by the Fund'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 Fund. 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 Fund, 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 Fund less total
liabilities as determined in accordance with generally accepted accounting
principles as described in the Fund'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 Fund divided by the number of
Units outstanding as of the date of determination.
The amount of capital raised for the Fund should not, except at extremely
high levels of capitalization, have a significant impact on its operations. The
Fund'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 Fund account managed by each of them, respectively.
The Fund raises additional capital only through the continuous offering of
its Units. The Fund does not borrow, and sells no securities other than the
Units. Kenmar Securities, Inc. acts as a selling agent in respect of the Fund's
Units.
The discussion above contains certain forward-looking statements (as such
term is defined in the rules promulgated under the Securities Exchange Act of
1934) that are based on the beliefs of the Kenmar, as well as assumptions made
by, and information currently available to, the Kenmar. A number of important
factors should cause the Fund'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.
-57-
<PAGE>
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 ...................................... 46
CBOE ............................................................... 24
CFTC................................................................ -ii-
Clearing Brokers ................................................... 33
Code................................................................ 42
Declaration of Trust ............................................... 25
Employee benefit plan............................................... 47
ERISA .............................................................. 47
ING BARINGS Futures & Options Clearing House........................ 33
IRS................................................................. 12
Kenmar.............................................................. Cover page
Kenmar Related Parties ............................................. 24
Loss Carryforward................................................... 31
NASAA Guidelines ................................................... 25
New Overall Appreciation............................................ 31
New Trading Profits................................................. 31
NFA................................................................. -iii-
PaineWebber ........................................................ 33
SEC ................................................................ 26
Selling Agents...................................................... -i-
Fund................................................................ Cover page
Units............................................................... Cover page
-58-
<PAGE>
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 Fund's Advisors. The success of the Fund is dependent
upon the success of the Advisors retained by or on behalf of the Fund 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 Fund'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 FUND. 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 FUND.
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 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
59
<PAGE>
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.
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
60
<PAGE>
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
October 31, 1998.
6. Aggregate assets (excluding "notional" equity) overall is the aggregate
amount of actual assets under the management of the relevant Advisor in
all programs operated by such Advisor through October 31, 1998.
7. Aggregate assets (including "notional" equity) overall is the aggregate
amount of total equity, including "notional" equity, under the management
of the relevant Advisor in all programs operated by such Advisor through
October 31, 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 October 31, 1998.
9. Aggregate assets (including "notional" equity) in program is the aggregate
amount of total equity, including "notional" equity, under the management
of the relevant Advisor in the program shown in the performance summary
through October 31, 1998.
10. Largest monthly drawdown is the largest monthly percentage loss
experienced by any account of the Advisor in the relevant program in any
calendar month covered by the performance summary. "Loss" for these
purposes is calculated on the basis of the loss experienced by each such
account, expressed as a percentage of the total equity (including
"notional" equity) of such account. Largest monthly drawdown information
includes the month and year of such drawdown, and is through October
31, 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
61
<PAGE>
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 October 31, 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 Fund. 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.
62
<PAGE>
DREISS RESEARCH CORPORATION
BACKGROUND AND MANAGEMENT
Dreiss Research Corporation ("Dreiss Research") is a Delaware corporation
formed in August 1991. Dreiss Research became registered with the CFTC as a
commodity trading advisor in March 1992, and is a member of the NFA. The
registration of Dreiss Research with the CFTC and Dreiss Research's membership
in NFA must not be taken as an indication that any such agency or
self-regulatory body has recommended or approved Dreiss Research or the
Fund. 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
14 Penryn Avenue
City Beach 6015, W. Australia
(61)-8-9385-7593
ADMINISTRATION
300 International Parkway
Heathrow, Florida 32746
(407) 805-0867
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. Echelon has no control over or involvement with the trading decisions of
Dreiss Research.
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.
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. 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. 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.
63
<PAGE>
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 fifteen 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.
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 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 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,
64
<PAGE>
the trading methods employed may be profitable though more than half of all
individual trades may be unprofitable; however, a period without such trends may
result in substantial trading losses. The trading strategies have been and will
be enhanced or revised from time to time.
The trading methods of Dreiss Research are proprietary and confidential.
This description is, of necessity, general and is not intended to be exhaustive.
Portfolio Selection. Dreiss Research trades a diversified portfolio of
futures contracts representing most major commodity groups (i.e., agriculture,
currencies, energy, equity indexes, interest rates, livestock, metals, and
softs). The selection process seeks to avoid undue concentration in any
particular futures group and to achieve a balance across all futures groups,
however, on occasion, there may be a heavier concentration of a given commodity
or a commodity complex, which could result in a greater return or risk to the
account.
The commodities currently traded are Australian dollar, British pound,
Canadian dollar, cattle, cocoa, coffee, copper, cotton, corn, crude oil, DAX
index, eurodollar, euromark, euribor, 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.
In order to increase the efficiency and quality of execution of trades,
Dreiss Research may direct 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 October 1998. In May 1991,
Dreiss Research began trading one pension account whose beneficiary is a
principal of Echelon. Such account was fully-funded and historically was 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 was treated as a proprietary account and was excluded from the composite
performance disclosures.
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.
65
<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 October 31, 1998.
Name of CTA: Dreiss Research Corporation
Name of program: Dreiss Research Corporation Trading Program
Inception of client account trading by CTA: May 1991
Inception of client account trading in program: May 1991
Number of open accounts: 37
Aggregate assets (excluding "notional" equity) overall: $14,703,125
Aggregate assets (including "notional" equity) overall: $25,975,159
Aggregate assets (excluding "notional" equity) in program: $14,703,125
Aggregate assets (including "notional" equity) in program: $25,975,159
Largest monthly drawdown: (28.29)% (6/97)
Largest peak-to-valley drawdown: (41.00)% (2/97 - 8/97)
Number of profitable closed accounts: 37
Number of unprofitable closed accounts: 15
<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 0.58 (9.59) 13.30 3.61 (7.23)* 18.14*
- - ------------------------------------------------------------------------------------------------
May 6.34 (7.40) (8.66) 1.24 13.87* 2.79*
- - ------------------------------------------------------------------------------------------------
June 3.77 (19.13) 10.60 7.45 10.41* 2.19*
- - ------------------------------------------------------------------------------------------------
July 7.74 (1.83) (17.62) (6.00) (2.05)* 1.54*
- - ------------------------------------------------------------------------------------------------
August 16.20 (4.62) (2.17) 4.72 0.41* (3.65)*
- - ------------------------------------------------------------------------------------------------
September (3.29) 3.20 10.09 (0.30) 9.16* (5.62)*
- - ------------------------------------------------------------------------------------------------
October (10.09) 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 31.29% (22.45) 26.86 59.76 38.09 36.12
10 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.
66
<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 28, 1991 through March 4, 1996, Hirst was
known as Thornley Properties Inc. The principals of Hirst Investment Management
Inc. are Dr. Gary Hirst, Jeff Davies, Joseph F. McGuire, Kendall Gordon, 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 received a Bachelor of Science degree magna cum laude in
Computer Science from the University of Miami in December 1975. He received a
Juris Doctor degree cum laude from the University of Miami School of Law in June
1979. He received a Doctor of Medicine degree from the University of Texas
Health Science Center San Antonio in December 1990.
Jeff Davies, Chief Information Officer, joined Hirst in 1997 and currently
heads the development of management and administrative systems. Mr. Davies
received a Master's degree in financial management from Teesside Polytechnic
(UK) in 1980 and spent three years developing diagnostic and management computer
software under the auspices of the Royal College of General Practitioners (UK).
Mr. Davies spent seven years as an independent computer consultant specializing
in database and financial systems. He moved to the United States in 1988 and was
employed by Hyatt Corporation as a computer specialist until 1992. Mr. Davies
spent a year developing tour management and financial systems for American Tours
International, the largest receptive tour operator in the United States. From
1994 until joining Hirst, Mr. Davies carried out computer system development and
training as a consultant to a number of companies including Westinghouse
Corporation's Power Generation Division, Northrop Grumman and Union Carbide
(through Professional Services Group of Pittsburgh).
Joseph F. McGuire, Chief Financial Officer and Compliance Officer, has
been with Hirst since November 1998. Mr. McGuire graduated from the University
of Notre Dame in 1980, earning a Bachelor of Science in Business Administration
in Accounting. Mr. McGuire is a Certified Public Accountant (CPA). From August
1980 to October 1983, Mr McGuire worked at Price Waterhouse where he was Audit
Senior. From November 1983 to November 1984 Mr. McGuire was Internal Auditor at
Macer Terminals. From December 1984 through February 1986 Mr. McGuire was
Assistant Treasurer of PaineWebber Inc. From February 1986 to May 1989, Mr.
McGuire was employed by Dean Witter Reynolds, New York, initially as Controller
of the Commodity Fund Accounting Division and later as Assistant Vice President
of the Intercapital Mutual Fund Division. From May 1989 to November 1989, Mr.
McGuire was a Controller for Bull & Bear. From November 1989 through February
1994, Mr. McGuire was CFO for John W. Henry & Co. From July 1994 to April 1996,
Mr. McGuire was CFO for Link Strategic Investors, Inc. From April 1996 to
December 1997, Mr. McGuire was CFO for the Common Fund. From December 1997 to
November 1998, Mr. McGuire was CFO for MHR Fund Management LLC. Mr. McGuire's
registration with the NFA as a principal of Hirst became effective January 1,
1999.
Kendall Gordon, Vice President, has been with Hirst since March 1998 and
is responsible for account administration. Ms. Gordon graduated from the
University of Virginia in 1994, earning a Bachelor of Arts with high distinction
in East Asian Studies. Prior to joining Hirst, Ms. Gordon was an English
instructor in Japan from July 1994 through July 1996. From December 1996 to
March 1998, Ms. Gordon worked as an Export Agent for Priority One International.
Nancy Hirst has been a Principal of Hirst since June 1991. Ms. Hirst has
no control over or
67
<PAGE>
involvement with the trading decisions of Hirst.
Mildred Hirst has been a Principal of Hirst since June 1991. Ms. Hirst has
no control over or involvement with the trading decisions of Hirst.
TRADING STRATEGY
Hirst Investment Management Inc. trades a diversified 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.
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 one time, the portfolio generally includes more
than 25 different commodities. 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 17% of
Account Size. Although margin requirements usually range between 10% and 25%,
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
68
<PAGE>
decreased as equity decreases.
DSP GLOBAL DIVERSIFIED
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of Hirst's
DSP Global Diversified Program from October 1995 through October 31, 1998.
Name of CTA: Hirst Investment Management Inc.
Name of program: DSP Global Diversified
Inception of client account trading by CTA: October 1995
Inception of client account trading in program: October 1995
Number of open accounts: 42
Aggregate assets (excluding "notional" equity) overall: $40,213,238
Aggregate assets (including "notional" equity) overall: $112,573,042
Aggregate assets (excluding "notional" equity) in program: $ 39,914,715
Aggregate assets (including "notional" equity) in program: $110,499,886
Largest monthly drawdown: (7.34)% (2/96)
Largest peak-to-valley drawdown: (8.53)% (2/96 - 3/96)
Number of profitable closed accounts: 18
Number of unprofitable closed accounts: 2
================================================================================
Monthly Performance 1998(%) 1997(%) 1996(%) 1995(%)
- - --------------------------------------------------------------------------------
January 2.11 13.50 6.84 --
- - --------------------------------------------------------------------------------
February (0.07) 8.62 (7.34) --
- - --------------------------------------------------------------------------------
March 2.85 (2.77) (1.29) --
- - --------------------------------------------------------------------------------
April (2.29) (0.79) 12.54 --
- - --------------------------------------------------------------------------------
May (0.58) 3.99 (4.87) --
- - --------------------------------------------------------------------------------
June 0.75 (3.21) 13.80 --
- - --------------------------------------------------------------------------------
July (2.63) 1.32 (3.99) --
- - --------------------------------------------------------------------------------
August 9.35 (4.49) (2.08) --
- - --------------------------------------------------------------------------------
September 1.13 4.10 15.59 --
- - --------------------------------------------------------------------------------
October 2.07 (3.79) 10.12 14.24
- - --------------------------------------------------------------------------------
November 1.20 7.08 8.85
- - --------------------------------------------------------------------------------
December 6.24 0.98 16.10
- - --------------------------------------------------------------------------------
Compound Rate
of Return 12.89% 24.73 54.05 44.37
(10
months)
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
69
<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 Park, 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 Fund.
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 New York Board of Trade.
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
product development and 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.
70
<PAGE>
Richard A. DeFalco is 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 all HB&Co.'s futures
interest portfolios. Prior to joining HB&Co., in March 1991 Mr. McCormick was
employed by Dean Witter from December 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 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
price trends in order to be profitable. Rather, trades are made under various
market conditions and are typically of short duration, averaging six days in
length. Unlike HB&Co.'s other strategies, this program may buy or sell
volatility depending on recent market conditions. A key distinguishing feature
of this approach is its ability to trade correlated markets differently. It is
common, for example, for this portfolio to be long (buy) soybeans and short
(sell) soybean meal or to be long heating oil and short crude oil. HB&Co.
believes that the non-linear models utilized in this approach should excel at
pattern recognition and the detection of conditional relationships between and
among different data inputs.
The process of generating trades begins with the
71
<PAGE>
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 Fund'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 of additional
leverage in commodity interest trading, which is already highly leveraged, may
increase profits (and losses).
Overview of Commodity Interest Portfolios
HB&Co. currently offers five (5) alternative futures interest portfolios
in which to participate: a foreign currency FX Portfolio, a Global Portfolio, a
Short-Term Original Portfolio, a Short-Term Select Portfolio* and an Asset
Allocation Portfolio. The Diversified Portfolio is only offered as a component
of the Asset Allocation Program. 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.
- - ----------
* The Short-Term Original Portfolio and Short-Term Select Portfolio may be
referenced together as the "Short-Term Portfolio."
72
<PAGE>
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/Euribor, German Bunds/Euribunds, COMI, COMF,
Eurobond, Japanese Euroyen, Japanese Government Bonds, French Notional
Bonds/Euronotional, French PIBOR/Euribor, Euro All Sovereigns, Italian
Government Bonds, Australian Government Bonds, Australian Bank Bills , Canadian
Government Bonds and Canadian Bankers Acceptances.
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, ECU/EURO, German Mark, Japanese Yen, Swiss
Franc, Canadian Dollar, Australian Dollar, French Franc, Italian Lira, Spanish
Peseta, New Zealand Dollar, Swedish Krona, Dutch Guilder, Belgian Franc and
Malaysian Ringgit.
Agricultural Commodities. Corn, Wheat, Soybeans, Soymeal and Soyoil.
Energies. Crude Oil, Heating Oil, Unleaded Gas and Gas Oil.
Other Commodities. Coffee, Sugar, Cocoa, Cotton, Cattle, Hogs and
Porkbellies.
THE GLOBAL PORTFOLIO
HB&Co. will trade the Global Portfolio on behalf of the Fund. 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 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
73
<PAGE>
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 October 31, 1998, HB&Co. was
managing approximately $266 million (excluding "notional" equity) of customer
funds in the futures and forwards markets. The performance information set forth
below is current as of October 31, 1998.
When reviewing the information below, investors should be aware that
composite performance results tend to create an "averaging effect" on the
performance of accounts. Further, investors should note that different accounts
(even though they have generally been traded according to the same trading
approach and in the same commodity interest portfolios) have had varying
investment results as described below.
The reasons for varying investment results among accounts trading the same
commodity interest portfolios 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.
Effects of the European Monetary Union
HB & Co. began trading the Euro January 1, 1999. The conversion of most
European currencies to a single euro-currency or market reaction to the
conversion or market reaction to any nation's withdrawal from the European
Monetary Union, may effect trading opportunities or trading results of currency
traders, including HB & Co. The conversion to a single euro-currency is a very
significant and novel political and economic event and there can be no certainty
about its direct or indirect future effects on currency markets. Investors
should be aware that unforseen effects of the European Monetary Union might have
an impact on performance results.
74
<PAGE>
The Global Portfolio
HB&Co. will trade this portfolio on behalf of the Fund. 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 October 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Global Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1991
Number of open accounts: 16
Aggregate assets in all programs (excluding "notional" equity): $266,228,028
Aggregate assets in all programs (including "notional" equity): $329,227,734
Aggregate assets in Global Portfolio (excluding "notional" equity): $216,358,812
Aggregate assets in Global Portfolio (including "notional" equity): $233,125,832
Largest monthly drawdown: (12.77%) (12/96)
Largest peak-to-valley drawdown: (19.38%) (7/94 - 2/95)
Number of profitable closed accounts: 30
Number of unprofitable closed accounts: 16
<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) (3.97)
- - ---------------------------------------------------------------------------------------------
February (0.41) 1.69 (8.23) 9.02 (7.45) 8.65
- - ---------------------------------------------------------------------------------------------
March (0.08) (0.23) (1.21) 18.71 12.48 2.10
- - ---------------------------------------------------------------------------------------------
April (3.56) (2.77) 2.39 6.22 (2.17) 5.65
- - ---------------------------------------------------------------------------------------------
May 3.23 0.20 (3.20) 6.34 4.22 4.55
- - ---------------------------------------------------------------------------------------------
June (2.28) 1.79 1.38 (1.12) 5.14 (4.95)
- - ---------------------------------------------------------------------------------------------
July (2.01) 10.78 1.80 (1.68) (4.30) 5.00
- - ---------------------------------------------------------------------------------------------
August 13.70 (2.78) (1.15) (1.80) (4.40) 0.51
- - ---------------------------------------------------------------------------------------------
September 7.19 2.13 4.36 (2.16) (2.85) (0.80)
- - ---------------------------------------------------------------------------------------------
October (2.94) (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 12.05% 24.38 10.82 29.12 3.81 14.63
(10
months)
=============================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
75
<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 October 1998.
