FILED PURSUANT TO RULE 424(3)(B)
PART ONE - DISCLOSURE DOCUMENT
KENMAR GLOBAL TRUST
$72,000,000
UNITS OF BENEFICIAL INTEREST
THE OFFERING
Kenmar Global Trust 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 of beneficial interest are issued as of the beginning 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. After the end of the 18th month, there will be no charge for
redemption.
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
8.
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 9.31%
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
REGULAR ACCOUNTS: IRAS, OTHER TAX-EXEMPT 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.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF
ADDITIONAL INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION.
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
DECEMBER 30, 1999
(NOT FOR USE AFTER SEPTEMBER 30, 2000)
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COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 24 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 6.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 8 THROUGH 13.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
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.
--------------------
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NOTES TO COVER PAGE (CONT'D)
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 COMMODITY FUTURES TRADING COMMISSION (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."
--------------------
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KENMAR GLOBAL TRUST
TABLE OF CONTENTS
PROSPECTUS SECTION PAGE
PART ONE
DISCLOSURE DOCUMENT
SUMMARY............................................. 4
Overview........................................... 4
Risk Factors....................................... 4
The Fund and Its Objectives........................ 4
"Breakeven Table".................................. 5
Suitability........................................ 7
THE RISKS YOU FACE................................. 8
(1) Investors Must Not Rely on the Past
Performance of Either Kenmar or the
Fund in Deciding Whether to Buy Units.......... 8
(2) Possible Total Loss of an Investment in
the Fund....................................... 8
(3) Speculative and Volatile Markets; Highly
Leveraged Trading............................. 8
(4) Fees and Commissions are Charged
Regardless of Profitability and are Subject
to Change..................................... 8
(5) Importance of Market Conditions
to Profitability.............................. 8
(6) Discretionary Trading Strategies
May Incur Substantial Losses.................. 8
(7) Decisions Based Upon Fundamental
Analysis May Not Result in
Profitable Trading............................ 8
(8) Increase in Assets Under Management
May Affect Trading Decisions.................. 9
(9) No Assurance of Advisors' Continued
Services...................................... 9
(10) Limited Ability to Liquidate your
Investment ................................... 9
(11) Possible Illiquid Markets..................... 9
(12) The Fund Does Not Acquire Any Asset
with Intrinsic Value.......................... 9
(13) Non-Correlated, Not Negatively
Correlated, Performance Objective............. 10
(14) Broad Indices May Perform Quite
Differently From Individual Investments....... 10
(15) Distortion in Profit Share and Incentive
Fee Calculations.............................. 10
(16) Advisors Trading Independently
of Each Other May Reduce
Risk Control Potential........................ 10
(17) Trading on Commodity Exchanges
Outside the United States is Not
Subject to U.S. Regulation.................... 10
(18) Conflicts of Interest......................... 11
(19) Unitholders Taxed Currently................... 11
(20) Limitation on Deductibility
of "Investment Advisory Fees"................. 11
(21) Taxation of Interest Income
Irrespective of Trading Losses................ 11
(22) Possibility of a Tax Audit of Both
the Fund and Unitholders...................... 11
(23) Failure of Brokerage Firms; Default
by Clearing Broker............................ 12
(24) Regulatory Matters May Alter the Nature
of an Investment in the Fund.................. 12
(250 Fund Trading is Not Transparent
to Investors.................................. 12
(26) Lack of Independent Experts
Representing Investors........................ 12
(27) Forwards, Swaps, Hybrids and Other
Derivatives are Not Subject to CFTC
Regulation.................................... 12
(28) Possibility of Termination of the Fund
Before Expiration of its Stated Term.......... 13
(29) Possible Effects of the European
Monetary Union................................ 13
(30) Year 2000 Issues.............................. 13
THE FUND AND ITS OBJECTIVES........................ 13
Objectives........................................ 13
Investment Philosophy............................. 14
Diversification................................... 15
The Advisors...................................... 17
Core Advisor Summaries............................ 18
KENMAR ADVISORY CORP............................... 20
Background and Principals......................... 20
Management of Traders............................. 21
Fiduciary Obligations of Kenmar................... 22
Fiduciary and Regulatory Duties................... 22
Investment of Kenmar in the Fund.................. 23
USE OF PROCEEDS.................................... 23
CHARGES............................................ 24
Charges Paid by the Fund.......................... 24
Brokerage Commissions.......................... 25
Miscellaneous Execution Costs.................. 25
"Bid-ask" Spreads.............................. 25
Profit Shares and Incentive Fees............... 25
Ongoing Operating, Selling and
Administrative Costs........................ 27
Extraordinary Expenses......................... 27
Redemption Charges............................. 27
Charges Paid by Kenmar............................ 27
Selling Commissions; "Trailing
Commissions"................................... 27
Consulting Fees................................ 27
THE CLEARING BROKERS............................... 28
ING BARINGS....................................... 28
PaineWebber....................................... 28
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TABLE OF CONTENTS (CONT.)
CONFLICTS OF INTEREST.............................. 29
General........................................... 29
Kenmar............................................ 29
The Advisors...................................... 30
The Clearing Brokers and Executing Brokers........ 30
Selling Agents.................................... 30
Proprietary Trading/Other Clients................. 30
REDEMPTIONS AND DISTRIBUTIONS..................... 31
THE FUND AND THE TRUSTEE........................... 32
Principal Office; Location of Records............. 32
Certain Aspects of the Fund....................... 32
The Trustee....................................... 32
Management of Fund Affairs; Voting by
Unitholders.................................... 33
Recognition of the Fund in Certain States......... 33
Possible Repayment of Distributions Received
by Unitholders; Indemnification of the
Fund by Unitholders............................ 33
Transfers of Units Restricted .................... 34
Reports to Unitholders............................ 34
General........................................... 34
FEDERAL INCOME TAX CONSEQUENCES.................... 35
Partnership Tax Status of the Fund................ 35
Taxation of Unitholders on
Profits or Losses of the Fund.................. 35
Limited Deductibility for Certain Expenses........ 35
Year-End Mark-to-Market of Open Positions......... 35
Tax on Capital Gains and Losses; Interest Income.. 36
Syndication Expenses.............................. 36
Unrelated Business Taxable Income................. 36
IRS Audits of the Fund and Its Unitholders........ 36
State and Other Taxes............................. 36
PURCHASES BY EMPLOYEE BENEFIT PLANS36
General........................................... 36
"Plan Assets"..................................... 37
Ineligible Purchasers............................. 38
PLAN OF DISTRIBUTION............................... 38
Subscription Procedure............................ 38
Subscribers' Representations and
Warranties.................................... 39
Selling Agents' Compensation...................... 39
LEGAL MATTERS...................................... 40
EXPERTS............................................ 40
ADDITIONAL INFORMATION............................. 40
RECENT FINANCIAL INFORMATION AND ANNUAL
REPORTS........................................... 40
PERFORMANCE OF KENMAR GLOBAL TRUST................. 41
SELECTED FINANCIAL DATA ........................... 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 43
Operational Overview; Advisor Selections.......... 43
Liquidity......................................... 44
Results of Operations............................. 44
General....................................... 44
Performance Summary........................... 45
Capital Resources................................. 45
THE ADVISORS....................................... 47
PERFORMANCE OF COMMODITY POOLS OPERATED BY KENMAR.. 95
INVESTMENT FACTORS................................ 99
INDEX OF DEFINED TERMS............................ 105
INDEX TO FINANCIAL STATEMENTS..................... F-1
KENMAR GLOBAL TRUST STATEMENTS OF
FINANCIAL CONDITION AS OF SEPTEMBER 30,
1999 (UNAUDITED) AND
DECEMBER 31, 1998 (AUDITED).................... F-2
KENMAR GLOBAL TRUST STATEMENTS OF
OPERATIONS FOR THE THREE
MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)........ F-3
KENMAR GLOBAL TRUST STATEMENTS OF
CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)........ F-4
KENMAR GLOBAL TRUST STATEMENTS OF
CHANGES IN UNITHOLDERS' CAPITAL
(NET ASSET VALUE) FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED).....................................F-5
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)..........F-6
KENMAR GLOBAL TRUST INDEPENDENT
AUDITOR'S REPORT...............................F-11
KENMAR GLOBAL TRUST STATEMENTS
OF FINANCIAL CONDITION AS OF
DECEMBER 31, 1998 AND 1997.......................F-12
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-13
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-14
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TABLE OF CONTENTS (CONT.)
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-15
KENMAR GLOBAL TRUST NOTES TO FINANCIAL
STATEMENTS....................................... F-16
KENMAR ADVISORY CORP.
INDEPENDENT AUDITOR'S REPORT...................... F-21
KENMAR ADVISORY CORP. STATEMENT
OF FINANCIAL CONDITION AS OF
SEPTEMBER 30, 1998 (AUDITED)..................... F-22
KENMAR ADVISORY CORP. NOTES
TO STATEMENT OF FINANCIAL CONDITION.............. F-23
KENMAR ADVISORY CORP. STATEMENT
OF FINANCIAL CONDITION AS OF
SEPTEMBER 30, 1999 (UNAUDITED)................... F-29
KENMAR ADVISORY CORP. NOTES
TO STATEMENT OF FINANCIAL CONDITION.............. F-30
PART TWO
STATEMENT OF ADDITIONAL
INFORMATION
THE FUTURES AND FORWARD MARKETS...................... 1
Futures and Forward Contracts....................... 1
Hedgers and Speculators............................. 1
Commodity Exchanges................................. 1
Speculative Position and Daily
Price Fluctuation Limits............................ 1
Margins............................................. 2
Transtrend B.V. Supplemental Performance
Information ........................................ 2
EXHIBIT A--AMENDED AND RESTATED
DECLARATION OF TRUST AND
TRUST AGREEMENT.................................. TA-1
ANNEX--REQUEST FOR REDEMPTION
EXHIBIT B--SUBSCRIPTION REQUIREMENTS.............. SR-1
EXHIBIT C--SUBSCRIPTION INSTRUCTIONS,
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY.... SA-1
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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 17 AND "KENMAR ADVISORY
CORP." AT PAGE 20.
o ACCESS TO A WIDE RANGE OF DOMESTIC AND
INTERNATIONAL MARKETS. SEE "THE FUND AND
ITS OBJECTIVES -- DIVERSIFICATION" AT PAGE 15.
o DIVERSIFICATION AMONG TRADING STRATEGIES. SEE
"THE FUND AND ITS OBJECTIVES -- INVESTMENt
PHILOSOPHY" AT PAGE 14.
o INVESTING IN A MANAGED FUTURES FUND CAN BE
AN EFFECTIVE WAY TO GLOBALLY DIVERSIFY A
PORTFOLIO. SEE "INVESTMENT FACTORS -- VALUe
OF DIVERSIFYING INTO MANAGED FUTURES" AT
PAGE 100.
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-- ADDITIONAL ADVANTAGES OF
MANAGED FUTURES INVESTMENTS" AT PAGE 104
AND "REDEMPTIONS AND DISTRIBUTIONS" AT
PAGE 31.
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 II 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
8.
o THE FUND'S TRADING IS HIGHLY LEVERAGED AND
TAKES PLACE IN VERY VOLATILE MARKETS. SEE
"THE FUND AND ITS OBJECTIVES" AT PAGE 13
AND "THE RISKS YOU FACE -- (3)
SPECULATIVE AND VOLATILE MARKETS; HIGHLY
LEVERAGED TRADING" AT PAGE 8.
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 9.31% 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 12.41% 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 6, "CHARGES" AT
PAGE 24 AND "THE RISKS YOU FACE -- (4)
FEES AND COMMISSIONS ARE CHARGED
REGARDLESS OF PROFITABILITY AND ARE SUBJECT
TO CHANGE" AT PAGE 8.
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 8.
THE FUND AND ITS OBJECTIVES
The Fund is a multi-advisor, multi-strategy managed futures investment
portfolio. 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.
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SUMMARY (CONT'D)
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. 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 September 30, 1999, Kenmar and its
affiliates were acting as trading manager for commodity pools and accounts with
total capital (excluding "notional" funds) of approximately $819 million, of
which approximately $144 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 1, 1999, the core Advisors were collectively managing
approximately $25 billion in managed futures accounts in which their clients
(and in certain cases the core Advisors themselves) had invested approximately
$630 million in the trading programs being used for the Fund. See "The Fund and
its Objectives -- Investment Philosophy."
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 35.
"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 on or before the 12th month-end
following sale and, therefore, are subject to a 3% redemption charge).
Redemptions on the 13th month-end through the 18th month-end are subject to a 2%
charge. Redemptions after the 18th month-end are redeemed at Net Asset Value (no
charge).
The "Breakeven Table," as presented, is an approximation only and 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, 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).
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SUMMARY (CONT'D)
"BREAKEVEN TABLE"
<TABLE>
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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
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<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) (5.09)% $(254.50)
- ---------------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL INVESTMENT REQUIRED
"BREAK EVEN" IF UNITS ARE REDEEMED ON OR BEFORE THE 12.41% $620.50
12TH MONTH-END FOLLOWING SALE.
- ---------------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR
"BREAK EVEN" IF UNITS ARE REDEEMED ON THE 13TH MONTH- 11.35% $567.50
END THROUGH THE 18TH MONTH-END FOLLOWING SALE.
- ---------------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR
"BREAK EVEN" IF UNITS ARE REDEEMED AFTER THE 18TH 9.31% $465.50
MONTH-END FOLLOWING SALE.
