KENMAR GLOBAL TRUST
$72,000,000
UNITS OF BENEFICIAL INTEREST
THE OFFERING
The Fund trades speculatively in U.S. and international futures and forward
contracts, which are instruments designed to hedge or speculate in 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" BEGINNING
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 9.8% PER ANNUM, BEFORE
ANY APPLICABLE REDEMPTION CHARGE, TO BREAK EVEN.
o A SUBSTANTIAL PORTION OF THE TRADES EXECUTED FOR THE FUND TAKES 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
IRAS, OTHER TAX-EXEMPT ACCOUNTS,
REGULAR ACCOUNTS: AND EXISTING INVESTORS:
----------------- --------------------------------
$5,000 $2,000
--------------------
Investors are required to make representations and warranties in connection with
their investments. Each investor is encouraged to discuss this 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.
KENMAR ADVISORY CORP.
MANAGING OWNER
MARCH 31, 1999
(Not for use after December 31, 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 net
worth (in all cases exclusive of home, furnishings and automobiles) 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 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.
-i-
<PAGE>
NOTES TO COVER PAGE (CONT'D)
- ----------------------------
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
1998 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) See "Plan of Distribution -- Selling Agents' Compensation" at page
46 for information relating to indemnification arrangements with respect to the
Selling Agents.
(3) 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 PAGE 26 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 9 THROUGH 14.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
-1-
<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" ......................................................... 6
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 ..................... 9
(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) Increase in Assets Under Management May Affect Trading Decisions ..... 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 is Not
Subject to U.S. Regulation ......................................... 11
(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 .......... 12
(23) Failure of Brokerage Firms; Default by Clearing Broker ............... 13
(24) Regulatory Matters May Alter the Nature of an
Investment in the Fund ............................................. 13
(25) Fund Trading is Not Transparent to Investors ......................... 13
(26) Lack of Independent Experts Representing Investors ................... 13
(27) Forwards, Swaps, Hybrids and Other Derivatives are
Not Subject to CFTC Regulation ..................................... 13
(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 ................................................. 15
Objectives ................................................................ 15
Investment Philosophy ..................................................... 15
Diversification ........................................................... 16
The Advisors .............................................................. 19
Advisor Summaries ......................................................... 19
KENMAR ADVISORY CORP. ....................................................... 21
Background and Principals.................................................. 21
Management of Traders...................................................... 23
Fiduciary Obligations of Kenmar ........................................... 23
Fiduciary and Regulatory Duties ........................................... 24
Investment of Kenmar in the Fund .......................................... 24
USE OF PROCEEDS ............................................................. 24
CHARGES ..................................................................... 26
Charges Paid by the Fund .................................................. 26
Organizational and Initial Offering Costs ............................... 27
Brokerage Commissions ................................................... 27
Miscellaneous Execution Costs ........................................... 27
"Bid-ask" Spreads ....................................................... 27
Profit Shares and Incentive Fees ........................................ 27
Ongoing Operating, Selling and Administrative Costs ..................... 29
Extraordinary Expenses .................................................. 29
Redemption Charges ........................................................ 29
Charges Paid by Kenmar .................................................... 29
Selling Commissions; "Trailing Commissions" ........................... 29
Consulting Fees ....................................................... 30
THE CLEARING BROKERS ........................................................ 30
ING BARINGS ............................................................... 30
PaineWebber ............................................................... 30
CONFLICTS OF INTEREST ....................................................... 34
General ................................................................... 34
Kenmar .................................................................... 35
The Advisors .............................................................. 35
The Clearing Brokers and Executing Brokers ................................ 36
Selling Agents ............................................................ 36
Proprietary Trading/Other Clients ......................................... 36
-2-
<PAGE>
TABLE OF CONTENTS (CONT'D)
PROSPECTUS SECTION PAGE
- ------------------ ----
REDEMPTIONS AND DISTRIBUTIONS ............................................... 36
THE FUND AND THE TRUSTEE .................................................... 37
Principal Office; Location of Records ..................................... 38
Certain Aspects of the Fund ............................................... 38
The Trustee ............................................................... 38
Management of Fund Affairs; Voting by Unitholders ......................... 39
Recognition of the Fund in Certain States ................................. 39
Possible Repayment of Distributions Received by Unitholders;
Indemnification of the Fund by Unitholders .............................. 39
Transfers of Units Restricted ............................................. 40
Reports to Unitholders .................................................... 40
General ................................................................... 40
THE FUTURES AND FORWARD MARKETS ............................................. 40
Futures and Forward Contracts ............................................. 40
Hedgers and Speculators ................................................... 41
Commodity Exchanges ....................................................... 41
Speculative Position and Daily Price Fluctuation Limits ................... 41
Margins ................................................................... 42
FEDERAL INCOME TAX CONSEQUENCES ............................................. 42
Partnership Tax Status of the Fund ........................................ 42
Taxation of Unitholders on Profits or Losses of the Fund .................. 42
Limited Deductibility for Certain Expenses ................................ 42
Year-End Mark-to-Market of Open Positions ................................. 43
Tax on Capital Gains and Losses; Interest Income .......................... 43
Syndication Expenses ...................................................... 43
Unrelated Business Taxable Income ......................................... 43
IRS Audits of the Fund and Its Unitholders ................................ 43
State and Other Taxes ..................................................... 43
PURCHASES BY EMPLOYEE BENEFIT PLANS ......................................... 43
General ................................................................... 44
"Plan Assets" ............................................................. 44
Ineligible Purchasers ..................................................... 45
PLAN OF DISTRIBUTION ........................................................ 45
Subscription Procedure .................................................... 45
Subscribers' Representations and Warranties .............................. 46
Selling Agents' Compensation .............................................. 46
LEGAL MATTERS ............................................................... 47
EXPERTS ..................................................................... 47
ADDITIONAL INFORMATION ...................................................... 47
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS ............................. 47
PERFORMANCE OF KENMAR GLOBAL TRUST .......................................... 48
SELECTED FINANCIAL DATA ..................................................... 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................. 50
Operational Overview; Advisor Selections .................................. 50
Liquidity ................................................................. 51
Results of Operations ..................................................... 51
General ................................................................... 51
Performance Summary ....................................................... 52
Capital Resources ......................................................... 52
INDEX OF DEFINED TERMS ...................................................... 53
THE ADVISORS ................................................................ 54
PERFORMANCE OF COMMODITY POOLS OPERATED BY KENMAR ........................... 97
INDEX TO FINANCIAL STATEMENTS ...............................................F-1
KENMAR GLOBAL TRUST INDEPENDENT AUDITOR'S REPORT ............................F-2
KENMAR GLOBAL TRUST STATEMENTS OF FINANCIAL CONDITION AS OF
DECEMBER 31, 1998 AND 1997 ................................................F-3
KENMAR GLOBAL TRUST STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD JULY 17, 1996
(INCEPTION) TO DECEMBER 31, 1996 ..........................................F-4
KENMAR GLOBAL TRUST STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD JULY 17, 1996
(INCEPTION) TO DECEMBER 31, 1996 ..........................................F-5
KENMAR GLOBAL TRUST STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL
(NET ASSET VALUE) FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997 AND FOR THE PERIOD JULY 17, 1996 (INCEPTION) TO
DECEMBER 31, 1996 .........................................................F-6
KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS ......................F-7-F-11
KENMAR ADVISORY CORP. INDEPENDENT AUDITOR'S REPORT .........................F-12
KENMAR ADVISORY CORP. STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1998 (AUDITED)
AND DECEMBER 31, 1998 (UNAUDITED) ........................................F-13
KENMAR ADVISORY CORP. NOTES TO STATEMENT OF FINANCIAL CONDITION .......F-14-F-21
-3-
<PAGE>
TABLE OF CONTENTS (CONT'D)
PROSPECTUS SECTION PAGE
- ------------------ ----
EXHIBIT A--AMENDED AND RESTATED DECLARATION OF TRUST
AND TRUST AGREEMENT ................................................. TA-1
ANNEX--REQUEST FOR REDEMPTION
EXHIBIT B--SUBSCRIPTION REQUIREMENT ................................... SSR-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 19 and "Kenmar Advisory Corp." at page 21.
o Access to a wide range of domestic and international markets. See "The
Fund and Its Objectives -- Diversification" at page 16.
o Diversification among trading strategies. See "The Fund and Its Objectives
-- Investment Philosophy" at page 15.
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 102.
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 106 and "Redemptions and Distributions" at page 36.
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 "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 "The Risks You
Face (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 15 and "The Risks You
Face (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. The Fund must generate trading profits
of 9.8% per annum, before any applicable redemption charge, to breakeven.
Assuming the investor redeems in the first year and, thus, is assessed a
3% redemption penalty, overall trading profits of approximately 12.9% of
the Fund's average beginning of month Net Assets must be earned during the
first year of trading in order to breakeven. See "--Breakeven Table," at
page 7, "Charges" at page 26 and "The Risks You Face (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 "The Risks You
Face (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 commitment to the Advisors will not exceed
100% of total Fund equity.
================================================================================
-5-
<PAGE>
================================================================================
SUMMARY (cont'd)
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 December 31, 1998, Kenmar and its
affiliates were acting as trading manager for commodity pools and accounts with
total capital (excluding "notional" funds) of approximately $804 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 December 31, 1998, the Advisors were collectively managing
approximately $1.54 billion in managed futures accounts in which their clients
(and in certain cases the Advisors themselves) had invested approximately $941.3
million in the trading programs being used for the Fund.
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 42.
"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 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.
================================================================================
-6-
<PAGE>
================================================================================
SUMMARY (cont'd)
<TABLE>
"BREAKEVEN 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) 1.00% $50.00
- ---------------------------------------------------------------------------------------------------------------
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) (4.60)% (230.00)
===============================================================================================================
RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR
"BREAK EVEN" IF UNITS ARE REDEEMED ON OR BEFORE THE 12.90% $645.00
12TH MONTH-END FOLLOWING SALE.
===============================================================================================================
RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR
"BREAK EVEN" IF UNITS ARE REDEEMED ON THE 13TH MONTH- 11.84% $592.00
END THROUGH THE 18TH MONTH-END FOLLOWING SALE.
===============================================================================================================
RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR 9.80% $490.00
"BREAK EVEN" IF UNITS ARE REDEEMED AFTER THE 18TH
MONTH-END FOLLOWING SALE.
===============================================================================================================
----------
Notes to "Breakeven Table"
(1) See "Charges" at page 26 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
Advisors' 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 27. However, for purposes of the
"Breakeven Table," the Incentive Fee has been estimated at 5% of such
3.1% gain.
(7) Redemption charges for purposes of this "breakeven" analysis equal
3.1% of the initial $5,000 investment because these charges would
equal 3% of the $5,155 Net Asset Value required so that after
subtraction of the 3% redemption charge, the investor would receive
net redemption proceeds of $5,000. (8) Interest income is estimated
based on current rates.
</TABLE>
================================================================================
-7-
<PAGE>
================================================================================
SUMMARY (cont'd)
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 NET WORTH (IN ALL
CASES EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES) 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 its 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 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 and forward contracts in order to predict future prices. See
"The Advisors -- Futures Trading Methods in General" for a description of this
trading method. Such analysis may not result in profitable trading because the
analyst may not have knowledge of all factors affecting supply and demand,
-9-
<PAGE>
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 markets. Consequently, a fundamental trader may have
less flexibility in adverse markets to trade other futures and forward 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 34. Kenmar may not be able to obtain
the services of the Advisor group that Kenmar would otherwise consider to be
most advantageous for the 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
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.
-10-
<PAGE>
(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 off-setting 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 which
includes performance of current as well as retired public futures funds, private
pools and offshore 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 Fund 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's account managed by each Advisor and by
the Fund, respectively. See "Charges" at page 26. 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.
(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
-11-
<PAGE>
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 such clients' 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 42.
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 (the "IRS") 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 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 IRS. 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.
-12-
<PAGE>
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 43.
(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 Brokers fail to do so, the assets of the Fund might not be fully
protected in the event of their bankruptcy. Furthermore, in the event of a
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 Brokers have
been the subject of certain regulatory and private causes of action. The
material actions are described under "The Clearing Brokers."
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 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
-13-
<PAGE>
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 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 the 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 it 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 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.
[Remainder of page left blank intentionally.]
-14-
<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 performance.
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 "The Risks You Face
(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.
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.
-15-
<PAGE>
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 "The
Risks You Face (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.
[Remainder of page left blank intentionally.]
-16-
<PAGE>
Through Kenmar's Advisor selections, the Fund will have the flexibility to
access world markets, including but not limited to:
CURRENCIES
- --------------------------------------------------------------------------------
Australian Dollar Euro Currency Mexican Peso
Belgian Franc European Currency Unit New Zealand Dollar
British Pound Finnish Markka Norwegian Krone
Canadian Dollar French Franc Singapore Dollar
Danish Krone Irish Punt Spanish Peseta
Deutsche Mark Italian Lira Swedish Krona
Dutch Guilder Japanese Yen Swiss Franc
Malaysian Ringgit S. African Rand - FNX
FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Australian Treasury Bills Major Market Stock Index (U.S.)
Australian Treasury Bonds MEFF&S Stock Index (Spain)
CAC 40 Stock Index (France) MIBOR
Canadian Bonds Nasdaq 100
DAX Stock Index (Germany) Nikkei Stock Average (Japan)
Dow Jones Industrial Average Nikkei Stock Index 300 (Japan)
Euribor PIBOR
Eurodollars S&P 500 Stock Index (U.S.)
Euromarks Spanish Bond
Euroswiss Tokyo Stock Price Index (Japan)
Eurotop 100 Index (Europe) U.K. Bonds
Euroyen U.K. Short Sterling
Financial Times 100 Stock Index (U.K.) U.S. Treasury Bills
Financial Times 250 Stock Index (U.K.) U.S. Treasury Bonds
French Bonds U.S. Treasury Notes
German Bonds Value Line Stock Index (U.S.)
Hang Seng Index
Italian Bonds
Japanese Bonds
Swiss Bonds - Eurex
METALS
- --------------------------------------------------------------------------------
Aluminum Lead Platinum Tin
Copper Nickel Silver Zinc
Gold Palladium
ENERGY PRODUCTS
- --------------------------------------------------------------------------------
Crude Oil Heavy Fuel Oil No. 2 Heating Oil Residual Fuel Oil
Electricity Natural Gas Propane Unleaded Gasoline
Gas Oil
-17-
<PAGE>
AGRICULTURAL PRODUCTS
- --------------------------------------------------------------------------------
Cocoa Feeder Cattle Orange Juice Soy Oil
Coffee Live Cattle Pork Bellies Sugar
Corn Live Hogs Soybeans Wheat
Cotton Oats Soymeal 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.
The chart below represents a snapshot allocation of the Fund's assets as of
December 31, 1998. The percentage exposure to markets will vary substantially
over time as Advisors assess the various sectors.
KENMAR GLOBAL TRUST
MARKET SECTOR PARTICIPATION
as of December 31, 1998
[GRAPHIC PIE CHART]
CURRENCIES 9% EUROPEAN RATES 20% U.S. STOCK INDEXES 2%
METALS 20% PACIFIC RIM RATES 14% PACIFIC RIM STOCK INDEXES 1%
MEATS 1% U.S. RATES 5% EUROPEAN STOCK INDEXES 1%
ENERGIES 8%
SOFTS 9%
GRAINS 9%
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<PAGE>
THE ADVISORS
All direct investment decisions for the Fund will be made by commodity
trading advisors selected and monitored by Kenmar. See "The Risks You Face (24)
- -- Regulatory Matters May Alter the Nature of an Investment in the Fund" at page
13. Each current Advisor is, and it is anticipated that any subsequent Advisor,
if any, will be, registered with and regulated by the CFTC. The registration of
the Advisors with the CFTC and their membership in the NFA must not be taken as
an indication that any such agency or self-regulatory body has recommended or
approved the Advisors or the 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.
<TABLE>
<CAPTION>
ADVISOR AND APPROXIMATE ASSETS
CURRENT GENERAL UNDER MANAGEMENT
% ALLOCATION* STRATEGY TYPE JANUARY 1, 1999**
- -------------------------------- ------------------------------ ------------------------
<S> <C> <C>
Dreiss Research Corporation Pattern-Recognition, Long-Term $ 12 million (total)
(19%) Technical, Trend-Following
Hirst Investment Management Inc. Technical, Non-Discretionary $ 39.8 million (total)
(23%)
Hyman Beck & Company, Inc. Long-Term Technical, $266.6 million (total)
(25%) Trend-Following $234 million (Global)
Sunrise Capital Partners, LLC Long-Term Technical, $454.6 million (total)
(21%) Trend Following $266.4 million (Expanded
Diversified Program)
Willowbridge Associates Inc. Discretionary, Fundamental $764 million (total)
(12%) and Technical $388.9 million (XLIM)
- ----------
* 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.
</TABLE>
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 54. 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.
-19-
<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 58 through 61 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 DSP Trading 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
62 through 64 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 65 through 73 for
performance information relating to Hyman Beck & Company, Inc.
SUNRISE CAPITAL PARTNERS, LLC
Sunrise Capital Partners, LLC trades its Expanded Diversified Program on
behalf of the 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 74
through 83 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 84 through 96 for
performance information relating to Willowbridge Associates Inc.
-20-
<PAGE>
THE ADVISORY AGREEMENTS
The Advisory Agreements among the Fund, Kenmar and three of the Fund's
Advisors (Dreiss Research Corporation, Hyman Beck & Company, Inc. and
Willowbridge Associates Inc.) terminated as of December 31, 1998, but have been
renewed for the second 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 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,
-21-
<PAGE>
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
fund accounting, administration, risk management and account oversight, joined
Kenmar in March 1989. From 1982 through 1984, Mr. DiVuolo was employed by
Balfour Maclaine International Ltd. working in the commodity accounting and
compliance areas. From 1984 through 1986 he was employed at E.F. Hutton and
Company, Inc. as a manager of commodity regulatory reporting. From 1986 until he
joined Kenmar in 1989, Mr. DiVuolo worked for Lloyds International Trading, a
commodity trading division of Lloyds Bank. Mr. DiVuolo graduated from Wagner
College in 1990 with an M.B.A. degree in Finance and from Pace University with a
B.B.A. degree in Public Accounting in 1982.
Mr. Gary J. Yannazzo (born 1953), Senior Vice President and Chief
Financial Officer, joined Kenmar in August 1997. From March 1992 to July 1995,
he was Senior Vice President and Controller of Metallgesellschaft Corp., a
diversified commodity marketing and trading company, with thirty worldwide
subsidiaries and $5 billion in annual revenues. From January 1990 through
February 1992, Mr. Yannazzo was President, Chief Executive Officer and part
owner of Holland Mortgage Corporation. From December 1982 through November 1989,
Mr. Yannazzo was First Vice President of Security Capital Corporation, a
publicly traded financial services company and affiliate of Smith Barney, Inc.
From June 1975 through November 1982, Mr. Yannazzo was with Arthur Andersen &
Co., serving as an Audit Manager from June 1980. From August 1995 until he
joined Kenmar, Mr. Yannazzo was a private consultant, engaged primarily in
projects and ventures in the commodity and derivative areas. Mr. Yannazzo
received his B.S. in Business Administration from Seton Hall University in 1975
and his CPA certification in 1977.
-22-
<PAGE>
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 "The Risks
You Face (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 which is 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 interests of the
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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 34.
The foregoing summary describing in general terms the remedies available
to Unitholders under federal and state law is based on statutes, rules and
decisions as of the date of this Prospectus. This is a rapidly developing and
changing area of the law. Therefore, Unitholders who believe that they may have
a legal cause of action against any of the foregoing parties should consult
their own counsel as to their evaluation of the status of the applicable law at
such time.
INVESTMENT OF KENMAR IN THE 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.
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
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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 December 31, 1998, the Fund estimates:
(i) up to approximately 56% 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 5% of the Net Asset Value of the Fund is used to
margin foreign futures contracts; and
(iii) approximately 39% of the Net Asset Value of the Fund is maintained
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.