<TABLE>
<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: 5
Aggregate assets in all programs (excluding "notional" equity): $265,493,119
Aggregate assets in all programs (including "notional" equity): $329,227,734
Aggregate assets in Diversified Program (excluding "notional" equity): $973,113
Aggregate assets in Diversified Program (including "notional" equity): $3,931,870
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: 5.51% (10 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 October 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: FX Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: March 1991
Number of open accounts: 5
Aggregate assets in all programs (excluding "notional" equity): $266,228,028
Aggregate assets in all programs (including "notional" equity): $329,227,734
Aggregate assets in FX Program (excluding "notional" equity): $7,985,800
Aggregate assets in FX Program (including "notional" equity): $19,318,906
Largest monthly drawdown: (18.72% ) (11/94)
Largest peak-to-valley drawdown: (52.49% ) (8/93 - 1/95)
Number of profitable closed accounts: 9
Number of unprofitable closed accounts: 32
1998 compound rate of return (1.44)% (10 months)
1997 compound rate of return: 29.30%
1996 compound rate of return: 6.65%
1995 compound rate of return: 40.58%
1994 compound rate of return: (20.63)%
1993 compound rate of return: 0.86%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
FUND'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAMS.
76
<PAGE>
ASSET ALLOCATION PORTFOLIO
The following summary performance information and table reflect the
composite performance results of the Asset Allocation Portfolios (which is
included in the preceding performance summaries) directed by HB&Co. from January
1993 through October 1998.
<TABLE>
<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): $266,228,028
Aggregate assets in all programs (including "notional" equity): $329,227,734
Aggregate assets in Asset Allocation program (excluding "notional" equity): $22,289,358
Aggregate assets in Asset Allocation program (including "notional" equity): $47,543,818
Largest monthly drawdown: (9.38% ) (2/96)
Largest peak-to-valley drawdown: (18.30% ) (8/93 - 1/95)
Number of profitable closed accounts: 3
Number of unprofitable closed accounts: 3
1998 compound rate of return (0.70)% (10 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
HB&Co.'s Short-Term Original Portfolio has been utilized only since April
1, 1996 in the trading of customer funds. The following summary performance
information reflects the composite performance results of the Short-Term
Original Portfolios directed by HB&Co through October 1998.
<TABLE>
<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: 7
Aggregate assets in all programs (excluding "notional" equity): $266,228,028
Aggregate assets in all programs (including "notional" equity): $329,227,734
Aggregate assets in Short-Term program (excluding "notional" equity): $23,836,086
Aggregate assets in Short-Term program (including "notional" equity): $38,774,842
Largest monthly drawdown: (9.34)% (4/98)
Largest peak-to-valley drawdown: (15.69%) (10/97 - 5/98)
Number of profitable closed accounts: 11
Number of unprofitable closed accounts: 3
1998 compound rate of return: (9.99)% (10 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
FUND'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAMS.
77
<PAGE>
THE SHORT-TERM SELECT PORTFOLIO
HB&Co.'s Short-Term Select Portfolio has been utilized only since
September, 1997 in the trading of customer funds. The following summary
performance information reflects the composite performance results of the
Short-Term Select Portfolios directed by HB&Co through October 1998.
<TABLE>
<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: September 1997
Number of open accounts: 6
Aggregate assets in all programs (excluding "notional" equity): $266,228,028
Aggregate assets in all programs (including "notional" equity): $329,227,734
Aggregate assets in Short-Term program (excluding "notional" equity): $17,074,217
Aggregate assets in Short-Term program (including "notional" equity): $34,076,284
Largest monthly drawdown: (10.15)% (2/98)
Largest peak-to-valley drawdown: (20.20%) (2/98 - 5/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 3
1998 compound rate of return: (11.30)% (10 months)
1997 compound rate of return: 0.73% (4 months)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
FUND'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAM.
78
<PAGE>
SUNRISE CAPITAL PARTNERS, LLC
BACKGROUND AND MANAGEMENT
Sunrise Capital Partners, LLC ("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 has served on
the faculty since 1976. Dr. Forrest joined CMI in September 1991 and is a co-
developer, with Mr. Slaughter, of CMI's trading systems. He was President and
sole shareholder of Cresta Commodities, a CTA, from September 1981 to August
1989. Dr. Forrest began trading the commodity markets in 1975.
Martin M. Ehrlich is Vice President--Marketing of Sunrise Capital
Partners. His academic background includes studies at the University of
Cincinnati where he majored in business administration. Mr. Ehrlich joined
Sunrise in November 1986 after having been a long-time investor with the
company. Prior to assuming responsibilities for marketing and public relations,
Mr. Ehrlich was an independent businessman and investor.
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
79
<PAGE>
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 nondirectional, 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 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
80
<PAGE>
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 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, Euro Currency, Swiss franc, Canadian dollar,
Australian dollar, Singapore Dollar, 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, copper and aluminum), crude oil and natural gas 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, domestic and
foreign interest rate futures, stock indices (including S & P 500), currencies
and their crossrates.
SUNRISE EXPANDED DIVERSIFIED PROGRAM
81
<PAGE>
The following summary information (determined pursuant to the Fully-Funded
Subset Method) presents the performance record of the Sunrise Expanded
Diversified Program from January 1993 through October 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: 18
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $205.7 million
Aggregate assets (including "notional" equity) in program: $229.4 million
Largest monthly drawdown: (11.83)% (10/93)
Largest peak-to-valley drawdown: (29.82)% (7/93 - 4/94)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 0
MONTHLY/ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
====================================================================================================
Month 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1.4 4.6 0.5 (8.5) (1.3) (8.3)
- - ----------------------------------------------------------------------------------------------------
February 3.3 8.6 (5.8) 4.7 (3.5) 17.4
- - ----------------------------------------------------------------------------------------------------
March 2.7 1.5 4.5 19.1 0.2 (1.7)
- - ----------------------------------------------------------------------------------------------------
April 1.6 (0.5) 9.3 2.4 (7.1) 3.2
- - ----------------------------------------------------------------------------------------------------
May 2.7 4.4 0.1 (3.8) 5.2 4.0
- - ----------------------------------------------------------------------------------------------------
June 3.3 (2.9) (0.6) (0.7) 11.8 2.5
- - ----------------------------------------------------------------------------------------------------
July (0.6) 6.0 (0.8) (1.9) (4.2) 10.2
- - ----------------------------------------------------------------------------------------------------
August 9.5 (3.3) (0.5) (0.4) (11.0) (10.2)
- - ----------------------------------------------------------------------------------------------------
September 3.2 (1.5) 0.9 (2.7) 2.5 (4.6)
- - ----------------------------------------------------------------------------------------------------
October (1.0) (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
Rate of Return 28.9% 20.7 19.3 11.5 1.6 1.5
(10
months)
====================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
82
<PAGE>
SUNRISE CURRENCY PROGRAM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Currency Program for the five-year period from January 1993 through October
1998.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise Currency Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: October 1985
Number of open accounts: 11
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $68.8 million
Aggregate assets (including "notional" equity) in program: $80 million
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: 8
1998 compound rate of return: 0.7% (10 months)
1997 compound rate of return: 10.9%
1996 compound rate of return: 20.2%
1995 compound rate of return: 34.0%
1994 compound rate of return: (22.1)%
1993 compound rate of return: (13.6)%
SUNRISE CIMCO -- DIVERSIFIED FINANCIAL PROGRAM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
CIMCO Program for the five-year period from January 1993 through October 1998.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise CIMCO Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: October 1990
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $69.2 million
Aggregate assets (including "notional" equity) in program: $69.2 million
Largest monthly drawdown: (12.04)% (1/94)
Largest peak-to-valley drawdown: (44.47)% (7/93-1/95)
Number of profitable closed accounts: 8
Number of unprofitable closed accounts: 2
1998 compound rate of return: 14.3% (10 months)
1997 compound rate of return: (3.0)%
1996 compound rate of return: 26.1%
1995 compound rate of return: 50.9%
1994 compound rate of return: (28.8)%
1993 compound rate of return: 18.0%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
83
<PAGE>
Sunrise Diversified Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Diversified Program for the five-year period from January 1993 through October
1998.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise Diversified Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: June 1980
Number of open accounts: 27
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $62.4 million
Aggregate assets (including "notional" equity) in program: $97.6 million
Largest monthly drawdown: (19.69)% (8/93)
Largest peak-to-valley drawdown: (62.77)% (9/90-8/93)
Number of profitable closed accounts: 12
Number of unprofitable closed accounts: 3
1998 compound rate of return: 22.5% (10 months)
1997 compound rate of return: 11.3%
1996 compound rate of return: 21.9%
1995 compound rate of return: 40.0%
1994 compound rate of return: (5.5)%
1993 compound rate of return: 5.9%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
84
<PAGE>
Sunrise Capital Management, Inc. -- Closed Programs
LIMITED CIMCO[S] PROGRAM
The following summary information presents the composite performance
record of the Limited CIMCO[S] Program.
Name of CTA: Sunrise Capital Management
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: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown:( 9.17)% 1/1/93 (11/93)
Largest peak-to-valley drawdown: (36.7)% (7/93-3/94)
Number of Profitable Closed Accounts: 1
Number of Unprofitable Closed Accounts: 0
1998 compound rate of return : N/A
1997 compound rate of return : N/A
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: (15.0%) (3 months)
1993 compound rate of return: (2.0%)
LIMITED CURRENCY PROGRAM
The following summary information presents the composite performance
record of the Limited Currency Program.
Name of CTA: Sunrise Capital Management
Name of program: Limited Currency Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: November 1988
(ceased trading September 1993)
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (11.54)% ( 8/93)
Largest peak-to-valley drawdown: (20.85%), 2/93-8/93
Number of profitable closed accounts from: 1
Number of unprofitable closed accounts from: 0
1998 compound rate of return : N/A
1997 compound rate of return - 1997: N/A
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
1993 compound rate of return: (13.3%) (9 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
85
<PAGE>
Commodity Monitors, Inc. -- Closed Programs
The following summary performance disclosure describes the composite
performance for CMI programs which are no longer open to new investment.
Performance information is set forth for the most recent five full years
for each program or, in the event that a program has been trading for less than
five years, performance information is set forth from the inception of trading.
Performance information prior to January 1, 1993 has been excluded in accordance
with CFTC regulations.
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
[Remainder of page left blank intentionally.]
86
<PAGE>
DIVERSIFIED PROGRAM
CMI suspended trading of its Diversified Program in August 1997. The
program, which commenced trading in September 1991, was composed of 79 accounts,
60 of which closed profitable and 19 unprofitable. Performance information is
calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Diversified Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: September 1991
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (14.3%), 9/93
Largest peak-to-valley drawdown: (31.6%), 7/93-4/93
Number of profitable closed accounts: 60
Number of unprofitable closed accounts: 19
1998 compound rate of return: N/A
1997 compound rate of return: 11.3%
1996 compound rate of return: 24.9%
1995 compound rate of return: 8.8%
1994 compound rate of return: 9.0%
1993 compound rate of return: 6.5%
FINANCIAL PROGRAM
CMI suspended trading of its Financial Program in September 1997.
The program, which commenced trading in September 1991, was composed of 6
accounts, 5 of which closed profitable and 1 unprofitable. Performance
information is calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Financial Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: September 1991
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (10.6%), 1/94
Largest peak-to-valley drawdown: (22.3%), 8/93-4/94
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 1
1998 compound rate of return: N/A
1997 compound rate of return: (3.8)%
1996 compound rate of return: 20.9%
1995 compound rate of return: 14.0%
1994 compound rate of return: (5.5)%
1993 compound rate of return: 10.1%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
87
<PAGE>
GLOBAL FOREX PROGRAM
CMI suspended trading of its Global Forex Program in June 1997. The
program which commended trading in March 1992, was composed of 17 accounts, 11
of which closed profitable and 6 unprofitable. Performance information is
calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Global Forex Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: March 1992
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (13.1%), 1/94
Largest peak-to-valley drawdown: (19.5%), 7/93-2/94
Number of profitable closed accounts: 11
Number of unprofitable closed accounts: 6
1998 compound rate of return: N/A
1997 compound rate of return: (3.2)%
1996 compound rate of return: 10.9%
1995 compound rate of return: 6.5%
1994 compound rate of return: 0.9%
1993 compound rate of return: (4.4)%
SIERRA SHORT-TERM PROGRAM
CMI suspended trading of its Sierra Short-Term Program in February
1995. The program, which commenced trading in June 1992, was composed of 32
accounts, 2 of which closed profitable and 30 unprofitable. Performance
information is calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Sierra Short-Term Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: June 1992
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $405.9 million
Aggregate assets (including "notional" equity) overall: $476 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (21.4%), 10/93
Largest peak-to-valley drawdown: (28.2%), 10/93-12/93
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 30
1998 compound rate of return: N/A 1997 compound
rate of return: N/A 1996 compound rate of return:
N/A 1995 compound rate of return: 1.0%
1994 compound rate of return: (1.4)%
1993 compound rate of return: (23.7)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
88
<PAGE>
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 Fund. 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 related instruments. Willowbridge may, to a limited extent,
also trade in other instruments. In addition, Doublewood, Inc. ("Doublewood") ,
Union Spring Asset Management, Inc. ("Union Spring"), and Limerick Financial
Corporation ("Limerick") 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 , Union Spring, and
Limerick. 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 , Union Spring and Limerick.
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 over 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
89
<PAGE>
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 five Willowbridge Investment Programs
("Programs"). Willowbridge, pursuant to its Select Investment Program, will
trade its XLIM Trading Approach on behalf of the Fund.
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. The
minimum investment size for the Currency Investment Program is $2 million in
assets.
The Primary Investment Program. Willowbridge has the discretionary
authority, based upon its periodic evaluation of market conditions, to determine
which of the Strategies to use for a given market and to initially allocate and
subsequently reallocate among such strategies and components of such strategies.
For example, if Willowbridge believes that it is in a period in which the grains
are likely to perform well, it may apply the Argo and Titan Systems to the grain
markets since these Systems typically have performed well in similar
environments. Also, if Willowbridge does not believe market conditions warrant
trading a particular market, no positions will be taken. Typically, changes in
90
<PAGE>
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. On November 3, 1997, a trading component of Titan
was added to the Primary Investment Program. The minimum investment size for the
Primary Investment Program is $2 million in assets.
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 VAT Investment Program. Willowbridge will apply the Vulcan, Argo and
Titan Trading Systems to trade futures, forward, spot and option contracts in
the currency and financial markets. If Willowbridge's Systems are no longer
available to it, Willowbridge may use only the currency and financial portion of
the XLIM and Mtech trading approaches in its trading of the VAT Investment
Program. The minimum investment size for the VAT Investment Program is $3
million in assets.
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 , Primary, CFM and VAT 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 of the Systems, risk is managed on a market-by-market level as
well as on an overall portfolio level. On the market level, risk is managed
primarily by utilizing proprietary volatility filters. When these filters detect
a certain excessive level of volatility in a market, they will signal that the
Systems should no longer be trading in that market. In this way, the Systems do
not participate in markets in which there are extremes in market action. On the
portfolio level, risk is managed by utilizing a proprietary portfolio cutback
rule. When cumulative profits have reached a certain level, this rule determines
that positions should be halved across the entire portfolio. In this way, risk
is reduced while allowing the Systems to continue to participate in the markets,
albeit a reduced level. After the portfolio has been traded at half, the rule
will then determine when to increase positions to again trade at the full level.
As of January of each year, Willowbridge readjusts its position based on
the Net Asset Value of a client's account as of such date.
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 Fund. 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
91
<PAGE>
the right to change the portfolio composition of XLIM. The XLIM Trading Approach
is offered only on a limited basis. While trading decisions are based on
fundamental and technical market analysis, of equal importance is the anecdotal
information Mr. Yang pieces together about specific market opportunities and
formulates reward-to-risk judgements about the markets. 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 that
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.
The minimum investment size for Vulcan is $1 million in assets.
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
92
<PAGE>
discontinuance of a trend. This ability to adjust the number of positions held
is Titan's primary risk-control tool. Through this combination Titan attempts to
maximize profits in markets with strong secular trends running over a six-to
twelve-month period of time, while minimizing the risks which otherwise involve
taking a large position at the start of the perceived move.
Titan's portfolio composition generally is the same as Vulcan's, although
the number of days Titan will hold a position, based on an average of the number
of days the initial base position would be held combined with the number of days
any additional positions would be held, is generally 15 days. It is intended
that approximately 15-40% of the assets under management pursuant to Titan
normally will be committed as margin for commodity interest trading, but from
time to time the percentage of assets committed may be substantially more or
less. The minimum investment size for Titan is $1 million in assets.
ARGO TRADING SYSTEM
The Argo Trading System ("Argo") commenced trading in 1988. 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. The minimum
investment size for Argo is $1 million in assets.
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. The
minimum investment size for Rex is $1 million in assets.
It is intended that approximately 15-40% of the assets under management
pursuant to Rex normally will be committed as margin or applied to premiums on
option trades, although from time to time the percentage of assets so committed
may be substantially more or less.
SIREN TRADING SYSTEM
The Siren Trading System ("Siren"), which commenced trading January 1991,
is a system based on the principles of market profiles and other techniques that
utilize real time price information. Siren can best be characterized as a top
and bottom picking system. Siren tries to determine acquisition and distribution
patterns that often signal the end and reversal of a major trend bias. When it
identifies such a change, it will attempt to initiate a countervailing position.
Similar to Titan, Siren's time frame is generally 18 to 25 trading days. The
Siren portfolio includes:
GRAINS: Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil, Oats,
Rough Rice
PRECIOUS METALS: Gold, Silver
FINANCIAL INSTRUMENTS: Treasury Bills, Treasury Bonds, Treasury Notes,
Eurodollars, Australian Treasury Bills, Australian
93
<PAGE>
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. The
minimum investment size for Siren is $1 million in assets.
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 among accounts : (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) leverage employed; (d) 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; (e) 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; (f) the
amount of management and incentive fees and the amount of brokerage commissions;
(g) the timing of orders to open or close positions; (h) the market conditions,
which in part determine the quality of trade executions; and (i) 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
94
<PAGE>
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), XLIM (beginning February
1995) and VAT (beginning November 1997), Willowbridge has adopted the
Fully-Funded Subset Method of computing rate of return and presenting
performance disclosure, pursuant to an Advisory published by the CFTC. (With
respect to these capsules, "notional funds" were not traded prior to the dates
noted.) To qualify for use of the Fully-Funded Subset Method, the Advisory
requires that certain computations be made in order to arrive at the
Fully-Funded Subset and that the accounts for which performance is so reported
meet two tests which are designed to provide assurance that the Fully-Funded
Subset and the resultant rates of return are representative of the trading
program. In each capsule using the Fully-Funded Subset Method, rate of return
for the Fully-Funded Subset is computed by dividing the sum of the net
performance, i.e., for each of the accounts, for the Fully-Funded Subset, by the
sum of the actual funds-based beginning net asset values for the Fully-Funded
Subset.