- ---------------------------------------------------------------------------------------------------
</TABLE>
Notes to "Breakeven Table"
(1) The foregoing break-even analysis assumes that the Units have a constant
month-end Net Asset Value. Calculations are based on $5,000 as the Net
Asset Value per Unit. See "Charges" at page 24 for an explanation of the
expenses included in the "Breakeven Table."
(2) Paid to Kenmar each month. Kenmar pays all floor brokerage, exchange,
clearing and NFA fees, selling compensation, trailing commissions and
Advisors' Consulting Fees from this amount.
(3) Administrative expenses are paid as incurred. However, 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 . See "Charges -- Profit Shares
and Incentive Fees" at page 25. However, for purposes of the "Breakeven
Table," the Incentive Fee has been estimated at 5% of such 3.1% gain.
(7) Redemption charges for purposes of this "breakeven" analysis equal 3.1% of
the initial $5,000 (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.
- --------------------------------------------------------------------------------
-6-
<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 EXHIBIT B 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.
[Remainder of page left blank intentionally.]
- --------------------------------------------------------------------------------
-7-
<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.
Prospective investors should note that Kenmar replaced most of the
Advisors as of December 2, 1999 and has altered its allocation strategy to
include a core group of Advisors as well as a non-core group of Advisors. Kenmar
anticipates actively reallocating Fund assets among the non-core Advisors.
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
-8-
<PAGE>
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,
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 29. 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 ten (10)
calendar days before the proposed date of redemption.
Transfers of Units are subject to limitations, such as thirty (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
-9-
<PAGE>
in general economic growth. Unlike most alternative investments, an investment
in the Fund does not involve acquiring any asset with intrinsic value. Overall
stock and bond prices could rise significantly and the economy as a whole
prosper while the Fund trades unprofitably.
(13) NON-CORRELATED, NOT NEGATIVELY CORRELATED, PERFORMANCE OBJECTIVE
Historically, managed futures have been generally non-correlated to the
performance of other asset classes such as stocks and bonds. Non-correlation
means that there is no statistically valid relationship between the past
performance of futures and forward contracts on the one hand and stocks or bonds
on the other hand. Non-correlation should not be confused with negative
correlation, where the performance would be exactly opposite between two asset
classes. Because of this non-correlation, the Fund cannot be expected to be
automatically profitable during unfavorable periods for the stock market, or
vice versa. The futures and forward markets are fundamentally different from the
securities markets in that for every gain in futures and forward trading, there
is an equal and 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 24. Certain investors' Units could
be subject to Profit Shares and Incentive Fees despite having declined in Net
Asset Value from their purchase price. The 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
-10-
<PAGE>
and the functional currencies of such contracts. See the last paragraph of the
"Commodity Futures Trading Commission -- Risk Disclosure Statement" on page 1 of
this Prospectus. Investors could incur substantial losses from the Fund's
trading on foreign exchanges to which they would not have been subject had the
Advisors limited their trading to U.S. markets.
(18) CONFLICTS OF INTEREST
Kenmar has a conflict of interest because it acts as the managing owner
for the Fund.
The fact that Kenmar will receive an annual Incentive Fee equal to 5% of
any New Overall Appreciation (as defined herein) may lead Kenmar to select
Advisors that trade in a more "risky" or speculative manner than those that
Kenmar might otherwise choose. Kenmar receives 5% as an incentive fee, of any
New Overall Appreciation of the Fund, but not 5% of its losses.
Selling Agents will be entitled to ongoing compensation as a result of
their clients remaining in the Fund, so a conflict exists between the agent's
interest in maximizing compensation and in advising their clients to make
investment decisions in 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 35.
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 and other expenses were characterized as "investment advisory fees,"
an investment in the Fund might 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.
-11-
<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 35.
(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 compre hensive 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
-12-
<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 complete. 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.
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.
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<PAGE>
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 12.
The Fund's assets are allocated to a core group of Advisors (currently
comprising Bridgewater Associates, Inc., Grinham Managed Futures Pty. Ltd.;
Sunrise Capital Partners, L.L.C., and Transtrend B.V.) and a non-core group. The
percentage of Fund assets allocated to each core Advisor may change over time as
a result of differing performance results or due to allocation and reallocation
decisions by Kenmar. It is not anticipated, however, that adjustments to the
core group of Advisors will be frequent. In addition, Kenmar will attempt to
enhance the performance of the Fund by dynamically allocating and reallocating
Fund assets among the non-core Advisors. Such allocation decisions will be based
on a variety of considerations which may include, but are not limited to, focus
on a particular market or sector; cyclical performance analysis; or strategy
diversification. For example, changes in the trading environment may require a
greater emphasis on shorter-term trend-following strategies over longer term, or
on fundamental strategies over technical. Each non-core Advisor is allocated
less than 10% of the Fund's assets. This methodology is intended to augment the
ongoing portfolio performance and risk management of the Fund.
-14-
<PAGE>
As noted above, Kenmar may, from time to time, withdraw Fund's assets
allocated to non-core Advisors in part or entirely. Kenmar may also allocate
Fund assets to replacement or additional non-core Advisors.
Prospective investors must recognize that Advisor selections and
allocations require the exercise of judgment and discretion and are not
determined in any precise or systematic manner. There can be no assurance that
Kenmar's selection and monitoring of a limited group of Advisors for the Fund
will, in the future, produce more successful results (in terms of either risk
control or profitability) than would the selection of a single Advisor, a fixed
combination of Advisors or a smaller or larger group of Advisors.
DIVERSIFICATION
Trader Diversification
The Fund utilizes a number of Advisors who are allocated varying amounts
of capital. These allocations will vary continually. Multiple Advisors provide
multiple timing parameters and different sector focuses. This produces a
portfolio that is quite different from that of a single-trader fund. See "The
Risks You Face -- (16) Advisors Trading Independently of Each Other May Reduce
Risk Control Potential" at page 10.
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.]
-15-
<PAGE>
Through Kenmar's Advisor selections, the Fund will have the flexibility to
access world markets, including but not limited to:
CURRENCIES
- ------------------------------------------------------------------------------
Australian Dollar
Belgian Franc
British Pound
Canadian Dollar
Danish Krone
Deutsche Mark
Dutch Guilder
Euro Currency
European Currency Unit
Finnish Markka
French Franc
Irish Punt
Italian Lira
Japanese Yen
Malaysian Ringgit
Mexican Peso
New Zealand Dollar
Norwegian Krone
Singapore Dollar
Spanish Peseta
Swedish Krona
Swiss Franc
S. African Rand - FNX
FINANCIAL INSTRUMENTS
- ------------------------------------------------------------------------------
Australian All Ordinaries
Australian Treasury Bills
Australian Treasury Bonds
Belgian Government Bond
CAC 40 Stock Index (France)
Canadian Bonds DAX Stock Index (Germany)
Dow Jones Industrial Average
Euribor
Eurodollars
Euromarks
Euroswiss
Eurotop 100 Index (Europe)
Euroyen
Financial Times 100 Stock Index (U.K.)
Financial Times 250 Stock Index (U.K.)
French Bonds
German Bunds
Hang Seng Index
Italian Bonds
Japanese Bonds
Swiss Bonds - Eurex
Major Market Stock Index (U.S.)
MEFF&S Stock Index (Spain)
MIB-30
MIBOR
MSCI Taiwan Stock Index
Nasdaq 100
Nikkei Stock Average (Japan)
Nikkei Stock Index 300 (Japan)
PIBOR
OMX Stock Index
Russell 2000
S&P 500 Stock Index (U.S.)
Spanish Bonds
Swedish Government Bond
Tokyo Stock Price Index (Japan)
Toronto-35 Stock Index Nasdaq 100
U.K. Gilts
U.K. Short Sterling
U.S. Treasury Bills
U.S. Treasury Bonds
U.S. Treasury Notes
Value Line Stock Index (U.S.)
METALS
- ------------------------------------------------------------------------------
Aluminum
Copper
Gold
Lead
Nickel
Palladium
Platinum
Silver
Tin
Zinc
ENERGY PRODUCTS
- ------------------------------------------------------------------------------
Crude Oil
Electricity
Gas Oil
Heavy Fuel Oil
Natural Gas
No. 2 Heating Oil
Propane
Residual Fuel Oil
Unleaded Gasoline
AGRICULTURAL PRODUCTS
- ------------------------------------------------------------------------------
Cocoa
Coffee
Corn
Cotton
Feeder Cattle
Live Cattle
Live Hogs
Oats
Orange Juice
Pork Bellies
Soybeans
Soymeal
Soybean Oil
Sugar
Wheat
Lumber - CME
-16-
<PAGE>
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
September 30, 1999. The percentage exposure to markets will vary substantially
over time as Advisors assess the various sectors.
KENMAR GLOBAL TRUST MARKET SECTOR PARTICIPATION
AS OF SEPTEMBER 30, 1999
[The following information was depicted as a pie chart in the printed material.]
European Rates 13%
Pacific Rim Rates 4%
U.S. Rates 7%
U.S. Stock Indexes 8%
Pacific Rim Stock Indexes 3%
European Stock Indexes 3%
Grains 4%
Tropicals 7%
Energies 13%
Meats 1%
Metals 21%
Curriencies 16%
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 12. 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 core Advisors and current asset allocations
for the Fund.
-17-
<PAGE>
<TABLE>
<CAPTION>
CORE ADVISOR AND APPROXIMATE ASSETS
CURRENT GENERAL UNDER MANAGEMENT
% ALLOCATION* STRATEGY TYPE DECEMBER 1, 1999**
- ---------------- ------------- ------------------
<S> <C> <C>
Bridgewater Associates, Inc. Fundamental (non-technical) $24 billion
(33%)
Grinham Managed Futures Pty. Ltd. Shorter-Term Technical, $212.7 million
(25%) Trend Following
Sunrise Capital Partners, LLC Longer-Term Technical, $593.1 million (total)
(17%) Trend Following $373.4 million
(Expanded Diversified Program)
Transtrend B.V. Longer-Term Technical, $122 million
(21%) Trend Following
</TABLE>
---------------
* THE ADVISORS AND ASSET ALLOCATIONS FOR THE FUND IN EFFECT AS OF JANUARY
1, 2000 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.
---------------
CORE ADVISOR SUMMARIES
More complete descriptions and performance summaries for the core Advisors
described in this section of the Prospectus are included under "The Advisors" at
page 47. 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 8.
BRIDGEWATER ASSOCIATES, INC.
Bridgewater Associates, Inc. will trade its Aggressive Pure Alpha Give-Up
Futures Only system on behalf of the Fund. The Aggressive Pure Alpha Give-Up
Futures Only system is substantially similar to Bridgewater Associates Inc.'s
Aggressive Pure Alpha Futures Only system. The principal difference is in
certain of the products traded. The Aggressive Pure Alpha Futures Only system
trades futures contracts on some equity markets which cannot be given up to the
designated clearing broker. These include contracts on the IBEX, TOPIX, OMLX and
MIB-30. Capital allocated to these markets will be reallocated to other markets
in an attempt to realize the same overall portfolio return. See pages 52 through
67 for performance information relating to Bridgewater Associates, Inc.
GRINHAM MANAGED FUTURES PTY. LTD.
Grinham Managed Futures Pty. Ltd. is an Australian commodity trading
advisor utilizing an automated, technical trading system. The basic premise of
the system is that markets incorporate a random and non-random component. The
Grinham Managed Futures Pty. Ltd. system is designed to identify when markets
begin to move in a non-random fashion and to generate orders to profit from
non-random price movements.
Grinham Managed Futures Pty. Ltd. trades 37 markets across 7 countries,
incorporating most of the major stock indices, interests rate, currency and
commodities markets. Risk control is a major fundamental of the system,
utilizing diversification to limit the risk of any single trade to less than of
the assets under management. See pages 68 through 73 for performance information
relating to Grinham Managed Futures Pty. Ltd.
-18-
<PAGE>
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 than
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.
TRANSTREND B.V.
In its Diversified Program, Transtrend B.V. applies a combination of well
researched trading systems. Each trading system has a demonstrated profit
expectancy over the course of time. In particular, the trading systems attempt
to exploit non-random price behaviors based on quantitative analysis of
(typical) price patterns. The trading systems are consistent, systematic and
applied with skill and discipline.
The systems can be applied to well over a hundred different
product-market-combinations traded on approximately fifty exchanges in
approximately twenty-five countries. Diversified portfolios consist of a variety
of futures broadly spread over interest instruments, stock indices, tangible
commodities and Foreign Exchange pairs.
Correlation analysis contributes to a desired portfolio balance.
Volatility analysis plays a prominent role in the assessment of risk.
Compatibility between trading systems and the markets they are applied to is
monitored closely. Multiple entries and exits contribute to the desired
stability of returns. See pages 84 through 94 for performance information
relating to Transtrend B.V.
The Advisory Agreements
Sunrise Capital Partners, LLC serves as an Advisor to the Fund pursuant to
an Advisory Agreement which has been renewed for an additional one-year term
through December 31, 2000. Grinham Managed Futures Pty. Ltd. and Transtrend B.V.
serve as Advisors to the Fund pursuant to Advisory Agreements which have an
initial term through November 30, 2000. The Advisory Agreement pursuant to which
Bridgewater Associates, Inc. serves as Advisor to the Fund has an initial term
through December 22, 2000. Each Advisory Agreement may be renewed on the same
terms at Kenmar's option for up to two additional one year terms.