[Remainder of page left blank intentionally.]
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<PAGE>
CHARGES
CHARGES PAID BY THE FUND
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- ---------------- ----------------- -------------------------------------
Kenmar Brokerage Flat-rate monthly commissions of
commissions 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 Paid as incurred; not anticipated to
execution costs 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
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.
Third Parties Operating, Paid as incurred; not anticipated to
Selling and exceed 1% of the Fund's average
Administrative beginning of month Net Assets per
costs year.
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<PAGE>
ORGANIZATIONAL AND INITIAL OFFERING COSTS
Kenmar advanced the organizational and initial offering costs of the Fund
in a total amount of approximately $540,000. The Fund has reimbursed Kenmar for
such costs as of January 31, 1999.
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 $0.20 per round-turn trade of a
futures contract and $0.10 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 $84. 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
Some 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 gain
through the end of the second month would not be directly reflected in the Net
Asset Value per Unit.)
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<PAGE>
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 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 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 account at a time when there
is accrued New Trading Profit in respect of Advisor's 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
such 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 account and the 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
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<PAGE>
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 1% 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.
REDEMPTION CHARGES
Units redeemed on or prior to the end of the eighteenth month after such
Units are issued are subject to redemption charges of 3% (for Units redeemed on
or after the end of the sixth and on or before the end of the twelfth month
after purchase) and 2% (for Units redeemed from the beginning of the thirteenth
and on or before the end of the eighteenth month after purchase) of the Net
Asset Value per Unit at which they are redeemed. Such charges are 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. Any 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.
------------------------
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 AND "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
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<PAGE>
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 46.
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
Fund allocated to such Advisor's management (a 2% annual rate).
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. PaineWebber is a
clearing member of all principal U.S. futures exchanges. It is registered with
the CFTC as a futures commission merchant and is a member of the NFA in such
capacity.
Except as set forth below, neither PaineWebber nor any of its principals
have been involved in any administrative, civil or criminal proceeding --
whether pending, on appeal or concluded -- within the past five years that is
material to a decision whether to invest in the 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
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
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<PAGE>
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.
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
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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 PaineWebber violated the
federal securities laws. The plaintiffs seek unspecified damages, including
reimbursement for all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
limited partnerships in the Federal Court Limited Partnership Actions the
plaintiffs also seek treble damages under RICO.
In addition, PaineWebber and several of its present or former officers
were sued in two other purported class actions (the "Geodyne Limited Partnership
Actions") filed in the state court in Harris County, Texas. Those cases, and
Wolff v. Geodyne Resources, Inc. et. al., are similar to the other Limited
Partnership Actions except that the plaintiffs purport to sue only on behalf of
those investors who bought interests in the Geodyne Energy Partnerships, which
were a series of oil and gas partnerships that PaineWebber sold over several
years. The plaintiffs in Geodyne Limited Partnership Actions allege that
PaineWebber committed fraud and misrepresentation, breached its fiduciary
obligations to its investors and brokerage customers, and breached certain
contractual obligations. The complaints seek unspecified damages, including
reimbursement of all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
Geodyne partnerships. PaineWebber has filed an answer denying the allegations in
plaintiffs' complaints.
On January 18, 1996, PaineWebber signed and filed with the federal court a
memorandum of understanding with the plaintiffs in both the Federal Court
Limited Partnership Actions and the Geodyne Limited Partnership Actions
outlining the terms under which the parties have agreed to settle these actions.
Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited
$125 million into an escrow fund under the supervision of the United States
District Court for the Southern District of New York to be used to resolve the
Federal Court and Geodyne Limited Partnership Actions in accordance with the
definitive settlement agreement and plan of allocation which the parties
subsequently submitted to the court for its consideration and approval. The
court held hearings on the fairness of the settlement in October and November
1996. On March 20, 1997, the court issued an order approving the settlement. On
July 30, 1997, the United States Court of Appeals for the Second Circuit
affirmed the judgment approving the settlement.
In addition, three actions were filed against PaineWebber in the District
Court for Brazoria County, Texas, two captioned Mallia v. PaineWebber, Inc.
("Mallia I" and "Mallia II") and one captioned Billy Hamilton v. PaineWebber
("Hamilton"), relating to PaineWebber's sale and sponsorship of various limited
partnership investments. Mallia I was originally filed as
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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 laws, used the Funds as an outlet for otherwise unmarketable
tranches of collateralized mortgage obligations, and violated various rules of
the New York Stock Exchange and National Association of Securities Dealers.
Collectively in the four lawsuits, the plaintiffs claim damages of 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
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
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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.
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.
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KENMAR
Other Managed Futures Products Sponsored by Kenmar and its Affiliates
Kenmar sponsors and operates a number of commodity pools, and affiliates
of Kenmar operate, manage and/or sponsor a number of other commodity pools and
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.
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
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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 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
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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 (10) 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.
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.
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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 a 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 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
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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 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
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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."
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;
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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.
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
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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. 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 Consulting Fees, the Profit Shares, 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 Consulting Fees, the Profit Shares, 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
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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 Selling Agents, nor can such expenses be amortized by the Fund or
any Unitholder.
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 ADVISERS 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
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Taxable Income'" at page 43. In addition, because they are not taxpaying
entities, employee benefit plans are not subject to paying annual tax on profits
(if any) of 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 plan).
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.
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
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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 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, any of the brokers through
which any Advisor requires the Fund to 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 BROKERS, 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
-45-
<PAGE>
accounts and (ii) existing Unitholders subscribing for additional Units, where
the minimum investment is $2,000.
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 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 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.
-46-
<PAGE>
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, 1998 and 1997 and the related statements of operations, cash flows
and changes in Unitholders' capital (net asset value) for the years ended
December 31, 1998 and 1997 and for the period July 17, 1996 (inception) to
December 31, 1996 included in this Prospectus have been audited by Arthur F.
Bell, Jr. & Associates, L.L.C., independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon such report given
upon the authority of that firm as experts in auditing and accounting.
Arthur F. Bell, Jr. & Associates, L.L.C., independent auditors, have
audited the statement of financial condition of Kenmar Advisory Corp. as of
September 30, 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 Agreements).
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.
-47-
<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. The performance information set forth
below is current as of February 28, 1999.
SUMMARY PERFORMANCE INFORMATION
Type of fund: multi-advisor; publicly-offered
Inception of trading: May 1997
Aggregate subscriptions: $27,758,551
Current capitalization: $26,632,923
Current Net Asset Value per Unit: $ 113.10
Largest monthly drawdown: (6.18%) (4/98)
Largest peak-to-valley drawdown: (7.07%) (8/97-11/97)
MONTHLY/ANNUAL PERFORMANCE INFORMATION
================================================================================
Month 1999(%) 1998(%) 1997(%)
- --------------------------------------------------------------------------------
January (4.46) 3.29 --
- --------------------------------------------------------------------------------
February 4.59 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 (4.96) (0.74)
- --------------------------------------------------------------------------------
December 2.76 3.25
- --------------------------------------------------------------------------------
Compound Rate of Return (0.08) 13.08 0.10
(2 months) (8 months)
================================================================================
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."
-48-
<PAGE>
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, 1998 AND 1997 and for the
period July 17, 1996 (inception) to December 31, 1996. The Fund commenced
trading operations on May 22, 1997. See "Index to Financial Statements" at page
F-1.
<TABLE>
<CAPTION>
YEAR Ended Year Ended Period Ended
DECEMBER 31, 1998 December 31, December 31,
--------------------------------------------------------
(AUDITED) 1997 1996
----------------- ------------ ------------
<S> <C> <C> <C>
Total Assets $26,091,157 $12,782,763 $2,000
Total UNITHOLDER'S Capital 25,363,098 12,377,321 2,000
Gains from Trading 4,824,825 675,878
Interest Income 750,290 293,033
Total Expenses 2,963,014 842,501
Net Income 2,612,101 126,410
Net Income Per Unit (Based on
weighted average number of
units outstanding) 16.96 1.24
Increase in Net Asset Value Per Unit 13.09 0.10
</TABLE>
-49-
<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.
5/22/97 1/1/98 1/1/99
----------- ------ ------
ADVISOR (INCEPTION)
Chesapeake Capital Corporation 25% 24% 0%
Dreiss Research Corporation 15% 23% 19%
Hirst Investment Management Inc. 0% 0% 23%
Hyman Beck & Company, Inc. 25% 23% 25%
Sunrise Capital Partners, LLC 0% 0% 21%
Willowbridge Associates Inc. 25% 22% 12%
Witter & Lester 10% 8% 0%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
Two of the Fund's initial Advisors, Chesapeake Capital Corporation and
Witter & Lester, were replaced as of June 30, 1998. Such replacement resulted
from a reallocation decision by Kenmar with respect to assets previously
allocated to Witter & Lester and a decision by Chesapeake Capital Corporation to
resign from trading the Fund's account under the terms of its Advisory
Agreement. As of the date of this Prospectus, 100% of the Fund's equity is
allocated to the Advisors. However, as described herein, Kenmar has the
discretion to allocate less than 100% of the Fund's total equity, and elected to
do so in connection with the allocation of Fund equity to Hirst Investment
Management Inc. and Sunrise Capital Partners, LLC. The allocation of less than
100% of Fund equity to the Advisors represents a deleveraging of the Fund's
trading, which may have the effect of preserving equity during unfavorable
market cycles (but which also reduces the upside potential of the Fund during
favorable conditions). Kenmar receives brokerage commissions based on the total
Fund equity, not allocated equity. See "Conflicts of Interest--Kenmar."
-50-
<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 19. Kenmar's Advisor selection procedures
are described under "Kenmar Advisory Corp. -- Management of Traders" at page 23.
The Advisors' trading methods are described under "The Fund and Its Objectives
- -- The Advisors" at page 19.
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 any 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 investments in the futures, forwards, options and related
markets may, from time to time, be illiquid. See "The Risks You Face (11) --
"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. 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 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. Illiquid market conditions could result in restrictions on
redemptions.
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. Furthermore, 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 36.
Units may be redeemed, at a Unitholder's option, as of the close of
business on the last day of any month beginning with the end of the sixth month
after their sale. Units are redeemed at Net Asset Value, subject to redemption
charges of 3% and 2%, respectively, for Units redeemed on and after the end of
the sixth month through the end of the twelfth month after sale and from the end
of the twelfth month through the end of the eighteenth month after sale.
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.
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 Consulting Fees
and Profit Shares to the Advisors, Incentive Fees to Kenmar, brokerage
commissions and miscellaneous execution costs and administrative expenses.
Brokerage commissions and Consulting Fees 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
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<PAGE>
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 December 31, 1998.
As of the year ending December 31, 1998, the Net Asset Value of the Fund
was $25,363,098, an increase of approximately 104.92% from its Net Asset Value
of $12,377,321 at December 31, 1997. The Fund's subscriptions and redemptions
for the year ended December 31, 1998 totaled $13,497,520 and $2,401,065,
respectively. The Net Asset Value per Unit increased 13.08% from $100.10 at
December 31, 1997 to $113.19 at December 31, 1998. The Fund's positive
performance for the quarter ended December 31, 1998 resulted primarily from
gains in currencies, global interest rates, grains and meats.
The Fund's trading gains during 1998 resulted primarily from global
interest rates and global stock indices.
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 December
31, 1998, the Fund's Net Asset Value per Unit increased from $100.00 to $113.19,
and the Compound Rate of Return for 1999, through February, is approximately
(0.08)%, as set forth on page 48.
CAPITAL RESOURCES
The Fund does not have, nor does it expect to have, any capital assets.
Redemptions and sales of the Units in the future will affect the amount of funds
available for trading futures, forwards and options in subsequent periods.
There are three primary factors that affect the Fund's capital resources:
(i) the trading profit or loss generated by the Advisors (interest income); (ii)
the capital invested or redeemed by Unitholders; and (iii) the capital invested
or redeemed by the Fund's managing owner, 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 have 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 Assets" are 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 Declaration of Trust Agreement. The term
"Net Asset Value Per Unit" is defined in the Declaration of Trust 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's account managed by each of them.
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 Kenmar, as well as assumptions made by,
and information currently available to 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.
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<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)
-------
Aggregate Investment Expenses ...................................... 42
CBOE ............................................................... 22
CFTC................................................................ -ii-
Clearing Brokers ................................................... 30
Code................................................................ 38
Declaration of Trust ............................................... 23
Employee benefit plan............................................... 44
ERISA .............................................................. 44
Fund................................................................ Cover page
high water mark..................................................... 28
ING BARINGS Futures & Options Clearing Services..................... 30
IRS................................................................. 12
Kenmar.............................................................. Cover page
Kenmar Related Parties ............................................. 23
Loss Carryforward................................................... 28
NASAA Guidelines ................................................... 23
Net Asset Value..................................................... 52
Net Assets.......................................................... 52
New Overall Appreciation............................................ 28
New Trading Profits................................................. 28
NFA................................................................. -iii-
PaineWebber ........................................................ 30
Round-Turn Commissions.............................................. 27
SEC ................................................................ 24
Selling Agents...................................................... Cover page
Trading Profit...................................................... 28
Units............................................................... Cover page
Year 2000 Problem................................................... 14
-53-
<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, 1994 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 judgmental decisions made by them in the context of applying their
generally mechanical trading systems.
-54-
<PAGE>
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 positions
must be liquidated. It is important for prospective investors to recognize in
reading the
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<PAGE>
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
December 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 December 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
December 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 December 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 December 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 December 31, 1998.
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<PAGE>
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 December 31, 1998.
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. [Remainder of page left blank intentionally.]
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DREISS RESEARCH CORPORATION
BACKGROUND AND MANAGEMENT
Dreiss Research Corporation ("Dreiss Research") is a Delaware corporation
formed in August 1991. Dreiss Research became registered with the CFTC as a
commodity trading advisor in March 1992, and is a member of the NFA. The
registration of Dreiss Research with the CFTC and Dreiss Research's membership
in NFA must not be taken as an indication that any such agency or
self-regulatory body has recommended or approved Dreiss Research or the Fund.
The addresses of its offices 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
ADMINISTRATION
300 International Parkway
Heathrow, Florida 32746
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. 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.
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
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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%.
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The foregoing trading principles are factors upon which Dreiss Research
bases its decisions. Given price trends and prices of sufficient duration and
magnitude, the trading methods employed may be profitable though more than half
of all individual trades may be unprofitable; however, a period without such
trends may result in substantial trading losses. The trading strategies have
been and will be enhanced or revised from time to time.
The trading methods of Dreiss Research are proprietary and confidential.
This description is, of necessity, general and is not intended to be exhaustive.
Portfolio Selection. Dreiss Research trades a diversified portfolio of
futures contracts representing most major commodity groups (i.e., agriculture,
currencies, energy, equity indexes, interest rates, livestock, metals, and
softs). The selection process seeks to avoid undue concentration in any
particular futures group and to achieve a balance across all futures groups,
however, on occasion, there may be a heavier concentration of a given commodity
or a commodity complex, which could result in a greater return or risk to the
account.
The commodities currently traded are Australian dollar, British pound,
Canadian dollar, cattle, cocoa, coffee, copper, cotton, corn, crude oil, DAX
index, eurodollar, euromark, 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 1994 through December 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 the periods presented.
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DREISS RESEARCH CORPORATION TRADING PROGRAM
The following summary information (determined pursuant to the Fully-Funded
Subset Method) presents the composite performance record of Dreiss Research's
Trading Program for the five-year period from January 1994 through December
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: $11,970,698
Aggregate assets (including "notional" equity) overall: $23,153,115
Aggregate assets (excluding "notional" equity) in program: $11,970,698
Aggregate assets (including "notional" equity) in program: $23,153,115
Largest monthly drawdown: (28.29%) (6/97)
Largest peak-to-valley drawdown: (41.00%) (3/97-8/97)
Number of profitable closed accounts: 37
Number of unprofitable closed accounts: 15
================================================================================
Monthly Performance 1998(%) 1997(%) 1996(%) 1995(%) 1994(%)
- --------------------------------------------------------------------------------
January 6.81 (1.50) 1.46 (4.97) (2.62)*
- --------------------------------------------------------------------------------
February 1.70 11.39 (11.64) 9.33 1.69*
- --------------------------------------------------------------------------------
March 0.05 (2.66) 8.41 13.66 1.80*
- --------------------------------------------------------------------------------
April 0.58 (9.59) 13.30 3.61 (7.23)*
- --------------------------------------------------------------------------------
May 6.34 (7.40) (8.66) 1.24 13.87*
- --------------------------------------------------------------------------------
June 3.77 (19.13) 10.60 7.45 10.41*
- --------------------------------------------------------------------------------
July 7.74 (1.83) (17.62) (6.00) (2.05)*
- --------------------------------------------------------------------------------
August 16.20 (4.62) (2.17) 4.72 0.41*
- --------------------------------------------------------------------------------
September (3.29) 3.20 10.09 (0.30) 9.16*
- --------------------------------------------------------------------------------
October 10.09) 13.61 3.79 2.94 (4.89)*
- --------------------------------------------------------------------------------
November (7.87) (6.70) 15.10 9.17 10.10*
- --------------------------------------------------------------------------------
December 1.57 4.35 7.58 8.84 4.46*
- --------------------------------------------------------------------------------
Compound Rate of 22.86 (22.45) 26.86 59.76 38.09
Return
================================================================================
* Represents periods in which the account whose beneficiary is a principal of
Echelon consisted of 50% or more of the total nominal amount of funds under
management.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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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 are Dr. Gary Hirst,
Jeff Davies, Joseph F. McGuire, Kendall Gordon, Nancy Hirst and Mildred Hirst.
Hirst's principal business office is located at 300 International Parkway, Suite
184, Heathrow, florida 32746. Hirst is registered with the CFTC as a Commodity
Trading Advisor and is a member of the NFA in such capacity. The registration of
Hirst with the CFTC and Hirst's membership in NFA must not be taken as an
indication that any such agency or self-regulatory body has recommended or
approved Hirst or the Fund.
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 & Company, Inc. 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.
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 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.
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TRADING STRATEGY
Hirst trades a diversified global portfolio pursuant to its DSP Trading
System (the "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 uses 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 extraordinary 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, 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
decreased as equity decreases.
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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 December 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: 40
Aggregate assets (excluding "notional" equity) overall: $40,530,351
Aggregate assets (including "notional" equity) overall: $113,248,397
Aggregate assets (excluding "notional" equity) in program: $40,185,872
Aggregate assets (including "notional" equity) in program: $111,129,285
Largest monthly drawdown: (7.34%) (2/96)
Largest peak-to-valley drawdown: (8.53%) (2/96-3/96)
Number of profitable closed accounts: 21
Number of unprofitable closed accounts: 3
========================================================================
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 (0.27) 1.20 7.08 8.85
- ------------------------------------------------------------------------
December 3.00 6.24 0.98 16.10
- ------------------------------------------------------------------------
Compound Rate 15.96 24.73 54.05 44.37
of Return
========================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<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.
Richard A. DeFalco is a principal of HB & Co. Mr. DeFalco is responsible
for marketing, client services
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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 selection of a price
target, with respect to given market
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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 while the Short-Term Select Portfolio is offered
as a component of the Asset Allocation Portfolio or in conjunction with either
the Global or FX Portfolios. 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
- ------------
* The Short-Term Original Portfolio and Short-Term Select Portfolio may be
referenced together as the "Short-Term Portfolio."
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<PAGE>
delete different types of commodity interests from any of the trading
portfolios.
Interest Rates (U.S. dollar). Treasury Bonds, Treasury Notes, Eurodollars,
Treasury Bills and Municipal Bonds.
Interest Rates (Non-U.S. dollar). British Long Gilts, British Short
Sterling, German Euromarks/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. trades 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
concentrates 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.
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 Portfolios 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
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HB&Co.'s trading strategies, and reduced volatility in the Asset Allocation
Portfolio's performance over time. The Short-Term Portfolio was added to the
Asset Allocation Portfolio in November 1996.