95
<PAGE>
XLIM TRADING APPROACH
Willowbridge trades this approach on behalf of the Fund. 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 October 1998.
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: 23
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $346,485,033
Aggregate assets (including "notional" equity) in program: $352,627,033
Largest monthly drawdown: (19.16)% (4/98)
Largest peak-to-valley drawdown: (32.25)% (8/97 - 5/98)
Number of profitable closed accounts: 20
Number of unprofitable closed accounts: 11
<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 (17.43) (6.47) 9.48 4.41 0.00 (2.97)
- - -------------------------------------------------------------------------------------------------
May (5.83) 1.92 (2.70) 0.25 0.00 (1.04)
- - -------------------------------------------------------------------------------------------------
June 4.85 (7.24) (0.22) (7.52) 0.00 4.00
- - -------------------------------------------------------------------------------------------------
July (3.02) 18.90 (6.76) (3.91) 0.00 12.93
- - -------------------------------------------------------------------------------------------------
August 27.29 (9.01) 2.07 (1.28) 0.00 (8.79)
- - -------------------------------------------------------------------------------------------------
September 25.53 (4.27) 14.07 2.55 0.00 (7.02)
- - -------------------------------------------------------------------------------------------------
October 17.06 (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 54.27% 1.12 31.06 31.28 (19.68) 22.30
(10
months)
=================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
96
<PAGE>
VULCAN SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Vulcan System for the five-year period from January 1993 through October 1998.
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: 13
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $31,713,773
Aggregate assets (including "notional" equity) in program: $51,646,454
Largest monthly drawdown: (19.39)% (2/96)
Largest peak-to-valley drawdown: (34.36)% (8/97- 7/98)
Number of profitable closed accounts: 18
Number of unprofitable closed accounts: 10
1998 compound rate of return: 22.94% (10 months)
1997 compound rate of return: 14.82%
1996 compound rate of return: 12.96%
1995 compound rate of return: 57.62%
1994 compound rate of return: 14.67%
1993 compound rate of return: 33.97%
TITAN SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Titan System for the five year period from January 1993 through October 1998.
Name of CTA: Willowbridge Associates Inc.
Name of program: Titan
Inception of client account trading by CTA: August 1988
Inception of client account trading in program: August 1988
Number of open accounts: 7
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $15,342,079
Aggregate assets (including "notional" equity) in program: $34,325,602
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: 2
1998 compound rate of return: 37.74% (10 months)
1997 compound rate of return: 6.27%
1996 compound rate of return: 31.91%
1995 compound rate of return: 68.10%
1994 compound rate of return: 10.06%
1993 compound rate of return: 23.28%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
97
<PAGE>
REX SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the Rex
System for the five-year period from January 1993 through October 1998.
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: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $1,208,426
Largest monthly drawdown: (25.19)% (2/96)
Largest peak-to-valley drawdown: (79.74)% (9/90 - 7/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 2
1998 compound rate of return: 12.69% (10 months)
1997 compound rate of return: (1.55)%
1996 compound rate of return: (27.37)%
1995 compound rate of return: (13.07)%
1994 compound rate of return: (12.49)%
1993 compound rate of return: (10.37)%
ARGO SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Argo System for the five-year period from January 1993 through October 1998.
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: 40
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $170,661,055
Aggregate assets (including "notional" equity) in program: $212,067,941
Largest monthly drawdown: (20.49)% (2/96)
Largest peak-to-valley drawdown: (39.34)% (8/97 - 6/98)
Number of profitable closed accounts: 74
Number of unprofitable closed accounts: 18
1998 compound rate of return: 28.65% (10 months)
1997 compound rate of return: 1.97%
1996 compound rate of return: 12.46%
1995 compound rate of return: 59.52%
1994 compound rate of return: 20.28%
1993 compound rate of return: 17.10%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
98
<PAGE>
SIREN SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Siren System for the five year period from January 1993 through October 1998.
Name of CTA: Willowbridge Associates Inc.
Name of program: Siren
Inception of client account trading by CTA: August 1988
Inception of client account trading in program: January 1991
Number of open accounts: 9
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $16,173,454
Aggregate assets (including "notional" equity) in program: $46,290,333
Largest monthly drawdown: (14.99)% (2/98)
Largest peak-to-valley drawdown: (34.70)% (11/97 - 7/98)
Number of profitable closed accounts: 8
Number of unprofitable closed accounts: 2
1998 compound rate of return: (11.71)% (10 months)
1997 compound rate of return: 21.39%
1996 compound rate of return: 1.41%
1995 compound rate of return: 25.12%
1994 compound rate of return: 37.88%
1993 compound rate of return: 9.45%
MTECH APPROACH
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
MTech Approach for the five year period from January 1993 through October 1998.
Name of CTA: Willowbridge Associates Inc.
Name of program: MTech
Inception of client account trading by CTA: August 1988
Inception of client account trading in program: January 1991
Number of open accounts: 5
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $18,041,793
Largest monthly drawdown: (21.71)% (4/98)
Largest peak-to-valley drawdown: (55.49%) (4/97 - 7/98)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 8
1998 compound rate of return: 34.07% (10 months)
1997 compound rate of return: (2.95)%
1996 compound rate of return: 45.73%
1995 compound rate of return: 53.22%
1994 compound rate of return: 21.68%
1993 compound rate of return: 32.48%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
99
<PAGE>
CFM Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the CFM
Program for the five year period from January 1993 through October 1998.
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: 3
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $21,751,942
Aggregate assets (including "notional" equity) in program: $21,751,942
Largest monthly drawdown: (18.08)% (2/94)
Largest peak-to-valley drawdown: (31.83)% (8/93 - 9/94)
Number of profitable closed accounts: 20
Number of unprofitable closed accounts: 25
1998 compound rate of return: 56.82% (10 months)
1997 compound rate of return: 2.09%
1996 compound rate of return: 31.66%
1995 compound rate of return: 24.52%
1994 compound rate of return: (10.51)%
1993 compound rate of return: 29.49%
CURRENCY PROGRAM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Currency Program for the five year period from January 1993 through October
1998.
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: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $289,786
Aggregate assets (including "notional" equity) in program: $12,769,940
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: 1.34% (10 months)
1997 compound rate of return: 10.28%
1996 compound rate of return: (0.37)%
1995 compound rate of return: 28.55%
1994 compound rate of return: (10.26)%
1993 compound rate of return: (8.59)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
100
<PAGE>
PRIMARY PROGRAM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Primary Program for the period from January 1993 through October 1998.
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: 11
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $66,497,709
Aggregate assets (including "notional" equity) in program: $87,369,240
Largest monthly drawdown: (18.74)% (4/98)
Largest peak-to-valley drawdown: (30.47)% (8/97-7/98)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 13
1998 compound rate of return: 32.51% (10 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%
VAT 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 November 1997 through October 1998.
Name of CTA: Willowbridge Associates Inc.
Name of program: VAT
Inception of client account trading by CTA: August 1988
Inception of client account trading in program: November 1997
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $668,914,831
Aggregate assets (including "notional" equity) overall: $871,098,704
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $33,000,000
Largest monthly drawdown: (7.62)% (4/98)
Largest peak-to-valley drawdown: (11.63)% (2/98-4/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1998 compound rate of return: 48.03% (10 months)
1997 compound rate of return: 1.49% (2 months)
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
1993 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING
PROGRAMS.
101
<PAGE>
PERFORMANCE OF COMMODITY POOLS OPERATED BY KENMAR
GENERAL
The performance information included herein is presented in accordance
with CFTC regulations. The Trust differs materially in certain respects from
each of the pools whose performance is included herein. The following sets forth
summary performance information for all pools operated by Kenmar (other than the
Trust) since January 1, 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 October 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.
--------------------
102
<PAGE>
ASSETS UNDER MANAGEMENT
Kenmar -- Total assets under management as of November 1, 1998: $136 million
Kenmar -- Total assets under multi-advisor management as of November 1, 1998
$95 million
Kenmar and affiliates -- Total assets under management as of November 1, 1998
$667 million (excluding notional funds)
Kenmar and affiliates -- Total assets under management as of November 1, 1998
$751 million (including notional funds)
MULTI-ADVISOR POOLS
These are all of the multi-advisor pools (other than the Trust and pools
for the research and development of traders) operated by Kenmar since January 1,
1993. Kenmar has actively allocated and reallocated trading assets among a
changing group of advisors selected by it. As will the Trust, these
multi-advisor pools depend on Kenmar for their asset allocations (and, possibly,
leverage adjustments) and strategy selections, and combine unrelated and
independent advisors.
SINGLE-ADVISOR POOLS
These are all of the pools (other than pools for the research and
development of traders) operated by Kenmar since January 1, 1993 that were, or
are, advised by a single advisor (as opposed to a portfolio of commodity trading
advisors). Investors should note that single-advisor pools do not demonstrate
Kenmar's ability to manage a portfolio of commodity trading advisors.
POOLS FOR THE RESEARCH AND DEVELOPMENT OF ADVISORS
These are all of the pools operated by Kenmar since January 1, 1993 that
were established as a way of testing, in a limited liability vehicle, one or
more commodity trading advisors relatively untested in the management of
customer assets.
[Remainder of page left blank intentionally.]
103
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AGGRE-
TYPE GATE CURRENT CURRENT
OF START CLOSE SUB TOTAL NAV PER
POOL DATE DATE SCRIPT. NAV UNIT
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
===========================================---------------------------------------------------------------------------------------
Kenmar Performance Partners L.P. ** 08/85 N/A 262,481,571 68,130,986 17,475.43
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. * 07/95 N/A 3,557,775 1,162,131 1,173.52
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Kenmar Global Trust * 5/97 N/A 21,726,915 21,786,537 115.90
- - ----------------------------------------------------------------------------------------------------------------------------------
===========================================---------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
===========================================---------------------------------------------------------------------------------------
The Dennis Fund L.P. "A" single 09/96 N/A 11,341,364 13,080,597 1,854.00
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" single 04/97 N/A 19,187,724 20,344,784 1,783.84
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
GK International Currency Fund L.P. single 04/91 12/93 2,312,504 0 903.45
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Dennis Friends & Family L.P. single 05/97 N/A 1,838,437 1,656,145 1,427.10
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Hirst Investment Fund L.P. single 10/97 N/A 3,887.335 3,804,307 1,111.92
- - ----------------------------------------------------------------------------------------------------------------------------------
===========================================---------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
===========================================---------------------------------------------------------------------------------------
Kenmar Venture Partners L.P. * 03/87 N/A 2,625,000 3,956,526 4,164.33
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
GLH Strategic Performance L.P. single 08/93 10/94 1,143,233 0 717.41
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Oberdon Partners L.L.C. single 4/97 N/A 1,607,000 1,660,444 1,059.50
- - ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
<CAPTION>
===============================================================================================================================
% %
WORST WORST
MONTHLY PEAK-TO-
DRAW- VALLEY YEAR-
DOWN & DRAWDOWN TO-
MONTH & PERIOD 1993 1994 1995 1996 1997 DATE
===============================================================================================================================
<S>
MULTI-ADVISOR POOLS
===========================================------------------------------------------------------------------------------------
Kenmar Performance Partners L.P. (19.12) (33.20) 48.30 (9.79) 8.12 3.04 (2.1) 21.72
- - -------------------------------------------------------------------------------------------------------------------------------
1/94 11/90-5/92
- - -------------------------------------------------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. (6.19) 2.26 (1.87) 3.05 13.48
- - -------------------------------------------------------------------------------------------------------------------------------
4/98 2/96-8/96
- - -------------------------------------------------------------------------------------------------------------------------------
Kenmar Global Trust (6.18) (7.07) - - - - 0.10 15.78
- - -------------------------------------------------------------------------------------------------------------------------------
4/98 7/97-11/97
===========================================------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
===========================================------------------------------------------------------------------------------------
The Dennis Fund L.P. "A" (10.75) (25.63) - - - 8.14 18.70 44.44
- - -------------------------------------------------------------------------------------------------------------------------------
8/97 3/97-8/97
- - -------------------------------------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" (10.70) (17.63) - - - - 18.75 42.26
- - -------------------------------------------------------------------------------------------------------------------------------
8/97 5/97-8/97
- - -------------------------------------------------------------------------------------------------------------------------------
GK International Currency Fund L.P. (5.75) (18.40) (16.37) - - - -
- - -------------------------------------------------------------------------------------------------------------------------------
12/93 9/92-12/93
- - -------------------------------------------------------------------------------------------------------------------------------
Dennis Friends & Family L.P. (14.79) (19.96) - - - - 0.24 42.37
- - -------------------------------------------------------------------------------------------------------------------------------
8/97 6/97-8/97
- - -------------------------------------------------------------------------------------------------------------------------------
Hirst Investment Fund L.P. (3.18) (6.62) - - - - 3.31 7.63
- - -------------------------------------------------------------------------------------------------------------------------------
7/98 4/98-7/98
===========================================------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
===========================================------------------------------------------------------------------------------------
Kenmar Venture Partners L.P. (29.70) (48.75) 57.92 3.27 5.55 14.72 36.00 (7.88)
- - -------------------------------------------------------------------------------------------------------------------------------
10/89 11/90-4/92
- - -------------------------------------------------------------------------------------------------------------------------------
GLH Strategic Performance L.P. (9.45) (29.41) (8.09) (21.95) - - - -
- - -------------------------------------------------------------------------------------------------------------------------------
1/94 9/93-10/94
- - -------------------------------------------------------------------------------------------------------------------------------
Oberdon Partners L.L.C. (20.65) (30.16) - - - - 43.37 (26.10)
- - -------------------------------------------------------------------------------------------------------------------------------
5/98 4/98-10/98
===============================================================================================================================
</TABLE>
104
<PAGE>
FOOTNOTES TO PERFORMANCE INFORMATION
1. Name of Pool.
2. Type of Pool:
"Single" means that the assets are managed by one commodity trading
advisor.
* Although multiple commodity trading advisors were used at certain times
during the history of the pool, the pool may not have been a
"multi-advisor pool" as defined by the CFTC due to the fact that one of
those commodity trading advisors may have been allocated in excess of
twenty-five percent of the pool's funds available for trading.
** Commenced trading as a single-advisor pool and assets were subsequently
allocated to multiple trading advisors. The pool is not a
"multi-advisor-pool" as defined by the CFTC for the reason discussed
above.
3. Start Date.
4. "Close Date" is the date the pool liquidated its assets and ceased to do
business.
5. "Aggregate Subscript." is the aggregate of all amounts ever contributed to
the pool, including investors who subsequently redeemed their investments.
6. "Current Total NAV" is the Net Asset Value of the pool as of October 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 October 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 , the NAV per unit on the date of
liquidation of the pool is set forth.
8. "% Worst Monthly Drawdown" is the largest single month loss sustained
since inception of trading. "Drawdown" as used in this section of the
Prospectus means losses experienced by the relevant fund over the
specified period and is calculated on a rate of return basis, i.e.,
dividing net performance by beginning equity. "Drawdown" is measured on
the basis of monthly returns only, and does not reflect intra-month
figures.
9. "Month" is the month of the % Worst Monthly Drawdown.
10. "% Worst Peak-to-Valley Drawdown" is the largest percentage decline in the
Net Asset Value per Unit over the history of the pool. This need not be a
continuous decline, but can be a series of positive and negative returns
where the negative returns are larger than the positive returns. "% Worst
Peak-to-Valley Drawdown" represents the greatest percentage decline from
any month-end Net Asset Value per Unit that occurs without such month-end
Net Asset Value per Unit being equaled or exceeded as of a subsequent
month-end. For example, if the Net Asset Value per Unit of a particular
pool declined by $1 in each of January and February, increased by $1 in
March and declined again by $2 in April, a "peak-to-valley drawdown"
analysis conducted as of the end of April would consider that "drawdown"
to be still continuing and to be $3 in amount, whereas if the Net Asset
Value per Unit had increased by $2 in March, the January-February drawdown
would have ended as of the end of February at the $2 level.
11. "Period" is the period of the "% Worst Peak-to-Valley Drawdown."
12. "Year-to-Date" is the rate of return of the pool from January 1, 1998 or
through October 1998.
105
<PAGE>
INVESTMENT FACTORS
Managed Futures is a sector of the futures industry made up of
professionals, or commodity trading advisors ("CTAs"), who on behalf of their
clients manage portfolios made up of futures and forward contracts and related
instruments traded around the world. Utilizing extensive resources, markets can
be accessed and monitored around the world, 24 hours a day.
For over 20 years institutions and individuals have made Managed Futures
part of their well-diversified portfolios. In that time period, the industry has
grown to nearly $35 billion in assets under management.(1)
As the industry has grown, so has the number, liquidity and efficiency of
the futures markets globally. Since 1974 the U.S. futures markets have grown
from consisting primarily of agricultural contracts to include financial
contracts, providing greater diversification and flexibility. The pie charts
below demonstrate this growth of diversity within the futures industry. In 1974
the agricultural sector dominated the trading volume of the industry. By 1997
the agricultural sector represented only 17% of trading while interest rate
contracts represented 55%. These interest rate contracts included contracts on
U.S. debt instruments, European debt instruments, and bonds in Asia and
Australia.
DRAMATIC CHANGES IN FUTURES INDUSTRY
1974 (1)
[GRAPHIC OMITTED]
[The following table was depicted as a pie chart in the printed material]
CURRENCIES 2%
METALS 15%
LUMBER & ENERGY 1%
AGRICULTURALS 82%
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
1998(2)
[GRAPHIC OMITTED]
[The following table was depicted as a pie chart in the printed material]
INTEREST RATES 55%
STOCK INDICES 6%
METALS 4%
CURRENCIES 6%
ENERGIES 12%
AGRICULTURALS 17%
- - ----------
(1) Represented by the percentage of the number of contracts traded per year.