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, among other things, constitute a 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.
When it considers doing so to be in the best interests of the Fund, Kenmar
will generally attempt to negotiate advisory agreements with comparable terms
for all of the Advisors chosen for the Fund. Kenmar 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.
-19-
<PAGE>
The Fund's current Advisors have not purchased Units, although they may do
so in the future.
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, 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)
-20-
<PAGE>
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.
Mr. Jeffrey S. Rothstein (born 1957), Senior 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.
Ms. Joanne D. Rosenthal (born 1965), Vice President and Director of
Research, joined Kenmar in October 1999. Prior to joining Kenmar, Ms. Rosenthal
spent 9 years at The Chase Manhattan Bank, in various positions of increasing
responsibility. From July 1991 through April 1994, she managed the Trade
Execution Desk and from May 1994 through September 1999, she was a Vice
President and Senior Portfolio Manager of Chase Alternative Asset Management,
Inc. Ms. Rosenthal received a Masters of Business Administration in Finance from
Cornell University and a Bachelor of Arts in Economics from Concordia University
in Montreal, Canada. Ms. Rosenthal's registration as a principal of Kenmar is
pending with the NFA.
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 Fund
and Its Objectives -- Investment Philosophy" at page 13 and "The Risks You Face
- -- (24) Regulatory Matters May Alter the Nature of an Investment in the Fund" at
page 12.
Naturally, these activities require a strong emphasis on trading and
market research. Kenmar operates and updates continuously a database that tracks
over 600 different trading programs offered by traders around the globe. Added
to these quantitative data are
-21-
<PAGE>
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 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
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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 29.
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. As of September 30, 1999 Marc S. Goodman, the
President of Kenmar, had a 0.019% interest (52.83 Units) in the Fund through an
individual retirement account, and Kenneth A. Shewer, the Chairman of Kenmar,
had a 0.018% interest (50.25 Units) 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
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 September 30, 1999 the Fund estimates:
(i) up to approximately 49% 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) approximately 51% of the Net Asset Value of the Fund is maintained in
bank deposits.
Fund assets maintained in bank deposits are currently maintained with
Brown Brothers Harriman & Co. in New York, New York and Georgetown, Grand Cayman
Island.
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 U.S. 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.
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<PAGE>
CHARGES
CHARGES PAID BY THE FUND
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- ---------- ----------------- -------------------
Kenmar Brokerage commissions Flat-rate monthly commissions of
0.917% of the Fund's beginning
of month Net Assets (an 11%
annual rate). Such commissions
cover all floor brokerage,
exchange, clearing and NFA fees
incurred in the Fund's trading.
Third Parties Miscellaneous execution Paid as incurred; not
costs anticipated to exceed 0.25% of
average beginning of month Net
Assets per year.
Counterparties "Bid-ask" spreads Each counterparty with which the
Fund trades receives "bid-ask"
spreads on the forward trades
executed on behalf of the Fund.
Advisors Profit Shares Paid by the Fund on a quarterly
basis (although accrued against
Net Asset Value per Unit
monthly). Each 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 2.5% -- 5.0%,
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, Selling and Paid as incurred; not
Administrative costs anticipated to exceed 1% of the
Fund's average beginning of
month Net Assets per year.
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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 11.00% 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 September 30, 1999, 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 $85. 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.)
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)
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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 2.5% -- 5.0%, 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, 1999 and as of
December 31, 1999 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, 2000, the Fund had incurred a loss of $100,000 for 2000, 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 2000, Overall Appreciation of $100,000 were recognized,
New Overall Appreciation as of December 31, 2000 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 performance of the Fund as a whole. For
example, assume that 100,000 Units were initially sold as of June 1, 1999 and
through December 31, 1999 the Fund incurred a $1,000,000 loss. If 100,000 more
Units were purchased as of January 1, 2000 (at a Net Asset Value of $90 per
Unit), and the Fund earns $1,000,000 during 1999, as of December 31, 2000 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
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<PAGE>
allocable share of the Incentive Fee of $25,000 (5% of $500,000) which would be
due as of December 31, 2000, 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 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 39.
CONSULTING FEES
Each Advisor receives a Consulting Fee, monthly in arrears, payable by
Kenmar not the Fund,
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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 are material in
light of all circumstances.
In 1998, a former client filed a demand for arbitration at the NFA seeking
a significant award. It is alleged that the claimants' liquidation of positions
on a foreign futures exchange in the volatile period of October 1997 resulted in
losses. ING BARINGS is vigorously defending the claim, which it believes to be
baseless.
PAINEWEBBER
PaineWebber's principal office is located at 1000 Harbor Boulevard,
Weehawken, New Jersey 07087; telephone: (201) 902-3000. Paine Webber is a
clearing member of all principal U.S. futures exchanges. It is registered with
the CFTC as a futures commission merchant and is a member of the NFA in such
capacity.
PaineWebber did not sponsor the Trust and is not responsible for the
activities of Kenmar. It will act as a clearing broker and one of the selling
agents.
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.
On July 16, 1996, PaineWebber entered into a Stipulation and Order
resolving a civil complaint filed by the United States Department of Justice,
alleging that it and other NASDAQ market makers violated Section 1 of the
Sherman Act in connection with certain market making practices. In entering into
the Stipulation and Order, without admitting the allegations, the parties agreed
that the defendants would not engage in certain types of market making
activities and the defendants undertook specified steps to assure compliance
with their agreement. On April 24, 1997, the United States District Court for
the Southern District of New York approved the Stipulation and Order. The
District Court's approval was appealed by certain private parties in May 1997
and was affirmed in August 1998.
In the Matter of Certain Market Making Activities on NASDAQ was an SEC
administrative action instituted and settled without a hearing or an admission
of or denial of findings on January 11, 1999. The administrative action found
that on certain occasions in 1994 PaineWebber traders and a PaineWebber
registered representative engaged in certain improper trading activities in
connection with specified NASDAQ securities, failed to maintain certain required
books and records and failed reasonably to supervise in connection with the
above activities. PaineWebber agreed to pay a civil penalty of $6.3 million and
disgorgement of $381,685; to an administrative cease and desist order
prohibiting the firm from violating certain provisions of the federal securities
laws; and to submit certain of its policies and procedures relating to the
matters alleged in the order to review by an SEC-appointed consultant.
Twenty-seven other market makers and fifty-one traders at the firm settled
related SEC administrative actions at the same time.
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
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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. PaineWebber has also entered into settlement agreements with all
the states, Puerto Rico and the District of Columbia.
------------------------
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.
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.
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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 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.
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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 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' written 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 12th month-end following 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 on the 13th month-end through the 18th
month-end 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 were 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 (15)
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.
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Kenmar has not made, and has no intention of making, any distribution from
the Fund's profits or capital to Unitholders.
UNITHOLDERS NEED NOT REDEEM ALL THEIR UNITS IN ORDER TO REDEEM SOME OF
THEIR UNITS.
THE FUND AND THE TRUSTEE
The following summary describes in brief certain aspects of the operation
of the Fund, and the Trustee's and Kenmar's respective responsibilities
concerning the Fund. Prospective investors should carefully review the
Declaration of Trust attached hereto as Exhibit A and consult with their own
advisers concerning the implications to such prospective subscribers of
investing in a Delaware business trust. The section references below are to
sections in the Declaration of Trust.
PRINCIPAL OFFICE; LOCATION OF RECORDS
The Fund is organized under the Delaware Business Trust Act. The Fund is
administered by Kenmar, whose office is located Two American Lane, Greenwich,
Connecticut 06831 (telephone: (203) 861- 1000). The records of the Fund,
including a list of the Unitholders and their addresses, are located at the
foregoing address, and available for inspection and copying (upon payment of
reasonable reproduction costs) by Unitholders or their representatives for any
purposes reasonably related to 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 sixty (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
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capacity, nor any director, officer or controlling person of the Trustee is, or
has any liability as, the issuer or a director, officer or controlling person of
the issuer of the Units. The Trustee's liability in connection with the issuance
and sale of the Units is limited solely to the express obligations of the
Trustee set forth in the Declaration of Trust.
Under the Declaration of Trust, the Trustee has delegated to Kenmar the
exclusive management and control of all aspects of the business of the Fund. The
Trustee will have no duty or liability to supervise or monitor the performance
of Kenmar, nor will the Trustee have any liability for the acts or omissions of
Kenmar. In addition, Kenmar has been designated as the "tax matters partner" of
the Fund for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). The Unitholders have no voice in the operations of the Fund, other than
certain limited voting rights as set forth in the Declaration of Trust. In the
course of its management, Kenmar may, in its sole and absolute discretion,
appoint an affiliate or affiliates of Kenmar as additional managing owners
(except where Kenmar has been notified by the Unitholders that it is to be
replaced as the managing owner) and retain such persons, including affiliates of
Kenmar, as it deems necessary for the efficient operation of the Fund. (Section
2).
Because the Trustee has delegated substantially all of its authority over
the operation of the Fund to Kenmar, the Trustee itself is not registered in any
capacity with the CFTC.
MANAGEMENT OF FUND AFFAIRS; VOTING BY UNITHOLDERS
The Unitholders take no part in the management or control, and have no
voice in the operations of the Fund or its business. (Section 9). Unitholders
may, however, remove and replace Kenmar as the managing owner of the Fund, and
may amend the Declaration of Trust, except in certain limited respects, by the
affirmative vote of a majority of the outstanding Units then owned by
Unitholders (as opposed to by Kenmar and its affiliates). The owners of a
majority of the outstanding Units then owned by Unitholders may also compel
dissolution of the Fund. (Section 18(b)). The owners of 10% of the outstanding
Units then owned by Unitholders have the right to bring a matter before a vote
of the Unitholders. (Section 18(c)). Kenmar has no power under the Declaration
of Trust to restrict any of the Unitholders' voting rights. (Section 18(c)). Any
Units purchased by Kenmar or its affiliates, as well as Kenmar's general
liability interest in the Fund, are non-voting. (Section 7).
Kenmar has the right unilaterally to amend the Declaration of Trust provided
that any such amendment is for the benefit of and not adverse to the Unitholders
or the Trustee and also in certain unusual circumstances -- for example, if
doing so is necessary to effect the intent of the Fund's tax allocations or to
comply with certain regulatory requirements. (Section 18(a)).
In the event that Kenmar or the Unitholders vote to amend the Declaration
of Trust in any material respect, the amendment will not become effective prior
to all Unitholders having an opportunity to redeem their Units. (Section 18(c)).
RECOGNITION OF THE FUND IN CERTAIN STATES
A number of states do not have "business trust" statutes such as that
under which the Fund has been formed in the State of Delaware. It is possible,
although unlikely, that a court in such a state could hold that, due to the
absence of any statutory provision to the contrary in such jurisdiction, the
Unitholders, although entitled under Delaware law to the same limitation on
personal liability as stockholders in a private corporation for profit organized
under the laws of the State of Delaware, are not so entitled in such state. To
protect Unitholders against any loss of limited liability, the Declaration of
Trust provides that no written obligation may be undertaken by the Fund unless
such obligation is explicitly limited so as not to be enforceable against any
Unitholder personally. Furthermore, the Fund itself indemnifies all Unitholders
against any liability that such Unitholders might incur in addition to that of a
beneficial owner. Kenmar is itself generally liable for all obligations of the
Fund and would use its assets to satisfy any such liability before such
liability would be enforced against any Unitholder individually.
POSSIBLE REPAYMENT OF DISTRIBUTIONS RECEIVED BY UNITHOLDERS; INDEMNIFICATION OF
THE FUND BY UNITHOLDERS
The Units are limited liability investments; investors may not lose more
than the amount that they invest plus any profits recognized on their
investment. (Section 8(e)). However, Unitholders could be required, as a 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
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Declaration of Trust, or (iii) taxes imposed on the Fund by the states or
municipalities in which such investors reside (Sections 8(d) and 17(c)).
The foregoing repayment of distributions and indemnity provisions (other
than the provision for Unitholders indemnifying the Fund for taxes imposed upon
it by the state or municipality in which particular Unitholders reside, which is
included only as a formality due to the fact that many states do not have
business trust statutes so that the tax status of the Fund in such states might,
theoretically, be challenged -- although Kenmar is unaware of any instance in
which this has actually occurred) are commonplace in publicly-offered commodity
pools as well as other trusts and limited partnerships.
TRANSFERS OF UNITS RESTRICTED
A Unitholder may, subject to compliance with applicable federal and state
securities laws, assign his Units upon notice to the Fund and Kenmar. No
assignment will be effective in respect of the Fund or Kenmar until the first
day of the month succeeding the month in which such notice is received. No
assignee may become a substituted Unitholder except with the consent of Kenmar
and upon execution and delivery of an instrument of transfer in form and
substance satisfactory to Kenmar. No Units may be transferred where, after the
transfer, either the transferee or the transferor would hold less than the
minimum number of Units equivalent to an initial minimum purchase, except for
transfers by gift, inheritance, intrafamily transfers, family dissolutions, and
transfers to affiliates (Section 11).
There are, and will be, no certificates for the Units. Any transfers of
Units will be reflected on the books and records of the Fund. Transferors and
transferees of Units will each receive notification from Kenmar to the effect
that such transfers have been duly reflected as notified to Kenmar. (Section
11).