PAST PERFORMANCE INFORMATION
The following information describes the composite actual performance of all
customer accounts managed by HB&Co. as of December 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
are also reflected in the assets and Rates of Return set forth in the individual
Global, FX, Diversified, and Short-Term Portfolio summaries. The first account
traded pursuant to the Asset Allocation Portfolio was established in April 1992
with all of its assets allocated to HB&Co.'s Diversified Portfolio; in August
1992 the assets of such account were reallocated to the Global and Diversified
Portfolios; and in January 1993 the assets of such account were allocated among
the Global, FX and Diversified Portfolios. From January 1993 through November
1996, all asset allocation portfolio accounts have at all times included
allocations among the Global, FX and Diversified Portfolios. The Short-Term
Original Portfolio was added to the Asset Allocation Portfolio in November 1996.
In February 1998 the Short-Term Select Portfolio replaced the Short-Term
Original Portfolio.
[Remainder of page left blank intentionally.]
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THE GLOBAL PORTFOLIO
HB&Co. trades 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
1994 through December 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: 17
Aggregate assets in all programs (excluding "notional" equity): $266,590,473
Aggregate assets in all programs (including "notional" equity): $319,127,925
Aggregate assets in Global Portfolio (excluding "notional" equity): $234,024,842
Aggregate assets in Global Portfolio (including "notional" equity): $254,005,720
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: 15
================================================================================
Monthly Performance 1998(%) 1997(%) 1996(%) 1995(%) 1994(%)
- --------------------------------------------------------------------------------
January (0.15) 8.76 3.97 (6.35) (0.45)
- --------------------------------------------------------------------------------
February (0.41) 1.69 (8.23) 9.02 (7.45)
- --------------------------------------------------------------------------------
March (0.08) (0.23) (1.21) 18.71 12.48
- --------------------------------------------------------------------------------
April (3.56) (2.77) 2.39 6.22 (2.17)
- --------------------------------------------------------------------------------
May 3.23 0.20 (3.20) 6.34 4.22
- --------------------------------------------------------------------------------
June (2.28) 1.79 1.38 (1.12) 5.14
- --------------------------------------------------------------------------------
July (2.01) 10.78 1.80 (1.68) (4.30)
- --------------------------------------------------------------------------------
August 13.70 (2.78) (1.15) (1.80) (4.40)
- --------------------------------------------------------------------------------
September 7.19 2.13 4.36 (2.16) (2.85)
- --------------------------------------------------------------------------------
October (2.94) (1.06) 11.17 (1.08) 4.72
- --------------------------------------------------------------------------------
November (5.68) 1.65 9.79 1.27 3.43
- --------------------------------------------------------------------------------
December 10.56 2.75 (8.71) 0.80 (2.95)
- --------------------------------------------------------------------------------
Compound Rate of Return 16.84 24.38 10.82 29.12 3.81
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<PAGE>
DIVERSIFIED PORTFOLIO
The following summary performance information reflects the composite
performance results of the Diversified Portfolios directed by HB&Co. for the
five-year period from January 1994 through December 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Diversified Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: March 1991
Number of open accounts: 3
Aggregate assets in all programs (excluding "notional" equity): $266,590,473
Aggregate assets in all programs (including "notional" equity): $319,127,925
Aggregate assets in Diversified Program (excluding "notional" equity): $673,502
Aggregate assets in Diversified Program (including "notional" equity):
$2,147,987
Largest monthly drawdown: (15.90%) (2/94)
Largest peak-to-valley drawdown: (30.42%) (8/93-12/95)
Number of profitable closed accounts: 14
Number of unprofitable closed accounts: 26
1998 compound rate of return: 1.06%
1997 compound rate of return: 11.88%
1996 compound rate of return: (8.33%)
1995 compound rate of return: (4.14%)
1994 compound rate of return: (7.07%)
1993 compound rate of return: 13.96%
THE FX PORTFOLIO
The following summary performance information reflects the composite
performance results of the FX Portfolios directed by HB&Co. for the five-year
period from January 1994 through December 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: 3
Aggregate assets in all programs (excluding "notional" equity): $266,590,473
Aggregate assets in all programs (including "notional" equity): $319,127,925
Aggregate assets in FX Program (excluding "notional" equity): $5,144,286
Aggregate assets in FX Program (including "notional" equity): $12,868,829
Largest monthly drawdown: (18.72%) (11/94)
Largest peak-to-valley drawdown: (52.49%) (8/93-1/95)
Number of profitable closed accounts: 8
Number of unprofitable closed accounts: 31
1998 compound rate of return: (7.68%)
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%)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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ASSET ALLOCATION PORTFOLIO
The following summary performance information reflects the composite
performance results of the Asset Allocation Portfolios (which is included in the
other performance summaries set forth for herein) directed by HB&Co. for the
five-year period from January 1994 through December 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Asset Allocation Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1992
Number of open accounts: 3
Aggregate assets in all programs (excluding "notional" equity): $266,590,473
Aggregate assets in all programs (including "notional" equity): $319,127,925
Aggregate assets in Asset Allocation program (excluding "notional" equity):
$16,684,870
Aggregate assets in Asset Allocation program (including "notional equity):
$42,897,124
Largest monthly drawdown: (9.38%) (2/96)
Largest peak-to-valley drawdown: (18.30%) (8/93-1/95)
Number of profitable closed accounts: 4
Number of unprofitable closed accounts: 3
1998 compound rate of return: (1.20%)
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%)
THE SHORT-TERM ORIGINAL PORTFOLIO
The following summary performance information reflects the composite
performance results of the Short-Term Original Portfolios directed by HB&Co from
April 1996 through December 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Short-Term Original Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1996
Number of open accounts: 5
Aggregate assets in all programs (excluding "notional" equity): $266,590,473
Aggregate assets in all programs (including "notional" equity): $319,127,925
Aggregate assets in Short-Term program (excluding "notional" equity):
$18,750,672
Aggregate assets in Short-Term program (including "notional" equity):
$29,154,318
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: 5
1998 compound rate of return: (11.12%)
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
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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THE SHORT-TERM SELECT PORTFOLIO
The following summary performance information reflects the composite
performance results of the Short-Term Select Portfolios directed by HB&Co from
September 1997 through December 1998.
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: 4
Aggregate assets in all programs (excluding "notional" equity): $266,590,473
Aggregate assets in all programs (including "notional" equity): $319,127,925
Aggregate assets in Short-Term program (excluding "notional" equity):
$7,997,171
Aggregate assets in Short-Term program (including "notional" equity):
$20,951,071
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: 5
1998 compound rate of return: (9.42%)
1997 compound rate of return: 0.73% (4 months)
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT IS NOT CURRENTLY TRADED PURSUANT TO THE FOREGOING PROGRAM.
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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. 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. The registration of Sunrise Capital Partners with the CFTC and
Sunrise Capital Partners' membership in NFA must not be taken as an indication
that any such agency or self-regulatory body has recommended or approved Sunrise
Captial Partners or the Fund.
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' 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' 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' head trader and is responsible for
supervising Sunrise Capital Partners' 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
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company for nine years before immigrating to the United States. She was a
commodity trader for Cresta Commodities from April 1986 until she joined Sunrise
in August 1988.
Elissa Davis is a principal of Sunrise Capital Partners and of Sunrise by
virtue of her role as a trustee of the Davis Family Trust. Mrs. Davis is not
active in the management of either Sunrise Capital Partners or of Sunrise and
has not been involved in any other business activities during the past five
years.
The Davis Family Trust, dated October 12, 1989, is a director and the sole
shareholder of Sunrise; Dr. Gary B. Davis and his wife, Elissa Davis, are
trustees and the sole beneficiaries of this Trust.
TRADING STRATEGY
Sunrise Capital Partners utilizes technical trend-following systems trading
a wide continuum of time windows. Most of these time frames are decidedly long
term by industry standards. Pro-active money management strategies are designed
to protect open profits and to minimize exposure to non-directional markets.
Relying on technical analysis, Sunrise Capital Partners believes that
future price movements in all markets may be more accurately anticipated by
analyzing historical price movements within a quantitative framework rather than
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by Sunrise Capital Partners are
based on programs analyzing a large number of interrelated mathematical and
statistical formulas and techniques which are quantitative, proprietary in
nature and which have been either learned or developed by Dr. Davis, Dr. Forrest
and/or Mr. Slaughter. The profitability of the trading programs, traded pursuant
to technical analysis emphasizing mathematical and charting approaches, will
depend upon the occurrence in the future, as in the past, of major trends in
some markets. If there are no trends, the trading programs are likely to be
unprofitable.
Sunrise Capital Partners' 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'
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' 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' 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
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about to expire and initiate a position in a more distant contract month.
It is anticipated that Sunrise Capital Partners will commit to margin
between 5% -- 40% of assets managed, but margin commitments may from time to
time exceed this range.
Sunrise Capital Partners engages in ongoing research which may lead to
significant modifications from time to time.
While Mr. Slaughter, Dr. Davis and Dr. Forrest have extensive experience in
the development of systems and methods for trading in the futures and forward
markets, prospective investors should understand that no "safe" trading system
has ever been devised and that no one can guarantee profit or freedom from loss
in commodity interest trading.
Sunrise Capital Partners currently offers four programs for investment, all
of which are traded in accordance with the trading method described herein.
Markets within the various programs described below are subject to change at any
time without notice. The Fund's account is 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 ten 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 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.
[Remainder of page left blank intentionally.]
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SUNRISE EXPANDED DIVERSIFIED PROGRAM
Sunrise trades this program on behalf of the Fund. The following summary
information (determined pursuant to the Fully-Funded Subset Method) presents the
performance record of the Sunrise Expanded Diversified Program for the five-year
period from January 1994 through December 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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 million
Aggregate assets (excluding "notional" equity) in program: $266.4 million
Aggregate assets (including "notional" equity) in program: $290.1 million
Largest monthly drawdown: (10.99%) (8/94)
Largest peak-to-valley drawdown: (29.82%) (8/93-4/94)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 0
================================================================================
Month 1998(%) 1997(%) 1996(%) 1995(%) 1994(%)
- --------------------------------------------------------------------------------
January 1.4 4.6 0.5 (8.5) (1.3)
- --------------------------------------------------------------------------------
February 3.3 8.6 (5.8) 4.7 (3.5)
- --------------------------------------------------------------------------------
March 2.7 1.5 4.5 19.1 0.2
- --------------------------------------------------------------------------------
April 1.6 (0.5) 9.3 2.4 (7.1)
- --------------------------------------------------------------------------------
May 2.7 4.4 0.1 (3.8) 5.2
- --------------------------------------------------------------------------------
June 3.3 (2.9) (0.6) (0.7) 11.8
- --------------------------------------------------------------------------------
July (0.6) 6.0 (0.8) (1.9) (4.2)
- --------------------------------------------------------------------------------
August 9.5 (3.3) (0.5) (0.4) (11.0)
- --------------------------------------------------------------------------------
September 3.2 (1.5) 0.9 (2.7) 2.5
- --------------------------------------------------------------------------------
October (1.0) (1.2) 6.9 0.8 10.8
- --------------------------------------------------------------------------------
November (4.7) 1.8 1.3 (0.8) 3.9
- --------------------------------------------------------------------------------
December 2.5 2.3 2.7 5.2 (3.2)
- --------------------------------------------------------------------------------
Compound Annual 25.8 20.7 19.3 11.5 1.6
Rate of Return
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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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 1994 through December 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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 million
Aggregate assets (excluding "notional" equity) in program: $64.4 million
Aggregate assets (including "notional" equity) in program: $75.6 million
Largest monthly drawdown: (11.22%) (1/95)
Largest peak-to-valley drawdown: (58.60%) (7/93-1/95)
Number of profitable closed accounts: 4
Number of unprofitable closed accounts: 13
1998 compound rate of return: (1.9%)
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%)
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 1994 through December 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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 million
Aggregate assets (excluding "notional" equity) in program: $68.9 million
Aggregate assets (including "notional" equity) in program: $68.9 million
Largest monthly drawdown: (12.04%) (1/94)
Largest peak-to-valley drawdown: (44.47%) (7/93-1/95)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 5
1998 compound rate of return: 7.7%
1997 compound rate of return: (2.8%)
1996 compound rate of return: 26.1%
1995 compound rate of return: 50.9%
1994 compound rate of return: (28.8%)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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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 1994 through December 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: 26
Aggregate assets (excluding "notional" equity) overall: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 million
Aggregate assets (excluding "notional" equity) in program: $54.8 million
Aggregate assets (including "notional" equity) in program: $89.4 million
Largest monthly drawdown: (14.97%) (1/94)
Largest peak-to-valley drawdown: (36.02%) (12/91-2/94)
Number of profitable closed accounts: 8
Number of unprofitable closed accounts: 3
1998 compound rate of return: 17%
1997 compound rate of return: 11.3%
1996 compound rate of return: 21.7%
1995 compound rate of return: 40.0%
1994 compound rate of return: (5.5%)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
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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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (7.72%) (3/94)
Largest peak-to-valley drawdown: (36.7%) (7/93-3/94)
Number of Profitable Closed Accounts: 0
Number of Unprofitable Closed Accounts: 1
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)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
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COMMODITY MONITORS, INC. -- CLOSED PROGRAMS
The following summary performance disclosure describes the composite
performance for CMI programs which are no longer open to new investment.
Performance information is set forth for the most recent five full years
for each program or, in the event that a program has been trading for less than
five years, performance information is set forth from the inception of trading.
Performance information prior to January 1, 1994 has been excluded in accordance
with CFTC regulations.
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
[Remainder of page left blank intentionally.]
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DIVERSIFIED PROGRAM
CMI suspended trading of its Diversified Program in August 1997.
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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (13.5%), 1/95
Largest peak-to-valley drawdown: (31.6%), 7/93-4/93
Number of profitable closed accounts: 60
Number of unprofitable closed accounts: 19
1998 compound rate of return: N/A
1997 compound rate of return: 11.3% (8 months)
1996 compound rate of return: 24.9%
1995 compound rate of return: 8.8%
1994 compound rate of return: 9.0%
FINANCIAL PROGRAM
CMI suspended trading of its Financial Program in September 1997.
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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 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%) (9 months)
1996 compound rate of return: 20.9%
1995 compound rate of return: 14.0%
1994 compound rate of return: (5.5%)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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GLOBAL FOREX PROGRAM
CMI suspended trading of its Global Forex Program in June 1997. 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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 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%) (6 months)
1996 compound rate of return: 10.9%
1995 compound rate of return: 6.5%
1994 compound rate of return: 0.9%
SIERRA SHORT-TERM PROGRAM
CMI suspended trading of its Sierra Short-Term Program in February 1995.
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: $454.6 million
Aggregate assets (including "notional" equity) overall: $524.1 million
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (7.8%), 2/94
Largest peak-to-valley drawdown: (45.2%), 11/93-2/94
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 30
1998 compound rate of return: N/A
1997 compound rate of return: N/A
1996 compound rate of return: N/A
1995 compound rate of return: 1.0% (2 months)
1994 compound rate of return: (1.4%)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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WILLOWBRIDGE ASSOCIATES INC.
BACKGROUND AND MANAGEMENT
Willowbridge Associates Inc. ("Willowbridge") is a Delaware corporation
organized on January 29, 1988. Willowbridge's main business address is 101
Morgan Lane, Suite 180, Plainsboro, New Jersey 08536. 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 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,
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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, trades
its XLIM Trading Approach on behalf of the Fund.
The Currency Investment Program. Willow bridge 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. Willow bridge 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
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
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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 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
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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 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, Australian 3-year Bond, BTP
Bonds, Euro-Lira, Euro-Yen, DM
Bunds, Euro Bund, Euro BTP, Libor,
Bobl, 1&3 Month Euromarks, Euro-
Bobl, Euro-Libor, Euribor
INDICES: Eurotop 100 Index, CAC 40
CURRENCIES: British Pound, Canadian Dollar,
Australian Dollar, Swiss Franc,
Deustche Mark, Japanese Yen,
EURO Cross Rates
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 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 1988, is a
technical trend-following system coupled with a mechanism for adding to, or
subtracting from, the initial position on a counter-trend or retracement basis
as described below.
Unlike Vulcan, Titan applies various technical factors in an effort to
monitor the overall market environment to attempt to recognize major trends. If
Titan initially perceives a low degree of risk, a relatively greater number of
positions are initiated. Likewise, when Titan initially perceives a high level
of risk, relatively fewer positions will be initiated until a lower degree of
risk is perceived. Thereafter positions may be added or subtracted as a result
of a perceived temporary discontinuance of a trend. This ability to adjust the
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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, FSTE
Eurotop 100 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
Treasury Bonds, Italian
Bonds, Euro-Lira Pound
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CURRENCIES: Sterling, Deutsche-mark,
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 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
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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 1994), 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.). In each capsule using the Fully-Funded Subset Method, rate of return
for the Fully-Funded Subset is computed by dividing the sum of the net
performance, i.e., for each of the accounts, for the Fully-Funded Subset, by the
sum of the actual funds-based beginning net asset values for the Fully-Funded
Subset.
[Remainder of page left blank intentionally.]
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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 1994 through December 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: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $388,951,687
Aggregate assets (including "notional" equity) in program: $397,093,687
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
================================================================================
Monthly
Performance 1998(%) 1997(%) 1996(%) 1995(%) 1994(%)
- --------------------------------------------------------------------------------
January 9.72 (3.41) 2.74 (4.89) (11.93)
- --------------------------------------------------------------------------------
February (3.82) 7.74 (2.67) 0.87 (12.67)
- --------------------------------------------------------------------------------
March (1.15) 6.23 4.63 31.21 0.04
- --------------------------------------------------------------------------------
April (17.43) (6.47) 9.48 4.41 0.00
- --------------------------------------------------------------------------------
May (5.83) 1.92 (2.70) 0.25 0.00
- --------------------------------------------------------------------------------
June 4.85 (7.24) (0.22) (7.52) 0.00
- --------------------------------------------------------------------------------
July (3.02) 18.90 (6.76) (3.91) 0.00
- --------------------------------------------------------------------------------
August 27.29 (9.01) 2.07 (1.28) 0.00
- --------------------------------------------------------------------------------
September 25.53 (4.27) 14.07 2.55 0.00
- --------------------------------------------------------------------------------
October 16.67 (6.00) 6.38 1.93 0.00
- --------------------------------------------------------------------------------
November (0.14) (1.78) 1.91 2.59 3.23
- --------------------------------------------------------------------------------
December 0.22 8.18 0.13 5.92 1.13
- --------------------------------------------------------------------------------
Compound Rate 54.38 1.12 31.06 31.28 (19.68)
of Return
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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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 1994 through December 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: 14
Aggregate assets (excluding "notional" equity) overall: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $42,273,192
Aggregate assets (including "notional" equity) in program: $62,105,873
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: 19.80%
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%
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 1994 through December 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: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $17,960,486
Aggregate assets (including "notional" equity) in program: $36,934,009
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: 34.30%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-92-
<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 1994 through December 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: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $(65,321)
Aggregate assets (including "notional" equity) in program: $1,143,105
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: 10.36%
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%)
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 1994 through December 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: 41
Aggregate assets (excluding "notional" equity) overall: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $198,282,947
Aggregate assets (including "notional" equity) in program: $249,142,885
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: 25.31%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-93-
<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 1994 through December 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: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $14,910,981
Aggregate assets (including "notional" equity) in program: $33,884,504
Largest monthly drawdown: (14.99%) (2/98)
Largest peak-to-valley drawdown: (34.70%) (11/97-7/98)
Number of profitable closed accounts: 9
Number of unprofitable closed accounts: 3
1998 compound rate of return: (12.36)%
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%
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 1994 through December 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: 1
Aggregate assets (excluding "notional" equity) overall: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $3,669,845
Aggregate assets (including "notional" equity) in program: $21,711,638
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: 30.39%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-94-
<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 1994 through December 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: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $25,447,981
Aggregate assets (including "notional" equity) in program: $25,447,981
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: 56.56%
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%)
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 1994 through December
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: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $419,936
Aggregate assets (including "notional" equity) in program: $12,900,090
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: (0.91)%
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)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-95-
<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 1994 through December 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: 10
Aggregate assets (excluding "notional" equity) overall: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $70,415,261
Aggregate assets (including "notional" equity) in program: $91,315,034
Largest monthly drawdown: (18.74%) (4/98)
Largest peak-to-valley drawdown: (30.47%) (8/97-7/98)
Number of profitable closed accounts: 6
Number of unprofitable closed accounts: 13
1998 compound rate of return: 30.81%
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%
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 December 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: $763,970,090
Aggregate assets (including "notional" equity) overall: $966,381,901
Aggregate assets (excluding "notional" equity) in program: $1,703,094
Aggregate assets (including "notional" equity) in program: $34,703,094
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: 46.02%
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
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-96-
<PAGE>
PERFORMANCE OF COMMODITY POOLS
OPERATED BY KENMAR
GENERAL
The performance information included herein is presented in accordance with
CFTC regulations. The Fund 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 Fund)
since January 1, 1994. 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 Fund, 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 Fund, and the past performance summaries
of such pools are generally not representative of how the Fund 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 December 31, 1998
(except in the case of pools dissolved prior to such date). Performance
information is set forth, in accordance with CFTC Regulations, since January 1,
1994 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.