(2) Based on average margin utilized by KGT as of December 1998
106
<PAGE>
Value of Diversifying into Managed Futures
Allocating a portion of the risk segment of a portfolio to a managed
futures investment, such as the Fund, may add a potentially valuable element of
diversification to a traditionally-structured portfolio. Historically over the
long term, the returns recognized on managed futures investments have been
non-correlated with the performance of stocks and bonds, suggesting that a
successful managed futures investment may be a valuable complement to a
portfolio of stocks and bonds. Diversifying assets among different investments
that generate positive but non-correlated returns has the potential to decrease
risk without a corresponding decrease in returns--enhancing the risk/reward
profile and overall "efficiency" of a portfolio. Non-correlations is not
negative correlation. The performance of the Fund 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 Fund. 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
Fund, and the Fund may perform quite differently than the Index, just as an
individual stock may perform quite differently from the S&P 500 Index.
The grey area of the chart below shows the benefit of adding 10% managed
futures to a hypothetical portfolio made up of 60% stocks and 30% bonds,
assuming an initial investment of $10,000. The combined portfolio showed
improved returns over the last eighteen years and lower volatility (a common
measure of risk) than a portfolio made up of stocks and bonds alone.
DIVERSIFYING INTO MANAGED FUTURES
JANUARY 1980-DECEMBER 1997
[GRAPHIC OMITTED]
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The graph
depicts the actual performance of the MAR Fund/Pool Qualified Universe, in
combination with stocks and bonds. The "Stocks" portion is represented by the
S&P 500 Index and the "Bonds" portion by the Lehman Brothers Government Bond
Index. These are passive indices of equity and debt securities which are
generally purchased by investors with an investment objective of capital
preservation, growth or income.
The MAR Fund/Pool Qualified Universe Index is a dollar-weighted index of 420
managed futures funds, including the performance of current as well as retired
funds, whose objective is speculative trading profits. The performance for all
indices was 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 Fund will obtain similar
results or generate any profits whatsoever in the future.
107
<PAGE>
A Managed Futures fund provides these benefits to an investor's overall
portfolio:
o Potential for reduced volatility and/or enhanced returns
o Profit potential in any market environment
o Access to global financial and non-financial futures markets
Potential for both reduced volatility and/or enhanced returns. Futures and
forwards contracts exhibit more risk than stocks or bonds. However, adding a
Managed Futures fund to a stock-and-bond-only portfolio has the potential to
reduce overall portfolio volatility and enhance returns.
This potential benefit was initially demonstrated in two key academic works.
First, Modern Portfolio Theory, developed by the Nobel Prize Laureate economists
Drs. Harry M. Markowitz and William Sharpe, asserts that investments having
positive returns and low to non-correlation with each other can improve the
risk/reward characteristics of the combined holdings. In other words, a
portfolio of different investments with positive returns independent of each
other (i.e. non-correlated) can improve the risk profile of an investor's entire
portfolio.
Modern Portfolio Theory suggests that a portfolio manager should diversify into
asset categories that have little or no correlation with the other asset
categories in the portfolio. The Nobel Prize for Economics in 1990 was awarded
to Dr. Harry Markowitz for demonstrating that the total return can increase,
and/or risks can be reduced, when portfolios have positively performing asset
categories that are essentially non-correlated. Even an investor who diversifies
into international stocks and bonds may not obtain enough non-correlation. Over
time, alternative investment classes such as real estate and international
stocks and bonds may correlate closely with domestic equities as the global
economy expands and contracts. The logical question that then arises is: "What
investment can add value to a portfolio by enhancing returns and reducing
portfolio volatility?"
Historically, managed futures investments have had very little correlation to
the stock and bond markets. Kenmar believes that the performance of the Fund
should also exhibit a substantial degree of non-correlation (not, however,
necessarily negative correlation) with the performance of traditional equity and
debt portfolio components. Unlike short selling in the securities markets,
selling futures short is no more difficult than establishing a long position.
The profit and loss potential of futures trading is not dependent upon economic
prosperity or interest rate or currency stability. 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 reward/risk profile of a portfolio, as demonstrated in the graphs
below. Non-correlation will not provide any diversification advantages unless
the non-correlated assets are out-performing other portfolio assets, and there
is no guarantee that the Fund will outperform other sectors of the portfolio (or
not produce losses). Additionally, although adding managed futures funds to a
portfolio may provide diversification, managed futures funds are not a hedging
mechanism and there is no guarantee that managed futures funds will appreciate
during periods of inflation or stock and bond market declines.
Value of Initial $10,000 Portfolio With a 10% Allocation to the MAR Fund/Pool
Qualified Universe
vs. A Stocks and Bonds Portfolio
JANUARY 1980-DECEMBER 1997
[GRAPHIC OMITTED]
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The graphs
depict the actual performance of the MAR Fund/Pool Qualified Universe, in
combination with stocks and bonds. The "Stocks" portion is represented by the
S&P 500 Index and the "Bonds" portion by the Lehman Brothers Government Bond
Index. These are passive indices of equity and debt securities which are
generally purchased by investors with an investment objective of capital
preservation, growth or income.
The MAR Fund/Pool Qualified Universe Index is a dollar weighted index of 420
managed futures funds, including the performance of current as well as retired
funds, whose objective is speculative trading profits. The performance for all
indices was 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 Fund will obtain similar
results or generate any profits whatsoever in the future.
108
<PAGE>
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 directions, while a positive
number implies the variables move in the same direction.
Non-correlated performance is not negatively correlated performance. Kenmar has
no expectation that the performance of the Fund will be inversely related to
that of the general debt and equity markets, i.e., likely to be profitable when
the latter are unprofitable or vice versa. Non-correlation means only that the
performance of the Fund has, in Kenmar's judgment, a substantial likelihood of
being unrelated to the performance of equities and debt instruments, reflecting
Kenmar's belief that certain factors which affect equity and debt prices may
affect the Fund differently and that certain factors which affect the former may
not affect the latter. The Net Asset Value per Unit may decline or increase more
or less than equity and debt instruments during both bear and bull markets.
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.
MANAGED FUTURES VERSUS THE WORST
DECLINES IN STOCKS AND BONDS Jan. 1980 - Dec. 1998
[GRAPHIC OMITTED]
Managed Futures: MAR Fund/Pool Qualified Universe Index
US Bonds: Lehman Brother's Government/Corporate Bond Index
109
<PAGE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Comparative Performance and Correlation Charts: The table below demonstrates the
differences in performance of stocks, bonds and managed future during each year
from 1980 through March 1998. The chart below the table shows the worst
peak-to-valley losses of the four asset classes for the same period.
MANAGED FUTURES US STOCKS INT'L. STOCKS US BONDS
--------------- --------- ------------- --------
1980 46% 33% 31% 10%
1981 20% -5% -1% 7%
1982 23% 22% -1% 31%
1983 -8% 22% 25% 8%
1984 4% 6% 8% 15%
1985 22% 32% 57% 21%
1986 -12% 19% 70% 16%
1987 47% 5% 25% 2%
1988 8% 16% 29% 8%
1989 10% 32% 11% 14%
1990 20% -4% -23% 6%
1991 11% 30% 13% 15%
1992 1% 8% -12% 7%
1993 15% 10% 33% 9%
1994 -2% 1% 8% -2%
1995 10% 38% 12% 15%
1996 12% 23% 6% 4%
1997 8% 34% 2% 8%
YTD 1998 2% 14% 15% 2%
- - ----------
* SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS" AT THE END
OF THIS SECTION.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
110
<PAGE>
WORST PEAK-TO-VALLEY LOSS FROM 1980 THROUGH MARCH 1998
[GRAPH OMITTED]
NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS
U.S. STOCKS* - Standard & Poor's 500 Stock Index (dividends reinvested) an
unmanaged weighted index of 500 stocks.
INTERNATIONAL STOCKS* - Morgan Stanley's EAFE Index (dividends reinvested).
U.S. BONDS* - Lehman Brothers' Government/Corporate Bond Index (coupons
reinvested).
MANAGED FUTURES* - MAR Fund/Pool Qualified Universe Index is the
dollar-weighted, total return of approximately 420 managed futures funds and
pools tracked by Managed Account Reports.
* These indices are representative of equity and debt securities and are not to
be construed as an actively managed portfolio.
Sources: Standard & Poor's, Lehman Brothers, Lipper Analytical Associates and
Managed Account Report
INVESTORS SHOULD BE AWARE THAT STOCKS, BONDS AND MANAGED FUTURES ARE VERY
DIFFERENT TYPES OF INVESTMENTS, EACH INVOLVING DIFFERENT INVESTMENT
CONSIDERATIONS AND RISKS, INCLUDING BUT NOT LIMITED TO LIQUIDITY, SAFETY,
GUARANTEES, INSURANCE, FLUCTUATION OF PRINCIPAL AND/OR RETURN, TAX FEATURES,
LEVERAGE AND VOLATILITY.
FOR EXAMPLE, TRADING IN FUTURES, FORWARD AND OPTIONS MAY INVOLVE A GREATER
DEGREE OF RISK THAN INVESTING IN STOCKS AND BONDS DUE TO, AMONG OTHER THINGS, A
GREATER DEGREE OF LEVERAGE AND VOLATILITY. ALSO, U.S. GOVERNMENT BONDS ARE
GUARANTEED BY THE U.S. GOVERNMENT AND, IF HELD TO MATURITY, OFFER BOTH A FIXED
RATE OF INTEREST AND RETURN OF PRINCIPAL.
Profit potential in any market environment. With stocks and bonds, investors
typically buy securities that they believe will increase in value, and they may
have no strategy when markets fall. Futures contracts, on the other hand, can be
easily sold short on the prospect that a market will go down. As a result,
declining markets represent opportunities for Managed Futures.
Access to global financial and non-financial markets: Finally, over the years
the futures markets have expanded globally to include investments in stock
indices and bonds, currencies, precious and base metals, agricultural products
and so forth. Investors can gain access to over 50 financial and non-financial
markets around the globe
111
<PAGE>
ADDITIONAL ADVANTAGES OF MANAGED FUTURES INVESTMENTS
100% Interest Credit. Unlike some "alternative investment" funds, the Fund will
not be required to borrow money in order to obtain the leverage used in its
trading strategy. Accordingly, the Fund will not incur any interest expense.
Rather, the Fund's margin deposits will be maintained in cash equivalents, such
as U.S. Treasury bills. Interest is earned on 100% of the Fund's available
assets (which include unrealized profits credited to the Fund's accounts).
Liquidity. In most cases the underlying markets have excellent liquidity. Some
markets trade 24 hours on business days. There can be exceptional cases where
there may be no buyer or seller for a particular market. However, one of the
selection criteria for a market to be included in the Fund is good liquidity,
and "lock limit" situations have not been common. Investors may redeem all or a
portion of their Units on a monthly basis, subject to a declining redemption fee
during the first year of ownership.
Convenience. The Fund provides a convenient means to participate in global
markets and opportunities without the time required to master complex trading
strategies and monitor multiple international markets.
Limited Liability. The liability of investors in the Fund is limited to the
amount of their investment in the Fund. Limited Partners will never be required
to contribute additional capital to the Fund.
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.
112
<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-F-10
Statements of Financial Condition as of September 30, 1998
(unaudited) and December 31, 1997 ................................ F-11
Statements of Operations for the three Months Ended September
30, 1998 and 1997 and for the Nine Months Ended September 30,
1998 and 1997 (unaudited)......................................... F-12
Statements of Cash Flows for the Nine Months Ended September 30,
1998 (unaudited) ................................................. F-13
Statements of Changes in Unitholders' Capital (Net Asset Value)
for the Nine Months Ended September 30, 1998 and 1997
(unaudited) ...................................................... F-14
Notes to Financial Statements .................................. F-15-F-21
KENMAR ADVISORY CORP.
Independent Auditor's Report............................................... F-22
Statement of Financial Condition as of September 30, 1998 (audited)........ F-23
Notes to Statement of Financial Condition.............................. .F-24-31
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
Fund'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.
/s/ ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
March 16, 1998
F-2
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and 1996
----------
1997 1996
---- ----
ASSETS
Equity in broker trading accounts
Cash $11,166,621 $ 0
Net option premiums paid 12,165 0
Unrealized gain on open contracts 838,321 0
----------- -----------
Deposits with brokers 12,017,107 0
Cash 588,287 2,000
Other assets 177,369 0
----------- -----------
Total assets $12,782,763 $ 2,000
=========== ===========
LIABILITIES
Accounts payable $ 24,489 $ 0
Commissions and other trading fees on open
contracts 6,831 0
Managing Owner brokerage commissions 89,492 0
Advisor profit shares 54,575 0
Reimbursable offering costs 23,058 0
Redemptions payable 176,774 0
Redemption charges payable to Managing Owner 4,503 0
Subscription deposits 25,720 0
----------- -----------
Total liabilities 405,442 0
----------- -----------
UNITHOLDERS' CAPITAL (NET ASSET VALUE)
Managing Owner - 1,258.4577 and 4.0000 units
outstanding at December 31, 1997 and 1996 125,970 400
Other Unitholders - 122,392.3731 and 16.0000 units
outstanding at December 31, 1997 and 1996 12,251,351 1,600
----------- -----------
Total Unitholders' capital 12,377,321 2,000
(Net Asset Value) ----------- -----------
$12,782,763 $ 2,000
=========== ===========
See accompanying notes.
F-3
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
----------
Year Ended Period Ended
December 31, December 31,
1997 1996
---- ----
INCOME
Trading gains (losses)
Realized $(162,443) $ 0
Change in unrealized 838,321 0
--------- ---------
Gain from trading 675,878 0
Interest income 293,033 0
--------- ---------
Total income 968,911 0
--------- ---------
EXPENSES
Brokerage commissions 45,814 0
Managing Owner brokerage commissions 631,403 0
Advisor profit shares 106,886 0
Operating expenses 58,398 0
--------- ---------
Total expenses 842,501 0
--------- ---------
NET INCOME $ 126,410 0
========= =========
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the period) $ 1.24 $ 0.00
========= =========
INCREASE IN NET ASSET
VALUE PER UNIT $ 0.10 $ 0.00
========= =========
See accompanying notes.
F-4
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
----------
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>
KENMAR GLOBAL TRUST
STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE) For
the Year Ended December 31, 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
----------
<TABLE>
<CAPTION>
Unitholders' Capital
--------------------------------------------
Total
Number of Managing Other
Units Owner Unitholders Total
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances at
July 17, 1996 (inception) 0.0000 $ 0 $ 0 $ 0
Additions 20.0000 400 1,600 2,000
------------- ------------ ------------ ------------
Balances at
December 31, 1996 20.0000 400 1,600 2,000
Additions 128,219.1639 125,800 12,721,762 12,847,562
Net income for the year
ended December 31, 1997 1,279 125,131 126,410
Redemptions (4,588.3331) 0 (450,887) (450,887)
Offering costs (1,509) (146,255) (147,764)
------------- ------------ ------------ ------------
Balances at
December 31, 1997 123,650.8308 $ 125,970 $ 12,251,351 $ 12,377,321
============= ============ ============ ============
<CAPTION>
Net Asset Value Per Unit
----------------------------
December 31,
1997 1996
---- ----
<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 Fund
Kenmar Global Trust (the "Fund") is a Delaware business trust. The
Fund is a multi-advisor, multi-strategy commodity pool which trades
in United States (U.S.) and foreign futures, options, forwards and
related markets. The Fund 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
Fund is subject to the regulatory requirements under the Securities
Act of 1933 and the Securities Exchange Act of 1934. As a commodity
pool, the Fund 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 Fund executes transactions. Additionally, the
Fund is subject to the requirements of the Futures Commission
Merchants (FCMs) and interbank market makers (collectively,
"brokers") through which the Fund trades.
C. Method of Reporting
The Fund's financial statements are presented in accordance with
generally accepted accounting principles, which require the use of
certain estimates made by the Fund'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 Fund prepares calendar year U.S. and state information tax
returns and reports to the Unitholders their allocable shares of the
Fund'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 Fund by
the Managing Owner. Such costs are charged to the Fund and
reimbursed to the Managing Owner at a monthly rate of 0.2% of the
Fund'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 Fund's Net Asset Value does not reach
certain future levels. Any unreimbursed organizational and initial
offering costs as of the date of the Fund's dissolution will not be
reimbursed to the Managing Owner.
Ongoing offering costs are borne by the Fund 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 Fund.
F-7
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Foreign Currency Transactions
The Fund'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 Fund is Kenmar Advisory Corp., which conducts
and manages the business of the Fund. 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 Fund.
The Managing Owner is paid monthly brokerage commissions equal to 1/12 of
11% (11% annually) of the Fund's beginning of month Net Asset Value. The
Managing Owner, in turn, pays substantially all actual costs of executing
the Fund'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 Fund. 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 Fund'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 Fund has advisory agreements with various commodity trading advisors
pursuant to which the Fund pays quarterly profit shares of 15% to 20% of
Trading Profit (as defined in each advisory agreement).
Note 4. DEPOSITS WITH BROKERS
The Fund 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 Fund 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 Fund 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
F-8
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
----------
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS (CONTINUED)
profits and losses of the Fund 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 Fund 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 Fund 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 Fund 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 Fund assets on deposit may be
limited to account insurance or other protection afforded such deposits.
In the normal course of business, the Fund does not require collateral
from such financial institutions. Since forward contracts are traded in
unregulated markets between principals, the Fund also assumes the risk of
loss from counterparty nonperformance.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Fund 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 Fund 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 Fund to potentially unlimited
liability, and purchased options expose the Fund 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
F-9
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
----------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
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
Fund'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 Fund
intends to close all contracts prior to maturity. At December 31, 1997,
the notional amount of open contracts is as follows:
Contracts to Contracts to
Purchase Sell
------------ ------------
Exchange traded futures contracts and
written options thereon:
- Financial instruments $44,900,000 $16,300,000
- Metals 1,800,000 3,700,000
- Energy 0 1,100,000
- Agricultural 1,500,000 2,800,000
- Currencies 15,300,000 18,800,000
Forward Contracts:
- Currencies 0 700,000
----------- -----------
$63,500,000 $43,400,000
=========== ===========
Exchange traded purchased options
on futures contracts:
- Financial instruments $ 3,400,000 $ 0
- Currencies 0 1,400,000
----------- -----------
$ 3,400,000 $ 1,400,000
=========== ===========
The above amounts do not represent the Fund'S risk of loss due to market
and credit risk, but rather represent the Fund'S extent of involvement in
derivatives at the date of the statement of financial condition.