REPORTS TO UNITHOLDERS
Each month Kenmar reports such information as the CFTC may require to be
given to the participants in "commodity pools" such as the Fund, and any such
other information as Kenmar may deem appropriate. There are similarly
distributed to Unitholders, not later than March 30 of each year, certified
financial statements and, not later than March 15 of each year, the tax
information related to the Fund necessary for the preparation of their annual
federal income tax returns. (Section 10).
Kenmar will notify Unitholders of any change in the fees paid by the Fund
or of any material changes in the basic investment policies or structure of the
Fund. Any such notification shall include a description of Unitholders' voting
rights. (Section 10).
GENERAL
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the registration of
commodity pool programs under state securities or "Blue Sky" laws, the
Declaration of Trust provides that: (i) the executing and clearing commissions
paid by the Fund shall be reasonable (Section 9), and Kenmar shall include in
the annual reports containing the Fund's certified financial statements
distributed to Unitholders each year the approximate round-turn equivalent rate
paid on the Fund's trades during the preceding year, as well as the actual
amounts paid by Kenmar for the Fund's execution and clearing costs (Section 10);
(ii) no rebates or give-ups, among other things, may be received from the Fund
by any of the Selling Agents in respect of sales of the Units, and such
restriction may not be circumvented by any reciprocal business arrangements
among any Selling Agents or any of their respective affiliates and the Fund
(Section 9); (iii) no trading advisor of the Fund (including Kenmar) may
participate directly or indirectly in any per-trade commodity brokerage
commissions generated by the Fund (Section 9); (iv) any agreement between the
Fund and Kenmar or any affiliates of Kenmar must be terminable by the Fund upon
no more than sixty (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."
[Remainder of page left blank intentionally.]
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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 are 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 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, options on futures and stock index
options traded on U.S. exchanges. Section 1256 Contracts that remain open at the
end of a tax 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 are recognized when sold by the Fund
and are primarily short-term gain or loss. Certain of the foreign currency
contracts generate ordinary income or loss.
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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 Taxable Income'" at page 36. 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
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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 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
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<PAGE>
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 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 (5) business days prior to the
end of such month.
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<PAGE>
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.
Kenmar must accept or reject subscriptions within five (5) 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 (5) business days
following receipt of this Prospectus. Rejected or revoked subscriptions will be
returned without interest.
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 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 to this Prospectus
("Subscription Requirements") 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 from Kenmar 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. No selling commissions
will be paid from the proceeds of subscriptions. 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
representa tives 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 after deduction of "due diligence" and administrative expenses
incurred in connection with this offering, in accordance with such Selling
Agents' standard compensation arrangements. No Selling Agent will receive
upfront selling commissions, trailing commissions or on-going selling
commissions which exceed the amounts set forth above.
Kenmar, not the Fund, pays all upfront selling compensation and "trailing"
commissions. Selling Agents will pass on to their registered representatives a
portion of the foregoing upfront selling compensation and "trailing
commissions," after deduction of "due diligence" and administrative expenses
incurred in
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<PAGE>
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 advised Kenmar in connection with the Units being
offered hereby. 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.
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.
[Remainder of page left blank intentionally.]
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<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 November 30, 1999.
SUMMARY PERFORMANCE INFORMATION
Type of fund: multi-advisor; publicly-offered
Inception of trading: May 1997
Aggregate subscriptions: $34,678,179
Current capitalization: $26,821,086
Current Net Asset Value per Unit: $100.51
Largest monthly drawdown: (8.96)% (10/99)
Largest peak-to-valley drawdown: (18.48)% (9/98-10/99)
MONTHLY/ANNUAL PERFORMANCE INFORMATION
==============================================================
Month 1999(%) 1998(%) 1997(%)
- --------------------------------------------------------------
January (4.46) 3.29 --
- --------------------------------------------------------------
February 4.59 0.38 --
- --------------------------------------------------------------
March (8.46) 0.30 --
- --------------------------------------------------------------
April 5.24 (6.18) --
- --------------------------------------------------------------
May (7.53) 1.20 (0.30)
- --------------------------------------------------------------
June 3.95 2.22 (2.30)
- --------------------------------------------------------------
July (3.34) (0.88) 7.11
- --------------------------------------------------------------
August 1.68 13.22 (4.79)
- --------------------------------------------------------------
September 2.98 4.40 0.52
- --------------------------------------------------------------
October (8.96) (2.09) (2.18)
- --------------------------------------------------------------
November 4.15 (4.96) (0.74)
- --------------------------------------------------------------
December 2.76 3.25
- --------------------------------------------------------------
Compound Rate of Return (11.20) 13.08 0.10
(11 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."
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<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 unaudited
financial statements of the Fund as of September 30, 1999, and 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>
Period ended Year Ended Year Ended Period Ended
September 30, 1999 December 31, 1998 December 31, 1997 December 31, 1996
(unaudited) (audited) (audited) (audited)
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total Assets $ 29,420,854 $ 26,091,157 $ 12,782,763 $2,000
Total Unitholder's Capital 28,805,332 25,363,098 12,377,321 2,000
Gains from Trading 140,275 4,824,825 675,878
Interest Income 781,267 750,290 293,033
Total Expenses 2,402,390 2,963,014 842,501
Net Income (Loss) (1,480,848) 2,612,101 126,410
Net Income (Loss) Per Unit (6.06) 16.96 1.24
(Based on weighted average
number of units outstanding)
Increase (Decrease) in Net (7.19) 13.09 0.10
Asset Value Per Unit
</TABLE>
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<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. See "The Fund and Its
Objectives -- Investment Philosophy" at page 13. 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,
2000 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 1/1/00
ADVISOR (INCEPTION)
Beacon Management Corporation 0% 0% 0% 4.0%
Bridgewater Associates Inc. 0% 0% 0% 33%
Chesapeake Capital Corporation 25% 24% 0% 0%
Computer Trading Corporation 0% 0% 0% 0%
Dreiss Research Corporation 15% 23% 19% 0%
Grinham Managed Futures Pty. Ltd. 0% 0% 0% 25%
Hirst Investment Management Inc. 0% 0% 23% 0%
Hyman Beck & Company, Inc. 25% 23% 25% 0%
Red Oak Advisors, Inc. 0% 0% 0% 0%
Sunrise Capital Partners, LLC 0% 0% 21% 17%
Transtrend B.V. 0% 0% 0% 21%
Willowbridge Associates Inc. 25% 22% 12% 0%
Winton Capital Management Ltd. 0% 0% 0% 0%
Witter & Lester, Inc. 10% 8% 0% 0%
Total 100% 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. Hyman Beck & Company, Inc. and Willowbridge Associates, Inc., were
replaced as of December 2, 1999. Hirst Investment Management Inc. was replaced
as of December 21, 1999. Each replacement resulted from a reallocation decision
by Kenmar. As of January 2000, 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. The allocation of less than 100% of
Fund equity to the Advisors represents a deleveraging of the Fund's trading,
which
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<PAGE>
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." 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 17. Kenmar's Advisor selection procedures are described
under "Kenmar Advisory Corp. -- Management of Traders" at page 20. The core
Advisors' trading methods are described under "The Fund and Its Objectives --
Core Advisor Summaries" at page 18.
Kenmar has no timetable or schedule for making Advisor changes or
reallocations, and generally makes a medium- to long-term commitment to all
Advisors selected. Kenmar is not required to allocate the proceeds resulting
from subscriptions as 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 9. 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, since commencement of trading by the Fund, there
has never been a time when illiquidity has affected a material portion of any
Fund assets. See "Redemptions and Distributions" at page 31.
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.
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
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<PAGE>
profitability of the Fund. As a result, it is possible that the Fund may incur a
net loss when trading profits are not substantial enough to avoid depletion of
the Fund's assets from such fees and expenses. Thus, due to the nature of the
Fund's business, the success of the Fund is dependent upon the ability of the
Advisors to generate trading profits through the speculative trading of futures,
forwards and options sufficient to produce capital appreciation after payment of
all fees and expenses.
It is important to note, however, that (i) the Advisors trade in various
markets at different times and that prior activity in a particular market does
not mean that such markets will be actively traded by an Advisor or will be
profitable in the future and (ii) the Advisors trade independently of each other
using different trading systems and may trade different markets with various
concentrations at various times. Consequently, the results of operations of the
Fund can only be discussed in the context of the overall trading activities of
the Fund, the Advisors' trading activities on behalf of the Fund as a whole and
how the Fund has performed in the past.
The Fund commenced trading operations on May 22, 1997. Set forth below are
the results of operations of the Fund for the periods from December 31, 1998
through September 30, 1999, and from December 31, 1997 through December 31,
1998.
As of the period ending September 30, 1999, the Net Asset Value of the
Fund was $28,805,332, an increase of approximately 13.57% from its Net Asset
Value of $25,363,098 at December 31, 1998. The Fund's subscriptions and
redemptions for the nine months ended September 30, 1999 totaled $8,110,024 and
$3,078,841, respectively. The Net Asset Value per Unit decreased 6.35% from
$113.19 at December 31, 1998 to $106.00 at September 30, 1999. The Fund's
negative performance for the nine months ended September 30, 1999 resulted
primarily from losses in global stock indices, pacific rim interest rates,
grains and tropicals.
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 year ended December 31, 1998 resulted primarily from gains
in currencies, global interest rates, grains and meats.
Performance Summary
The most directly relevant information relating to the results of
operations of a managed futures fund, such as the Fund, is the actual
performance record. During the period May 22, 1997 (inception) through November
30, 1999, the Fund's Net Asset Value per Unit increased from $100.00 to $100.51,
and the Compound Rate of Return for 1999, through November, is approximately
(11.20)%, as set forth on page 41.
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 (plus 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" and "Net Asset Value" of the Fund 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
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<PAGE>
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
may cause the Fund's actual results, performance or achievements for 1999 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.
[Remainder of page left blank intentionally.]
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<PAGE>
THE ADVISORS
GENERAL
The following description of the core 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 core 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 core 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 core 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 core 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 ADVISORS' PERFORMANCE SUMMARIES APPEARING IN THIS PROSPECTUS HAVE IN
NO RESPECT BEEN ADJUSTED TO REFLECT THE CHARGES TO THE FUND. CERTAIN OF THE
ACCOUNTS INCLUDED IN SUCH 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.
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<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.
<TABLE>
<CAPTION>
WORST/BEST WORST PEAK-TO- ASSETS GENERAL STRATEGY
MONTHLY RATE OF VALLEY DRAWDOWN(2) UNDER CLASSIFICATION
RETURN/MONTHLY MANAGEMENT
STANDARD IN FUND
DEVIATION(1) PROGRAM(3)
<S> <C> <C> <C> <C>
CORE ADVISORS
Bridgewater Associates, Inc.
Aggressive Pure Alpha - (1.91)%/10.18% (2.88)% (8/99-9/99) $15 million Fundamental (non-technical)
Futures Only Program 5.55%
Grinham Managed Futures Pty. Ltd.
Diversified Managed Accounts (9.66)%/17.55% (24.73)% (8/97-4/99) $213 million Shorter-Term Technical
Program 4.57% Trend-Following
Sunrise Capital Partners LLC
Expanded Diversified Program (11.00)%/19.10% (29.82)% (8/93-4/94) $373 million Longer-Term Technical
4.70% Trend-Following
Transtrend B.V.
Diversified Program (Enhanced (8.58)%/19.57% (9.72)% (3/97-5/97) $23 million Longer-Term Technical
Risk Profile) 5.65% Trend-Following
NON-CORE ADVISORS(4)
Beacon Management Corporation
Meka Program (9.70)%/21.70% (39.8)% (5/99-9/99) $112 million Longer-Term Technical
2.72% Trend-Following
Computer Trading Corporation
RBI Program (13.78)%/24.22% (20.38)% (7/99-9/99) $116 million Longer-Term Technical
9.15%
Dreiss Research Corporation
Global Diversified Program (21.29)%/19.34% (41.00)% (2/97-8/97) $17 million Longer-Term Technical
8.07%
Red Oak Advisors
Fundamental Trading Program (23.720)%/21.57% (38.6)% (5/96-7/96) $20 million Fundamental (non-technical)
5.55%
Winton Capital Management
Diversified Program (12.97)%/13.00% (12.97)% (10/97) $62 million Longer-Term Technical
6.54
</TABLE>
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<PAGE>
- -------------------
(1) The Worst/Best Monthly Rate of Return represents the lowest and the highest
monthly rate of return for the program traded for the Fund. Performance
information is presented for the period from January 1, 1994 (or inception, if
later) through September 30, 1999. Standard Deviation measures the degree of
variation of returns around the mean (average) return. In general, the more
variable an Advisor's historical returns, the greater risk that substantial
losses have been included within the historical range of returns.
(2) The greatest cumulative percentage decline in month-end net asset value due
to losses sustained by any account during any period in which the initial
month-end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
(3) Assets under management in the program traded for the Fund ("notional" funds
excluded).
(4) Summary description of the performance history of non-core Advisors is
included pursuant to CFTC Rule 4.25.
- -------------------
Leveraging
Futures trading is highly leveraged, as is each Advisor's trading program.
The Fund typically commits between 10% and 20% of its assets as margin for its
trading. In considering the leverage at which the different Advisors trade and
the volatility of their performance, prospective investors should recognize that
due to the limited percentage of the Fund's trading assets allocated to each of
them, none of the non-core Advisors, individually, is likely to have a material
effect, over the short-term, on either the overall return or the overall
performance volatility of the Fund. The non-core Advisors as a group can have a
significant effect on performance. However, the likely performance
non-correlation among at least certain of these Advisors reduces the likelihood
of any major short-term effect.