--------------------
[Remainder of page left blank intentionally.]
-97-
<PAGE>
ASSETS UNDER MANAGEMENT
Kenmar -- Total assets under management as of
December 31, 1998: .............................. $139 million
Kenmar -- Total assets under multi-advisor
management as of December 31, 1998: ............. $ 96 million
Kenmar and affiliates -- Total assets under
management as of December 31, 1998: ............. $720 million
(excluding notional funds)
Kenmar and affiliates -- Total assets under
management as of December 31, 1998: ............. $804 million
(including notional funds)
MULTI-ADVISOR POOLS
These are all of the multi-advisor pools (other than the Fund and pools for
the research and development of traders) operated by Kenmar since January 1,
1994. Kenmar has actively allocated and reallocated trading assets among a
changing group of advisors selected by it. As will the Fund, 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, 1994 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, 1994 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.]
-98-
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
%
WORST
AGGRE- MONTHLY
TYPE GATE CURRENT CURRENT DRAW-
OF START CLOSE SUB- TOTAL NAV PER DOWN &
POOL DATE DATE SCRIPT. NAV UNIT MONTH
- ------------------------------------------------------------------------------------------------------------------------
MULTI-ADVISOR POOLS
=====================================
<S> <C> <C> <C> <C> <C> <C> <C>
Kenmar Performance Partners L.P. ** 08/85 N/A 262,838,213 65,276,126 17,067.65 (19.12)
1/94
- ------------------------------------------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. * 07/95 N/A 3,577,775 1,063,161 1,143.63 (6.19)
4/98
- ------------------------------------------------------------------------------------------------------------------------
Kenmar Global Trust * 5/97 N/A 26,347,083 25,363,101 113.19 (6.18)
4/98
=====================================-----------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
=====================================
The Dennis Fund L.P. "A" single 09/96 N/A 11,341,364 12,859,917 1,829.20 (10.75)
8/97
- ------------------------------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" single 04/97 N/A 22,016,036 22,699,256 1,760.77 (10.70)
8/97
- ------------------------------------------------------------------------------------------------------------------------
Dennis Friends & Family L.P. single 05/97 N/A 1,913,437 1,739,314 1,432.15 (14.79)
8/97
- ------------------------------------------------------------------------------------------------------------------------
Hirst Investment Fund L.P. single 10/97 N/A 4,157,088 4,075,962 1,131.65 (3.18)
7/98
=====================================-----------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
=====================================
Kenmar Venture Partners L.P. * 03/87 N/A 2,625,000 3,957,316 4,242.24 (29.70)
10/89
- ------------------------------------------------------------------------------------------------------------------------
GLH Strategic Performance L.P. single 08/93 10/94 1,143,233 0 717.41 (9.45)
1/94
- ------------------------------------------------------------------------------------------------------------------------
Oberdon Partners L.L.C. single 4/97 N/A 1,607,000 1,874,917 1,196.36 (20.65)
5/98
========================================================================================================================
<CAPTION>
=================================================================================================
%
WORST
PEAK-TO- PERCENTAGE RATE OF RETURN
VALLEY (COMPUTED ON A COMPOUNDED MONTHLY
DRAW- BASIS)
DOWN ------------------------------------------
& PERIOD 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------
MULTI-ADVISOR POOLS
=====================================
<S> <C> <C> <C> <C> <C> <C>
Kenmar Performance Partners L.P. (33.20) (9.79) 8.12 3.04 (2.1) 18.88
11/90-5/92
- -------------------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. (8.26) - 2.26 (1.87) 3.05 10.59
2/96-8/96
- -------------------------------------------------------------------------------------------------
Kenmar Global Trust (7.07) - - - 0.10 13.08
7/97-11/97
=====================================------------------------------------------------------------
SINGLE ADVISOR POOLS
=====================================
The Dennis Fund L.P. "A" (25.63) - - 8.14 18.70 42.50
3/97-8/97
- -------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" (17.63) - - - 18.75 40.42
5/97-8/97
- -------------------------------------------------------------------------------------------------
Dennis Friends & Family L.P. (19.96) - - - 0.24 42.95
6/97-8/97
- -------------------------------------------------------------------------------------------------
Hirst Investment Fund L.P. (6.62) - - - 3.31 9.54
4/98-7/98
=====================================------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
=====================================
Kenmar Venture Partners L.P. (48.75) 3.27 5.55 14.72 36.00 (6.15)
11/90-4/92
- -------------------------------------------------------------------------------------------------
GLH Strategic Performance L.P. (29.41) (21.95) - - - -
9/93-10/94
- -------------------------------------------------------------------------------------------------
Oberdon Partners L.L.C. (30.16) - - - 43.37 (16.55)
4/98-10/98
==================================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
</TABLE>
-99-
<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 December 31,
1998.
7. "Current NAV Per Unit" is the Current Net Asset Value of the pool divided
by the total number of units (shares) outstanding as of December 31, 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 pool 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 as of December 31, 1998.
[Remainder of page left blank intentionally.]
-100-
<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.*
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 1998
the agricultural sector represented only 19% 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.
[GRAPHICAL REPRESENTATION OF CHART]
Dramatic Changes in Futures Industry
1974(1) 1998(2)
------- -------
Agriculturals .............. 82% European Rates ................ 20%
Currencies ................. 2% European Stock Indexes ........ 2%
Metals ..................... 14% Pac Rim Rates ................. 14%
Lumber & Energy ............ 2% Pac Rim Stock Indexes.......... 1%
US Rates ...................... 5%
Energies ...................... 8%
US Stock Indexes .............. 2%
Metals ........................ 20%
Grains ........................ 9%
Softs ......................... 9%
Meats ......................... 1%
Currencies .................... 9%
Source: Futures Industry Association, Washington, D.C.
* Managed Futures encompass over 50 markets worldwide, and as a result
investors can gain global market exposure in their portfolios as well as add
non-financial investments. Thus, investing in a managed futures fund can be an
effective way to globally diversify a portfolio.
- -----------------------
(1) Represented by the percentage of the number of contracts traded per year.
(2) Based on average margin utilized by KGT as of December 1998
-101-
<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-correlation 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 light grey area of the chart below shows the benefit of adding 10%
managed futures to a hypothetical portfolio made up of 60% stocks and 40% bonds,
assuming an initial investment of $1,000. The combined portfolio showed improved
returns over the last nineteen 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 1998
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
Monthly
Compounded Standard Maximum
Annual ROR Deviation Drawdown
---------- --------- --------
[ ] 60%US Stocks/ 14.96 2.97 -19.41
40%US Bonds/
[ ] 60%US Stocks/ 15.21
2.04
-18.33
30% US Bonds.
10% Mgd. Fut.
60% STOCKS/40% BONDS
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The graph
depicts the actual performance of the MAR Fund/Pool Qualified Universe, in
combination with stocks and bonds. The "Stocks" portion is represented by the
S&P 500 Index and the "Bonds" portion by the Lehman Brothers Government
Corporate Bond Index. These are passive indices of equity and debt securities
which are generally purchased by investors with an investment objective of
capital preservation, growth or income.
The MAR Fund/Pool Qualified Universe Index is a dollar-weighted index which
includes performance of current as well as retired public futures funds, private
pools and offshore funds (MAR, New York, NY). 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.
-102-
<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
o 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 1998
[GRAPHICAL REPRESENTATION OF BAR CHARTS]
Growth of Initial $10,000 Investment
$147,442
$150,000
$141,312
$120,000
$90,000
$60,000
$30,000
$0
60% Stocks/40% Bonds 60% Stocks/30% Bonds
10% Managed Futures
[GRAPHICAL REPRESENTATION OF BAR CHARTS]
RISK as Measured by Standard Deviation of Annual Returns
12.00% 10.3% 10.2%
10.00%
8.00%
6.60%
4.00%
2.00%
0.00%
60% Stocks/40% Bonds 60% Stocks/30% Bonds
Bonds/10% Managed Futures
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
Corporate Bond Index. These are passive indices of equity and debt securities
which are generally purchased by investors with an investment objective of
capital preservation, growth or income.
103
<PAGE>
The MAR Fund/Pool Qualified Universe Index is a dollar weighted index which
includes performance of current as well as retired public futures funds, private
pools and offshore funds (MAR, New York, NY). 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.
CORRELATION OF MANAGED FUTURES
JANUARY 1980--DECEMBER 1998
MANAGED* S&P* US*
FUTURES* 500 EAFE* BONDS
-------- ---- ----- ------
MANAGED FUTURES* ............... 1.00
S&P 500 ........................ 0.08 100
EAFE ........................... -0.02 0.61 100
US BONDS ....................... 0.03 0.29 0.22 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.
* SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS" AT THE END OF
THIS SECTION.
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."(1)
This diversification effect of Managed Futures is also 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, Managed Futures has the ability
to provide 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 those of stocks and bonds.
- ----------
(1) Litner, John, "The Potential Role of Managed Commodity Financial Futures
Accounts (and/or Funds) in Portfolios of Stocks and Bonds." Annual
Conference of Financial Analysts Federation, May 1983.
104
<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 December 1998. The chart below the table
shows the worst peak-to-valley losses of the four asset classes for the same
period.
MANAGED
YEAR FUTURES US STOCKS INT'L. STOCKS US BONDS
---- ------- --------- ------------- --------
1980 46.4% 32.6% 24.4% 10.4%
1981 19.6 -5.0 -1.0 7.2
1982 23.1 21.7 3.6 31.1
1983 -7.6 22.6 32.6 8.0
1984 4.2 6.2 21.6 15.0
1985 21.8 31.9 28.5 21.4
1986 -11.5 18.7 42.9 15.6
1987 46.9 5.2 -2.0 2.3
1988 8.4 16.5 34.0 7.6
1989 10.1 31.7 21.8 14.3
1990 19.5 -3.1 -29.6 5.7
1991 10.7 30.5 9.1 15.0
1992 1.0 7.7 -5.8 7.5
1993 15.2 10.1 29.6 8.8
1994 -2.2 1.3 -1.8 -2.0
1995 9.7 37.6 9.8 15.1
1996 11.9 22.9 11.6 4.1
1997 9.2 33.4 13.8 7.8
1998 10.0 28.6 23.0 8.3
* SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS" AT THE END OF
THIS SECTION.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
[REPRESENTATION OF CHART]
WORST PEAK-TO-VALLEY LOSS FROM JANUARY 1980 THROUGH DECEMBER 1998
MANAGED FUTURES (Apr. 86 to Dec. 86)................. -28.1%
S&P 500 (Sep. 87 to Nov. 87)......................... -29.6%
EAFE (Jan. 90 to Sep. 90)............................ -35.1%
US BONDS (Jan. 80 to Feb. 80) ....................... -8.5%
105
<PAGE>
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) is
the European/Australian/Far East Index based on local currency. Source: CDA
Investment Technologies, Inc.
U.S. BONDS* - Lehman Brothers Government/Corporate Bond Index (coupons
reinvested)
MANAGED FUTURES* - MAR Fund/Pool Qualified Universe Index is a dollar-weighted
index which includes performance of current as well as retired public futures
funds, private pools and offshore funds (MAR, New York, NY).
* 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.
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 does not anticipate that it will incur
any interest expense. 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 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 historically "lock limit" situations have not been common. Investors may
redeem all or a portion of their Units on a monthly basis --beginning with the
end of the sixth month following purchase of such Units-- subject to a declining
redemption fee during the eighteen months 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.
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.
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 Fund 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 $5,000, (or $2,000 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 $2,000.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
KENMAR GLOBAL TRUST
Independent Auditor's Report.................................................F-2
Statements of Financial Condition as of December 31,
1998 and 1997..............................................................F-3
Statements of Operations for the Years Ended December 31,
1998 and 1997 and for the Period July 17, 1996 (inception)
to December 31, 1996.......................................................F-4
Statements of Cash Flows for the Years Ended December 31,
1998 and 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 Years Ended December 31, 1998 and 1997 and for the Period
July 17, 1996 (inception) to December 31, 1996.............................F-6
Notes to Financial Statements...........................................F-7-F-11
KENMAR ADVISORY CORP.
Independent Auditor's Report................................................F-12
Statements of Financial Condition as of September 30, 1998 (audited)
and December 31, 1998 (unaudited).........................................F-13
Notes to Statement of Financial Condition..............................F-14-F-21
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, 1998 and 1997, and the related statements of
operations, cash flows and changes in Unitholders' capital (net asset value) for
the years ended December 31,1998 and 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, 1998 and 1997, and the results of its operations, cash flows and
the changes in its net asset values for the years ended December 31, 1998 and
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.
Hunt Valley, Maryland
March 1, 1999
F-2
<PAGE>
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
December 31, 1998 and 1997
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Equity in broker trading accounts
Cash ................................................... $14,288,556 $11,166,621
Net option premiums paid ............................... 0 12,165
Unrealized gain on open contracts ...................... 1,219,956 838,321
----------- -----------
Deposits with brokers ............................ 15,508,512 12,017,107
Cash ...................................................... 10,582,645 588,287
Other assets .............................................. 0 177,369
----------- -----------
Total assets ..................................... $26,091,157 $12,782,763
=========== ===========
LIABILITIES
Accounts payable .......................................... $ 65,017 $ 24,489
Commissions and other trading fees on open contracts ...... 18,122 6,831
Managing Owner brokerage commissions ...................... 160,616 89,492
Managing Owner incentive fee .............................. 42,368 0
Advisor profit shares ..................................... 109,106 54,575
Reimbursable offering costs ............................... 44,975 23,058
Redemptions payable ....................................... 255,238 176,774
Redemption charges payable to Managing Owner .............. 4,897 4,503
Subscription deposits ..................................... 27,720 25,720
----------- -----------
Total liabilities ................................ 728,059 405,442
=========== ===========
UNITHOLDERS' CAPITAL (Net Asset Value)
Managing Owner - 2,331.0461 and 1,258.4577 units
outstanding at December 31, 1998 and 1997 .............. 263,850 125,970
Other Unitholders - 221,745.5512 and 122,392.3731 units
outstanding at December 31, 1998 and 1997 .............. 25,099,248 12,251,351
----------- -----------
Total unitholders' capital
(Net Asset Value) .......................... 25,363,098 12,377,321
----------- -----------
$26,091,157 $12,782,763
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
<CAPTION>
Year Ended Year Ended Period Ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INCOME
Trading gains (losses)
Realized ............................... $4,443,190 $(162,443) $ 0
Change in unrealized ................... 381,635 838,321 0
---------- --------- -----
Gain from trading ................ 4,824,825 675,878 0
Interest income ........................... 750,290 293,033 0
---------- --------- -----
Total income ..................... 5,575,115 968,911 0
---------- --------- -----
EXPENSES
Brokerage commissions ..................... 147,779 45,814 0
Managing Owner brokerage commissions ...... 1,652,458 631,403 0
Managing Owner incentive fee .............. 43,400 0 0
Advisor profit shares ..................... 984,809 106,886 0
Operating expenses ........................ 134,568 58,398 0
---------- --------- -----
Total expenses ................... 2,963,014 842,501 0
---------- --------- -----
NET INCOME ....................... $2,612,101 $ 126,410 $ 0
========== ========= =====
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the period) ...... $ 16.96 $ 1.24 $0.00
========== ========= =====
INCREASE IN NET ASSET VALUE PER UNIT ....... $ 13.09 $ 0.10 $0.00
========== ========= =====
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
<CAPTION>
Year Ended Year Ended Period Ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Net income ....................................... $ 2,612,101 $ 126,410 $ 0
Adjustments to reconcile net income to net
cash from (for) operating activities:
(Increase) decrease in net option premiums
paid ................................... 12,165 (12,165) 0
Net change in unrealized .................. (381,635) (838,321) 0
(Increase) decrease in other assets ....... 177,369 (177,369) 0
Increase in accounts payable and accrued
expenses ............................... 219,842 175,387 0
----------- ----------- ------
Net cash from (for) operating activities .. 2,639,842 (726,058) 0
----------- ----------- ------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Addition of units ................................ 13,497,520 12,847,562 2,000
Increase in subscription deposits ................ 2,000 25,720 0
Offering costs paid .............................. (700,862) (124,706) 0
Redemption of units .............................. (2,322,207) (269,610) 0
----------- ----------- ------
Net cash from financing activities ........ 10,476,451 12,478,966 2,000
----------- ----------- ------
Net increase in cash .............................. 13,116,293 11,752,908 2,000
CASH
Beginning of period .............................. 11,754,908 2,000 0
----------- ----------- ------
End of period .................................... $24,871,201 $11,754,908 $2,000
=========== =========== ======
END OF PERIOD CASH CONSISTS OF:
Cash in broker trading accounts .................. $14,288,556 $11,166,621 $ 0
Cash ............................................. 10,582,645 588,287 2,000
----------- ----------- ------
Total end of period cash .................. $24,871,201 $11,754,908 $2,000
=========== =========== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 1998 and 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
<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
Net income for the year
ended December 31, 1998 ........... 26,933 2,585,168 2,612,101
Additions ........................... 123,109.1508 118,400 13,379,120 13,497,520
Redemptions ......................... (22,683.3843) 0 (2,401,065) (2,401,065)
Offering costs ...................... (7,453) (715,326) (722,779)
------------ -------- ----------- -----------
Balances at
December 31, 1998 ................. 224,076.5973 $263,850 $25,099,248 $25,363,098
============ ======== =========== ===========
</TABLE>
Net Asset Value Per Unit
----------------------------------------------
December 31,
----------------------------------------------
1998 1997 1996
------- ------- -------
$113.19 $100.10 $100.00
======= ======= =======
See accompanying notes.
F-6
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS
Note (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the 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 $540,000 were advanced to the Fund by
the Managing Owner. Such costs are charged to unitholders' capital and
reimbursed to the Managing Owner at a monthly rate of 0.2% of the
Fund's beginning of month Net Asset Value. As of December 31, 1998,
all such organizational and initial offering costs advanced by the
Managing Owner have been charged to unitholders' capital.
F-7
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------
Note (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. Organizational and Offering Costs (Continued)
Ongoing offering costs are borne by the Fund and are charged directly
to unitholders' capital as incurred.
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
year ended December 31, 1998 and for the period May 22, 1997
(commencement of trading) to December 31, 1997, brokerage commissions
equated to an approximate round-turn equivalent rate of $84 and $92,
respectively. 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.
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).
F-8
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------
Note (4) DEPOSITS WITH BROKERS
The Fund deposits cash 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 in the statement of changes in
unitholders' capital and amounted to $51,752 and $12,592 during 1998
and 1997, respectively.
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.