The Managing Owner has established procedures to actively monitor and
minimize market and credit risk. The Unitholders bear the risk of loss
only to the extent of the market value of their respective investments
and, in certain specific circumstances, distributions and redemptions
received.
F-10
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 (Unaudited) and December 31, 1997 (Audited)
----------
September 30, December 31,
1998 1997
---- ----
ASSETS
Equity in broker trading accounts
Cash $14,560,861 $11,166,621
Net option premiums paid 0 12,165
Unrealized gain on open contracts 2,274,668 838,321
----------- -----------
Deposits with brokers 16,835,529 12,017,107
Cash 4,316,581 588,287
Other assets 53,527 177,369
----------- -----------
Total assets $21,205,637 $12,782,763
=========== ===========
LIABILITIES
Accounts payable $ 47,044 $ 24,489
Commissions and other trading fees on open
contracts 11,828 6,831
Managing Owner brokerage commissions 113,149 89,492
Advisor profit shares 653,204 54,575
Managing Owner incentive fee 99,152 0
Reimbursable offering costs 69,111 23,058
Redemptions payable 210,200 176,774
Redemption charges payable to Managing Owner 5,763 4,503
Subscription deposits 0 25,720
----------- -----------
Total liabilities 1,209,451 405,442
----------- -----------
UNITHOLDERS' CAPITAL (NET ASSET VALUE)
Managing Owner -- 1,774.6051 and
1,258.4577 units outstanding
at September 30, 1998 and December 31, 1997 210,063 125,970
Other Unitholders -- 167,152.2390 and
122,392.3731 units outstanding at September 30,
1998 and December 31, 1997 19,786,123 12,251,351
----------- -----------
Total Unitholders' capital
(Net Asset Value) 19,996,186 12,377,321
----------- -----------
$21,205,637 $12,782,763
=========== ===========
See accompanying notes.
F-11
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1998 and 1997 and
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
----------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INCOME
Trading gains (losses)
Realized $1,945,436 $ 146,520 $3,538,619 $ (25,851)
Change in unrealized 2,023,463 293,956 1,436,347 322,915
---------- ---------- ---------- ----------
Gain from trading 3,968,899 440,476 4,974,966 297,064
Interest income 179,518 106,345 549,361 151,305
---------- ---------- ---------- ----------
Total income 4,148,417 546,821 5,524,327 448,369
---------- ---------- ---------- ----------
EXPENSES
Brokerage commissions 39,010 19,384 100,591 23,461
Managing Owner brokerage commissions 410,894 253,818 1,110,523 338,023
Advisor profit shares 637,231 51,232 875,702 55,523
Managing Owner incentive fee 99,152 0 100,182 0
Operating expenses 87,417 12,420 154,108 16,433
---------- ---------- ---------- ----------
Total expenses 1,273,704 336,854 2,341,106 433,440
---------- ---------- ---------- ----------
NET INCOME $2,874,713 $ 209,967 $3,183,221 $ 14,929
========== ========== ========== ==========
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the period) $ 18.47 $ 2.12 $ 22.26 $ .16
========== ========== ========== ==========
INCREASE (DECREASE) IN NET
ASSET VALUE PER UNIT $ 17.34 $ 2.44 $ 18.27 $ (.16)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-12
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Nine Months
Ended
September 30,
1998 1997
---- ----
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Net income $ 3,183,221 $ 14,929
Adjustments to reconcile net income to
net cash from (for) operating activities:
Net change in unrealized (1,436,347) (322,915)
Increase in accounts payable and 748,990 225,417
accrued expenses
Decrease in net option premiums 12,165 20,725
Decrease in other assets 123,842 0
------------ ------------
Net cash from (for) operating activities 2,631,871 (61,844)
------------ ------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Addition of units 6,525,844 11,387,259
Decrease in subscription deposits (25,720) 0
Offering costs paid (369,968) (5,630)
Redemption of units (1,639,493) 0
------------ ------------
Net cash from financing activities 4,490,663 11,381,629
------------ ------------
Net increase in cash 7,122,534 11,319,785
CASH
Beginning of period 11,754,908 2,000
------------ ------------
End of period $ 18,877,442 $ 11,321,785
============ ============
END OF PERIOD CASH CONSISTS OF:
Cash in broker trading accounts $ 14,560,861 $ 10,004,683
Cash 4,316,581 1,317,102
------------ ------------
Total end of period cash $ 18,877,442 $ 11,321,785
============ ============
See accompanying notes.
F-13
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE)
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
----------
<TABLE>
<CAPTION>
Unitholders' Capital
Total --------------------------------------------
Number of Managing Other
Units Owner Unitholders Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30,1998
Balances at 123,650.8308 $ 125,970 $ 12,251,351 $ 12,377,321
December 31, 1997
Net income for the Nine months 32,951 3,150,270 3,183,221
ended September 30, 1998
Additions 61,475.3446 55,400 6,470,444 6,525,844
Redemptions (16,199.3313) 0 (1,674,179) (1,674,179)
Offering costs (4,258) (411,763) (416,021)
------------ ------------ ------------ ------------
Balances at 168,926.8441 $ 210,063 $ 19,786,123 $ 19,996,186
September 30, 1998
Nine Months Ended September 30, 1997
Balances at 20.0000 $ 400 $ 1,600 $ 2,000
December 31, 1996
Additions 113,411.1982 115,800 11,271,459 11,387,259
Net income for the nine months 157 14,772 14,929
ended September 30, 1997
Offering costs (808) (78,069) (78,877)
------------ ------------ ------------ ------------
Balances at
September 30, 1997 113,431.1982 $ 115,549 $ 11,209,762 $ 11,325,311
=== ==== ============ ============ ============ ============
<CAPTION>
Net Asset Value Per Unit
-----------------------------------------------------------
September 30, December 31, September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
<C> <C> <C> <C>
$118.37 $100.10 $99.84 $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 Fund
Kenmar Global Trust (the "Fund") is a Delaware business trust. The
Fund is a multi-advisor, multi-strategy commodity pool which trades
in United States (U.S.) and foreign futures, options, forwards and
related markets. The Fund 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
Fund is subject to the regulatory requirements under the Securities
Act of 1933 and the Securities Exchange Act of 1934. As a commodity
pool, the Fund 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 Fund executes transactions. Additionally, the
Fund is subject to the requirements of the Futures Commission
Merchants (FCMs) and interbank market makers (collectively,
"brokers") through which the Fund trades.
C. Method of Reporting
The Fund's financial statements are presented in accordance with
generally accepted accounting principles, which require the use of
certain estimates made by the Fund'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 Fund prepares calendar year U.S. and state information tax
returns and reports to the Unitholders their allocable shares of the
Fund's income, expenses and trading gains or losses.
F-15
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Organizational and Offering Costs
Organizational and initial offering costs (exclusive of selling
commissions) of approximately $560,000 were advanced to the Fund by
the Managing Owner. Such costs are charged to the Fund and
reimbursed to the Managing Owner at a monthly rate of 0.2% of the
Fund'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 $25,000 if the Fund'S Net Asset Value does not reach a certain
future level. Any unreimbursed organizational and initial offering
costs as of the date of the Fund'S dissolution will not be
reimbursed to the Managing Owner.
Ongoing offering costs are borne by the Fund 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 Fund.
F. Foreign Currency Transactions
The Fund'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 Fund is Kenmar Advisory Corp., which conducts
and manages the business of the Fund. 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 Fund.
The Managing Owner is paid monthly brokerage commissions equal to 1/12 of
11% (11% annually) of the Fund'S beginning of month Net Asset Value. The
Managing Owner, in turn, pays substantially all actual costs of executing
the Fund'S trades, selling commissions and trailing commissions to selling
agents, and consulting fees to the Advisors. The amount paid
F-16
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited)
----------
Note 2. MANAGING OWNER (CONTINUED)
to the Managing Owner is reduced by brokerage commissions and other
trading fees paid directly by the Fund.
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 Fund has advisory agreements with various commodity trading advisors
pursuant to which the Fund pays quarterly profit shares of 15% to 20% of
Trading Profit (as defined in each advisory agreement).
Note (4) DEPOSITS WITH BROKERS
The Fund 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 Fund 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 Fund 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 Fund 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 $35,057 during the nine months ended September 30,
1998.
F-17
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited)
----------
Note (6) TRADING ACTIVITIES AND RELATED RISKS
The Fund 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 Fund 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 Fund 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 Fund assets on deposit may be
limited to account insurance or other protection afforded such deposits.
In the normal course of business, the Fund does not require collateral
from such financial institutions. Since forward contracts are traded in
unregulated markets between principals, the Fund also assumes the risk of
loss from counterparty nonperformance.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Fund 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 Fund 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 Fund to potentially unlimited
liability, and purchased options expose the Fund to a risk of loss limited
to the premiums paid.
F-18
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited)
----------
Note (6) TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
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 nine months ended
September 30, 1998 and for the period May 22, 1997 (commencement of
trading) to September 30, 1997 and the related fair values as of September
30, 1998 and December 31, 1997 are as follows:
For the Nine For the Period As of As of
Months Ended May 22, 1997 September 30, December 31,
September 30, to September 30, 1998 1997
1998 1997
Exchange traded
futures and options
on futures contracts $1,100,000 $240,000 $2,195,000 $847,000
Forward contracts 200 50,000 80,000 3,000
Net trading results from derivatives for the three months and nine months ended
September 30, 1998 and 1997 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 and nine months ended September 30, 1998, the net trading gain from
derivatives was approximately $3,899,000 and $4,804,000, respectively. For the
three months and nine months ended September 30, 1997, the net trading gain from
derivatives was approximately $406,000 and $254,000, respectively. Such trading
results reflect the net gain arising from the Fund's speculative trading of
futures contracts, options on futures contracts and forward contracts.
F-19
<PAGE>
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 September 30, 1998 is December 2000. However, the
Fund intends to close all contracts prior to maturity. At September 30,
1998 and December 31, 1997, the notional amount of open contracts is as
follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
Contracts to Contracts to Contracts to Contracts to
Purchase Sell Purchase Sell
<S> <C> <C> <C> <C>
Exchange traded futures
contracts and written
options thereon:
- - - Financial instruments $195,900,000 $ 4,200,000 $ 44,900,000 $ 16,300,000
- - - Metals 5,600,000 5,900,000 1,800,000 3,700,000
- - - Energy 600,000 1,400,000 0 1,100,000
- - - Agricultural 600,000 6,400,000 1,500,000 2,800,000
- - - Currencies 15,700,000 5,900,000 15,300,000 18,800,000
Forward Contracts:
- Currencies 5,600,000 1,600,000 0 700,000
------------ ------------ ------------ ------------
$224,000,000 $ 25,400,000 $ 63,500,000 $ 43,400,000
Exchange traded purchased $ 0 $ 0 $ 3,400,000 $ 0
options on futures contracts: 0 0 0 1,400,000
------------ ------------ ------------ ------------
- - - Financial instruments
- - - Currencies $ 0 $ 0 $ 3,400,000 $ 1,400,000
</TABLE>
The above amounts do not represent the Fund'S risk of loss due to market
and credit risk, but rather represent the Fund'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
F-20
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited)
----------
Note (6) TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
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 September 30, 1998, the
statements of operations for the nine months ended September 30, 1998 and
1997 and for the three months ended September 30, 1998 and 1997 and the
statements of cash flows and changes in Unitholders' capital (net asset
value) for the nine months ended September 30, 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 September 30, 1998,
the results of operations for the three months and nine months ended
September 30, 1998 and 1997 and cash flows for the nine months ended
September 30, 1998 and 1997.
F-21
<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, 1998. 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, 1998, 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.
/s/ ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
December 16, 1998
F-22
<PAGE>
KENMAR ADVISORY CORP.
STATEMENTS OF FINANCIAL CONDITION
September 30, 1998
----------
ASSETS
Cash and cash equivalents $ 432,380
Fees receivable 2,449,276
Due from affiliates, net 2,325,845
Investments in affiliated commodity pools 1,832,266
Property and equipment, net 476,634
Other Assets 5,063
----------
Total assets $7,521,464
==========
LIABILITIES
Accrued expenses and other liabilities $2,663,940
Obligations under capital leases 310,841
Commercial loan payable 613,264
----------
Total liabilities $3,588,045
==========
STOCKHOLDER'S EQUITY
Common Stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares 100
Additional paid-in capital 1,479,584
Retained earnings 2,453,735
----------
Total stockholder's equity 3,933,419
----------
Total liabilities and stockholder's equity $7,521,464
==========
See accompanying notes
F-23
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
----------
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 futures, forwards and option contracts and
receives the majority of its revenue from the management thereof.
The Company is a wholly-owned subsidiary of Kenmar Holdings Inc.
(the "Parent"), which, in turn, is wholly-owned by Kenmar Investment
Associates ("KIA"). Two of the Company's officers are the sole
shareholders of KAS Commodities, Inc. and MSG Commodities, Inc.,
respectively, which, in turn, are the sole and equal owners of KIA.
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. 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.
D. Revenue Recognition
Commissions are recognized as affiliated commodity pools place
transactions with clearing brokers. Management and incentive fees
accrue in accordance with the terms of the respective agreements.
F-24
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
----------
Note 1. GENERAL DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. Property and Equipment
Depreciation of furniture, fixtures and office equipment is computed
using the straight-line method over the estimated useful lives of
the assets, which range from 5 to 7 years. Amortization of leasehold
improvements is computed using the straight-line method over the
lesser of the term of the related lease or the estimated useful
lives of the assets.
F. Income Taxes
The Company is part of the parent's consolidated group for U.S. and
state income tax purposes. Income tax returns are prepared on the
accrual basis of accounting on a fiscal year ended September 30. The
Company uses an asset and liability approach in accounting for
income taxes. The Company is allocated income tax in an amount equal
to its separate tax liability computed as if it were filing
individually. State taxing jurisdictions also assess taxes on bases
in addition to income.
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.
Summarized activity as of and for the year ended September 30, 1998,
related to these General Partner, Managing Owner or Managing Member
interests is as follows:
<TABLE>
<CAPTION>
Value at Income Value at
September 30, (Loss) September 30,
1997 Additions Allocation 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Kenmar Performance Partners L.P. $ 785,206 $ 0 $ 210,197 $ 995,403
Kenmar Venture Partners Limited Partnership 112,706 0 (2,805) 109,901
The Dennis Fund Limited Partnership 168,685 128,000 124,507 421,192
Kenmar Global Trust 115,550 65,400 29,113 210,063
Oberdon Partners L.L.C 29,109 0 (946) 28,163
The Dennis Friends & Family Limited
Partnership 0 27,437 12,768 40,205
The Hirst Investment Fund Limited
Partnership 0 25,000 2,339 27,339
----------- ----------- ----------- -----------
$ 1,211,256 $ 24,837 $ 375,173 $ 1,832,266
=========== =========== =========== ===========
</TABLE>
F-25
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
As General Partner, Managing Owner or Managing Member of these commodity
pools, the Company conducts and manages the respective businesses of such
commodity pools. Each limited partnership, trust or operating agreement
requires the Company to maintain a specified investment in the respective
commodity pools. The limited partnership agreement of Kenmar Performance
Partners L.P. requires the Company to maintain an investment in the
partnership of 1% of net asset value, up to a total of $500,000. The
limited partnership agreement of The Dennis Fund Limited Partnership
requires the Company to maintain a capital account of no less than the
lesser of 1% of the aggregate capital accounts of all partners or
$500,000. The limited partnership agreement of Kenmar Venture Partners
Limited Partnership requires the Company to maintain an investment of 1%
of the aggregate capital contributions as well as a net worth of not less
than 10% of the total contributions to the partnership. 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 limited
partnership agreements of The Dennis Friends & Family Limited Partnership
and The Hirst Investment Fund Limited Partnership require the company to
maintain a capital account of no less than the Net Asset Value of
twenty-five units. The Trust Agreement of Kenmar Global Trust (KGT)
requires the Company, as Managing Owner, to maintain a capital account
equal to 1% of the total capital accounts of KGT. As of September 30,
1998, the minimum aggregate investments required under the terms of the
agreements with these commodity pools was approximately $1,200,000. Each
limited partnership agreement also requires the Company to maintain a net
worth as required for the partnership to be treated as a partnership for
U.S. income tax purposes. The Company, as Managing Owner of KGT, has also
agreed to maintain a net worth of not less than $1,000,000. The Company is
currently maintaining net worth in excess of $3,900,000.
For managing the business of the commodity pools, the Company earns fees
and commissions in accordance with the terms of the respective limited
partnership, trust or operating agreements. 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. In addition, the Company
has similar, shared fiduciary responsibilities in connection with two
offshore investment funds sponsored by its affiliate, Kenmar Management
Ltd.
F-26
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
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,
1998, the Company has paid $527,000, OF which $412,000 has been
reimbursed. The Company recorded an expense when such amounts were
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, 1998, is as follows:
Assets $77,740,000
Liabilities 4,559,000
-----------
Net asset value $73,181,000
===========
Income $38,224,000
Expenses 22,676,000
-----------
Net income $15,548,000
===========
Note 3. PROPERTY AND EQUIPMENT
At September 30, 1998, the Company's property and equipment consists of:
Furniture and fixtures $ 55,231
Office equipment 307,178
Leasehold improvements 10,541
Leased assets 585,736
---------
958,686
Less: Accumulated depreciation and
amortization (482,052)
---------
$ 476,634
=========
Leased assets are comprised primarily of furniture, fixtures and office
equipment. Accumulated amortization related to leased assets aggregated
$298,694 at September 30, 1998.