Any change by Kenmar in the leverage of the Fund is noted in the Fund's
monthly reports.
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
September 30, 1999.
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 September 30, 1999.
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
September 30, 1999.
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 September 30, 1999.
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 September 30, 1999.
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<PAGE>
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 September 30,
1999.
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 September 30, 1999.
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.
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.
[Remainder of page left blank intentionally.]
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<PAGE>
THE CORE ADVISORS
BRIDGEWATER ASSOCIATES
Bridgewater Associates, Inc. ("Bridgewater") is member of a group of
entities (collectively referred to as the "Bridgewater Group"). The Bridgewater
Group's principal investment management clients are institutional investors,
most importantly large U.S. pension funds. The Bridgewater Group manages
approximately $24 billion in investment assets.
The initial Bridgewater Group company was Bridgewater Management Inc., a
Connecticut (formerly New York) corporation formed in April 1973. Bridgewater,
provides investment management and research services to corporations and
institutional investors. The Bridgewater Group employs 83 people. Other entities
in the Bridgewater Group include Bridgewater S.A., a Connecticut corporation
formed in March 1987, which is a commodity trading advisor and commodity pool
operator registered with the CFTC that manages client speculative funds on a
discretionary basis; and BWF, Inc., an introducing broker registered in January
1991.
Bridgewater manages institutional investors funds on a discretionary basis
pursuant to its trading systems and methodologies as described below.
Bridgewater has been registered as a registered investment advisor with the SEC
since November 1989 and a commodity trading advisor registered with the CFTC
since May 1992, and is a member of the NFA. Executive offices are located at 1
Glendinning Place, Westport, Connecticut 06880. Phone: (203) 226-3030 Fax: (203)
291-7300. All books and records are kept at this address.
BIOGRAPHIES OF PRINCIPALS AND KEY STAFF
Raymond T. Dalio, born in 1949, has been the President of Bridgewater
since its founding and is a principal of the firm. Since receiving his M.B.A. in
finance from Harvard Business School in 1973, Mr. Dalio has been involved in
analyzing the world's major markets by identifying the economic conditions that
affect the directions of markets. From May 1973 until January 1974 he was
Director of Commodities at Dominick and Dominick, a Wall Street-based brokerage
house. Mr. Dalio then joined Shearson-Hayden Stone (now Salomon Smith Barney,
Inc.) where he was in charge of institutional futures business. In 1975 he left
Shearson-Hayden Stone to devote his full time and efforts to trading his own
account and operating Bridgewater Group entities.
Robert P. Prince, born in 1958, is a Vice President and a principal of the
firm. Mr. Prince supervises all the trading activities and analyzes the systems'
performances on a daily basis. Mr. Prince became a Certified Public Accountant
in 1984 and received his M.B.A. from the University of Tulsa in 1985. Prior to
joining Bridgewater in August of 1986, he spent three years as the Vice
President and Manager of the Treasury Division of the First National Bank of
Tulsa, where he gained experience using interest rate futures, swaps, and
options in hedging and risk management.
Giselle F. Wagner, born in 1955, is a Vice President, Chief Operating
Officer and a principal of the firm. Ms. Wagner received her B.A. in economics
from Smith College in 1976, her M.B.A. in finance from Columbia University in
1978, and her C.F.A. in 1992. From 1978 to 1984, she worked for Chemical Bank
(now Chase Manhattan Bank) as Vice President in the Treasury Division. From 1984
to 1988, she worked for Morgan Stanley (now Morgan Stanley Dean Witter) as a
fixed income salesperson.
Peter R. La Tronica, born in 1957, is a Vice President, Controller of
Bridgewater and a principal of the firm. Mr. La Tronica joined Bridgewater in
April of 1989. After graduating from Northeastern University in 1979, Mr. La
Tronica joined Merrill Lynch & Co. During his tenure at Merrill Lynch & Co. and
certain of its affiliates, he served in various capacities including Assistant
Director Commodity Compliance and Operations Manager. From May of 1984 to August
1985 Mr. La Tronica was Assistant Vice President and Assistant Manager of the
New York Institutional Futures Office for Dean Witter Reynolds, Inc. From August
1985 to June 1987 he served as Assistant Vice President of Rudolf Wolff Futures
Inc. (acquired 1986 by Elders Finance Inc.) in charge of Operations and
Compliance. In June of 1987 Mr. La Tronica joined Donaldson, Lufken and Jenrette
as Vice President of Option and Arbitrage Operations in the Equities Division.
In March of 1988, Mr. La Tronica joined Benefit Concepts N.Y. Inc., an insurance
marketing firm, as Associate in charge of product development.
All of the companies mentioned in this section not otherwise identified
were or are registered futures commission merchants (FCM) under the Commodity
Exchange Act and members of the NFA.
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<PAGE>
Bridgewater and its principals and employees may trade securities, futures
and related contracts for proprietary accounts. The records of trading in such
accounts will not be made available to clients for inspection.
BRIDGEWATER'S INVESTMENT/HEDGING PROGRAM
Bridgewater applies its systems to clients' specific needs. For example,
clients specify different benchmarks against which the strategy will be measured
and permit varying means of implementation. In creating and applying its
techniques, Bridgewater is guided by the following philosophy.
BRIDGEWATER'S TRADING PHILOSOPHY
The following description of Bridgewater, its trading systems, methods,
models, and strategies are general and not intended to be exhaustive.
Bridgewater's investment philosophy is based on the following tenets:
The price structure of all investment assets and the economic outlook are
inextricably linked; as economic expectations change, so does the price
structure. For example, knowing that bond yields have normally run about 3% over
the inflation rate, one could say that 20-year T-bond yields of 8% are
discounting roughly a 5% average inflation rate over the next twenty years. One
could also look at the relationship between bond yields and stock yields to see
the rate of economic growth that is implied. Since earnings and dividends grow
at a rate that is equal to the rate of nominal economic growth over the long
run, one could calculate that rate of growth that would have to occur in order
for the risk-adjusted returns of stocks and bonds to be the same. By looking at
the price structure of stocks, bonds and currencies globally, one can see a very
vivid picture of the economic environment as it is being discounted in the
marketplace. For example, suppose it began to appear that inflation will be
lower than 5%, let's say 2%. Then interest rates would fall and bond prices
would rise. The extent of their rise would primarily depend on their duration
(e.g., a 10-year duration bond would rise by roughly 30% while a 20-year
duration bond would rise by twice as much, without considering convexity).
Similarly, this lower inflation rate would cause earnings and dividends growth
projections to be revised downward which would have a negative effect on stocks
that would be roughly offset by the lower interest rates that would be used to
capitalize these returns. Therefore, this shift downward in inflation
expectations would impact bond and stock prices differently and in logical and
readily measurable ways.
While it is difficult, if not impossible, to make reliable economic
forecasts, it is possible to use economic statistics as leading indicators of
market movements. Markets respond to economic shifts; this implies that economic
shifts precede market movements.
Market reactions to economic statistics are generally imprecise and
inefficient. As a result, Bridgewater feels there is an opportunity to exploit
these inefficiencies by having a deeper understanding of the relationships
between economic statistics and market movements than the competition.
The investment decision-making process should be systematic. Large numbers
of influences interact in very complex ways to cause price changes. It is
difficult to spontaneously weigh the large number of economic influences on
price changes. For example, changes in bond prices are caused by changes in (i)
money and credit growth, (ii) economic growth, (iii) inflation, and (iv) central
bank policy. Each one of these four influences can be measured via numerous
economic statistics. Unless one has a very systematic method of gauging the
relative importance and interrelationships existing between these statistics, it
is virtually impossible to respond optimally to changing economic conditions.
THE USE OF SYSTEMS IN BRIDGEWATER'S TRADING POLICIES
The Fundamental Systems: Fundamental analysis uses the theory that prices
are primarily determined by macroeconomic, supply/demand influences. Bridgewater
has developed precise rules for identifying shifts in the economic/market
environment as they effect the price structure of investment assets. They
express quantitatively the net strength of the pressures of fundamental
influences on prices based on the leading relationships between economic
statistics and market movements. They are programmed into computerized trading
systems that are used interactively to identify the relative attractiveness of
alternative markets.
The Technical Systems: Technical analysis uses the theory that a study of
the markets themselves will provide a means of anticipating future price trends.
Such analysis includes, among other things, study of the actual daily, weekly,
and monthly price fluctuations, volume variations, and changes in open interest.
Bridgewater has developed technical systems to be used in conjunction with its
fundamental systems. The signals generated by the technical system are used to
confirm or rebut the buy and sell signals generated by the fundamental system
and to determine market timing.
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<PAGE>
The Interaction Between the Fundamental and Technical Systems: Both the
fundamental and technical systems quantitatively express the pressures on
prices. Bridgewater weighs the fundamental readings more heavily than the
technical readings in determining the sizes of its positions.
Bridgewater will follow the policies outlined above as the basis for
trading a client's account as closely as possible. However, Bridgewater has the
discretion to, at any time, completely alter, abandon, reject, or override, or
otherwise modify the tactics as outlined above if doing so in Bridgewater's
opinion will reduce the risks to the clients' managed accounts.
Pursuant to its trading methodologies, Bridgewater typically uses its
trading systems in a manner which is tailored to the clients' unique
circumstances. Therefore, while Bridgewater's market views (based on its
systems) are the same for all clients, its positions will vary greatly,
according to each client's mandate. Generally speaking, Bridgewater will use
futures, options and or forwards in conjunction with cash securities, to hedge
or change the nature of the client's net exposure to markets. Therefore, futures
trading activities are typically a part, rather than the whole means of
implementing an investment strategy. Some of the items which Bridgewater trades
include without limitation: futures, forwards and options on a) debt instruments
issued or guaranteed by the Governments of, the United States, the United
Kingdom, Australia, France, Japan, Italy and West Germany; b) short term debt
instruments (euros) denominated in U.S. dollars and foreign currencies such
eurodollars and short sterling; c) currencies, such as Australian dollars,
British pounds, Canadian dollars, Euros, Japanese yen, and Swiss francs; d)
stock market indices, such as the Standard & Poor's 500 Stock Index, the New
York Stock Exchange Composite, the Nikkei Stock Average (225), the Toronto Stock
Exchange 300 Composite Index, and the Value Line Stock Index; and metals, such
as copper, gold and silver. Bridgewater follows numerous markets worldwide and
may take a position for a client in all, some, or none of these markets at any
point in time. As applicable regulatory authorities approve instruments or
additional items, such as other stock market indices and sovereign debt
instruments, Bridgewater expects to trade such instruments for its client
accounts. The commission-to-equity ratio and margin-to-equity ratio of trading
conducted by Bridgewater will vary and are dependent upon the size and mandate
of the account.
THERE CAN BE NO ASSURANCE THAT BRIDGEWATER'S APPROACH TO TRADING THE
FUTURES MARKETS WILL YIELD THE SAME RESULTS IN THE FUTURE AS IT HAS IN THE PAST.
[Remainder of page left blank intentionally.]
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<PAGE>
Aggressive Pure Alpha-Futures Only
Bridgewater trades this program on behalf of the Fund. The following
summary performance information presents the composite performance results of
Bridgewater's Pure Alpha Futures Only trading program for the period from August
1998, the inception of trading, through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Aggressive Pure Alpha Futures Only
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: August 1998
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $14,700,000
Aggregate assets (including "notional" equity) in program: $14,700,000
Largest monthly drawdown: (1.91)% (3/99)
Largest peak-to-valley drawdown: (2.88)% (8/99-9/99)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
=====================================
Monthly 1999(%) 1998(%)
Performance
-------------------------------------
January 0.69 --
-------------------------------------
February 3.79 --
-------------------------------------
March (1.91) --
-------------------------------------
April (0.66) --
-------------------------------------
May 2.13 --
-------------------------------------
June 0.57 --
-------------------------------------
July 0.75 --
-------------------------------------
August (1.50) (0.56)
-------------------------------------
September (1.39) 2.78
-------------------------------------
October 10.18
-------------------------------------
November 2.19
-------------------------------------
December 5.83
-------------------------------------
Compound 2.34 21.77
Rate of Return (9 mos.) (5 mos.)