F-9
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------
Note (6) TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
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 year ended
December 31, 1998 and for the period May 22, 1997 (commencement of
trading) to December 31, 1997, and the related fair values as of
December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- ------------------------
Average Year End Average Period End
Fair Value Fair Value Fair Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Exchange traded futures and options
on futures contracts .......................... $1,050,000 $1,240,000 $440,000 $847,000
Forward contracts ............................... 20,000 (20,000) 30,000 3,000
</TABLE>
Net trading results from derivatives for the years ended December 31,
1998 and 1997, are reflected in the statement of operations and
consist 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 years ended December 31, 1998 and 1997, the net
trading gain from derivatives was approximately $4,564,000 and
$595,000, 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-10
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note (6) TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Open contracts generally mature within one year, however, the Fund
intends to close all contracts prior to maturity. The latest maturity
date for open contracts at December 31, 1998 and 1997 is September
1999 and June 1998, respectively. At December 31, 1998 and 1997, the
notional amount of open contracts is as follows:
<TABLE>
<CAPTION>
1998 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 .................... $ 96,900,000 $ 99,000,000 $44,900,000 $16,300,000
- Metals ................................... 4,200,000 11,100,000 1,800,000 3,700,000
- Energy ................................... 0 1,800,000 0 1,100,000
- Agricultural ............................. 900,000 9,300,000 1,500,000 2,800,000
- Currencies ............................... 6,800,000 6,400,000 15,300,000 18,800,000
Forward Contracts:
- Currencies ............................... 4,600,000 2,600,000 0 700,000
------------ ------------ ----------- -----------
$113,400,000 $130,200,000 $63,500,000 $43,400,000
============ ============ =========== ===========
Exchange traded purchased options
on futures contracts
- Financial instruments .................... $ 0 $ 0 $ 3,400,000 $ 0
- Currencies ............................... 0 0 0 1,400,000
------------ ------------ ----------- -----------
$ 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
market risk and minimize 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-11
<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.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
December 16, 1998
F-12
<PAGE>
KENMAR ADVISORY CORP.
STATEMENTS OF FINANCIAL CONDITION
9/30/98 12/31/98
(Audited) (Unaudited)
---------- ----------
ASSETS
Cash and cash equivalents .......................... $ 432,380 $ 269,215
Fees receivable .................................... 2,449,276 815,105
Due from affiliates, net ........................... 2,325,845 3,472,652
Investments in affiliated commodity pools ......... 1,832,266 1,806,566
Property and equipment, net ....................... 476,634 461,170
Other Assets ...................................... 5,063 6,978
---------- ----------
Total assets ................................ $7,521,464 $6,831,686
========== ==========
LIABILITIES
Accrued expenses and other liabilities ............. $2,663,940 $1,963,760
Obligations under capital leases ................... 310,841 281,177
Commercial loan payable ............................ 613,264 605,418
---------- ----------
Total liabilities ........................... $3,588,045 2,850,355
========== ==========
STOCKHOLDER'S EQUITY
Common Stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares .................. 100 100
Additional paid-in capital ......................... 1,479,584 1,479,584
Retained earnings ................................. 2,453,735 2,501,647
---------- ----------
Total stockholder's equity .................. 3,933,419 3,981,331
---------- ----------
Total liabilities and stockholder's equity .. $7,521,464 $6,831,686
========== ==========
See accompanying notes.
F-13
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
September 30, 1998
----------
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.
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.
F-14
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1998
----------
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 $245,837 $375,173 $1,832,266
========== ======== ======== ==========
</TABLE>
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.
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
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
F-15
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1998
----------
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.
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
===========
F-16
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1998
----------
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.
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
========
F-17
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1998
----------
Note 4. OBLIGATIONS UNDER LEASES (CONTINUED)
The Company leases office facilities in Greenwich, Connecticut. The
lease commenced in January, 1996 for an initial term of nine years
with one five year option to renew. The future minimum lease payments
under this noncancelable operating lease are as follows:
Year Ending September 30
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.
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
==========
F-18
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1998
----------
Note 6. RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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-19
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1998
----------
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-20
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
December 30, 1998 (unaudited)
----------
This interim statement of financial condition as of December 31, 1998 is
unaudited and does not include all disclosures required by generally accepted
accounting principles. Such interim statement of financial condition should be
read in conjunction with the Company's audited statement of financial condition
as of September 30, 1998, included on the preceding pages. In the opinion of
management, such unaudited statement reflects all adjustments of a normal and
recurring nature which are necessary for a fair presentation of financial
position as of December 31, 1998.
F-21
<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
<TABLE>
<CAPTION>
Page
-----
<S> <C>
1. Declaration of Trust.........................................................................TA-1
2. The Trustee..................................................................................TA-2
(a) Term; Resignation................................................................TA-2
(b) Powers...........................................................................TA-2
(c) Compensation and Expenses of the Trustee.........................................TA-2
(d) Indemnification..................................................................TA-2
(e) Successor Trustee................................................................TA-3
(f) Liability of the Trustee.........................................................TA-3
(g) Reliance by the Trustee and the Managing Owner; Advice of Counsel................TA-4
(h) Not Part of Trust Estate.........................................................TA-4
3. Principal Office.............................................................................TA-4
4. Business.....................................................................................TA-4
5. Term, Dissolution, Fiscal Year and Net Asset Value...........................................TA-5
(a) Term.............................................................................TA-5
(b) Dissolution......................................................................TA-5
(c) Fiscal Year......................................................................TA-5
(d) Net Asset Value; Net Asset Value per Unit........................................TA-5
6. Net Worth of Managing Owner..................................................................TA-5
7. Capital Contributions; Units.................................................................TA-5
8. Allocation of Profits and Losses.............................................................TA-6
(a) Capital Accounts and Allocations.................................................TA-6
(b) Allocation of Profit and Loss for Federal Income Tax Purposes....................TA-6
(c) Incentive Fees; Profit Shares....................................................TA-8
(d) Expenses.........................................................................TA-8
(e) Limited Liability of Unitholders.................................................TA-9
(f) Return of Capital Contributions..................................................TA-9
9. Management of the Trust......................................................................TA-9
10. Audits and Reports to Unitholders............................................................TA-11
11. Assignability of Units.......................................................................TA-11
12. Redemptions..................................................................................TA-12
13. Offering of Units............................................................................TA-13
14. Additional Offerings.........................................................................TA-13
15. Special Power of Attorney....................................................................TA-14
16. Withdrawal of a Unitholder...................................................................TA-14
17. Standard of Liability; Indemnification.......................................................TA-14
(a) Standard of Liability for the Managing Owner.....................................TA-14
(b) Indemnification of the Managing Owner by the Trust...............................TA-15
(c) Indemnification of the Trust by the Unitholders..................................TA-16
18. Amendments; Meetings.........................................................................TA-16
(a) Amendments with Consent of the Managing Owner....................................TA-16
(b) Amendments and Actions without Consent of the Managing Owner.....................TA-16
(c) Meetings; Other Voting Matters...................................................TA-16
(d) Consent by Trustee...............................................................TA-17
19. Governing Law................................................................................TA-17
20. Miscellaneous................................................................................TA-17
(a) Notices..........................................................................TA-17
(b) Binding Effect...................................................................TA-17
(c) Captions.........................................................................TA-17
21. Benefit Plan Investors.......................................................................TA-17
22. Certain Definitions..........................................................................TA-18
23. No Legal Title to Trust Estate...............................................................TA-19
24. Legal Title..................................................................................TA-19
25. Creditors....................................................................................TA-20
</TABLE>
TA-i
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This Amended and Restated Declaration of Trust and Trust Agreement (the
"Declaration of Trust Agreement") is made as of December 17, 1996, by and among
Kenmar Advisory Corp., a Connecticut corporation (the "Managing Owner"),
Wilmington Trust Company, a Delaware banking corporation, as trustee (the
"Trustee") and each other party who becomes a party to this Declaration of Trust
Agreement as an owner of a unit ("Unit") of beneficial interest of the Trust or
who becomes a party to this Declaration of Trust as a Unitholder by execution of
a Subscription Agreement and Power of Attorney Signature Page or otherwise and
who is shown in the books and records of the Trust as a Unitholder
(individually, a "Unitholder" and, collectively, the "Unitholders").
WITNESSETH:
WHEREAS, the Managing Owner, the Trustee and a private partnership of
which the Managing Owner is a general partner, as the initial beneficial owner,
formed a business trust pursuant to and in accordance with the Delaware Business
Trust Act, 12 Del. C. ss. 3801, et seq., as amended from time to time (the
"Act"), by filing a Certificate of Trust with the office of the Secretary of
State of the State of Delaware on July 17, 1996, and entering into the
Declaration and Agreement of Trust, dated as of July 17, 1996 (the "Original
Declaration"); and
WHEREAS, the parties hereto desire to continue the Trust for the
business and purpose of issuing Units, the capital of which shall be used to
engage in trading, buying, selling or otherwise acquiring, holding or disposing
of futures contracts, forward contracts, foreign exchange commitments, swaps,
exchange for physicals, spot (cash) commodities, hybrid instruments and other
items, options on and any rights pertaining to the foregoing throughout the
world with the objective of capital appreciation through speculative trading by
allocating Trust Assets to independent professional trading advisors
("Advisors") selected from time to time by the Managing Owner and to amend and
restate the Original Declaration in its entirety.
NOW THEREFORE, the parties hereto agree as follows:
1. Declaration of Trust.
The Managing Owner hereby acknowledges that the Trust has received the
sum of $400 in a bank account opened in the name of the Trust from the Managing
Owner as grantor of the Trust and $1,600 from the initial beneficial owner (the
"Initial Unitholder"), and the Trustee hereby declares that it shall hold such
sums in trust upon and subject to the conditions set forth herein for the use
and benefit of the Unitholders. It is the intention of the parties hereto that
the Trust shall be a business trust under the Act, and that this Declaration of
Trust shall constitute the governing instrument of the Trust. The Trustee has
filed the Certificate of Trust required by Section 3810 of the Act.
Nothing in this Declaration of Trust shall be construed to make the
Unitholders partners or members of a joint stock association except to the
extent that such Unitholders, as constituted from time to time, are deemed to be
partners under the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable state and local tax laws. Notwithstanding the foregoing, it is the
intention of the parties hereto that the Trust be treated as a partnership for
purposes of taxation under the Code and applicable state and local tax laws.
Effective as of the date hereof, the Trustee shall have all of the rights,
powers and duties set forth herein and in the Act with respect to accomplishing
the purposes of the Trust.
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2. The Trustee.
(a) Term; Resignation.
(i) Wilmington Trust Company has been appointed and hereby
agrees to serve as the Trustee of the Trust. The Trust shall have only
one trustee unless otherwise determined by the Managing Owner. The
Trustee shall serve until such time as the Managing Owner removes the
Trustee or the Trustee resigns and a successor Trustee is appointed by
the Managing Owner in accordance with the terms of Section 2(e) hereof.
(ii) The Trustee may resign at any time upon the giving of at
least sixty (60) days' advance written notice to the Trust; provided,
that such resignation shall not become effective unless and until a
successor Trustee shall have been appointed by the Managing Owner in
accordance with Section 2(e) hereof. If the Managing Owner does not act
within such sixty (60) day period, the Trustee may apply to the Court
of Chancery of the State of Delaware for the appointment of a successor
Trustee.
(b) Powers. Except to the extent expressly set forth in this Section 2,
Section 3 and Section 24, the duty and authority of the Trustee to manage the
business and affairs of the Trust are hereby delegated to the Managing Owner.
The Trustee shall have only the rights, obligations or liabilities specifically
provided for herein and in the Act and shall have no implied rights, obligations
or liabilities with respect to the business or affairs of the Trust. The Trustee
shall have the power and authority to execute, deliver, acknowledge and file all
necessary documents, including any amendments to or cancellation of the
Certificate of Trust as required by the Act. The Trustee shall provide prompt
notice to the Managing Owner of its performance of any of the foregoing. The
Managing Owner shall keep the Trustee informed of any actions taken by the
Managing Owner with respect to the Trust that affect the rights, obligations or
liabilities of the Trustee hereunder or under the Act.
(c) Compensation and Expenses of the Trustee. The Trustee shall be
entitled to receive from the Trust or, if the assets of the Trust are
insufficient, from the Managing Owner reasonable compensation for its services
hereunder in accordance with the Trustee's standard fee schedule, and shall be
entitled to be reimbursed by the Trust or, if the assets of the Trust are
insufficient, by the Managing Owner for reasonable out-of-pocket expenses
incurred by the Trustee in the performance of its duties hereunder, including
without limitation, the reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the Trustee may employ in
connection with the exercise and performance of its rights and duties hereunder,
to the extent attributable to the Trust.
(d) Indemnification. The Managing Owner agrees, whether or not any of
the transactions contemplated hereby shall be consummated, to assume liability
for, and does hereby indemnify, protect, save and keep harmless the Trustee and
its successors, assigns, legal representatives, officers, directors, agents and
servants (the "Indemnified Parties") from and against any and all liabilities,
obligations, losses, damages, penalties, taxes (excluding any taxes payable by
the Trustee on or measured by any compensation received by the Trustee for its
services hereunder or as indemnity payments pursuant to this Section 2(d)),
claims, actions, suits, costs, expenses or disbursements (including legal fees
and expenses) of any kind and nature whatsoever (collectively, "Expenses"),
which may be imposed on, incurred by or asserted against the Indemnified Parties
in any way relating to or arising out of the formation, operation or termination
of the Trust, the execution, delivery and performance of any other agreements to
which the Trust is a party or the action or inaction of the Trustee hereunder or
thereunder, except for Expenses resulting from the gross negligence or willful
misconduct of the Indemnified Parties. The indemnities contained in this Section
2(d) shall survive the termination of this Declaration of Trust or the removal
or resignation of the Trustee. In addition, the Indemnified Parties shall be
entitled to indemnification from any cash, net equity in any commodity futures,
forward and option contracts, all funds on deposit in the accounts of the Trust,
any other property held by the Trust, and all proceeds therefrom, including any
rights of the Trust pursuant to any agreements to which this Trust is a party
(the "Trust Estate") to the extent such expenses are attributable to the
formation, operation or termination of the Trust as set forth above, and to
secure the same the Trustee shall have a lien against the Trust Estate which
shall be prior to the rights of the Managing Owner and the Unitholders to
receive distributions from the Trust Estate. The Trustee nevertheless agrees
that it will, at its own cost and expense, promptly take all action as may be
necessary to discharge any liens on any part of the Trust Estate which result
from claims against the Trustee personally that are not related to the ownership
or the administration of the Trust Estate or the transactions contemplated by
any documents to which the Trust is a party.
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(e) Successor Trustee. Upon the resignation or removal of the Trustee,
the Managing Owner shall appoint a successor Trustee by delivering a written
instrument to the outgoing Trustee. Any successor Trustee must satisfy the
requirements of Section 3807 of the Act. Any resignation or removal of the
Trustee and appointment of a successor Trustee shall not become effective until
a written acceptance of appointment is delivered by the successor Trustee to the
outgoing Trustee and the Managing Owner and any fees and expenses due to the
outgoing Trustee are paid. Following compliance with the preceding sentence, the
successor Trustee shall become fully vested with all of the rights, powers,
duties and obligations of the outgoing Trustee under this Declaration of Trust,
with like effect as if originally named as Trustee, and the outgoing Trustee
shall be discharged of its duties and obligations under this Declaration of
Trust.
(f) Liability of the Trustee. Except as otherwise provided in this
Section 2, in accepting the trust created hereby, Wilmington Trust Company acts
solely as Trustee hereunder and not in its individual capacity, and all persons
having any claim against the Trustee by reason of the transactions contemplated
by this Declaration of Trust and any other agreement to which the Trust is a
party shall look only to the Trust Estate for payment or satisfaction thereof.
The Trustee shall not be liable or accountable hereunder or under any other
agreement to which the Trust is a party, except for the Trustee's own gross
negligence or willful misconduct. In particular, but not by way of limitation:
(i) the Trustee shall have no liability or responsibility for
the validity or sufficiency of this Declaration of Trust or for the
form, character, genuineness, sufficiency, value or validity of the
Trust Estate;
(ii) the Trustee shall not be liable for any actions taken or
omitted to be taken by it in accordance with the instructions of the
Managing Owner or any Unitholder;
(iii) the Trustee shall not have any liability for the acts or
omissions of the Managing Owner;
(iv) the Trustee shall not be liable for its failure to
supervise the performance of any obligations of the Managing Owner, any
commodity broker, any Selling Agents or any additional Selling Agents;
(v) no provision of this Declaration of Trust shall require
the Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder
if the Trustee shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured or provided to it;
(vi) under no circumstances shall the Trustee be liable for
indebtedness evidenced by or other obligations of the Trust arising
under this Declaration of Trust or any other agreements to which the
Trust is a party;
(vii) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Declaration of Trust, or
to institute, conduct or defend any litigation under this Declaration
of Trust or any other agreements to which the Trust is a party, at the
request, order or direction of the Managing Owner or any Unitholders
unless the Managing Owner or such Unitholders have offered to the
Trustee security or indemnity satisfactory to it against the costs,
expenses and liabilities that may be incurred by the Trustee
(including, without limitation, the reasonable fees and expenses of its
counsel) therein or thereby; and
(viii) notwithstanding anything contained herein to the
contrary, the Trustee shall not be required to take any action in any
jurisdiction other than in the State of Delaware if the taking of such
action will (a) require the consent or approval or authorization or
order of or the giving of notice to, or the registration with or taking
of any action in respect of, any state or other governmental authority
or agency of any jurisdiction other than the State of Delaware, (b)
result in any fee, tax or other governmental charge under the laws of
any jurisdiction or any political subdivision thereof in existence as
of the date hereof other than the State of Delaware becoming payable by
the Trustee or (c) subject the Trustee to personal jurisdiction other
than in the State of Delaware for causes of action arising from
personal acts unrelated to the consummation by the Trustee of the
transactions contemplated hereby.
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(g) Reliance by the Trustee and the Managing Owner; Advice of Counsel.
(i) In the absence of bad faith, the Trustee and the Managing
Owner may conclusively rely upon certificates or opinions furnished to
the Trustee or the Managing Owner and conforming to the requirements of
this Declaration of Trust in determining the truth of the statements
and the correctness of the opinions contained therein, and shall incur
no liability to anyone in acting on any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond
or other document or paper which is believed to be genuine and believed
to be signed by the proper party or parties, and need not investigate
any fact or matter pertaining to or in any such document; provided,
however, that the Trustee or the Managing Owner shall have examined any
certificates or opinions so as to determine compliance of the same with
the requirements of this Declaration of Trust. The Trustee or the
Managing Owner may accept a certified copy of a resolution of the board
of directors or other governing body of any corporate party as
conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or
matter the method of the determination of which is not specifically
prescribed herein, the Trustee or the Managing Owner may for all
purposes hereof rely on a certificate, signed by the president or any
vice president or by the treasurer or other authorized officers of the
relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Trustee or the Managing Owner for any
action taken or omitted to be taken by either of them in good faith in
reliance thereon.
(ii) In the exercise or administration of the trust hereunder
and in the performance of its duties and obligations under this
Declaration of Trust, the Trustee, at the expense of the Trust, (i) may
act directly or through its agents, attorneys, custodians or nominees
pursuant to agreements entered into with any of them, and the Trustee
shall not be liable for the conduct or misconduct of such agents,
attorneys, custodians or nominees if such agents, attorneys, custodians
or nominees shall have been selected by the Trustee with reasonable
care and (ii) may consult with counsel, accountants and other skilled
professionals to be selected with reasonable care by the Trustee;
provided that the Trustee shall not allocate any of its internal
expenses or overhead to the account of the Trust. The Trustee shall not
be liable for anything done, suffered or omitted in good faith by it in
accordance with the opinion or advice of any such counsel, accountant
or other such persons.
(h) Not Part of Trust Estate. Amounts paid to the Trustee from the
Trust Estate, if any, pursuant to this Section 2 shall be deemed not to be part
of the Trust Estate immediately after such payment.
3. Principal Office.
The address of the principal office of the Trust shall be c/o the
Managing Owner, Two American Lane, Greenwich, Connecticut 06831; telephone:
(203) 861-1000. The Trustee is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration.