F-27
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
----------
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
------------------------
1999 $ 154,164
2000 150,970
2001 56,502
----------
Total minimum lease payments 361,636
Less: Amounts representing interest (50,795)
----------
Present value of obligations under
capital leases $ 310,841
==========
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
------------------------
1999 $ 379,851
2000 403,719
2001 471,334
2002 477,300
2003 477,300
Thereafter 517,075
----------
$2,726,579
==========
Note 5. INCOME TAXES
The Company is included in the consolidated U.S. and state income tax
returns filed by the Parent. Deferred income taxes 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
loss carryforwards, differences in the timing of recognition of income
from affiliated commodity pools, and from differences in the depreciation
methods and useful lives of property and equipment.
Income taxes payable to the Parent as of September 30, 1998, was $110,921.
Such amount is included in due from affiliates on the statement of
financial condition.
F-28
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
----------
Note 6. 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 also pays
certain expenses on behalf of the Parent that benefit the group. The
Company, in turn, charges the appropriate portion of such common expenses
among the affiliates.
The following amounts are due from the affiliates at September 30, 1998:
Members of the Parent group, net $1,348,294
Kenmar Management Limited 276,745
Kenmar Institutional Investment
Management L.L.C 239,275
Kenmar Global Strategies, Inc. 136,262
Kenmar Investment Management
Limited 11,520
KAS Commodities, Inc. 114,113
Receivables from officers 76,645
Other 122,991
----------
$2,325,845
==========
No specific terms apply to the liquidation of amounts due from affiliates;
however, such amounts are settled periodically. The Company has reflected
its right of offset in reporting NET 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. The Company also receives
commissions, management, incentive, organization, offering, redemption and
other fees directly from the commodity pools, in accordance with the
respective agreements. For certain pools, the company in turn pays
management and incentive fees to the trading advisors. at September 30,
1998, the Company is owed fees of $2,396,241 from these commodity pools.
Note 7. 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 specified costs incurred by the Company as Managing Owner of Kenmar
Global Trust (KGT). The aggregate borrowings may not exceed $1,000,000.
Each note executed under the agreement is payable in eighteen equal
monthly installments. Interest is payable monthly at a floating rate,
which is based upon the higher of: A) the Federal Funds Rate plus .5%, or
B) the Prime Rate, as specified in the agreement. The average interest
rate is approximately 8.5% as of September 30, 1998, for all notes
outstanding.
F-29
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
----------
Note 7. COMMERCIAL LOAN PAYABLE AND LINE OF CREDIT AGREEMENT (CONTINUED)
Amounts outstanding under the agreement are secured by the amounts due to
the Company from KGT and the intercompany note to an affiliate from Kenmar
Management Limited. The agreement also contains certain covenants which,
if not met, could subject amounts outstanding under the agreement to
accelerated repayment.
At September 30, 1998, notes totaling $613,264 ARE outstanding under this
line of credit agreement, of which $552,370 is due within twelve months.
Note 8. 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.
F-30
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
----------
Note 8. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
The fair value of derivatives represents unrealized gains and losses
on open futures and forward contracts, and the market value of option contracts.
The average month-end fair value of open derivatives held by the commodity pools
during the year ended September 30, 1998, was approximatelY $6,640,000. The
related year-end fair value was approximately $6,264,000.
At September 30, 1998, the notional amount of open contracts is as
follows:
Contracts to Contracts to
Purchase Sell
-------- ----
Derivatives (excluding purchased
options) $1,083,000,000 $ 747,800,000
Purchased options 3,200,000 100,000
The Company, as General Partner, Managing Owner or Managing Member, has
established procedures to actively monitor and minimize market and credit
risk.
F-31
<PAGE>
EXHIBIT A
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
DATED AS OF
DECEMBER 17, 1996
KENMAR ADVISORY CORP.
MANAGING OWNER
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
PAGE
----
1. Declaration of Trust..................................................TA-1
2. The Trustee...........................................................TA-2
(a) Term; Resignation........................................TA-2
(b) Powers...................................................TA-2
(c) Compensation and Expenses of the Trustee.................TA-2
(d) Indemnification..........................................TA-2
(e) Successor Trustee........................................TA-3
(f) Liability of the Trustee.................................TA-3
(g) Reliance by the Trustee and the Managing Owner; Advice
of Counsel...............................................TA-4
(h) Not Part of Trust Estate.................................TA-4
3. Principal Office......................................................TA-4
4. Business..............................................................TA-4
5. Term, Dissolution, Fiscal Year and Net Asset Value....................TA-5
(a) Term.....................................................TA-5
(b) Dissolution..............................................TA-5
(c) Fiscal Year..............................................TA-5
(d) Net Asset Value; Net Asset Value per Unit................TA-5
6. Net Worth of Managing Owner...........................................TA-5
7. Capital Contributions; Units..........................................TA-5
8. Allocation of Profits and Losses......................................TA-6
(a) Capital Accounts and Allocations.........................TA-6
(b) Allocation of Profit and Loss for Federal Income Tax
Purposes.................................................TA-6
(c) Incentive Fees; Profit Shares............................TA-8
(d) Expenses.................................................TA-8
(e) Limited Liability of Unitholders.........................TA-9
(f) Return of Capital Contributions..........................TA-9
9. Management of the Trust...............................................TA-9
10. Audits and Reports to Unitholders.....................................TA-11
11. Assignability of Units................................................TA-11
12. Redemptions...........................................................TA-12
13. Offering of Units.....................................................TA-13
14. Additional Offerings..................................................TA-13
15. Special Power of Attorney.............................................TA-14
16. Withdrawal of a Unitholder............................................TA-14
17. Standard of Liability; Indemnification................................TA-14
(a) Standard of Liability for the Managing Owner.............TA-14
(b) Indemnification of the Managing Owner by the Trust.......TA-15
(c) Indemnification of the Trust by the Unitholders..........TA-16
18. Amendments; Meetings..................................................TA-16
(a) Amendments with Consent of the Managing Owner............TA-16
(b) Amendments and Actions without Consent of the Managing
Owner....................................................TA-16
(c) Meetings; Other Voting Matters...........................TA-16
(d) Consent by Trustee.......................................TA-17
19. Governing Law.........................................................TA-17
TA-i
<PAGE>
20. Miscellaneous.........................................................TA-17
(a) Notices..................................................TA-17
(b) Binding Effect...........................................TA-17
(c) Captions.................................................TA-17
21. Benefit Plan Investors................................................TA-17
22. Certain Definitions...................................................TA-18
23. No Legal Title to Trust Estate........................................TA-19
24. Legal Title...........................................................TA-19
25. Creditors.............................................................TA-20
TA-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 3810 of the Act.
TA-1
<PAGE>
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 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,
TA-2
<PAGE>
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.
(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;
TA-3
<PAGE>
(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
Managing Owner
TA-4
<PAGE>
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; 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;
TA-5
<PAGE>
(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 Fund in such an
event), or (ii) within one hundred twenty days after such event Unitholders
holding a majority of Units agree in writing to continue the business of the
Trust and to the appointment, effective as of the date of such event, of one or
more managing owners of the Trust; (4) a decline in the aggregate Net Assets of
the Trust to less than $250,000; (5) dissolution of the Trust pursuant hereto;
or (6) any other event which shall make it unlawful for the existence of the
Trust to be continued or require termination of the Trust. In the event that the
Managing Owner (or an affiliate thereof) ceases to be the trust's managing
owner, the word "Kenmar" shall be deleted from the name of the Trust, and any
appropriate filings shall be made.
(b) Dissolution. Upon the occurrence of an event causing the
dissolution of the Trust, the Trust shall be dissolved and its affairs wound up.
At any time that the Trust does not have a Managing Owner, the Unitholders by
majority vote may appoint a liquidator.
(c) Fiscal Year. The fiscal year of the Trust shall begin on January
1 of each year and end on the following December 31.
(d) Net Asset Value; Net Asset Value per Unit. Net Assets of the
Fund 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.
TA-6
<PAGE>
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 Fund.
Any Units acquired by the Managing Owner or any of its affiliates
will be non-voting, and will not be considered outstanding for purposes of
determining whether the majority approval of the outstanding Units has been
obtained. Such Unitholder shall be deemed a beneficial owner within the meaning
of the Act.
8. Allocation of Profits and Losses.
(a) Capital Accounts and Allocations. A capital account shall be
established for each Unit, and for the Managing Owner on a Unit-equivalent
basis. The balance of each Unit's capital account shall be the amount
contributed to the Trust with respect to such Unit, which amount shall be equal
to the Net Asset Value per Unit on the date each Unit is purchased after all
accrued fees and expenses, including Incentive Fee and Profit Share accruals
which may, in fact, never be paid. As of the close of business (as determined by
the Managing Owner) on the last day of each month, any increase or decrease in
the Trust's Net Assets as compared to the last such determination of Net Assets
shall be credited or charged equally to the capital accounts of all Units then
outstanding; provided that for purposes of maintaining such capital accounts,
amounts paid or payable to the Managing Owner for items such as brokerage
commissions and Incentive Fees shall be treated as if paid or payable to a third
party and shall not be credited to the capital account of the interest held by
the Managing Owner.
For purposes of this Section 8, unless specified to the contrary,
Units redeemed as of the end of any month shall be considered outstanding as of
the end of such month.
(b) Allocation of Profit and Loss for Federal Income Tax Purposes.
As of the end of each fiscal year, the Trust's income and expense and capital
gain or loss shall be allocated among the Unitholders pursuant to the following
provisions of this Section 8(b) for federal income tax purposes. For purposes of
this Section 8(b), capital gain and capital loss shall be allocated separately
and not netted.
TA-7
<PAGE>
(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.
TA-8
<PAGE>
(D) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal
year) shall be allocated Capital Loss, if any, up to the amount of the sum
of the excess of the tax accounts (determined after making the allocations
described in Sections 8(b)(1) and 8(b)(2), but prior to making the
allocations described in this Section 8(b)(3)(D) or Section 8(b)(3)(B))
allocable to the Units so redeemed over the amount received in respect of
such Units (before taking into account any early redemption charges) (a
"Negative Excess"). In the event the aggregate amount of available Capital
Loss required to be allocated pursuant to this Section 8(b)(3)(D) is less
than the aggregate amount required to be so allocated, the aggregate
amount of available Capital Loss shall be allocated among all such
Unitholders in the ratio that each such Unitholder's Negative Excess bears
to the aggregate Negative Excess of all such Unitholders.
(E) Capital Loss remaining after the allocation described in Section
8(b)(3)(D) shall be allocated among all Unitholders who hold Units
outstanding as of the end of the applicable fiscal year (other than Units
redeemed as of the end of the last day of such fiscal year) whose tax
accounts with respect to such Units are in excess of their capital
accounts (determined after making the allocations described in Sections
8(b)(1) and 8(b)(2)) with respect to such Units in the ratio that each
such Unitholder's negative excess bears to the aggregate negative excess
of all such Unitholders. Capital Loss remaining after the allocation
described in the preceding sentence shall be allocated among all
Unitholders described in such sentence in proportion to their holdings of
such Units.
(F) For purposes of this Section 8(b), "Capital Gain" or "Capital
Loss" shall mean gain or loss characterized as gain or loss from the sale
or exchange of a capital asset, by the Code, including, but not limited
to, gain or loss required to be taken into account pursuant to Section
1256 thereof.
(4) The allocation of profit and loss for federal income tax
purposes set forth herein is intended to allocate taxable profit and loss among
Unitholders generally in the ratio and to the extent that profit and loss are
allocated to such Unitholders so as to eliminate, to the extent possible, any
disparity between the Unitholder's capital account and his tax account,
consistent with principles set forth in Section 704 of the Code, including
without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the Unitholders in respect
of the Units shall not exceed the allocations permitted under Subchapter K of
the Code, as determined by the Managing Owner, whose determination shall be
binding.
(c) Incentive Fees; Profit Shares. Incentive Fees shall be payable
to the Managing Owner as of the end of each calendar year and upon redemption of
Units.
Incentive Fees shall equal 5% of New Overall Appreciation (if any)
calculated as of each fiscal year-end and upon redemption of Units. New Overall
Appreciation shall be calculated, not on a per-Unit basis, but on the basis of
the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
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
TA-9
<PAGE>
Units redeemed as of such date); the remainder of the accrued Incentive Fee
shall be paid to the Managing Owner on December 31 of each year.
For capital account purposes, accrued Incentive Fees shall, in all
cases, be reflected equally as a reduction in the Net Asset Value per Unit of
all Units outstanding at the time the Incentive Fee accrued, and reversals of
accrued Incentive Fees shall equally increase the Net Asset Value per Unit of
all Units outstanding at the time of the accrual of such reversal, irrespective
of whether a particular Unit was outstanding when a particular Incentive Fee was
accrued.
Early redemption charges shall in no respect reduce New Overall
Appreciation.
The Profit Shares paid to the Advisors pursuant to the Advisory
Agreements among the Managing Owner, the Trust and each such Advisor shall
result in deductions being allocated to the Unitholders. Such allocation shall
apply the same principles as the allocation of Incentive Fee deductions
described above. Profit Shares with respect to any calendar quarter will be paid
to an Advisor as of the last day of such period, except that Profit Shares with
respect to Units redeemed as of the last day of any month that does not end a
calendar quarter shall be paid as of the day such Units are redeemed and Profit
Shares with respect to Units redeemed as of the end of any month that ends a
calendar quarter shall be paid to an Advisor in the same manner and at the same
time as if such Units had not been redeemed.
In the event assets are withdrawn from an Advisor's account or the
Trust as a whole (other than to pay expenses), any loss carryforward shall be
proportionally reduced for purposes of calculating subsequent Profit Shares and
Incentive Fees. Loss carryforward reductions shall not be restored as a result
of subsequent additions of capital.
The Managing Owner may adjust the allocations set forth in this
Section 8(c), in the Managing Owner's discretion, if the Managing Owner believes
that doing so will achieve more equitable allocations or allocations more
consistent with the Code.
(d) Expenses. The Managing Owner shall pay, without reimbursement,
the selling and "trailing commissions" relating to the offering of the Units.
The Trust shall pay the Managing Owner brokerage commissions at the rate of 11%
per annum of the average beginning of month Net Assets of the Trust. The Trust
shall bear all administrative costs, ongoing offering costs and any taxes
applicable to it and any charges incidental to trading, including agency
brokerage commissions (e.g., "bid-ask" spreads). In no event shall
organizational and offering expenses, including selling commissions and
redemption fees, exceed 15% of the capital contributions to the Trust. Any
unreimbursed organizational and initial offering expenses as of the date of the
Trust's dissolution shall not be reimbursed to the Managing Owner from the
proceeds resulting from such dissolution. However, none of the Managing Owner's
"overhead" expenses incurred in connection with the administration of the Trust
(including, but not limited to, salaries, rent and travel expenses) shall be
charged to the Trust. Any goods and services provided to the Trust by the
Managing Owner shall be provided at rates and terms at least as favorable as
those which may be obtained from third parties in arm's-length negotiations. All
of the expenses which are for the Trust's account shall be billed directly to
the Trust. Appropriate reserves may be created, accrued and charged against Net
Assets for contingent liabilities, if any, as of the date any such contingent
liability becomes known to the Managing Owner. Such reserves shall reduce Net
Asset Value for all purposes.
(e) Limited Liability of Unitholders. Each Unit, when purchased in
accordance with this Declaration of Trust and Trust Agreement, shall, except as
otherwise provided by law, be fully paid and nonassessable. Any provisions of
this Declaration of Trust and Trust Agreement to the contrary notwithstanding,
TA-10
<PAGE>
except as otherwise provided by law, no Unitholder shall be liable for Trust
obligations in excess of the capital contributed by such Unitholder, plus his
share of undistributed profits and assets.
(f) Return of Capital Contributions. No Unitholder or subsequent
assignee shall have any right to demand the return of his capital contribution
or any profits added thereto, except through redeeming Units or upon dissolution
of the Trust, in each case as provided herein and in accordance with the Act. In
no event shall a Unitholder or subsequent assignee be entitled to demand or
receive property other than cash.
9. Management of the Trust.
The Managing Owner, to the exclusion of all Unitholders, shall
control, conduct and manage the business of the Trust. The Managing Owner shall
have sole discretion in determining what distributions of profits and income, if
any, shall be made to the Unitholders (subject to the allocation provisions
hereof), shall execute various documents on behalf of the Trust and the
Unitholders pursuant to powers of attorney and supervise the liquidation of the
Trust if an event causing dissolution of the Trust occurs.
The Managing Owner may in furtherance of the business of the Trust
cause the Trust to retain Advisors to buy, sell, hold, or otherwise acquire or
dispose of commodities, futures contracts and options traded on exchanges or
otherwise, arbitrage positions, repurchase agreements, interest-bearing
securities, deposit accounts and similar instruments, provided that the Trust
shall not invest in any debt instruments other than Treasury securities,
short-term sovereign debt instruments and other investments authorized by the
Commodity Futures Trading Commission (the "CFTC") for the investment of
"customer funds," and shall not invest in any equity security without prior
notice to Unitholders, all as described in the prospectus relating to the
offering of the Units in effect as of the time that such Unitholder last
purchased Units while in receipt of a current prospectus (the "Prospectus"). The
Managing Owner may engage, and compensate on behalf of the Trust from funds of
the Trust, or agree to share profits and losses with, such persons, firms or
corporations, including (except as described in this Declaration of Trust and
Trust Agreement) the Managing Owner and any affiliated person or entity, as the
Managing Owner in its sole judgment shall deem advisable for the conduct and
operation of the business of the Trust, provided, that no such arrangement shall
allow brokerage commissions paid by the Trust in excess of the amount described
in the Prospectus or as permitted under applicable North American Securities
Administrators Association, Inc. Guidelines for the Registration of Commodity
Pool Programs ("NASAA Guidelines") in effect as of the date of the Prospectus
(i.e., 80% of the published retail rate plus pit brokerage fees, or 14% annually
- - -- including pit brokerage and service fees -- of the Trust's average Net
Assets, excluding the assets not directly related to trading activity),
whichever is higher. The Managing Owner shall reimburse the Trust, on an annual
basis, to the extent that the Trust's brokerage commissions paid to the Managing
Owner and the Annual Incentive Fee, as described in the Prospectus, have
exceeded 14% of the Trust's average Net Assets during the preceding year. The
Managing Owner is hereby specifically authorized to enter into, on behalf of the
Trust the Advisory Agreements and the Selling Agreement as described in the
Prospectus. The Managing Owner shall not enter into an Advisory Agreement with
any trading advisor that does not satisfy the relevant experience (i.e.,
ordinarily a minimum of three years) requirements under the NASAA Guidelines.