=====================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-55-
<PAGE>
Pure Alpha
The following summary performance information presents the composite
performance results of Bridgewater's Pure Alpha trading program for the period
from January 1994 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Pure Alpha
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: December 1991
Number of open accounts: 3
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $174,000,000
Aggregate assets (including "notional" equity) in program: $261,000,000
Largest monthly drawdown: (4.49)% (2/94)
Largest peak-to-valley drawdown: (16.31)% (1/94-6/95)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 1
1999 compound rate of return: 7.16% (9 months)
1998 compound rate of return: 26.74%
1997 compound rate of return: 15.07%
1996 compound rate of return: 24.37%
1995 compound rate of return: (4.55)%
1994 compound rate of return: (3.43)%
Aggressive Pure Alpha Futures Only -- B
The following summary performance information presents the composite
performance results of Bridgewater's Aggressive Pure Alpha Futures Only -- B
trading program for September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Aggressive Pure Alpha Futures Only -- B
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: September 1999
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $50,000,000
Aggregate assets (including "notional" equity) in program: $50,000,000
Largest monthly drawdown: (0.11)% (9/99)
Largest peak-to-valley drawdown: (0.11)% (9/99)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: (0.11)% (1 month)
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: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-56-
<PAGE>
Pure Alpha Futures Only -- A
The following summary performance information presents the composite
performance results of Bridgewater's Aggressive Pure Alpha Futures Only -- A
trading program for the period from January 1998 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of program: Pure Alpha Futures Only -- A
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: January 1998
Number of open accounts: 8
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $67,600,000
Aggregate assets (including "notional" equity) in program: $92,900,000
Largest monthly draw-down: (2.01)% (7/98)
Largest peak-to-valley draw-down: (5.13)% (4/98-7/98)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1999 compound rate of return: 1.37% (9 months)
1998 compound rate of return: 19.71%
1997 compound rate of return: N/A
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
Pure Alpha Futures Only -- B
The following summary performance information presents the composite
performance results of Bridgewater's Aggressive Pure Alpha Futures Only -- B
trading program for the period from May 1999 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of program: Pure Alpha Futures Only -- B
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: May 1999
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $2,600,000
Aggregate assets (including "notional" equity) in program: $38,200,000
Largest monthly draw-down: (0.58)% (8/99)
Largest peak-to-valley draw-down: (1.08)% (8/99-9/99)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: 1.28% (5 months)
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: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-57-
<PAGE>
Pure Alpha Futures Only -- C
The following summary performance information presents the composite
performance results of Bridgewater's Pure Alpha Futures Only -- C trading
program for the period from January 1999 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Pure Alpha Futures Only -- C
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: January 1999
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $78,400,000
Aggregate assets (including "notional" equity) in program: $78,400,000
Largest monthly drawdown: (0.71)% (3/99)
Largest peak-to-valley drawdown: (1.17)% (3/99-4/99)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 1
1999 compound rate of return: 3.21% (9 months)
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: N/A
Pure Alpha Bond & Currency Only
The following summary performance information presents the composite
performance results of Bridgewater's Pure Alpha Bond & Currency Only trading
program for the period from July 1997 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Pure Alpha Bond & Currency Only
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: July 1997
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $30,000,000
Aggregate assets (including "notional" equity) in program: $201,000,000
Largest monthly drawdown: (0.68)% (7/98)
Largest peak-to-valley drawdown: (1.87)% (4/98-7/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: 2.83% (9 months)
1998 compound rate of return: 9.04%
1997 compound rate of return: 1.94% (6 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.
-58-
<PAGE>
Constrained Pure Alpha
The following summary performance information presents the composite
performance results of Bridgewater's Constrained Pure Alpha trading program for
the period from January 1994 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Constrained Pure Alpha
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: January 1989
Number of open accounts: 3
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $175,000,000
Aggregate assets (including "notional" equity) in program: $203,000,000
Largest monthly drawdown: (17.51)% (2/94)
Largest peak-to-valley drawdown: (43.89)% (2/94-10/94)
Number of profitable closed accounts: 11
Number of unprofitable closed accounts: 3
1999 compound rate of return: 4.77% (9 months)
1998 compound rate of return: 8.80%
1997 compound rate of return: 5.41%
1996 compound rate of return: 4.21%
1995 compound rate of return: 5.05%
1994 compound rate of return: (5.88)%
Aggressive Pure Alpha
The following summary performance information presents the composite
performance results of Bridgewater's Aggressive Pure Alpha trading program for
the period from July 1997 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Aggressive Pure Alpha
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: July 1997
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $7,000,000
Aggregate assets (including "notional" equity) in program: $7,000,000
Largest monthly drawdown: (15.02)% (8/98)
Largest peak-to-valley drawdown: (21.52)% (5/98-8/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: 7.41% (9 months)
1998 compound rate of return: 66.67%
1997 compound rate of return: 14.58 (6 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.
-59-
<PAGE>
Institutional Account with Global Bond and Equity Benchmark
The following summary performance information presents the composite
performance results of Bridgewater's Institutional Account with Global Bond and
Equity Benchmark for the period from March 1994 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Institutional Account with Global Bond and Equity Benchmark
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: March 1994
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $605,000,000
Aggregate assets (including "notional" equity) in program: $605,000,000
Largest monthly drawdown: (6.36)% (3/97)
Largest peak-to-valley drawdown: (7.09)% (5/98-8/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: 5.81% (9 months)
1998 compound rate of return: 54.74%
1997 compound rate of return: 32.43%
1996 compound rate of return: 35.98%
1995 compound rate of return: 12.36%
1994 compound rate of return: 5.82% (10 months)
Global Bond and Currency
The following summary performance information presents the composite
performance results of Bridgewater's Global Bond and Currency trading program
for the period from January 1994 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Global Bond and Currency
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: February 1990
Number of open accounts: 19
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $4,700,000,000
Aggregate assets (including "notional" equity) in program: $5,300,000,000
Largest monthly drawdown: (13.26)% (2/94)
Largest peak-to-valley drawdown: (41.99)% (1/94-9/94)
Number of profitable closed accounts: 9
Number of unprofitable closed accounts: 2
1999 compound rate of return: (0.22)% (9 months)
1998 compound rate of return: 17.35%
1997 compound rate of return: 8.94%
1996 compound rate of return: 12.02%
1995 compound rate of return: 19.23%
1994 compound rate of return: (17.83)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-60-
<PAGE>
Diversified Global Bond
The following summary performance information presents the composite
performance results of Bridgewater's Diversified Global Bond trading program for
the period from March 1996 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Diversified Global Bond
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: March 1996
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $672,000,000
Aggregate assets (including "notional" equity) in program: $672,000,000
Largest monthly drawdown: (4.03)% (3/97)
Largest peak-to-valley drawdown: (4.03)% (3/97)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: (2.27)% (9 months)
1998 compound rate of return: 10.68%
1997 compound rate of return: 14.77%
1996 compound rate of return: 18.52% (10 months)
1995 compound rate of return: N/A
1994 compound rate of return: N/A
Long Duration Global Bond
The following summary performance information presents the composite
performance results of Bridgewater's Long Duration Global Bond trading program
for the period from August 1995 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Long Duration Global Bond
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: August 1995
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $251,000,000
Aggregate assets (including "notional" equity) in program: $251,000,000
Largest monthly drawdown: (16.11)% (2/96)
Largest peak-to-valley drawdown: (24.47)% (2/96-5/96)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: (18.20)% (9 months)
1998 compound rate of return: 50.31%
1997 compound rate of return: 34.74%
1996 compound rate of return: 11.85%
1995 compound rate of return: 34.03% (5 months)
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.
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<PAGE>
Global Bond Overlay
The following summary performance information presents the composite
performance results of Bridgewater's Global Bond Overlay trading program for the
period from May 1995 through its cessation of trading in January 1998.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Global Bond Overlay
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: May 1995
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (1.68)% (3/97)
Largest peak-to-valley drawdown: (2.44)% (12/96-03/97)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1999 compound rate of return: N/A
1998 compound rate of return: 0.50% (1 month)
1997 compound rate of return: 0.40%
1996 compound rate of return: 4.87%
1995 compound rate of return: 1.07% (8 months)
1994 compound rate of return: N/A
Long-Term Emerging Markets
The following summary performance information presents the composite
performance results of Bridgewater's Long-Term Emerging Markets trading program
for the period from May 1996 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Long-Term Emerging Markets
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: May 1996
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $66,000,000
Aggregate assets (including "notional" equity) in program: $66,000,000
Largest monthly drawdown: (25.55)% (8/98)
Largest peak-to-valley drawdown: (28.48)% (5/98-8/98)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1999 compound rate of return: 4.42% (9 months)
1998 compound rate of return: (0.13)%
1997 compound rate of return: 17.41%
1996 compound rate of return: 21.77% (8 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 WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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<PAGE>
Short-Term Emerging Markets
The following summary performance information presents the composite
performance results of Bridgewater's Short-Term Emerging Markets trading program
for the period from April 1997 through its cessation of trading in July 1998.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Short-Term Emerging Markets
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: April 1997
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (4.30)% (8/97)
Largest peak-to-valley drawdown: (17.58)% (7/97-1/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 1
1999 compound rate of return: N/A
1998 compound rate of return: 4.61% (6 months)
1997 compound rate of return: (11.55)% (9 months)
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
Inflation Indexed Linked Bond Accounts -- Leveraged
The following summary performance information presents the composite
performance results of Bridgewater's Inflation Indexed Linked Bond Accounts --
Leveraged trading program for the period from April 1994 through its cessation
of trading in March 1998.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Inflation Indexed Linked Bond Accounts -- Leveraged
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: April 1994
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (7.15)% (2/96)
Largest peak-to-valley drawdown: (13.21)% (4/94-9/94)
Number of profitable closed accounts: 3
Number of unprofitable closed accounts: 0
1999 compound rate of return: N/A
1998 compound rate of return: 4.00% (3 months)
1997 compound rate of return: 11.84%
1996 compound rate of return: 15.21%
1995 compound rate of return: 23.09%
1994 compound rate of return: (8.73)% (9 months)
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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<PAGE>
Inflation Linked Bonds
The following summary performance information presents the composite
performance results of Bridgewater's Inflation Linked Bonds trading program for
the period from January 1994 through its cessation of trading in November 1998.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Inflation Linked Bonds
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: January 1997
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (2.54)% (8/97)
Largest peak-to-valley drawdown: (4.56)% (2/97-4/97)
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 0
1999 compound rate of return: N/A
1998 compound rate of return: 8.80% (11 months)
1997 compound rate of return: 8.25%
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
Inflation Linked Bonds and Nominal Bonds -- Unleveraged
The following summary performance information presents the composite
performance results of Bridgewater's Inflation Linked Bonds and Nominal Bonds --
Unleveraged trading program for the period from August 1997 through September
1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Inflation Linked Bonds and Nominal Bonds -- Unleveraged
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: August 1997
Number of open accounts: 9
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $553,000,000
Aggregate assets (including "notional" equity) in program: $553,000,000
Largest monthly drawdown: (2.75)% (4/99)
Largest peak-to-valley drawdown: (8.44)% (1/99-6/99)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: (1.32)% (9 months)
1998 compound rate of return: 14.36%
1997 compound rate of return: 9.23% (5 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.
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<PAGE>
Global Asset Allocation Speculative
The following summary performance information presents the composite
performance results of Bridgewater's Global Asset Allocation Speculative trading
program for the period from January 1994 through September 1999.
Name of CTA: Bridgewater S.A., Inc.
Name of Program: Global Asset Allocation Speculative
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: January 1989
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $2,000,000
Aggregate assets (including "notional" equity) in program: $2,000,000
Largest monthly drawdown: (21.64)% (3/95)
Largest peak-to-valley drawdown: (50.82)% (1/92-4/95)
Number of profitable closed accounts: 13
Number of unprofitable closed accounts: 33
1999 compound rate of return: 5.34% (9 months)
1998 compound rate of return: 19.04%
1997 compound rate of return: 10.99%
1996 compound rate of return: 17.64%
1995 compound rate of return: 7.00%
1994 compound rate of return: (7.73)%
Global Bond and Currency
The following summary performance information presents the composite
performance results of Bridgewater's Global Bond and Currency trading program
for the period from July 1997 through its cessation of trading in April 1999.
Name of CTA: Bridgewater S.A., Inc.
Name of Program: Global Bond and Currency
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: July 1997
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (0.76)% (2/9)
Largest peak-to-valley drawdown: (0.76)% (2/9)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1999 compound rate of return: 1.51% (4 months)
1998 compound rate of return: 18.84%
1997 compound rate of return: 7.11% (6 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.
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U.S. Bond Group
The following summary performance information presents the composite
performance results of Bridgewater's U.S. Bond Group trading program for the
period from January 1994 through February 1995.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: U.S. Bond Group
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: August 1990
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (8.06)% (2/95)
Largest peak-to-valley drawdown: (8.06)% (2/95)
Number of profitable closed accounts: 3
Number of unprofitable closed accounts: 1
1999 compound rate of return: N/A
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: (7.88)% (2 months)
1994 compound rate of return: 4.37%
Index Overlay
The following summary performance information presents the composite
performance results of Bridgewater's Index Overlay trading program for the
period from June 1998 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Index Overlay
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: June 1998
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $10,700,000
Aggregate assets (including "notional" equity) in program: $108,000,000
Largest monthly drawdown: (15.03)% (8/98)
Largest peak-to-valley drawdown: (20.97)% (7/98-9/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: (6.75)% (9 months)
1998 compound rate of return: (5.96)% (6 months)
1997 compound rate of return: N/A
1996 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
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 Tactical Asset Allocation
The following summary performance information presents the composite
performance results of Bridgewater's Global Tactical Asset Allocation trading
program for the period from May 1999 through September 1999.
Name of CTA: Bridgewater Associates, Inc.
Name of Program: Global Tactical Asset Allocation
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: May 1999
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $7,500,000,000
Aggregate assets (including "notional" equity) overall: $8,600,000,000
Aggregate assets (excluding "notional" equity) in program: $6,000,000
Aggregate assets (including "notional" equity) in program: $106,000,000
Largest monthly drawdown: (0.29)% (9/99)
Largest peak-to-valley drawdown: (0.52)% (7/99-9/99)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1999 compound rate of return: (0.42)% (5 months)
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: N/A
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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GRINHAM MANAGED FUTURES PTY. LTD.