The Trustee shall receive service of process on the Trust in the State of
Delaware at the foregoing address. In the event Wilmington Trust Company resigns
or is removed as the Trustee, the Trustee of the Trust in the State of Delaware
shall be the successor Trustee.
4. Business.
The Trust's business and purpose is to trade, buy sell, swap or
otherwise acquire, hold or dispose of futures and forward contracts for
commodities, financial instruments, stock indices, metals, energy contracts and
currencies, any rights pertaining thereto and any options thereon or on physical
commodities, as well as securities and any rights pertaining thereto and any
options thereon, and to engage in all activities necessary, convenient or
incidental thereto. The Trust may also engage in "hedge," arbitrage and cash
trading of any of the foregoing instruments. The Trust may engage in such
business and purpose either directly or through joint ventures, entities or
partnerships, provided that the Trust's participation in any of the foregoing
has no adverse economic or liability consequences for the Unitholders, which
consequences would not be present had the Trust engaged in that same business or
purpose directly.
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5. Term, Dissolution, Fiscal Year.
(a) Term. The term of the Trust commenced on the day on which the
Certificate of Trust was filed with the Secretary of State of the State of
Delaware pursuant to the provisions of the Act and shall end upon the first to
occur of the following: (1) December 31, 2026; (2) receipt by the Managing Owner
of an approval to dissolve the Trust at a specified time by Unitholders owning
Units representing more than fifty percent (50%) of the outstanding Units then
owned by Unitholders, notice of which is sent by certified mail return receipt
requested to the Managing Owner not less than 90 days prior to the effective
date of such dissolution; (3) death, insanity, bankruptcy, retirement,
resignation, expulsion, withdrawal, insolvency or dissolution of the Managing
Owner or any other event that causes the Managing Owner to cease to be a
managing owner unless (i) at the time of such event there is at least one
remaining managing owner of the Trust who carries on the business of the Trust
(and each remaining managing owner of the Trust is hereby authorized to carry on
the business of the Trust in such an event), or (ii) within one hundred twenty
days after such event Unitholders holding a majority of Units agree in writing
to continue the business of the Trust and to the appointment, effective as of
the date of such event, of one or more managing owners of the Trust; (4) a
decline in the aggregate Net Assets of the Trust to less than $250,000; (5)
dissolution of the Trust pursuant hereto; or (6) any other event which shall
make it unlawful for the existence of the Trust to be continued or require
termination of the Trust. In the event that the Managing Owner (or an affiliate
thereof) ceases to be the trust's managing owner, the word "Kenmar" shall be
deleted from the name of the Trust, and any appropriate filings shall be made.
(b) Dissolution. Upon the occurrence of an event causing the
dissolution of the Trust, the Trust shall be dissolved and its affairs wound up.
At any time that the Trust does not have a Managing Owner, the Unitholders by
majority vote may appoint a liquidator.
(c) Fiscal Year. The fiscal year of the Trust shall begin on January 1
of each year and end on the following December 31.
(d) Net Asset Value; Net Asset Value per Unit. Net Assets of the Trust
are its assets less its liabilities determined in accordance with generally
accepted accounting principles. If a contract cannot be liquidated on the day
with respect to which Net Assets are being determined, the settlement price on
the first subsequent day on which the contract can be liquidated shall be the
basis for determining the liquidating value of such contract for such day, or
such other value as the Managing Owner may deem fair and reasonable. The
liquidating value of a commodity futures or option contract not traded on a
commodity exchange shall mean its liquidating value as determined by the
Managing Owner on a basis consistently applied for each different variety of
contract. Accrued Profit Shares and Incentive Fees (as described in the
Prospectus, as defined in Section 9 hereof) shall reduce Net Asset Value, even
though such Profit Shares and Incentive Fees may never, in fact, be paid. Net
Asset Value per Unit is the Net Assets of the Trust divided by the number of
Units outstanding as of the date of determination.
6. Net Worth of Managing Owner.
The Managing Owner agrees that at all times so long as it remains
managing owner of the Trust, it will maintain its Net Worth at an amount not
less than $1,000,000.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws and qualify
under any guidelines or statements of policy promulgated by any body or agency
constituted by the various state securities administrators having jurisdiction
in the premises.
7. Capital Contributions; Units.
The Unitholders' respective capital contributions to the Trust shall be
as shown on the books and records of the Trust. The Initial Unitholder will
withdraw upon the admission of additional Unitholders.
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The Managing Owner, so long as it is generally liable for the
obligations of the Trust, or any substitute managing owner, shall invest in the
Trust, as a general liability interest, sufficient capital so that the Managing
Owner will have at all times a capital account equal to 1% of the total capital
accounts of the Trust (including the Managing Owner's). The Managing Owner may
withdraw any interest it may have in excess of such requirement, and may redeem
as of any month-end any interest which it may acquire on the same terms as any
Unitholder, provided that it must maintain the minimum interest described in the
preceding sentence.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws and qualify
under any guidelines or statements of policy promulgated by any body or agency
constituted by the various state securities administrators having jurisdiction
in the premises.
The Managing Owner may, without the consent of any Unitholders of the
Trust, admit to the Trust purchasers of Units as Unitholders of the Trust.
Any Units acquired by the Managing Owner or any of its affiliates will
be non-voting, and will not be considered outstanding for purposes of
determining whether the majority approval of the outstanding Units has been
obtained. Such Unitholder shall be deemed a beneficial owner within the meaning
of the Act.
8. Allocation of Profits and Losses.
(a) Capital Accounts and Allocations. A capital account shall be
established for each Unit, and for the Managing Owner on a Unit-equivalent
basis. The balance of each Unit's capital account shall be the amount
contributed to the Trust with respect to such Unit, which amount shall be equal
to the Net Asset Value per Unit on the date each Unit is purchased after all
accrued fees and expenses, including Incentive Fee and Profit Share accruals
which may, in fact, never be paid. As of the close of business (as determined by
the Managing Owner) on the last day of each month, any increase or decrease in
the Trust's Net Assets as compared to the last such determination of Net Assets
shall be credited or charged equally to the capital accounts of all Units then
outstanding; provided that for purposes of maintaining such capital accounts,
amounts paid or payable to the Managing Owner for items such as brokerage
commissions and Incentive Fees shall be treated as if paid or payable to a third
party and shall not be credited to the capital account of the interest held by
the Managing Owner.
For purposes of this Section 8, unless specified to the contrary, Units
redeemed as of the end of any month shall be considered outstanding as of the
end of such month.
(b) Allocation of Profit and Loss for Federal Income Tax Purposes. As
of the end of each fiscal year, the Trust's income and expense and capital gain
or loss shall be allocated among the Unitholders pursuant to the following
provisions of this Section 8(b) for federal income tax purposes. For purposes of
this Section 8(b), capital gain and capital loss shall be allocated separately
and not netted.
(1) First, items of ordinary income and expense (other than
the Incentive Fee and Profit Shares which shall be allocated as set forth in
Section 8(b)(2)) shall be allocated pro rata among the Units outstanding as of
the end of each month in which the items of ordinary income and expense accrue.
(2) Second, any Incentive Fee or Profit Shares paid to the
Managing Owner or the Advisors shall be allocated among the Units outstanding at
any time during the fiscal year based upon the ratio that each such Unit's Net
Incentive Fee or Net Profit Share (the excess, if any, of the aggregate of all
Incentive Fees or Profit Shares, as the case may be, allocated to the capital
account relating to such Unit over the aggregate of all "reversals" of Incentive
Fees or Profit Shares, as the case may be, allocated to such Unit) bears to the
Net Incentive Fee or Net Profit Share, as the case may be, of all Units;
provided that the Managing Owner may allocate Incentive Fees and Profit Shares
first to Units whose Net Asset Value was reduced by accrued Incentive Fees and
Profit Shares upon redemption, in an amount up to the amount of such reduction.
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(3) Third, capital gain or loss shall be allocated as follows:
(A) There shall be established a tax account with respect to
each outstanding Unit. The balance of each tax account shall be the
amount paid to the Trust for each Unit. As of the end of each fiscal
year:
(i) Each tax account shall be increased by the amount
of income or gain allocated to each Unit pursuant to Sections
8(b)(1) and 8(b)(3)(C).
(ii) Each tax account shall be decreased by the
amount of expense or loss allocated to each Unit pursuant to
Sections 8(b)(1), 8(b)(2) and 8(b)(3)(E) and by the amount of
any distributions paid out with respect to the Units other
than upon redemption.
(iii) When a Unit is redeemed, the tax account
attributable to such Unit (determined after making all
allocations described in this Section 8(b)) shall be
eliminated.
(B) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal
year) shall be allocated Capital Gain, if any, up to the amount of the
excess, if any, of the amount received in respect of the Units so
redeemed (before taking into account any early redemption charges) over
the sum of the tax accounts (determined after making the allocation
described in Sections 8(b)(1) and 8(b)(2), but prior to making the
allocations described in this Section 8(b)(3)(B) or Section 8(b)(3)(D))
allocable to such Units (an "Excess"). In the event the aggregate
amount of Capital Gain available to be allocated pursuant to this
Section 8(b)(3)(B) is less than the aggregate amount of Capital Gain
required to be so allocated, the aggregate amount of available Capital
Gain shall be allocated among all such Unitholders in the ratio which
each such Unitholder's Excess bears to the aggregate Excess of all such
Unitholders.
(C) Capital Gain remaining after the allocation described in
Section 8(b)(3)(B) shall be allocated among all Unitholders who hold
Units outstanding as of the end of the applicable fiscal year (other
than Units redeemed as of the end of the last day of such fiscal year)
whose capital accounts with respect to such Units are in excess of
their tax accounts (determined after making the allocations described
in Sections 8(b)(1) and 8(b)(2)) allocable to such Units in the ratio
that each such Unitholder's excess bears to the aggregate excess of all
such Unitholders. Capital Gain remaining after the allocation described
in the preceding sentence shall be allocated among all Unitholders
described in said sentence in proportion to their holdings of such
Units.
(D) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal
year) shall be allocated Capital Loss, if any, up to the amount of the
sum of the excess of the tax accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2), but prior to
making the allocations described in this Section 8(b)(3)(D) or Section
8(b)(3)(B)) allocable to the Units so redeemed over the amount received
in respect of such Units (before taking into account any early
redemption charges) (a "Negative Excess"). In the event the aggregate
amount of available Capital Loss required to be allocated pursuant to
this Section 8(b)(3)(D) is less than the aggregate amount required to
be so allocated, the aggregate amount of available Capital Loss shall
be allocated among all such Unitholders in the ratio that each such
Unitholder's Negative Excess bears to the aggregate Negative Excess of
all such Unitholders.
(E) Capital Loss remaining after the allocation described in
Section 8(b)(3)(D) shall be allocated among all Unitholders who hold
Units outstanding as of the end of the applicable fiscal year (other
than Units redeemed as of the end of the last day of such fiscal year)
whose tax accounts with respect to such Units are in excess of their
capital accounts (determined after making the allocations described in
Sections 8(b)(1) and 8(b)(2)) with respect to such Units in the ratio
that each such Unitholder's negative excess bears to the aggregate
negative excess of all such Unitholders. Capital Loss remaining after
the allocation described in the preceding sentence shall be allocated
among all Unitholders described in such sentence in proportion to their
holdings of such Units.
(F) For purposes of this Section 8(b), "Capital Gain" or
"Capital Loss" shall mean gain or loss characterized as gain or loss
from the sale or exchange of a capital asset, by the Code, including,
but not limited to, gain or loss required to be taken into account
pursuant to Section 1256 thereof.
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(4) The allocation of profit and loss for federal income tax
purposes set forth herein is intended to allocate taxable profit and loss among
Unitholders generally in the ratio and to the extent that profit and loss are
allocated to such Unitholders so as to eliminate, to the extent possible, any
disparity between the Unitholder's capital account and his tax account,
consistent with principles set forth in Section 704 of the Code, including
without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the Unitholders in
respect of the Units shall not exceed the allocations permitted under Subchapter
K of the Code, as determined by the Managing Owner, whose determination shall be
binding.
(c) Incentive Fees; Profit Shares. Incentive Fees shall be payable to
the Managing Owner as of the end of each calendar year and upon redemption of
Units.
Incentive Fees shall equal 5% of New Overall Appreciation (if any)
calculated as of each fiscal year-end and upon redemption of Units. New Overall
Appreciation shall be calculated, not on a per-Unit basis, but on the basis of
the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
Incentive Fees shall be paid by the Trust as a whole, irrespective of
whether the Net Asset Value has declined below the purchase price of such Unit.
Accrued Incentive Fees shall reduce the redemption price of Units and shall be
paid to the Managing Owner upon redemption. The amount (if any) of the accrued
Incentive Fee that shall be paid to the Managing Owner upon the redemption of
any Unit shall be determined by dividing the total Incentive Fee as of such
redemption date by the number of Units then outstanding (including Units
redeemed as of such date); the remainder of the accrued Incentive Fee shall be
paid to the Managing Owner on December 31 of each year.
For capital account purposes, accrued Incentive Fees shall, in all
cases, be reflected equally as a reduction in the Net Asset Value per Unit of
all Units outstanding at the time the Incentive Fee accrued, and reversals of
accrued Incentive Fees shall equally increase the Net Asset Value per Unit of
all Units outstanding at the time of the accrual of such reversal, irrespective
of whether a particular Unit was outstanding when a particular Incentive Fee was
accrued.
Early redemption charges shall in no respect reduce New Overall
Appreciation.
The Profit Shares paid to the Advisors pursuant to the Advisory
Agreements among the Managing Owner, the Trust and each such Advisor shall
result in deductions being allocated to the Unitholders. Such allocation shall
apply the same principles as the allocation of Incentive Fee deductions
described above. Profit Shares with respect to any calendar quarter will be paid
to an Advisor as of the last day of such period, except that Profit Shares with
respect to Units redeemed as of the last day of any month that does not end a
calendar quarter shall be paid as of the day such Units are redeemed and Profit
Shares with respect to Units redeemed as of the end of any month that ends a
calendar quarter shall be paid to an Advisor in the same manner and at the same
time as if such Units had not been redeemed.
In the event assets are withdrawn from an Advisor's account or the
Trust as a whole (other than to pay expenses), any loss carryforward shall be
proportionally reduced for purposes of calculating subsequent Profit Shares and
Incentive Fees. Loss carryforward reductions shall not be restored as a result
of subsequent additions of capital.
The Managing Owner may adjust the allocations set forth in this Section
8(c), in the Managing Owner's discretion, if the Managing Owner believes that
doing so will achieve more equitable allocations or allocations more consistent
with the Code.
(d) Expenses. The Managing Owner shall pay, without reimbursement, the
selling and "trailing commissions" relating to the offering of the Units. The
Trust shall pay the Managing Owner brokerage commissions at the rate of 11% per
annum of the average beginning of month Net Assets of the Trust. The Trust shall
bear all administrative costs, ongoing offering costs and any taxes applicable
to it and any charges incidental to trading, including agency brokerage
commissions (e.g., "bid-ask" spreads). In no event shall organizational and
offering expenses, including selling commissions and redemption fees, exceed 15%
of the capital contributions to the Trust. Any unreimbursed organizational and
initial offering expenses as of the date of the Trust's dissolution shall not be
reimbursed to the Managing Owner from the proceeds
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resulting from such dissolution. However, none of the Managing Owner's
"overhead" expenses incurred in connection with the administration of the Trust
(including, but not limited to, salaries, rent and travel expenses) shall be
charged to the Trust. Any goods and services provided to the Trust by the
Managing Owner shall be provided at rates and terms at least as favorable as
those which may be obtained from third parties in arm's-length negotiations. All
of the expenses which are for the Trust's account shall be billed directly to
the Trust. Appropriate reserves may be created, accrued and charged against Net
Assets for contingent liabilities, if any, as of the date any such contingent
liability becomes known to the Managing Owner. Such reserves shall reduce Net
Asset Value for all purposes.
(e) Limited Liability of Unitholders. Each Unit, when purchased in
accordance with this Declaration of Trust and Trust Agreement, shall, except as
otherwise provided by law, be fully paid and nonassessable. Any provisions of
this Declaration of Trust and Trust Agreement to the contrary notwithstanding,
except as otherwise provided by law, no Unitholder shall be liable for Trust
obligations in excess of the capital contributed by such Unitholder, plus his
share of undistributed profits and assets.
(f) Return of Capital Contributions. No Unitholder or subsequent
assignee shall have any right to demand the return of his capital contribution
or any profits added thereto, except through redeeming Units or upon dissolution
of the Trust, in each case as provided herein and in accordance with the Act. In
no event shall a Unitholder or subsequent assignee be entitled to demand or
receive property other than cash.
9. Management of the Trust.
The Managing Owner, to the exclusion of all Unitholders, shall control,
conduct and manage the business of the Trust. The Managing Owner shall have sole
discretion in determining what distributions of profits and income, if any,
shall be made to the Unitholders (subject to the allocation provisions hereof),
shall execute various documents on behalf of the Trust and the Unitholders
pursuant to powers of attorney and supervise the liquidation of the Trust if an
event causing dissolution of the Trust occurs.
The Managing Owner may in furtherance of the business of the Trust
cause the Trust to retain Advisors to buy, sell, hold, or otherwise acquire or
dispose of commodities, futures contracts and options traded on exchanges or
otherwise, arbitrage positions, repurchase agreements, interest-bearing
securities, deposit accounts and similar instruments, provided that the Trust
shall not invest in any debt instruments other than Treasury securities,
short-term sovereign debt instruments and other investments authorized by the
Commodity Futures Trading Commission (the "CFTC") for the investment of
"customer funds," and shall not invest in any equity security without prior
notice to Unitholders, all as described in the Prospectus relating to the
offering of the Units in effect as of the time that such Unitholder last
purchased Units while in receipt of a current Prospectus (the "Prospectus"). The
Managing Owner may engage, and compensate on behalf of the Trust from funds of
the Trust, or agree to share profits and losses with, such persons, firms or
corporations, including (except as described in this Declaration of Trust and
Trust Agreement) the Managing Owner and any affiliated person or entity, as the
Managing Owner in its sole judgment shall deem advisable for the conduct and
operation of the business of the Trust, provided, that no such arrangement shall
allow brokerage commissions paid by the Trust in excess of the amount described
in the Prospectus or as permitted under applicable North American Securities
Administrators Association, Inc. Guidelines for the Registration of Commodity
Pool Programs ("NASAA Guidelines") in effect as of the date of the Prospectus
(i.e., 80% of the published retail rate plus pit brokerage fees, or 14% annually
- -- including pit brokerage and service fees -- of the Trust's average Net
Assets, excluding the assets not directly related to trading activity),
whichever is higher. The Managing Owner shall reimburse the Trust, on an annual
basis, to the extent that the Trust's brokerage commissions paid to the Managing
Owner and the Annual Incentive Fee, as described in the Prospectus, have
exceeded 14% of the Trust's average Net Assets during the preceding year. The
Managing Owner is hereby specifically authorized to enter into, on behalf of the
Trust, the Advisory Agreements and the Selling Agreement as described in the
Prospectus. The Managing Owner shall not enter into an Advisory Agreement with
any trading advisor that does not satisfy the relevant experience (i.e.,
ordinarily a minimum of three years) requirements under the NASAA Guidelines.
The Trust's brokerage commissions may not be increased (i) during any period
when redemption charges are in effect or (ii) without prior written notice to
Unitholders within sufficient time for the exercise of their redemption rights
prior to such increase becoming effective. Such notification shall contain a
description of Unitholder's voting and redemption rights and a description of
any material effect of such increase.
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In addition to any specific contract or agreements described herein,
the Trust may enter into any other contracts or agreements specifically
described in or contemplated by the Prospectus without any further act, approval
or vote of the Unitholders, notwithstanding any other provisions of this
Declaration of Trust and Trust Agreement, the Act or any applicable law, rule or
regulations.