The Trust's brokerage commissions may not be increased (i) during any period
when redemption charges are in effect or (ii) without prior written notice to
Unitholders within sufficient time for the exercise of their redemption rights
prior to such increase becoming effective. Such notification shall contain a
description of Unitholder's voting and redemption rights and a description of
any material effect of such increase.
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.
TA-11
<PAGE>
The Managing Owner shall be under a fiduciary duty to conduct the
affairs of the Trust in the best interests of the Trust. The Unitholders will
under no circumstances be deemed to have contracted away the fiduciary
obligations owed them by the Managing Owner under the common law. The Managing
Owner's fiduciary duty includes, among other things, the safekeeping of all
Trust funds and assets and the use thereof for the benefit of the Trust. The
Managing Owner shall at all times act with integrity and good faith and exercise
due diligence in all activities relating to the conduct of the business of the
Trust and in resolving conflicts of interest. The Trust's brokerage arrangements
shall be non-exclusive, and the brokerage commissions paid by the Trust shall be
competitive. The Trust shall seek the best price and services available for its
commodity transactions.
The Managing Owner is hereby authorized to perform all other duties
imposed by Sections 6221 through 6232 of the Code on the Managing Owner as the
"tax matters partner" of the Trust.
The Trust shall make no loans to any party, and the funds of the
Trust will not be commingled with the funds of any other person or entity
(deposit of funds with a commodity broker, clearinghouse or forward dealer or
entering into joint ventures or partnerships shall not be deemed to constitute
"commingling" for these purposes). The Managing Owner shall make no loans to the
Trust unless approved by the Unitholders in accordance with Section 18(a) of
this Declaration of Trust and Trust Agreement. If the Managing Owner makes a
loan to the Trust, the Managing Owner shall not receive interest in excess of
its interest costs, nor may the Managing Owner receive interest in excess of the
amounts which would be charged the Trust (without reference to the Managing
Owner's financial resources or guarantees) by unrelated banks on comparable
loans for the same purpose. The Managing Owner shall not receive "points" or
other financing charges or fees regardless of the amount. Except in respect of
the Incentive Fee, no person or entity may receive, directly or indirectly, any
advisory, management or incentive fees, or any profit-sharing allocation from
joint ventures, partnerships or similar arrangements in which the Trust
participates, for investment advice or management who shares or participates in
any commodity brokerage commissions; no broker may pay, directly or indirectly,
rebates or give-ups to any trading advisor or manager or to the Managing Owner
or any of their respective affiliates in respect of sales of the Units; and such
prohibitions may not be circumvented by any reciprocal business arrangements.
The foregoing prohibition shall not prevent the Trust from executing, at the
direction of any Advisor, transactions with any futures commission merchant or
broker. No trading advisor for the Trust shall be affiliated with the Trust's
commodity broker, the Managing Owner or their affiliates. The maximum period
covered by any contract entered into by the Trust, except for the various
provisions of the Selling Agreement which survive each closing of the sales of
the Units, shall not exceed one year. Any material change in the Trust's basic
investment policies or structure shall require the approval of Unitholders
owning Units representing more than fifty percent (50%) of all Units then owned
by the Unitholders. Any agreements between the Trust and the Managing Owner or
any affiliate of the Managing Owner (as well as any agreements between the
Managing Owner or any affiliate of the Managing Owner and any trading advisor)
shall be terminable without penalty by the Trust upon no more than 60 days'
written notice. All sales of Units in the United States will be conducted by
registered brokers.
The Trust is prohibited from employing the trading technique
commonly known as "pyramiding." A trading manager or advisor of the Trust taking
into account the Trust's open trade equity on existing positions in determining
generally whether to acquire additional commodity positions on behalf of the
Trust will not be considered to be engaging in "pyramiding."
The Managing Owner may take such other actions on behalf of the
Trust as the Managing Owner deems necessary or desirable to manage the business
of the Trust.
TA-12
<PAGE>
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 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
TA-13
<PAGE>
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.
TA-14
<PAGE>
Requests for redemption must be received by the Managing Owner at
least ten calendar days, or such lesser period as shall be acceptable to the
Managing Owner, in advance of the requested effective date of redemption. The
Managing Owner may declare additional redemption dates upon notice to the
Unitholders as well as to those assignees of whom the Managing Owner has
received notice as described above.
If at the close of business (as determined by the Managing Owner) on
any day, the Net Asset Value per Unit has decreased to less than 50% of the Net
Asset Value per Unit as of the most recent Valuation Date, after adding back all
distributions, the Trust shall notify investors within seven business days and
shall liquidate all open positions as expeditiously as possible and suspend
trading. Within ten business days after the date of suspension of trading, the
Managing Owner (and any other managing owners of the Trust) shall declare a
Special Redemption Date. Such Special Redemption Date shall be a business day
within 30 business days from the date of suspension of trading by the Trust, and
the Managing Owner shall mail notice of such date to each Unitholder and
assignee of Units of whom it has received written notice as described above, by
first-class mail, postage prepaid, not later than ten business days prior to
such Special Redemption Date, together with instructions as to the procedure
such Unitholder or assignee must follow to have his interest (only entire, not
partial, interests may be so redeemed unless otherwise determined by the
Managing Owner) in the Trust redeemed on such date. Upon redemption pursuant to
a Special Redemption Date, a Unitholder or any other assignee of whom the
Managing Owner has received written notice as described above, shall receive
from the Trust an amount equal to the Net Asset Value of his interest in the
Trust, determined as of the close of business (as determined by the Managing
Owner) on such Special Redemption Date. No redemption charges shall be assessed
on any such Special Redemption Date. As in the case of a regular redemption, an
assignee shall not be entitled to redemption until the Managing Owner has
received written notice (as described above) of the assignment, transfer or
disposition under which the assignee claims an interest in the Units to be
redeemed. If, after such Special Redemption Date, the Net Assets of the Trust
are at least $250,000 and the Net Asset Value of a Unit is in excess of $25, the
Trust may, in the discretion of the Managing Owner, resume trading. The Managing
Owner may at any time and in its discretion declare a Special Redemption Date,
should the Managing Owner determine that it is in the best interests of the
Trust to do so. The Managing Owner in its notice of a Special Redemption Date
may, in its discretion, establish the conditions, if any, under which other
Special Redemption Dates must be called, which conditions may be determined in
the sole discretion of the Managing Owner, irrespective of the provisions of
this paragraph. The Managing Owner may also, in its discretion, declare
additional regular redemption dates for Units and permit certain Unitholders to
redeem at other than month-end.
Redemption payments will be made within fifteen business days after
the month-end of redemption (and notice that the redemption has occurred will be
provided to Unitholders within ten business days after such month-end), except
that under special circumstances, including, but not limited to, inability to
liquidate commodity positions as of a redemption date or default or delay in
payments due the Trust from commodity brokers, banks or other persons or
entities, the Trust may in turn delay payment to Unitholders or assignees
requesting redemption of their Units of the proportionate part of the Net Asset
Value of such Units equal to that proportionate part of the Trust's aggregate
Net Asset Value represented by the sums which are the subject of such default or
delay.
Only whole Units may be redeemed, except upon complete redemption of
an investor's Units, unless the Managing Owner specifically otherwise consents.
Redemptions may be requested for a minimum of the lesser of $1,000 or ten (10)
Units provided that, for investors redeeming less than all their Units, such
investors remaining units equal at least $500.
The Managing Owner may require a Unitholder to redeem all or a
portion of such Unitholder's Units if the Managing Owner considers doing so to
be desirable for the protection of the Trust, and will use
TA-15
<PAGE>
best efforts to do so to the extent necessary to prevent the Fund from being
deemed to hold "plan assets" under the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the Code, with respect to
any "employee benefit plan" subject to ERISA or with respect to any plan or
account subject to Section 4975 of the Code.
13. Offering of Units.
The Managing Owner on behalf of the Trust shall (i) cause to be
filed a Registration Statement or Registration Statements, and such amendments
thereto as the Managing Owner deems advisable, with the Securities and Exchange
Commission for the registration and ongoing public offering of the Units, (ii)
use its best efforts to qualify and to keep qualified Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the Managing Owner shall deem advisable and (iii) take such action with respect
to the matters described in (i) and (ii) as the Managing Owner shall deem
advisable or necessary.
The Managing Owner shall use its best efforts not to accept any
subscriptions for Units if doing so would cause the Trust to hold "plan assets"
under ERISA or the Code with respect to any "employee benefit plan" subject to
ERISA or with respect to any plan or account subject to Section 4975 of the
Code. If such a subscriber has its subscription reduced for such reason, such
subscriber shall be entitled to rescind its subscription in its entirety even
though subscriptions are otherwise irrevocable.
14. Additional Offerings.
The Managing Owner may, in its discretion, make additional public or
private offerings of Units, provided that the net proceeds to the Trust of any
such sales shall in no event be less than the Net Asset Value per Unit (as
defined in Section 5(d) hereof) at the time of sale (unless the new Unit's
participation in the profits and losses of the Trust is appropriately adjusted).
No Unitholder shall have any preemptive, preferential or other rights with
respect to the issuance or sale of any additional Units, other than as set forth
in the preceding sentence.
The Trust may offer different series or classes of Units having
different economic terms than previously offered series or classes of Units;
provided that the issuance of such a new series or class of Units shall in no
respect adversely affect the holders of outstanding Units; and provided further
that the assets attributable to each such series or class shall, to the maximum
extent permitted by law, be treated as legally separate and distinct pools of
assets, and the assets attributable to one such series or class be prevented
from being used in any respect to satisfy or discharge any debt or obligation of
any other such series or class.
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
TA-16
<PAGE>
statutes to the Act, to reflect the dissolution or termination of
the Trust or the Trust being governed by any amendments or successor statutes to
the Act or to reorganize or refile the Trust in a different jurisdiction; and
(iv) to file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust. The Power of Attorney granted herein shall
be irrevocable and deemed to be a power coupled with an interest (including,
without limitation, the interest of the other Unitholders in the Managing Owner
being able to rely on the Managing Owner's authority to act as contemplated by
this Section 14) and shall survive and shall not be affected by the subsequent
incapacity, disability or death of a Unitholder.
16. Withdrawal of a Unitholder.
The Fund shall be dissolved upon the death, insanity, bankruptcy,
retirement, resignation, expulsion, withdrawal, dissolution, admitted or
court-decreed insolvency or the removal of the Managing Owner, or any other
event that causes the Managing Owner to cease to be a managing owner under the
Act, unless the Trust is continued pursuant to the terms of Section 5(a)(3). In
addition, the Managing Owner may withdraw from the Trust, without any breach of
this Declaration of Trust and Trust Agreement, at any time upon 120 days'
written notice by first class mail, postage prepaid, to each Unitholder and
assignee of whom the Managing Owner has notice. If the Managing Owner withdraws
as managing owner and the Trust's business is continued, the withdrawing
Managing Owner shall pay all expenses incurred as a result of its withdrawal. In
the event of the Managing Owner's removal or withdrawal, the Managing Owner
shall be entitled to a redemption of its interest in the Trust at its Net Asset
Value on the next valuation date following the date of removal or withdrawal.
The Managing Owner may not assign its general liability interest or
its obligation to direct the trading of the Trust assets without the consent of
each Unitholder. The Managing Owner will notify all Unitholders of any change in
the principals of the Managing Owner. No provision of this Declaration of Trust
and Trust Agreement shall be deemed, nor does any such provision purport, to
waive compliance with the Investment Advisers Act of 1940, as amended.
The death, incompetency, withdrawal, insolvency or dissolution of a
Unitholder or any other event that causes a Unitholder to cease to be a
Unitholder (within the meaning of the Act) in the Trust shall not terminate or
dissolve the Trust, and a Unitholder, his estate, custodian or personal
representative shall have no right to redeem or value such Unitholder's interest
in the Trust except as provided in Section 12 hereof. Each Unitholder expressly
agrees that in the event of his death, he waives on behalf of himself and his
estate, and directs the legal representatives of his estate and any person
interested therein to waive, the furnishing of any inventory, accounting or
appraisal of the assets of the Trust and any right to an audit or examination of
the books of the Trust. Nothing in this Section 16 shall, however, waive any
right given elsewhere in this Declaration of Trust and Trust Agreement for a
Unitholder to be informed of the Net Asset Value of his Units, to receive
periodic reports, audited financial statements and other information from the
Managing Owner or the Trust or to redeem or transfer Units.
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The Managing Owner
and its Affiliates, as defined below, shall have no liability to the Trust or to
any Unitholder for any loss suffered by the Trust which arises out of any action
or inaction of the Managing Owner or its Affiliates if the Managing Owner, in
good faith, determined that such course of conduct was in the best interests of
the Trust and such course of conduct did not constitute negligence or misconduct
of the Managing Owner or its Affiliates.
TA-17
<PAGE>
(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).
TA-18
<PAGE>
In no event shall any indemnity or exculpation provided for herein
be more favorable to the Managing Owner or any Affiliate than that contemplated
by the NASAA Guidelines as in effect on the date of this Declaration of Trust
and Trust Agreement.
In no event shall any indemnification permitted by this subsection
(b) of Section 17 be made by the Trust unless all provisions of this Section for
the payment of indemnification have been complied with in all respects.
Furthermore, it shall be a precondition of any such indemnification that the
Trust receive a determination of qualified independent legal counsel in a
written opinion that the party which seeks to be indemnified hereunder has met
the applicable standard of conduct set forth herein. Receipt of any such opinion
shall not, however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Trust hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Trust under
this subsection (b) of this Section 17 subject a Unitholder to any liability in
excess of that contemplated by subsection (e) of Section 8 hereof.
(c) Indemnification of the Trust by the Unitholders. In the event
the Trust is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with any Unitholder's
activities, obligations or liabilities unrelated to the Trust's business, such
Unitholder shall indemnify and reimburse the Trust for all loss and expense
incurred, including reasonable attorneys' fees.
18. Amendments; Meetings.
(a) Amendments with Consent of the Managing Owner. If at any time
during the term of the Trust the Managing Owner shall deem it necessary or
desirable to amend this Declaration of Trust and Trust Agreement, the Managing
Owner may proceed to do so, provided that such amendment shall be effective only
if embodied in an instrument approved by the Managing Owner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the Managing Owner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The Managing Owner may amend this Declaration of Trust and Trust
Agreement without the consent of the Unitholders in order (i) to clarify any
clerical inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Declaration of Trust and Trust Agreement and the
Prospectus), (ii) to effect the intent of the tax allocations proposed herein to
the maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations, (iii) to attempt to ensure
that the Trust is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Trust as a trust in any jurisdiction, (v) to delete or add any provision of
or to this Declaration of Trust and Trust Agreement required to be deleted or
added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state "Blue Sky" official or similar official or in order
to opt to be governed by any amendment or successor statute to the Act, (vi) to
make any amendment to this Declaration of Trust and Trust Agreement which the
Managing Owner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Unitholders, or that
is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the Managing Owner, to prevent the Trust or the
Managing Owner or its directors, officers or controlling persons from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, or to prevent the assets of the Trust from being considered for any
purpose of ERISA or Section 4975 of the Code to constitute assets of any
"employee benefit plan" as defined in and subject to ERISA or of any "plan"
subject to Section 4975 of the Code.
TA-19
<PAGE>
(b) Amendments and Actions without Consent of the Managing Owner. In
any vote called by the Managing Owner or pursuant to section (c) of this Section
18, upon the affirmative vote (which may be in person or by proxy) of more than
fifty percent (50%) of the Units then owned by Unitholders, the following
actions may be taken, irrespective of whether the Managing Owner concurs: (i)
this Declaration of Trust and Trust Agreement may be amended, provided, however,
that approval of all Unitholders shall be required in the case of amendments
changing or altering this Section 18, extending the term of the Trust, or
materially changing the Trust's basic investment policies or structure; in
addition, reduction of the capital account of any Unitholder or assignee or
modification of the percentage of profits, losses or distributions to which a
Unitholder or an assignee is entitled hereunder shall not be effected by any
amendment or supplement to this Declaration of Trust and Trust Agreement without
such Unitholder's or assignee's written consent; (ii) the Trust may be
dissolved; (iii) the Managing Owner may be removed and replaced; (iv) a new
managing owner or managing owners may be elected if the Managing Owner withdraws
from the Trust; (v) the sale of all or substantially all of the assets of the
Trust may be approved; and (vi) any contract with the Managing Owner or any
affiliate thereof may be disapproved of and, as a result, terminated upon 60
days' notice.
(c) Meetings; Other Voting Matters. Any Unitholder upon request
addressed to the Managing Owner shall be entitled to obtain from the Managing
Owner, upon payment in advance of reasonable reproduction and mailing costs, a
list of the names and addresses of record of all Unitholders and the number of
Units held by each (which shall be mailed by the Managing Owner to the
Unitholder within ten days of the receipt of the request); provided, that the
Managing Owner may require any Unitholder requesting such information to submit
written confirmation that such information will not be used for commercial
purposes. Upon receipt of a written proposal, signed by Unitholders owning Units
representing at least 10% of the Units then owned by Unitholders, that a meeting
of the Trust be called to vote upon 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;
TA-20
<PAGE>
provided, however, that causes of action for violations of federal or state
securities laws shall not be governed by this Section 19.
20. Miscellaneous.
(a) Notices. All notices under this Declaration of Trust and Trust
Agreement shall be in writing and shall be effective upon personal delivery, or
if sent by first class mail, postage prepaid, addressed to the last known
address of the party to whom such notice is to be given, upon the deposit of
such notice in the United States mail.
(b) Binding Effect. This Declaration of Trust and Trust Agreement
shall inure to and be binding upon all of the parties, all parties indemnified
under Sections 2 and 17 hereof, and their respective successors and assigns,
custodians, estates, heirs and personal representatives. For purposes of
determining the rights of any Unitholder or assignee hereunder, the Trust and
the Managing Owner may rely upon the Trust records as to who are Unitholders and
assignees, and all Unitholders and assignees agree that their rights shall be
determined and they shall be bound thereby.