Grinham Managed Futures Pty. Ltd. ("Grinham") is a commodity trading
advisor associate member of the Sydney Futures Exchange of Australia ("SFE")
with a futures brokers licence from the Australian Securities Commission. The
company was also registered with the CFTC as a commodity trading advisor and
approved for membership in the NFA on 26 February, 1997. The registration of
Grinham 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 Grinham or the Fund. Grinham is located at 55 Hume Street (PO Box 744)
Crows Nest, NSW, 2065, Australia. The telephone number is (61-2) 9906 2600 and
fax number (61-2) 9439 8468. Grinham is a proprietary limited company registered
in New South Wales, Australia and was formed in March 1993.
The directors of Grinham commenced research into trading systems and
portfolio theory using proprietary software in 1990. The research aimed to
capitalize on the directors' experience in mathematical modeling using
non-linear techniques and chaos theory. To validate their hypothetical results,
the trading of a house account on a broadly diversified portfolio of futures
markets began in June 1992. Since September 1993 Grinham has been managing
accounts using its trading systems under the regulatory structure in Australia
that enables it to operate as a commodity trading advisor.
The background of each of the principals of Grinham is set forth below.
A partnership was formed in October 1990 to facilitate research in trading
systems which became Grinham in March 1993. Wombats International Pty. Limited,
a company in which Richard Grinham is the sole shareholder and Director, owns
50% of Grinham. JW & JR Grinham Pty. Limited, owned by the estate of the late
John Grinham, holds the remaining 50% of Grinham.
Richard Grinham B.Sc. (Hons.) is a Director and associated person of
Grinham, and Vice-Chairman of the Asia Pacific Managed Futures and Hedge Fund
Association. In 1989, Richard was an options dealer at Schroders, Sydney in the
over-the-counter currency market and in the bank bill pit on the floor of the
SFE. In 1990 he returned to university and received a first class honors degree
in science majoring in Pure Mathematics. The topic area of his thesis was
Fractals and Chaos Theory, the study of which led to a greater understanding of
the dynamics of markets. Futures markets are an example of a fractal. Both
fractals and non-linear dynamics (intuitively, systems which have feedback)
influenced the development of the systems used at Grinham. The feedback
phenomena which Richard studied at university are now a significant part of the
Grinham strategy. In the partnership from 1990 to 1993 and since 1993 at
Grinham, Richard has been Director of Research and is responsible for the
ongoing development of the trading systems.
Angus Grinham B.Ec. is a Director and associated person of Grinham. He
completed an Economics degree with majors in Finance and Econometrics in 1992.
Over this same period Angus commenced his own research into trading techniques
and began trading his own proprietary account on the SFE. Upon completion of his
degree Angus was employed as a futures broker on an international futures desk
and also designed and implemented futures oriented software applications. He
joined Grinham on a full time basis in 1996. Angus is currently the Director of
Trading and Information Technology and is responsible for trading, technology
and the implementation of new trading systems.
Trading Systems
The trading systems used by Grinham are proprietary and confidential. The
following discussion is general and not intended to be exhaustive.
Grinham uses automated, diversified trading systems designed using the key
concepts of robust systems and balanced portfolios to manage funds. The robust
nature of the systems means that they have a very high probability of continuing
to be successful in the future. The balance in the portfolio means that the risk
is well controlled.
Robust Systems
Grinham designs systems with the highest probability of continued success
in the future. This is done by designing systems that are "robust;" that is,
systems that will be profitable across a vast range of different market
conditions. These systems are robust because they do not rely on curve fitting
or over optimization to achieve hypothetical results. Some elements of a robust
system include:
o Same System Across All Markets
Grinham trades the same system across all markets. Grinham does not look
for systems that attempt to take advantage of a supposed opportunity in
one market, as this may be statistically invalid or ephemeral in nature.
For example, if a trading system has been successful in buying the S&P
when bond yields are falling then this system is prone to fail if this
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relationship breaks down. Instead, Grinham trades systems that are
successful across all markets. If the one system operates profitably
across all markets then there is significantly less chance the system is
curve fitted. If a system is profitable on everything from pork bellies to
the Deutschemark to the Nikkei through periods of inflation, deflation,
wars and currency crises then it is much more likely to be profitable in
the future than if it works on only one market.
o Same Parameter Across All Markets
Grinham also trades the same parameters on all markets. In adopting this
approach, Grinham declares its position on the question of optimization.
Grinham believes that systems should be optimized as little as possible.
The walk forward testing used to re-optimize the in-sample data and test
on out of sample data has consistently shown that the selection of the
optimal parameter for the previous period is not a good indicator of the
optimal parameter for the next period. Although optimization will improve
hypothetical results, it does not improve real time trading results.
o Flat Parameter Spaces
A parameter, however, still needs to be selected for trading. What is the
best way to do this? Grinham designs systems in which the results do not
vary greatly as the parameters of the system vary. Such systems have what
are termed 'flat parameter spaces'. Grinham selects the parameter that is
in the middle of the flattest parameter space for the entire portfolio.
Such a parameter has the highest probability of generating a positive
return in the next period. This method does not try to predict the optimal
parameter for the next period, rather the parameter that, no matter what
type of market condition may prevail, still has a very good chance of
generating positive returns. When used in combination with very low
parameter sets this technique greatly reduces the chance of curve fitting.
o Low Parameter Sets
The systems have few parameters or trading rules, typically three or four.
By keeping the number of parameters low, the chance that the results
suffer from curve fitting is reduced. The irony is that the larger the
number of trading rules in a system, the better the hypothetical results
will be but the worse the real time results will be.
o Multiple Trading Systems
The trading system has multiple components, each one designed to capture
moves of a certain type and duration. These systems trade over a range of
time periods from short, sharp moves lasting 24 hours up to moves lasting
an average of 4 weeks. By trading across multiple time horizons the
trading system is less reliant on the need for just one type of market
behavior to occur. If one component of the system has a difficult trading
period then there is no reason to assume that the other component will.
For this reason, the diversification across multiple systems leads to more
consistent results.
Risk Control
o Diversification
The risk control is based upon balance. The aim of a balanced portfolio is
for no one market, trade or sector to have too large an influence on the
portfolio. One of the key techniques used to achieve this is
diversification. By trading in over 30 markets in seven different
countries the risk is spread, thus reducing the probability of any one
event having a large impact upon the portfolio. A diverse portfolio of
futures contracts is traded including stock indices, currencies, bonds,
energies, metals, meats, grains and foods.
o Correlation
This is supported by the use of correlation studies to determine the
chance of losses occurring together in certain markets. The number of
contracts is weighted accordingly. The higher the correlation between a
contract and the rest of the portfolio, the fewer contracts will be
traded. The aim is to achieve a balance so that should there be a very
large move in related markets there is a high probability this will not
adversely effect the portfolio.
o Stop Losses
Additional risk control techniques include the use of stop losses against
every open position. This reduces, but does not eliminate, the probability
of runaway losses occurring.
o Small Risk Per Trade
Historically, the average risk per trade has been in the order of 0.3%
although Grinham cannot ensure that the risk on any one trade will not
exceed this amount in the future. This is small because the systems are
traded across so many markets (thus reducing the risk per trade) and
because of the short term orientation of the
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trading. The margin/equity ratio ranges between approximately 5% and 15%.
o Scaling Back
As markets become more volatile positions are automatically scaled back.
This reduction in position size reduces the probability of any one trade
or market having too large an effect upon the portfolio.
o Use of Time Zones
As part of the concept of balancing a portfolio as explained above, the
system will attempt to balance the exposure across time zones. This serves
to reduce the effect of price gaps upon the systems. For example, if the
system is long the FTSE in Europe and the S&P begins to fall heavily after
the FTSE has closed for trading, the system will attempt to sell the S&P.
If the S&P continues to fall then the profits on the S&P will offset the
losses on the FTSE. This protects the portfolio from large one day losses.
The correlation of the trading system to the Barclay's CTA Index in the
period between September 1993 and June 1999 was 0.15. The Barclay's CTA Index
represents the performance of those participants in the commodity trading
advisor industry that provide information to the Barclay Trading Group, and the
correlation figure was based on monthly data. The fact that the correlation is
so minimal essentially means that Grinham's monthly results are relatively
independent of that sector of the commodity trading advisor industry that
reports to the Barclay Trading Group. There are a number of reasons for this:
o The short term nature of the trading. While the industry tends to be
long-term trend followers, the Grinham trading systems have a shorter time
horizon.
o The Grinham trading systems can take positions against the direction of
the recent trend. In fact, the systems historically do quite well on those
days when there is a sharp reversal in the recent trend. As these are
typically losing days for many traders, it is a time when the Grinham
trading systems can add value to a portfolio of traders.
o The Grinham systems tend to take profits as a trade moves in their favor,
as distinct from a trend follower which maintains the position size or may
even add to it. This means the systems do not need a long-term trend to be
profitable.
o The original research, conducted in Australia in relative isolation to the
mainstream of trading ideas, has produced trading systems that are unique.
o Because the program has a low correlation to other traders, it is not only
worthwhile as a stand-alone investment, but also adds value to a portfolio
of traders. The minimal correlation of Grinham with the Barclay's CTA
Index should provide the program with the ability to profit at times when
the majority of other commodity trading advisors are losing money. This is
a key feature of the program.
Development of the Trading Systems
Since the inception of the trading program, Grinham has endeavored to
improve its trading systems by the stepwise implementation of well researched
enhancements. The program initially was traded on just 12 markets with only one
system. Through a series of consistent additions, this has increased to 32
markets and one system with two components.
It is anticipated that in order to improve the risk/reward profile of the
system, further changes will be made in the future. Grinham is constantly
undertaking research into techniques to improve the trading. It is anticipated
that any improvements will come in the form of further diversification within
the existing trading system as opposed to any significant changes to the current
model.
Changes will have two forms. Firstly, additional markets will be added to
increase the diversification further. It is anticipated that the number of
markets will increase from 32 up to 45 markets. This will further improve the
return/risk profile of the trading. Secondly, Grinham will increase the system
diversification by adding new systems that are robust and trade a balanced
portfolio provided they have a low correlation to the existing systems. This
will allow better implementation of the ideas that make the trading models
successful by reducing the reliance on particular parameter sets.
Past Performance Information
The following performance summaries describe the composite actual
performance of the customer accounts managed by Grinham. Grinham uses the one
trading system but relies upon diversification to achieve superior results. As a
result accounts that are too small to take advantage of the full trading program
generally underperform those accounts that can. To distinguish between accounts
that are fully diversified and those that are not, Grinham has separated the two
for the purposes
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of performance reporting. Grinham trades its Diversified Managed Accounts
Program for the Fund.
The Diversified Managed Accounts Program (accounts over AUD$500,000) is
fully diversified. The Small Managed Accounts Program (accounts under
AUD$500,000) is offered only to Australian citizens and is presented here only
for completeness sake.
The composite rates of return shown should not be taken as representative
of any rate of return actually received by any single account represented in the
records. An investor should note that different accounts can have varying
investment results for many reasons, including, but not limited to: (1)
procedures governing timing for commencement of trading and establishing a full
portfolio for new accounts; (2) the period in which accounts are open; (3)
leverage employed; (4) interest earned; (5) advisory and incentive fees charged
and the amount of brokerage commissions; (6) the timing of orders to open and
close positions; (7) market conditions which can effect the quality of trade
executions; (8) trading restrictions imposed by the client; and (9) the size of
the account which can influence the size of positions taken and the markets
traded. In general, the larger the account the more diversification will be
employed by Grinham. Grinham believes that the more diversification used, the
better the risk to return profile will be over the long term.
Grinham has been trading as an Australian commodity trading advisor with a
Futures Brokers License from the Australian Securities Commission and an
Associate Membership of the SFE since September 1993. As a result, between
January 1994 and December 1996 for the Diversified Managed Accounts Program
performance summary and from January 1994 for the Small Managed Accounts Program
performance summary Grinham has used the dollar amount that it and its client
had agreed in writing to be the trading level of the account to calculate the
rates of return used in the performance summaries. The monthly performance is
calculated by dividing the net performance of the account by the starting
nominal account size. If a significant deposit or withdrawal is made during the
month, that day is treated as if it were the end of the month. The rates of
return for all such periods are multiplied together to give the monthly rate of
return.
Grinham believes that this method yields substantially the same rates of
return as the Fully-Funded Subset method and the rates of return presented in
the performance summaries are representative of the trading program for the
periods presented.
For the Diversified Managed Accounts Program performance summary from
periods beginning after January 1, 1997, Grinham has adopted the Fully-Funded
Subset method of computing rate-of-return and
performance disclosure.
The monthly rate of return is calculated by dividing the net performance
of the account by the beginning equity in the Fully-Funded Subset. If a
significant deposit or withdrawal is made during the month, that day is treated
as if it were the end of the month. The rates of return for all such periods are
multiplied together to give the monthly rate of return.
THERE CAN BE NO ASSURANCE THAT GRINHAM'S APPROACH TO TRADING THE FUTURES
MARKETS WILL YIELD THE SAME RESULTS IN THE FUTURE AS IT HAS IN THE PAST.
[Remainder of page left blank intentionally.]
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Diversified Managed Accounts Program
Grinham trades this program on behalf of the Fund. The following summary
performance information and chart present the composite performance results of
Grinham's Diversified Managed Accounts Program for the period from January 1994
through September 1999.
Name of CTA: Grinham Managed Futures Pty. Ltd.