The Managing Owner shall be under a fiduciary duty to conduct the
affairs of the Trust in the best interests of the Trust. The Unitholders will
under no circumstances be deemed to have contracted away the fiduciary
obligations owed them by the Managing Owner under the common law. The Managing
Owner's fiduciary duty includes, among other things, the safekeeping of all
Trust funds and assets and the use thereof for the benefit of the Trust. The
Managing Owner shall at all times act with integrity and good faith and exercise
due diligence in all activities relating to the conduct of the business of the
Trust and in resolving conflicts of interest. The Trust's brokerage arrangements
shall be non-exclusive, and the brokerage commissions paid by the Trust shall be
competitive. The Trust shall seek the best price and services available for its
commodity transactions.
The Managing Owner is hereby authorized to perform all other duties
imposed by Sections 6221 through 6232 of the Code on the Managing Owner as the
"tax matters partner" of the Trust.
The Trust shall make no loans to any party, and the funds of the Trust
will not be commingled with the funds of any other person or entity (deposit of
funds with a commodity broker, clearinghouse or forward dealer or entering into
joint ventures or partnerships shall not be deemed to constitute "commingling"
for these purposes). The Managing Owner shall make no loans to the Trust unless
approved by the Unitholders in accordance with Section 18(a) of this Declaration
of Trust and Trust Agreement. If the Managing Owner makes a loan to the Trust,
the Managing Owner shall not receive interest in excess of its interest costs,
nor may the Managing Owner receive interest in excess of the amounts which would
be charged the Trust (without reference to the Managing Owner's financial
resources or guarantees) by unrelated banks on comparable loans for the same
purpose. The Managing Owner shall not receive "points" or other financing
charges or fees regardless of the amount. Except in respect of the Incentive
Fee, no person or entity may receive, directly or indirectly, any advisory,
management or incentive fees, or any profit-sharing allocation from joint
ventures, partnerships or similar arrangements in which the Trust participates,
for investment advice or management who shares or participates in any commodity
brokerage commissions; no broker may pay, directly or indirectly, rebates or
give-ups to any trading advisor or manager or to the Managing Owner or any of
their respective affiliates in respect of sales of the Units; and such
prohibitions may not be circumvented by any reciprocal business arrangements.
The foregoing prohibition shall not prevent the Trust from executing, at the
direction of any Advisor, transactions with any futures commission merchant or
broker. No trading advisor for the Trust shall be affiliated with the Trust's
commodity broker, the Managing Owner or their affiliates. The maximum period
covered by any contract entered into by the Trust, except for the various
provisions of the Selling Agreement which survive each closing of the sales of
the Units, shall not exceed one year. Any material change in the Trust's basic
investment policies or structure shall require the approval of Unitholders
owning Units representing more than fifty percent (50%) of all Units then owned
by the Unitholders. Any agreements between the Trust and the Managing Owner or
any affiliate of the Managing Owner (as well as any agreements between the
Managing Owner or any affiliate of the Managing Owner and any trading advisor)
shall be terminable without penalty by the Trust upon no more than 60 days'
written notice. All sales of Units in the United States will be conducted by
registered brokers.
The Trust is prohibited from employing the trading technique commonly
known as "pyramiding." A trading manager or advisor of the Trust taking into
account the Trust's open trade equity on existing positions in determining
generally whether to acquire additional commodity positions on behalf of the
Trust will not be considered to be engaging in "pyramiding."
The Managing Owner may take such other actions on behalf of the Trust
as the Managing Owner deems necessary or desirable to manage the business of the
Trust.
The Managing Owner shall reimburse the Trust for any advisory fees paid
by the Trust to any trading advisor over the course of any fiscal year, to the
extent that the fees paid during such year exceed the 6% annual management fees
and the 15% quarterly incentive fees (calculating New Trading Profit, as defined
in the Prospectus, after all expenses and without including interest income)
contemplated by the NASAA Guidelines (as the NASAA Guidelines permit such limits
to be adjusted). Any such reimbursement shall be made on a present value basis,
fully compensating the Trust for having
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made payments at any time during the year which would not otherwise have been
due from it. The Managing Owner shall disclose any such reimbursement in the
Annual Report delivered to Unitholders.
The Managing Owner is engaged, and may in the future engage, in other
business activities and shall not be required to refrain from any other activity
nor forego any profits from any such activity, whether or not in competition
with the Trust. Unitholders may similarly engage in any such other business
activities. The Managing Owner shall devote to the Trust such time as the
Managing Owner may deem advisable to conduct the Trust's business and affairs.
10. Audits and Reports to Unitholders.
The Trust books shall be audited annually by an independent certified
public accountant. The Trust will use its best efforts to cause each Unitholder
to receive (i) within 90 days after the close of each fiscal year certified
financial statements of the Trust for the fiscal year then ended, (ii) within 90
days of the end of each fiscal year (but in no event later than March 15 of each
year) such tax information as is necessary for a Unitholder to complete his
federal income tax return and (iii) such other annual and monthly information as
the CFTC may by regulation require. The Managing Owner shall include in the
Annual Reports sent to Unitholders an approximate estimate (calculated as
accurately as may be reasonably practicable) of the round-turn equivalent
brokerage commission rate paid by the Trust during the preceding year. The Trust
shall notify Unitholders within seven business days of any material change (i)
in the agreements with the Trust's advisors, including any modification in the
method of calculating the advisory fee and (ii) in the compensation of any party
relating to the Trust. Unitholders or their duly authorized representatives may
inspect the Trust books and records during normal business hours upon reasonable
written notice to the Managing Owner and obtain copies of such records
(including by post upon payment of reasonable mailing costs); upon payment of
reasonable reproduction costs provided, however, upon request by the Managing
Owner, the Unitholder shall represent that the inspection and/or copies of such
records will not be for commercial purposes unrelated to such Unitholder's
interest as a beneficial owner of the Trust. The Managing Owner shall have the
right to keep confidential from the Unitholders, for such period of time as the
Managing Owner deems reasonable, any information that the Managing Owner
reasonably believes that the Trust is required by law or by agreement with a
third party to keep confidential.
The Managing Owner shall calculate the approximate Net Asset Value per
Unit on a daily basis and furnish such information upon request to any
Unitholder.
The Managing Owner shall maintain and preserve all Trust records for a
period of not less than six (6) years.
The Managing Owner will, with the assistance of the Trust's commodity
broker, make an annual review of the commodity brokerage arrangements applicable
to the Trust. In connection with such review, the Managing Owner will ascertain,
to the extent practicable, the commodity brokerage rates charged to other major
commodity pools whose trading and operations are, in the opinion of the Managing
Owner, comparable to those of the Trust in order to assess whether the rates
charged the Trust are competitive in light of the services it receives. If, as a
result of such review, the Managing Owner determines that such rates are not
competitive in light of the services provided to the Trust, the Managing Owner
will notify the Unitholders, setting forth the rates charged to the Trust and
several funds which are, in the Managing Owner's opinion, comparable to the
Trust.
11. Assignability of Units.
Each Unitholder expressly agrees that he will not voluntarily assign,
transfer or dispose of, by gift or otherwise, any of his Units or any part or
all of his right, title and interest in the capital or profits of the Trust in
violation of any applicable federal or state securities laws or without giving
written notice to the Managing Owner. No assignment, transfer or disposition by
an assignee of Units or of any part of his right, title and interest in the
capital or profits of the Trust shall be effective against the Trust or the
Managing Owner until the Managing Owner receives the written notice of the
assignment; the Managing Owner shall not be required to give any assignee any
rights hereunder prior to receipt of such notice. The Managing Owner may, in its
sole discretion, waive any such notice. No such assignee, except with the
consent of the Managing Owner, which consent may be withheld in the absolute
discretion of the Managing Owner, may become a substituted Unitholder, nor will
the estate or any beneficiary of a deceased Unitholder or assignee have any
right to redeem Units from the Trust except by redemption as provided in Section
12 hereof. Each Unitholder agrees that with the consent of the Managing Owner
any assignee may become a substituted Unitholder without need of the further act
or approval of
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any Unitholder. If the Managing Owner withholds consent, an assignee shall not
become a substituted Unitholder, and shall not have any of the rights of a
Unitholder, except that the assignee shall be entitled to receive that share of
capital and profits and shall have that right of redemption to which his
assignor would otherwise have been entitled. No assignment, transfer or
disposition of Units shall be effective against the Trust or the Managing Owner
until the first day of the month succeeding the month in which the Managing
Owner receives notice of such assignment, transfer or disposition. No Units may
be transferred where, after the transfer, either the transferee or the
transferor would hold less than the minimum number of Units equivalent to an
initial minimum purchase, except for transfers by gift, inheritance, intrafamily
transfers, family dissolutions, and transfers to Affiliates.
12. Redemptions.
A Unitholder or any assignee of Units of whom the Managing Owner has
received written notice as described above may redeem all or any of his Units
(such redemption being herein referred to as a "redemption") effective as of the
close of business (as determined by the Managing Owner) on the last day of any
month, beginning with the end of the sixth month after such Units are sold;
provided that: (i) all liabilities, contingent or otherwise, of the Trust
(including the Trust's allocable share of the liabilities, contingent or
otherwise, of any entities in which the Trust invests), except any liability to
Unitholders on account of their capital contributions, have been paid or there
remains property of the Trust sufficient to pay them; and (ii) the Managing
Owner shall have timely received a request for redemption, as provided in the
second following paragraph.
Units redeemed on or before the end of the twelfth full calendar month
and after the end of the twelfth full month but on or before the end of the
eighteenth full calendar month after the date as of which such Units begin to
participate in the profits and losses of the Trust are subject to early
redemption charges of 3% and 2%, respectively, of the Net Asset Value at which
they are redeemed. Such charges will be paid to the Managing Owner. In the event
that a Unitholder acquires Units at more than one month-end, such Units will be
treated on a "first-in, first-out" basis for purposes of determining whether
such Units are redeemable and whether early redemption charges apply.
Requests for redemption must be received by the Managing Owner at least
ten calendar days, or such lesser period as shall be acceptable to the Managing
Owner, in advance of the requested effective date of redemption. The Managing
Owner may declare additional redemption dates upon notice to the Unitholders as
well as to those assignees of whom the Managing Owner has received notice as
described above.
If at the close of business (as determined by the Managing Owner) on
any day, the Net Asset Value per Unit has decreased to less than 50% of the Net
Asset Value per Unit as of the most recent Valuation Date, after adding back all
distributions, the Trust shall notify investors within seven business days and
shall liquidate all open positions as expeditiously as possible and suspend
trading. Within ten business days after the date of suspension of trading, the
Managing Owner (and any other managing owners of the Trust) shall declare a
Special Redemption Date. Such Special Redemption Date shall be a business day
within 30 business days from the date of suspension of trading by the Trust, and
the Managing Owner shall mail notice of such date to each Unitholder and
assignee of Units of whom it has received written notice as described above, by
first-class mail, postage prepaid, not later than ten business days prior to
such Special Redemption Date, together with instructions as to the procedure
such Unitholder or assignee must follow to have his interest (only entire, not
partial, interests may be so redeemed unless otherwise determined by the
Managing Owner) in the Trust redeemed on such date. Upon redemption pursuant to
a Special Redemption Date, a Unitholder or any other assignee of whom the
Managing Owner has received written notice as described above, shall receive
from the Trust an amount equal to the Net Asset Value of his interest in the
Trust, determined as of the close of business (as determined by the Managing
Owner) on such Special Redemption Date. No redemption charges shall be assessed
on any such Special Redemption Date. As in the case of a regular redemption, an
assignee shall not be entitled to redemption until the Managing Owner has
received written notice (as described above) of the assignment, transfer or
disposition under which the assignee claims an interest in the Units to be
redeemed. If, after such Special Redemption Date, the Net Assets of the Trust
are at least $250,000 and the Net Asset Value of a Unit is in excess of $25, the
Trust may, in the discretion of the Managing Owner, resume trading. The Managing
Owner may at any time and in its discretion declare a Special Redemption Date,
should the Managing Owner determine that it is in the best interests of the
Trust to do so. The Managing Owner in its notice of a Special Redemption Date
may, in its discretion, establish the conditions, if any, under which other
Special Redemption Dates must be called, which conditions may be determined in
the sole discretion of the Managing Owner, irrespective of the provisions of
this paragraph. The 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.
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Redemption payments will be made within fifteen business days after the
month-end of redemption (and notice that the redemption has occurred will be
provided to Unitholders within ten business days after such month-end), except
that under special circumstances, including, but not limited to, inability to
liquidate commodity positions as of a redemption date or default or delay in
payments due the Trust from commodity brokers, banks or other persons or
entities, the Trust may in turn delay payment to Unitholders or assignees
requesting redemption of their Units of the proportionate part of the Net Asset
Value of such Units equal to that proportionate part of the Trust's aggregate
Net Asset Value represented by the sums which are the subject of such default or
delay.
Only whole Units may be redeemed, except upon complete redemption of an
investor's Units, unless the Managing Owner specifically otherwise consents.
Redemptions may be requested for a minimum of the lesser of $1,000 or ten (10)
Units provided that, for investors redeeming less than all their Units, such
investors remaining units equal at least $500.
The Managing Owner may require a Unitholder to redeem all or a portion
of such Unitholder's Units if the Managing Owner considers doing so to be
desirable for the protection of the Trust, and will use best efforts to do so to
the extent necessary to prevent the Trust from being deemed to hold "plan
assets" under the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Code, with respect to any "employee benefit
plan" subject to ERISA or with respect to any plan or account subject to Section
4975 of the Code.
13. Offering of Units.
The Managing Owner on behalf of the Trust shall (i) cause to be filed a
Registration Statement or Registration Statements, and such amendments thereto
as the Managing Owner deems advisable, with the Securities and Exchange
Commission for the registration and ongoing public offering of the Units, (ii)
use its best efforts to qualify and to keep qualified Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the Managing Owner shall deem advisable and (iii) take such action with respect
to the matters described in (i) and (ii) as the Managing Owner shall deem
advisable or necessary.
The Managing Owner shall use its best efforts not to accept any
subscriptions for Units if doing so would cause the Trust to hold "plan assets"
under ERISA or the Code with respect to any "employee benefit plan" subject to
ERISA or with respect to any plan or account subject to Section 4975 of the
Code. If such a subscriber has its subscription reduced for such reason, such
subscriber shall be entitled to rescind its subscription in its entirety even
though subscriptions are otherwise irrevocable.
14. Additional Offerings.
The Managing Owner may, in its discretion, make additional public or
private offerings of Units, provided that the net proceeds to the Trust of any
such sales shall in no event be less than the Net Asset Value per Unit (as
defined in Section 5(d) hereof) at the time of sale (unless the new Unit's
participation in the profits and losses of the Trust is appropriately adjusted).
No Unitholder shall have any preemptive, preferential or other rights with
respect to the issuance or sale of any additional Units, other than as set forth
in the preceding sentence.
The Trust may offer different series or classes of Units having
different economic terms than previously offered series or classes of Units;
provided that the issuance of such a new series or class of Units shall in no
respect adversely affect the holders of outstanding Units; and provided further
that the assets attributable to each such series or class shall, to the maximum
extent permitted by law, be treated as legally separate and distinct pools of
assets, and the assets attributable to one such series or class be prevented
from being used in any respect to satisfy or discharge any debt or obligation of
any other such series or class.
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
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judgment of the Managing Owner be required by law): (i) this Declaration of
Trust and Trust Agreement, including any amendments and/or restatements hereto
duly adopted as provided herein; (ii) certificates in various jurisdictions, and
amendments and/or restatements thereto, and of assumed name or of doing business
under a fictitious name with respect to the Trust; (iii) all conveyances and
other instruments which the Managing Owner deems appropriate to qualify or
continue the Trust in the State of Delaware and the jurisdictions in which the
Trust may conduct business, or which may be required to be filed by the Trust or
the Unitholders under the laws of any jurisdiction or under any amendments or
successor statutes to the Act, to reflect the dissolution or termination of the
Trust or the Trust being governed by any amendments or successor statutes to the
Act or to reorganize or refile the Trust in a different jurisdiction; and (iv)
to file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust. The Power of Attorney granted herein shall
be irrevocable and deemed to be a power coupled with an interest (including,
without limitation, the interest of the other Unitholders in the Managing Owner
being able to rely on the Managing Owner's authority to act as contemplated by
this Section 14) and shall survive and shall not be affected by the subsequent
incapacity, disability or death of a Unitholder.
16. Withdrawal of a Unitholder.
The Trust shall be dissolved upon the death, insanity, bankruptcy,
retirement, resignation, expulsion, withdrawal, dissolution, admitted or
court-decreed insolvency or the removal of the Managing Owner, or any other
event that causes the Managing Owner to cease to be a managing owner under the
Act, unless the Trust is continued pursuant to the terms of Section 5(a)(3). In
addition, the Managing Owner may withdraw from the Trust, without any breach of
this Declaration of Trust and Trust Agreement, at any time upon 120 days'
written notice by first class mail, postage prepaid, to each Unitholder and
assignee of whom the Managing Owner has notice. If the Managing Owner withdraws
as managing owner and the Trust's business is continued, the withdrawing
Managing Owner shall pay all expenses incurred as a result of its withdrawal. In
the event of the Managing Owner's removal or withdrawal, the Managing Owner
shall be entitled to a redemption of its interest in the Trust at its Net Asset
Value on the next valuation date following the date of removal or withdrawal.
The Managing Owner may not assign its general liability interest or its
obligation to direct the trading of the Trust assets without the consent of each
Unitholder. The Managing Owner will notify all Unitholders of any change in the
principals of the Managing Owner. No provision of this Declaration of Trust and
Trust Agreement shall be deemed, nor does any such provision purport, to waive
compliance with the Investment Advisers Act of 1940, as amended.
The death, incompetency, withdrawal, insolvency or dissolution of a
Unitholder or any other event that causes a Unitholder to cease to be a
Unitholder (within the meaning of the Act) in the Trust shall not terminate or
dissolve the Trust, and a Unitholder, his estate, custodian or personal
representative shall have no right to redeem or value such Unitholder's interest
in the Trust except as provided in Section 12 hereof. Each Unitholder expressly
agrees that in the event of his death, he waives on behalf of himself and his
estate, and directs the legal representatives of his estate and any person
interested therein to waive, the furnishing of any inventory, accounting or
appraisal of the assets of the Trust and any right to an audit or examination of
the books of the Trust. Nothing in this Section 16 shall, however, waive any
right given elsewhere in this Declaration of Trust and Trust Agreement for a
Unitholder to be informed of the Net Asset Value of his Units, to receive
periodic reports, audited financial statements and other information from the
Managing Owner or the Trust or to redeem or transfer Units.
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The Managing Owner
and its Affiliates, as defined below, shall have no liability to the Trust or to
any Unitholder for any loss suffered by the Trust which arises out of any action
or inaction of the Managing Owner or its Affiliates if the Managing Owner, in
good faith, determined that such course of conduct was in the best interests of
the Trust and such course of conduct did not constitute negligence or misconduct
of the Managing Owner or its Affiliates.
(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
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that Affiliates of the Managing Owner shall be entitled to indemnification only
for losses incurred by such Affiliates in performing the duties of the Managing
Owner and acting wholly within the scope of the authority of the Managing Owner.
Notwithstanding anything to the contrary contained in the preceding two
paragraphs, the Managing Owner and its Affiliates and any persons acting as
Selling Agents for the Units shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission, the California Department of
Corporations, the Massachusetts Securities Division, the Pennsylvania Securities
Commission, the Tennessee Securities Division, the Texas Securities Board and
any other state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
The Trust shall not bear the cost of that portion of any insurance
which insures any party against any liability the indemnification of which is
herein prohibited.
For the purposes of this Section 17, the term "Affiliates" shall mean
any person acting on behalf of or performing services on behalf of the Trust
who: (1) directly or indirectly controls, is controlled by, or is under common
control with the Managing Owner; or (2) owns or controls 10% or more of the
outstanding voting securities of the Managing Owner; or (3) is an officer or
director of the Managing Owner; or (4) if the Managing Owner is an officer,
director, partner or trustee, is any entity for which the Managing Owner acts in
any such capacity.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of any legal action
initiated against the Managing Owner by a Unitholder are prohibited.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of a legal action will be
made only if the following three conditions are satisfied: (1) the legal action
relates to the performance of duties or services by the Managing Owner or its
Affiliates on behalf of the Trust; (2) the legal action is initiated by a third
party who is not a Unitholder; and (3) the Managing Owner or its Affiliates
undertake to repay the advanced funds, with interest from the date of such
advance, to the Trust in cases in which they would not be entitled to
indemnification under the standard of liability set forth in Section 17(a).