(c) Captions. Captions in no way define, limit, extend or describe
the scope of this Declaration of Trust and Trust Agreement nor the effect of any
of its provisions. Any reference to "persons" in this Declaration of Trust and
Trust Agreement shall also be deemed to include entities, unless the context
otherwise requires.
21. Benefit Plan Investors.
Each Unitholder that is an "employee benefit plan" as defined in and
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or a "plan" as defined in Section 4975 of the Code (each such
employee benefit plan and plan, a "Plan"), and each fiduciary thereof who has
caused the Plan to become a Unitholder (a "Plan Fiduciary"), represents and
warrants that: (a) the Plan Fiduciary has considered an investment in the Trust
for such Plan in light of the risks relating thereto; (b) the Plan Fiduciary has
determined that, in view of such considerations, the investment in the Trust for
such Plan is consistent with the Plan Fiduciary's responsibilities under ERISA;
(c) the investment in the Trust by the Plan does not violate and is not
otherwise inconsistent with the terms of any legal document constituting the
Plan or any trust agreement thereunder; (d) the Plan's investment in the Trust
has been duly authorized and approved by all necessary parties; (e) none of
Kenmar, any advisor to the Trust, any selling agent, the clearing broker, the
escrow agent, any broker through which any advisor requires the Trust to trade,
the Trustee, any of their respective affiliates or any of their respective
agents or employees: (i) has investment discretion with respect to the
investment of assets of the Plan used to 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.
TA-21
<PAGE>
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
TA-22
<PAGE>
new Capital Contributions, redemptions, or capital distributions, if
any, made during the period decreased by interest or other income,
not directly related to trading activity, earned on Program assets
during the period, whether the assets are held separately or in the
margin account.
Organizational and Offering Expenses. All expenses incurred by the
Program in connection with and in preparing a Program for
registration and subsequently offering and distributing it to the
public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the
underwriters' attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program
Interests under federal and state law including taxes and fees,
accountants' and attorneys' fees.
Participant. The holder of a Program Interest.
Person. Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Program. A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
Commodity Contracts.
Program Broker. A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
Program Interest. A limited partnership interest or other security
representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized profit
in a Commodity Contract position to provide margin for any
additional Commodity Contracts of the same or related commodities.
Sponsor. Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or participate in
the management of a Program, including a Commodity Broker who pays
any portion of the Organizational Expenses of the Program, and the
general partner(s) and any other Person who regularly performs or
selects the Persons who perform services for the Program. Sponsor
does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of
the units. The term "Sponsor" shall be deemed to include its
Affiliates.
Valuation Date. The date as of which the Net Assets of the Program
are determined.
Valuation Period. A regular period of time between Valuation Dates.
TA-23
<PAGE>
23. No Legal Title to Trust Estate.
The Unitholders shall not have legal title to any part of the Trust
Estate.
24. Legal Title.
Legal title to all the Trust Estate shall be vested in the Trust as
a separate legal entity; except where applicable law in any jurisdiction
requires any part of the Trust Estate to be vested otherwise, the Managing Owner
(or the Trustee, if required by law) may cause legal title to the Trust Estate
of any portion thereof to be held by or in the name of the Managing Owner or any
other person as nominee.
25. Creditors.
No creditors of any Unitholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect
to, the Trust Estate.
TA-24
<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-25
<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-26
<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
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
"Fund"), of _____ Units of Beneficial Interest ("Units") in the Fund. (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
Fund.) 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.
<PAGE>
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
|_| Credit my brokerage account |_| Send to the address below
- - --------------------------------------------------------------------------------
Name Street City, State and Zip Code
Entity Unitholder Individual Unitholder(s)
(or assignee) (or assignee(s))
- - ------------------------------------------
- - ------------------------------------------
(Name of Entity)
- - ------------------------------------------
By:
-------------------------------------
(Authorized corporate officer,
- - ------------------------------------------ partner or turstee)
(Signature(s) of all Unitholder(s) or
assignee(s))
SR-2
<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 "Fund"), each purchaser ("Purchaser") of Units irrevocably subscribes for
Units at Net Asset Value, as described in the Fund's Prospectus dated
____________, 1999 (the "Prospectus").
If Purchaser's Subscription Agreement and Power of Attorney
Signature Page is accepted, Purchaser agrees to contribute Purchaser's
subscription to the Fund and to be bound by the terms of the Fund'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 Fund and Kenmar Advisory Corp. ("Kenmar"),
the managing owner of the Fund, 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 Fund, 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 Fund
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.
SR-1
<PAGE>
(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 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 Fund, Kenmar, the Advisors to the Fund, 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 Fund.
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
SR-2
<PAGE>
PREPARED FOR MAINE RESIDENTS, A COPY OF WHICH SHALL ACCOMPANY THIS PROSPECTUS AS
DELIVERED TO ALL MAINE RESIDENTS.
5. Massachusetts -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
6. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and taxable income in 1995 of at least $60,000.
7. Minnesota-- "Accredited investors", as defined in Rule 501(a)
under the Securities Act of 1933.
8. Mississippi -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
9. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
10. New Hampshire -- Net worth of at least $250,000 or a net worth
of at least $125,000 and an annual income of at least $50,000.
11. North Carolina -- Net worth of at least $225,000 or a net worth
of at least $60,000 and an annual income of at least $60,000.
12. Oklahoma -- Net worth of at least $225,000 or a net worth of
$60,000 and an annual income of at least $60,000.
13. Oregon -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
14. Pennsylvania -- Net worth of a least $175,000 or a net worth of
at least $100,000 and an annual taxable income of at least $50,000.
15. South Carolina -- Net worth of at least $100,000 or a net income
in 1995 some portion of which was subject to maximum federal and state income
tax.
16. Tennessee -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
17. Texas -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
For Entities Only:
Kenmar attempts to verify that any entity that seeks to purchase
Units is duly registered with the CFTC and a member of the NFA, if required.
Purchaser agrees to supply Kenmar with such information as Kenmar may reasonably
request in order to attempt such verification. Most entities that acquire Units
will, as a result, themselves become "commodity pools" within the intent of
applicable CFTC and NFA rules, and their sponsors, accordingly, may be required
to register as "commodity pool operators."
SR-3
<PAGE>
EXHIBIT C
KENMAR GLOBAL TRUST
--------------------
SUBSCRIPTION INSTRUCTIONS
ANY PERSON CONSIDERING PURCHASING UNITS SHOULD CAREFULLY READ AND
REVIEW THE PROSPECTUS OF THE FUND DATED _________________, 1999, TOGETHER WITH
THE SUMMARY FINANCIAL INFORMATION RELATING TO THE FUND 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
Fund.
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 Fund
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 Fund 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 Fund.
Custodian Under Uniform Gifts to Minors Act -- Complete Item 4 with
the name of minor followed by "UGMA." Enter the custodian's name, followed by
"Custodian." Be sure to furnish the minor's Social Security Number.
Partnership or Corporation -- The Partnership or Corporation name is
required. Also, enter an officer's or partner's name. Be sure to furnish the
Taxpayer ID Number of the Partnership or Corporation.
Special Note: Trust agreements, corporate papers and other appropriate
documents may be required for selling agent approval.
Item 5 -- The investor(s) must execute the Subscription Agreement and
Power of Attorney Signature Page (Item 5) and review the
representation relating to backup withholding tax underneath
the signature and telephone number lines. The investor(s) must
initial each of the four (4) paragraphs under "Acknowledgments
by Purchaser."
Item 6 -- Selling Agent representatives must complete the information
required and sign in two places.
Instructions to Selling Agent representatives:
SA-(i)
<PAGE>
THE BRANCH MANAGER/REPRESENTATIVE COPY PAGE MUST BE RETAINED IN THE BRANCH
OFFICE. REMAINING COPIES SHOULD BE FORWARDED TO A) THE APPROPRIATE DEPARTMENT OF
THE SELLING AGENT IF REQUIRED OR B) DERIVATIVES PORTFOLIO MANAGEMENT L.L.C., TWO
WORLDS FAIR DRIVE, P.O. BOX 6741, SOMERSET, NEW JERSEY 08875-6741, ATTN: FUND
ADMINISTRATOR-KGT. PHONE -- (732) 560-6221.
SA-(ii)
<PAGE>
KENMAR GLOBAL TRUST
UNITS OF BENEFICIAL INTEREST
--------------------
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
--------------------
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
KENMAR GLOBAL TRUST
c/o Kenmar Advisory Corp.
Managing Owner
Two American Lane
Greenwich, Connecticut 06831
Dear Sirs:
1. Subscription for Units. I hereby subscribe for the number of
units of beneficial interest ("Units") in Kenmar Global Trust (the "Fund") set
forth in the Subscription Agreement and Power of Attorney Signature Page
attached hereto; a minimum investment of $5,000; $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 Fund
dated ____________ __, 1999 (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 Fund, 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 $5,000; $2,000 in the case of persons permitted to purchase
such lesser minimum, as described above. Except as otherwise set forth herein,
all subscriptions once submitted are irrevocable. All Units are offered subject
to prior sale.
2. Representations and Warranties of Subscriber. I have received the
Prospectus together with summary financial information relating to the Fund
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.
SA-1
<PAGE>
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 Fund
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
Fund are relying on Kenmar's authority to act pursuant to the Power of Attorney
granted hereby. The Power of Attorney granted hereby shall be deemed to be
coupled with an interest and shall be irrevocable and shall survive, and shall
not be affected by, my subsequent death, incapacity, disability, insolvency or
dissolution or any delivery by me of an assignment of the whole or any portion
of my Units.
4. Irrevocability; Governing Law. I hereby acknowledge and agree
that I am not entitled to cancel, terminate or revoke this subscription or any
of my agreements hereunder after the Subscription Agreement and Power of
Attorney Signature Page attached hereto has been submitted (and not rejected),
and that this subscription and such agreements shall survive my death or
disability. This Subscription Agreement and Power of Attorney shall be governed
by and interpreted in accordance with the laws of the State of Delaware without
regard to principles of conflicts of law.
5. ERISA. If the undersigned is acting on behalf of an "employee
benefit plan," as defined in and subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any "plan," as defined in Section
4975 of the Internal Revenue Code of 1986, as amended (the "Code") (each such
employee benefit plan and plan, a "Plan"), the individual signing this
Subscription Agreement and Power of Attorney on behalf of the undersigned,
understands, as or on behalf of the fiduciary of the Plan responsible for
purchasing the Units (the "Plan Fiduciary") that: (a) the Plan Fiduciary has
considered an investment in the Fund 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 Fund for such Plan is consistent with the
Plan Fiduciary's responsibilities under ERISA; (c) the Plan's investment in the
Fund 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 Fund has been duly authorized and approved by all
necessary parties; (e) none of Kenmar, any Advisor to the Fund, the Selling
Agents, any Clearing Broker, the Escrow Agent, any broker through which any
Advisor requires the Fund 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
Fund, 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 Fund, any Selling Agent, any Commodity Broker and any of their
respective affiliates, and (iii) is qualified to make such investment decision.
The undersigned understands that Kenmar may request that the undersigned furnish
Kenmar with such information as Kenmar may reasonably require to establish that
the purchase of Units by the Plan does not violate any provision of ERISA or the
Code, including, without limitation, those provisions relating to "prohibited
transactions" by "parties in interest" or "disqualified persons," as defined
therein.
SA-2
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE)
1. Subscriber Status (check)
(a) |_| New Subscriber(s) -- complete items 1 through 5 and have
Selling Agent representative or branch
manager complete item 6.
(b) |_| Existing Owner(s) -- complete items 1, 2, 3, 4(a) and 5 and
have Selling Agent representative or
branch manager complete item 6.
2. Subscription Amount
Check Enclosed Payable to Kenmar Global Trust $_________, min. $5,000
except $2,000 for IRAs/ERISA or Existing Investors
Wire Transfer to Follow $__________
Selling Agent Account No.: _____________________________________
|_| The Purchaser hereby authorizes the Selling Agent shown above to
debit its customer account in the full amount of its subscription
five (5) business days prior to the Monthly Closing.
3. Nature of Purchaser.
Taxable Investors (check one):
|_| Individual Ownership
|_| 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 |_| UGMA/UTMA (Minor)
|_| Partnership |_| 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
SA-3
<PAGE>
4. Basic Information.
(a) Full name of account as it should appear in our records:
____________________________________________________________________
____________________________________________________________________
Bus. Tel. No: ____________________ Res. Tel. No.: _______________
Social Security No. or Tax I.D. No.: ____________________________________
SA-4
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE--CONTINUED)
Custodian Taxpayer I.D. No. (for IRAs only): _____________________________
(b) Primary Residence: _______________________________________________________
_______________________________________________________
Mailing Address if Different: ____________________________________________
____________________________________________
(c) Name and Address of Trustee or Custodian:
_______________________________________________________
_______________________________________________________
5. Acknowledgments by Purchaser
I/(We) have received the Prospectus dated ___________, 1999 (the
"Prospectus"), including the AMENDED AND RESTATED Declaration OF TRUST AND
TRUST AGREEMENT, 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 Fund
(current within 60 calendar days) and the Fund's most recent Annual Report
(unless the information in such Annual Report has been included in this
Prospectus by amendment or supplement).
I(We) meet the minimum income and net worth standards established for the
Fund as set forth in Exhibit B to the PROSPECTUS.
I(We) am (are) purchasing Units for my (our) own account.
If this investment is for a qualified employee benefit plan, an individual
retirement account or other tax-exempt investor, in making this investment
on behalf of each entity, I(we) have satisfied myself (ourselves) as to
the potential tax consequences of this investment.
SA-5
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE--CONTINUED)
Kenmar will attempt to verify that any entity which seeks to purchase Units is
duly registered with the CFTC and a member of the NFA, if required. Purchaser
agrees to supply Kenmar with such information as Kenmar may reasonably request
in order to attempt such verification. Most entities which acquire Units will,
as a result, themselves become "commodity pools" within the intent of applicable
CFTC and NFA rules, and their sponsors, accordingly, may be required to register
as "commodity pool operators."
Signature of Purchaser
FOR USE BY INVESTOR
X_____________________________________________________
X_________________________________________________________________
Signature of Purchaser and Title, if applicable Date
Custodian Authorization Date (if applicable)
X_____________________________________________________
Signature of Joint Purchaser Date
EXECUTING AND DELIVERING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE SHALL IN NO RESPECT BE DEEMED TO CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE
ACT OF 1934. I ACKNOWLEDGE THAT I HAVE RECEIVED, IN ADDITION TO THE
PROSPECTUS DATED ____________, 1999, SUMMARY FINANCIAL INFORMATION
RELATING TO THE Fund CURRENT WITHIN 60 CALENDAR DAYS (AFTER THE Fund
BEGINS OPERATING).
I have checked the following box if I am subject to backup withholding
under the provisions of Section 3406(a)(1)(C) of the Internal Revenue
Code: |_|. Under the penalties of perjury, by signature above I hereby
certify that the Social Security Number or Taxpayer ID Number shown on the
front of this Subscription Agreement and Power of Attorney Signature Page
next to my name is my true, correct and complete Social Security Number or
Taxpayer ID Number and that the information given in the immediately
preceding sentence is true, correct and complete.
6. Selling Agent Information
Name of Registered Representative:
Name of Selling Agent: __________________________ PHONE: _______________
ADDRESS: ________________________ 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 Fund 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.
SA-6
<PAGE>
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 Fund, Kenmar, the Advisors to the Fund, the Selling Agent or
others in any subsequent litigation or other proceeding. The Branch
Manager/Representative Copy Page must be retained in the Branch Office.
Remaining copies should be forwarded to a) appropriate department of the selling
agent if required or b) Derivatives Portfolio Management L.L.C., Two Worlds Fair
Drive, P.O. Box 6741, Somerset, New Jersey 08875-6741, Attn: Fund Administrator
KGT. DPM's phone number is 732-560-6221.
KENMAR COPY
SA-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Managing Owner of the Registrant has duly caused this Registration Statement
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in The County of Fairfield in the State of Connecticut on the 29TH
day of January, 1999.
KENMAR GLOBAL TRUST
By: Kenmar Advisory Corp.
Managing Owner
By: /s/ KENNETH A. SHEWER
---------------------
Kenneth A. Shewer
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following persons on behalf of the Managing Owner of the Registrant in
the capacities and on the date indicated.
Signature Title With Registrant Date
--------- --------------------- ----
/s/ KENNETH A. SHEWER Chairman January 29, 1999
- - -------------------------- (Principal Executive Officer)
Kenneth A. Shewer
/s/ MARC S. GOODMAN President January 29, 1999
- - --------------------------
Marc S. Goodman
/s/ GARY J. YANNAZZO Senior Vice President -- January 29, 1999
- - -------------------------- Finance (Principal Financial
Gary J. Yannazzo and Accounting Officer)
/s/ ESTHER E. GOODMAN Chief Operating Officer and January 29, 1999
- - -------------------------- Senior Executive Vice President
Esther E. Goodman
(Being principal executive officer, the principal financial and
accounting officer and a majority of the directors of Kenmar Advisory Corp.)
KENMAR ADVISORY CORP. Managing Owner of Registrant
By: /s/ KENNETH A. SHEWER January 29, 1999
----------------------
Kenneth A. Shewer
Chairman
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON January 29, 1999
REGISTRATION NO. 333-8869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
EXHIBITS
To
AMENDMENT NO. 5
(POST-EFFECTIVE AMENDMENT NO. 3)
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------
KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
================================================================================
SA-9
<PAGE>
Exhibit
Number Description of Document
- - ------ -----------------------
23.05 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
SA-10
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Prospectus constituting part of this Registration
Statement on Form S-1 of our report dated March 16, 1998 on the financial
statements of Kenmar Global Trust as of December 31, 1997 and 1996 and for the
year ended December 31, 1997 and for the period July 17, 1996 (inception) to
December 31, 1996 and our report dated December 16, 1998 on the statement of
financial condition of Kenmar Advisory Corp. as of September 30, 1998, which
appear in such Prospectus. We also consent to the statements with respect to us
as appearing under the heading "Experts" in the Prospectus.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Hunt Valley, Maryland
January 29, 1999