In no event shall any indemnity or exculpation provided for herein be
more favorable to the Managing Owner or any Affiliate than that contemplated by
the NASAA Guidelines as in effect on the date of this Declaration of Trust and
Trust Agreement.
In no event shall any indemnification permitted by this subsection (b)
of Section 17 be made by the Trust unless all provisions of this Section for the
payment of indemnification have been complied with in all respects. Furthermore,
it shall be a precondition of any such indemnification that the Trust receive a
determination of qualified independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion shall not,
however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Trust hereunder shall be made only as provided in the specific case.
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,
TA-15
<PAGE>
obligations or liabilities unrelated to the Trust's business, such Unitholder
shall indemnify and reimburse the Trust for all loss and expense incurred,
including reasonable attorneys' fees.
18. Amendments; Meetings.
(a) Amendments with Consent of the Managing Owner. If at any time
during the term of the Trust the Managing Owner shall deem it necessary or
desirable to amend this Declaration of Trust and Trust Agreement, the Managing
Owner may proceed to do so, provided that such amendment shall be effective only
if embodied in an instrument approved by the Managing Owner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the Managing Owner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The Managing Owner may amend this Declaration of Trust and Trust
Agreement without the consent of the Unitholders in order (i) to clarify any
clerical inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Declaration of Trust and Trust Agreement and the
Prospectus), (ii) to effect the intent of the tax allocations proposed herein to
the maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations, (iii) to attempt to ensure
that the Trust is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Trust as a trust in any jurisdiction, (v) to delete or add any provision of
or to this Declaration of Trust and Trust Agreement required to be deleted or
added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state "Blue Sky" official or similar official or in order
to opt to be governed by any amendment or successor statute to the Act, (vi) to
make any amendment to this Declaration of Trust and Trust Agreement which the
Managing Owner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Unitholders, or that
is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the Managing Owner, to prevent the Trust or the
Managing Owner or its directors, officers or controlling persons from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, or to prevent the assets of the Trust from being considered for any
purpose of ERISA or Section 4975 of the Code to constitute assets of any
"employee benefit plan" as defined in and subject to ERISA or of any "plan"
subject to Section 4975 of the Code.
(b) Amendments and Actions without Consent of the Managing Owner. In
any vote called by the Managing Owner or pursuant to section (c) of this Section
18, upon the affirmative vote (which may be in person or by proxy) of more than
fifty percent (50%) of the Units then owned by Unitholders, the following
actions may be taken, irrespective of whether the Managing Owner concurs: (i)
this Declaration of Trust and Trust Agreement may be amended, provided, however,
that approval of all Unitholders shall be required in the case of amendments
changing or altering this Section 18, extending the term of the Trust, or
materially changing the Trust's basic investment policies or structure; in
addition, reduction of the capital account of any Unitholder or assignee or
modification of the percentage of profits, losses or distributions to which a
Unitholder or an assignee is entitled hereunder shall not be effected by any
amendment or supplement to this Declaration of Trust and Trust Agreement without
such Unitholder's or assignee's written consent; (ii) the Trust may be
dissolved; (iii) the Managing Owner may be removed and replaced; (iv) a new
managing owner or managing owners may be elected if the Managing Owner withdraws
from the Trust; (v) the sale of all or substantially all of the assets of the
Trust may be approved; and (vi) any contract with the Managing Owner or any
affiliate thereof may be disapproved of and, as a result, terminated upon 60
days' notice.
(c) Meetings; Other Voting Matters. Any Unitholder upon request
addressed to the Managing Owner shall be entitled to obtain from the Managing
Owner, upon payment in advance of reasonable reproduction and mailing costs, a
list of the names and addresses of record of all Unitholders and the number of
Units held by each (which shall be mailed by the Managing Owner to the
Unitholder within ten days of the receipt of the request); provided, that the
Managing Owner may require any Unitholder requesting such information to submit
written confirmation that such information will not be used for commercial
purposes. Upon receipt of a written proposal, signed by Unitholders owning Units
representing at least 10% of the Units then owned by Unitholders, that a meeting
of the Trust be called to vote upon 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.
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<PAGE>
In the event that the Managing Owner or the Unitholders vote to amend
this Declaration of Trust and Trust Agreement in any material respect, the
amendment will not become effective prior to all Unitholders having an
opportunity to redeem their Units.
(d) Consent by Trustee. The Trustee's written consent to any amendment
of this Declaration of Trust and Trust Agreement shall be required, such consent
not to be unreasonably withheld; provided, however, that the Trustee may, in its
sole discretion, withhold its consent to any such amendment that would adversely
affect any right, duty or liability of, or immunity or indemnity in favor of,
the Trustee under this Declaration of Trust and Trust Agreement or any of the
documents contemplated hereby to which the Trustee is a party, or would cause or
result in any conflict with or breach of any terms, conditions or provisions of,
or default under, the charter documents or by-laws of the Trustee or any
document contemplated thereby to which the Trustee is a party.
19. Governing Law.
The validity and construction of this Declaration of Trust and Trust
Agreement shall be determined and governed by the laws of the State of Delaware
without regard to principles of conflicts of law; provided, however, that causes
of action for violations of federal or state securities laws shall not be
governed by this Section 19.
20. Miscellaneous.
(a) Notices. All notices under this Declaration of Trust and Trust
Agreement shall be in writing and shall be effective upon personal delivery, or
if sent by first class mail, postage prepaid, addressed to the last known
address of the party to whom such notice is to be given, upon the deposit of
such notice in the United States mail.
(b) Binding Effect. This Declaration of Trust and Trust Agreement shall
inure to and be binding upon all of the parties, all parties indemnified under
Sections 2 and 17 hereof, and their respective successors and assigns,
custodians, estates, heirs and personal representatives. For purposes of
determining the rights of any Unitholder or assignee hereunder, the Trust and
the Managing Owner may rely upon the Trust records as to who are Unitholders and
assignees, and all Unitholders and assignees agree that their rights shall be
determined and they shall be bound thereby.
(c) Captions. Captions in no way define, limit, extend or describe the
scope of this Declaration of Trust and Trust Agreement nor the effect of any of
its provisions. Any reference to "persons" in this Declaration of Trust and
Trust Agreement shall also be deemed to include entities, unless the context
otherwise requires.
21. Benefit Plan Investors.
Each Unitholder that is an "employee benefit plan" as defined in and
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or a "plan" as defined in Section 4975 of the Code (each such
employee benefit plan and plan, a "Plan"), and each fiduciary thereof who has
caused the Plan to become a Unitholder (a "Plan Fiduciary"), represents and
warrants that: (a) the Plan Fiduciary has considered an investment in the Trust
for such Plan in light of the risks relating thereto; (b) the Plan Fiduciary has
determined that, in view of such considerations, the investment in the Trust for
such Plan is consistent with the Plan Fiduciary's responsibilities under ERISA;
(c) the investment in the Trust by the Plan does not violate and is not
otherwise inconsistent with the terms of any legal document constituting the
Plan or any trust agreement thereunder; (d) the Plan's investment in the Trust
has been duly authorized and approved by all necessary parties; (e) none of
Kenmar, any advisor to the Trust, any selling agent, the clearing broker, the
escrow agent, any broker through which any advisor requires the Trust to trade,
the Trustee, any of their respective affiliates or any of their respective
agents or employees: (i) has investment discretion with respect to the
investment of assets of the Plan used to 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
TA-17
<PAGE>
large losses; (ii) is independent of Kenmar, any advisor to the Trust, any
selling agent, the clearing broker, the escrow agent, any broker through which
any Advisor requires the Trust to trade, the Trustee and any of their respective
affiliates; and (iii) is qualified to make such investment decision.
22. Certain Definitions.
This Declaration of Trust and Trust Agreement contains certain
provisions required by the NASAA Guidelines. The terms used in such provisions
are defined as follows (the following definitions are included verbatim from the
NASAA Guidelines and, accordingly, may not in all cases be relevant to this
Declaration of Trust and Trust Agreement):
Administrator. The official or agency administering the
securities laws of a state.
Advisor. Any Person who for any consideration engages in the
business of advising others, either directly or indirectly, as
to the value, purchase, or sale of Commodity Contracts or
commodity options.
Affiliate. An Affiliate of a Person means: (a) any Person
directly or indirectly owning, controlling or holding with
power to vote 10% or more of the outstanding voting securities
of such Person; (b) any Person 10% or more of whose
outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote, by such Person;
(c) any Person, directly or indirectly, controlling,
controlled by, or under common control with such Person; (d)
any officer, director or partner of such Person; or (e) if
such Person is an officer, director or partner, any Person for
which such Person acts in any such capacity.
Capital Contributions. The total investment in a Program by a
Participant or by all Participants, as the case may be.
Commodity Broker. Any Person who engages in the business of
effecting transactions in Commodity Contracts for the account
of others or for his own account.
Commodity Contract. A contract or option thereon providing for
the delivery or receipt at a future date of a specified amount
and grade of a traded commodity at a specified price and
delivery point.
Cross Reference Sheet. A compilation of the Guidelines
sections, referenced to the page of the Prospectus, Program
agreement, or other exhibits, and justification of any
deviation from the Guidelines.
Net Assets. The total assets, less total liabilities, of the
Program determined on the basis of generally accepted
accounting principles. Net Assets shall include any unrealized
profits or losses on open positions, and any fee or expense
including Net Asset fees accruing to the Program.
Net Asset Value Per Program Interest. The Net Assets divided
by the number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities
as determined by generally accepted accounting principles. Net
Worth shall be determined exclusive of home, home furnishings
and automobiles.
New Trading Profits. The excess, if any, of Net Assets at the
end of the period over Net Assets at the end of the highest
previous period or Net Assets at the date trading commences,
whichever is higher, and as further adjusted to eliminate the
effect on Net Assets resulting from new Capital Contributions,
redemptions, or capital distributions, if any, made during the
period decreased by interest or other income, 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,
TA-18
<PAGE>
including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the
underwriters' attorneys), expenses for printing, engraving,
mailing, salaries of employees while engaged in sales
activity, charges of transfer agents, registrars, trustees,
escrow holders, depositories, experts, expenses of
qualification of the sale of its Program Interests under
federal and state law including taxes and fees, accountants'
and attorneys' fees.
Participant. The holder of a Program Interest.
Person. Any natural Person, partnership, corporation,
association or other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor
brokerage, clearing fees, National Futures Association fees,
and exchange fees.
Program. A limited partnership, joint venture, corporation,
trust or other entity formed and operated for the purpose of
investing in Commodity Contracts.
Program Broker. A Commodity Broker that effects trades in
Commodity Contracts for the account of a Program.
Program Interest. A limited partnership interest or other
security representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized
profit in a Commodity Contract position to provide margin for
any additional Commodity Contracts of the same or related
commodities.
Sponsor. Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or
participate in the management of a Program, including a
Commodity Broker who pays any portion of the Organizational
Expenses of the Program, and the general partner(s) and any
other Person who regularly performs or selects the Persons who
perform services for the Program. Sponsor does not include
wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering
of the units. The term "Sponsor" shall be deemed to include
its Affiliates.
Valuation Date. The date as of which the Net Assets of the
Program are determined.
Valuation Period. A regular period of time between Valuation
Dates.
23. No Legal Title to Trust Estate.
The Unitholders shall not have legal title to any part of the Trust
Estate.
24. Legal Title.
Legal title to all the Trust Estate shall be vested in the Trust as a
separate legal entity; except where applicable law in any jurisdiction requires
any part of the Trust Estate to be vested otherwise, the Managing Owner (or the
Trustee, if required by law) may cause legal title to the Trust Estate of any
portion thereof to be held by or in the name of the Managing Owner or any other
person as nominee.
25. Creditors.
No creditors of any Unitholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect
to, the Trust Estate.
TA-19
<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-20
<PAGE>
Schedule A
FORM
OF
CERTIFICATE OF TRUST
OF
KENMAR GLOBAL TRUST
THIS Certificate of Trust of KENMAR GLOBAL TRUST (the "Trust"), dated
July 17, 1996, is being duly executed and filed by Wilmington Trust Company, a
Delaware banking corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 Del.C. 3801 et seq.)
1. Name. The name of the business trust formed hereby is Kenmar
Global Trust.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, 1100 North
Market Street, Rodney Square North, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ W. CHRIS SPONENBERG
--------------------------------------
Name: W. Chris Sponenberg
Title: Financial Services Officer
TA-21
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<PAGE>
ANNEX
KENMAR GLOBAL TRUST
REQUEST FOR REDEMPTION
KENMAR GLOBAL TRUST ___________________________
c/o Kenmar Advisory Corp. Date
Managing Owner
Two American Lane
P.O. Box 5150
Greenwich, CT 06831
Dear Sirs:
The undersigned (Kenmar ID # ________) 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 after 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.
-------------
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: ______________________________ __________________________________
(Signature(s) of all (Authorized corporate officer,
Unitholder(s) or assignee(s)) partner or trustee)
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<PAGE>
--------------
NOT to be used
AFTER December
31, 1999
--------------
NOT USABLE FOR
Maine Residents
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 March 31, 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 Trust's Declaration of Trust and Trust
Agreement, which will be in substantially the form of the Declaration of Trust
and Trust Agreement included in the Prospectus as Exhibit A. Purchaser agrees to
reimburse the 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.
(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
SR-1
<PAGE>
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 NET WORTH (IN ALL CASES EXCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES) 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
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 of at least $60,000.
7. MINNESOTA -- "ACCREDITED INVESTORS," AS DEFINED IN RULE 501(a) UNDER
THE SECURITIES ACT OF 1933.
8. Mississippi -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
9. Missouri-- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000.
10. New Hampshire -- Net worth of at least $250,000 or a net worth of
at least $125,000 and an annual income of at least $50,000.
SR-2
<PAGE>
11. North Carolina -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
12. Oklahoma-- Net worth of at least $225,000 or a net worth of $60,000
and an annual income of at least $60,000.
13. Oregon -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
14. Pennsylvania -- Net worth of a least $175,000 or a net worth of at
least $100,000 and an annual taxable income of at least $50,000.
15. South Carolina -- Net worth of at least $100,000 or a net income in
1998 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."
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EXHIBIT C
KENMAR GLOBAL TRUST
--------------
SUBSCRIPTION INSTRUCTIONS
ANY PERSON CONSIDERING PURCHASING UNITS SHOULD CAREFULLY READ AND
REVIEW THE PROSPECTUS OF THE FUND DATED MARCH 31, 1999, TOGETHER WITH THE
SUMMARY FINANCIAL INFORMATION RELATING TO THE FUND CURRENT WITHIN 60 CALENDAR
DAYS WHICH ACCOMPANIES THE PROSPECTUS.
The Units are speculative and involve a high degree of risk. No person
may invest more than 10% of his or her net worth (in all cases exclusive of
home, furnishings and automobiles) in the Fund.
EXISTING UNITHOLDERS WHO ARE SUBSCRIBING FOR ADDITIONAL UNITS SHOULD
CHECK ITEM 1(B) AND FOLLOW THE INSTRUCTIONS INDICATED, 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.
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TYPE OR PRINT USING BLACK INK ONLY, AS FOLLOWS (PRESS FIRMLY):
Item 1 -- Enter appropriate subscriber status (new or existing)
Item 2 -- Enter the subscription amount.
Item 3 -- Check the appropriate category identifying type
of Purchaser.
Item 4 -- Enter the exact name in which the Units are to be held.
Enter basic Purchaser information, including the Social Security
Number or Taxpayer ID Number.
The Signature Page is self-explanatory for most types of investors;
however, we have provided specific instructions for the following types of
investors:
Trust -- Enter the trust name and the trustee's name, followed by
"Trustee." If applicable, enter the custodian's name, followed by "Custodian."
Be sure to furnish the Taxpayer ID Number of the trust.
Custodian Under Uniform Gifts to Minors Act -- Complete Item 4 with the
name of minor followed by "UGMA." Enter the custodian's name, followed by
"Custodian." Be sure to furnish the minor's Social Security Number.
Partnership or Corporation -- The Partnership or Corporation name is
required. Also, enter an officer's or partner's name. Be sure to furnish the
Taxpayer ID Number of the Partnership or Corporation.
Special Note: Trust agreements, corporate papers and other appropriate
documents may be required for selling agent approval.
Item 5 -- The investor(s) must execute the Subscription Agreement and Power of
Attorney Signature Page (Item 5) and review the representation
relating to backup withholding tax underneath the signature and
telephone number lines.
Item 6 -- Selling Agent representatives must complete the information required
and sign in two places.
Instructions to Selling Agent representatives:
THE BRANCH OFFICE/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.
Note: This Subscription Form is not usuable for Maine Residents.
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KENMAR GLOBAL TRUST
UNITS OF BENEFICIAL INTEREST
-----------------
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
-----------------
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
KENMAR GLOBAL TRUST
c/o Kenmar Advisory Corp.
Managing Owner
Two American Lane
Greenwich, Connecticut 06831
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. 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 March 31, 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.
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 Fund, 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
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<PAGE>
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.
6. Risks. The Units are speculative and involve a high degree of risk.
Risks relating to the Units include: (i) You could lose all or substantially all
of your investment; (ii) the Fund is highly leveraged and trades in volatile
markets; (iii) performance can be volatile - the Net asset Value per Unit has
fluctuated in a single month as much as 13.2%; (iv) substantial expenses must be
offset by trading profits and interest income; and (v) the Fund trades to a
substantial degree on non-U.S. markets which are not subject to the same degree
of regulation as U.S. markets. See "The Risks You Face" beginning on page 9 of
the Prospectus.
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SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
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.
KENMAR ID # _________________
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
Note: Please indicate name and address of Custodian
or Trustee in 4 (c) below
Non-taxable Investors (check one):
NOTE: Please indicate name and address of Custodian or Trustee in
4(c) below.
|_| IRA |_| Profit Sharing
|_| IRA Rollover |_| Defined Benefit
|_| Pension |_| Other (specify)
|_| SEP
4. Basic Information.
(a) Full name of account as it should appear in our records:
------------------------------------------------------------------------
------------------------------------------------------------------------
Bus. Tel. No: _____________________ Res. Tel. No.: _________________
Social Security No. or Tax I.D. No.: __________________________________
Custodian Taxpayer I.D. No. (for IRAs only): __________________________
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<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE --Continued)
(b) Primary Residence: _______________________________________________________
_______________________________________________________
Mailing Address if Different: ____________________________________________
____________________________________________
(c) Name and Address of Trustee or Custodian:
_______________________________________________________
_______________________________________________________
5. Acknowledgments by Purchaser
I/(We) have received the Prospectus dated March 31, 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.
FOR ENTITIES ONLY:
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 (if applicable) Date
X________________________________________
Signature of Joint Purchaser Date
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<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE --Continued)
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 MARCH 31, 1999, SUMMARY FINANCIAL
INFORMATION RELATING TO THE FUND CURRENT WITHIN 60 CALENDAR DAYS.
UNITED STATES INVESTORS ONLY
I have checked the following box if I am subject to backup withholding
under the provisions of Section 3406(a)(1)(C) of the Internal Revenue
Code: o. Under the penalties of perjury, by signature above I hereby
certify that the Social Security Number or Taxpayer ID Number shown on
the front of this Subscription Agreement and Power of Attorney
Signature Page next to my name is my true, correct and complete Social
Security Number or Taxpayer ID Number and that the information given in
the immediately preceding sentence is true, correct and complete.
NON-UNITED STATES INVESTORS ONLY
Under penalties of perjury, by signature above I hereby certify that
(a) I am 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.
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.
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
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