Name of program: Diversified Managed Accounts Program
Inception of client account trading by CTA: September 1993
Inception of client account trading in program: September 1993
Number of open accounts: 42
Aggregate (excluding "notional" equity) assets overall: $212,733,235
Aggregate (including "notional" equity) assets overall: $310,802,102
Aggregate assets (excluding "notional" equity) in program: $212,568,588
Aggregate assets (including "notional" equity) in program: $310,386,182
Largest monthly drawdown: (10.75)% (6/95)
Largest peak-to-valley drawdown: (24.73)% (8/97-4/99)
Number of profitable closed accounts: 22
Number of unprofitable closed accounts: 26
<TABLE>
<CAPTION>
========================================================================================
Monthly 1999(%) 1998(%) 1997(%) 1996(%) 1995(%) 1994(%)
Performance
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January (2.13) 3.37 2.19 8.98 3.93 (2.45)
- ----------------------------------------------------------------------------------------
February (0.35) (3.58) 5.79 0.05 0.90 13.20
- ----------------------------------------------------------------------------------------
March (0.79) (4.49) 3.81 0.74 2.45 6.76
- ----------------------------------------------------------------------------------------
April (2.68) (1.54) 3.90 2.69 (0.54) 5.02
- ----------------------------------------------------------------------------------------
May 2.08 0.73 3.25 (0.79) 6.92 8.68
- ----------------------------------------------------------------------------------------
June 0.69 0.95 2.19 (4.43) (9.66) (7.05)
- ----------------------------------------------------------------------------------------
July 2.32 2.81 5.12 5.20 2.06 (6.74)
- ----------------------------------------------------------------------------------------
August (3.45) 9.48 0.33 0.82 (5.78) 17.55
- ----------------------------------------------------------------------------------------
September (0.97) 3.96 (0.26) (1.27) 8.49 (4.01)
- ----------------------------------------------------------------------------------------
October 0.43 0.35 4.81 (0.32) 1.90
- ----------------------------------------------------------------------------------------
November 1.19 (3.83) 4.77 0.49 3.52
- ----------------------------------------------------------------------------------------
December 0.80 (1.18) (0.71) 0.50 0.34
- ----------------------------------------------------------------------------------------
Compound (5.26) 14.47 23.42 22.10 8.40 39.31
Rate of Return (9 mos.)
========================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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Small Managed Accounts Program
The following summary performance information presents the composite
performance results of Grinham's Small Managed Accounts Program for the period
from January 1994 through February 1999.
Name of CTA: Grinham Managed Futures Pty. Ltd.
Name of Program: Small Managed Accounts Program
Inception of client account trading by CTA: September 1993
Inception of client account trading in program: September 1993
Number of open accounts: 2
Aggregate assets (excluding "notional" equity) overall: $212,733,235
Aggregate assets (including "notional" equity) overall: $310,802,102
Aggregate assets (excluding "notional" equity) in program: $164,647
Aggregate assets (including "notional" equity) in program: $415,920
Largest monthly drawdown: (21.30)% (6/94)
Largest peak-to-valley drawdown: (36.04)% (7/97-3/98)
Number of profitable closed accounts: 14
Number of unprofitable closed accounts: 23
1999 compound rate of return: (4.79)% (9 months)
1998 compound rate of return: 9.76%
1997 compound rate of return: (8.13)%
1996 compound rate of return: 31.22%
1995 compound rate of return: 3.15%
1994 compound rate of return: 10.71%
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 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
Capital 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 non-directional, volatile markets. Accordingly,
to the extent that a "neutral" trading 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.
THERE CAN BE NO ASSURANCE THAT SUNRISE CAPITAL PARTNERS' APPROACH TO
TRADING THE FUTURES MARKETS WILL YIELD THE SAME RESULTS IN THE FUTURE AS IT HAS
IN THE PAST.
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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 September 1999.
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: January 1989
Number of open accounts: 25
Aggregate assets (excluding "notional" equity) overall: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 million
Aggregate assets (excluding "notional" equity) in program: $373.4 million
Aggregate assets (including "notional" equity) in program: $438.2 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
================================================================================
Monthly 1999(%) 1998(%) 1997(%) 1996(%) 1995(%) 1994(%)
Performance
- --------------------------------------------------------------------------------
January (0.9) 1.4 4.6 0.5 (8.5) (1.3)
- --------------------------------------------------------------------------------
February 5.1 3.3 8.6 (5.8) 4.7 (3.5)
- --------------------------------------------------------------------------------
March (1.4) 2.7 1.5 4.5 19.1 0.2
- --------------------------------------------------------------------------------
April 4.2 1.6 (0.5) 9.3 2.4 (7.1)
- --------------------------------------------------------------------------------
May (1.2) 2.7 4.4 0.1 (3.8) 5.2
- --------------------------------------------------------------------------------
June 2.2 3.3 (2.9) (0.6) (0.7) 11.8
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July (1.5) (0.6) 6.0 (0.8) (1.9) (4.2)
- --------------------------------------------------------------------------------
August (0.2) 9.5 (3.3) (0.5) (0.4) (11.0)
- --------------------------------------------------------------------------------
September 0.4 3.2 (1.5) 0.9 (2.7) 2.5
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October (1.0) (1.2) 6.9 0.8 10.8
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November (4.7) 1.8 1.3 (0.8) 3.9
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December 2.5 2.3 2.7 5.2 (3.2)
- --------------------------------------------------------------------------------
Compound 6.6 25.8 20.7 19.3 11.5 1.6
Rate of Return (9 mos.)
================================================================================
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 September 1999.
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: 6
Aggregate assets (excluding "notional" equity) overall: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 million
Aggregate assets (excluding "notional" equity) in program: $65.8 million
Aggregate assets (including "notional" equity) in program: $66.2 million
Largest monthly drawdown: (11.22)% (1/95)
Largest peak-to-valley drawdown: (58.60)% (7/93-1/95)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 17
1999 compound rate of return: 1.0% (9 months)
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 September 1999.
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: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 million
Aggregate assets (excluding "notional" equity) in program: $86.0 million
Aggregate assets (including "notional" equity) in program: $86.0 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
1999 compound rate of return: 0.5% (9 months)
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 September 1999.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise Diversified Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: June 1980
Number of open accounts: 27
Aggregate assets (excluding "notional" equity) overall: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 million
Aggregate assets (excluding "notional" equity) in program: $67.9 million
Aggregate assets (including "notional" equity) in program: $99.1 million
Largest monthly drawdown: (14.97)% (1/94)
Largest peak-to-valley drawdown: (36.02)% (12/91-2/94)
Number of profitable closed accounts: 10
Number of unprofitable closed accounts: 4
1999 compound rate of return: 8.4% (9 months)
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: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 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
1999 compound rate of return: N/A
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.
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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: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 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
1999 compound rate of return: N/A
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: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 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
1999 compound rate of return: N/A
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: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 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: $593.1 million
Aggregate assets (including "notional" equity) overall: $689.5 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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TRANSTREND, B.V.
Transtrend, B.V. ("Transtrend") is a Dutch limited liability company
formed in November 1991 to provide commodity trading advisory services to
selected clients. It has been registered as a commodity trading advisor and
commodity pool operator with the CFTC since 23 September, 1994, and is a member
of the NFA in such capacities. Transtrend is also licensed as a portfolio
manager, and is subject to regulation by the Securities Board of The Netherlands
("STE"). Transtrend's business office, where its books and records are kept, is
located at 50 Admiraliteitskade, 3063 ED Rotterdam, The Netherlands. The
registration of Transtrend with the CFTC and the STE 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 Transtrend or the Fund. Its telephone number is
(31) 10 453-6500.
Transtrend specializes in the design and management of consistent
systematic trading strategies based on quantitative analysis of price behavior
while attempting to control risks. The systems participate in futures and
forward markets and in options markets. Transtrend's current investment
portfolios cover a multitude of financial markets, including short-term and
long-term interest rates, currencies, cross rates and stock indices and a
variety of tangible commodity markets, including agriculturals, energy products
and metals. Its market approach attempts to benefit from directional price moves
in outright prices and in spreads. Apart from trading in the interbank market,
Transtrend operates on approximately 50 different futures and options exchanges
in approximately 25 countries. Portfolios, leverage (i.e., risk profiles) and
trading systems can be customized to the requirements of individual clients.
Transtrend's professional expertise is supported by a qualified research team,
sophisticated infrastructure, an enormous database and successful experience.
The background of each of the principals of Transtrend is set forth below.
Gerard van Vliet, born in 1948, graduated as a business economist at
Erasmus University Rotterdam in 1972. He has worked for firms in the cash
commodity trade since 1973 and is a council member of the Alternative Investment
Management Association ("AIMA") and has been a council member of various
international trade associations, both in Europe and in the United States. In
1982 he joined the Nidera Group, a multi-national trading concern involved in
various agribusiness industries and with a presence in many countries. For
Nidera Rotterdam he successfully established a trading division of substance,
dealing in (physical) vegetable oils. In 1987 he became Nidera Rotterdam's
Senior Managing Director, supervising a variety of trading divisions and
projects, one of which was Transtrend. After five years of general management,
Mr. van Vliet decided to dedicate himself full time to the development of
Transtrend, at that time a subsidiary of the Nidera Group. Together with Jaap
Schotanus, Mr. van Vliet acquired ownership of Transtrend on October 1, 1993.
Johannes "Joep" P.A. van den Broek, born in 1969, graduated in August 1995
with a Master of Business Economics from Erasmus University Rotterdam. He joined
Transtrend as a trader in December of 1995. In October 1997, he was appointed
Assistant Director (for trading) thereby becoming a member of Transtrend's
management team. Effective as of 1 January, 1999, he has become a Managing
Director of Transtrend.
Jaap Schotanus, born in 1960, graduated in 1984 with a Master of Business
Administration from Nieuwpoort University in The Netherlands. In 1986 he joined
Nidera Rotterdam in the trading environment of cash commodities. From the
beginning he was particularly interested in the trading of derivative markets.
In 1987, he began to develop Transtrend's business unit, with the goal of
designing effective trading systems based on quantitative analysis of price
behavior. He formed a research team with applied mathematicians, econometricians
and computer specialists. Upon the incorporation of Transtrend in 1991, he
became one of its Directors. Since Transtrend's management team came into
existence in 1997, the responsibilities of Mr. Schotanus have gradually shifted
from day-to-day matters to shareholders' interests and special projects.
Together with Gerard van Vliet, Mr. Schotanus acquired ownership of Transtrend
on October 1, 1993.
Harold M. de Boer, born in 1966, graduated in 1990 with a Masters Degree
in Applied Mathematics from Universiteit Twente in The Netherlands. In December
1989 he worked in conjunction with Transtrend for his thesis entitled
"Cointegration in (tangible) Commodity Futures." In April of 1990, he joined
Transtrend as a Research Analyst. In 1992 he became responsible for Transtrend's
research department, and as of October 1992, he became a member of Transtrend's
management team with the title of Assistant Director. Effective August 1, 1999,
he was appointed a Director of Transtrend. Mr. de Boer's primary responsibility
remains focused on research and product development.
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Each director of Transtrend has an academic degree and ample experience in
dealing with derivative markets. Transtrend's know-how is based on more than
twelve years of ongoing price research conducted by a team of academics with the
aid of powerful computer systems and advanced statistical software. Transtrend's
research team consists of academics educated in applied mathematics and
econometrics. Transtrend's first approved system started in October 1991 after
four years of in-depth price research and product development. Before the 1993
buy-out, Transtrend managed substantial proprietary accounts based on identical
trading systems. Since the buy-out, it has been possible to offer Transtrend's
advisory services to third parties.
The voting interest in Transtrend is owned by Diversified Investments
B.V., a Dutch limited liability company formed on 29 December, 1993 which
currently serves as the holding company of Transtrend and as one of its
Directors. Diversified Investments B.V. is controlled by Messrs. van Vliet and
Schotanus.
Trading Strategies and Systems
Transtrend has developed and offers to clients managed account programs
pursuant to which it trades financial and tangible commodity futures contracts,
financial and tangible commodity options, forward contracts and other derivative
instruments (collectively, "futures," when used in this description of
Transtrend's Trading Systems and Strategies) on U.S. and non-U.S. exchanges and
markets (regulated and over-the-counter). Transtrend will trade its Diversified
Program -- Enhanced Risk Profile subset, which is described more fully below,
for the Fund.
The applied principles of risk management supersede any other defined
rule. Transtrend's managed futures programs are designed to pursue capital
growth within the limits of a defined risk tolerance.
The programs are entirely based on quantitative analysis of signaled price
behavior of outright prices and of intra-market and/or inter-market spreads in
the markets concerned. The programs may enter into both long and short positions
in any of the markets involved.
The degree of leverage is implicitly determined by the risk/reward profile
selected by the client. The degree of leverage can be expressed as the number of
contracts traded or held in position per million U.S. dollars under management.
A higher degree of leverage represents a higher degree of risk as it goes hand
in hand with a higher number of contracts held in a position for each dollar
under management. Transtrend can provide each client with alternative
risk/reward profiles for different levels of risk in an attempt to make the
impact of leverage selection more apparent. A selected risk profile has a
consequence for the number of contracts traded for each dollar under management.
Generally speaking, the larger the account, the broader the portfolio of futures
which Transtrend will trade for such account.
Computed probabilities pertaining to risk and return and recovery behavior
can be made transparent by randomly combining the historical, uncorrelated,
monthly performance data (actual or hypothetical) into a significant number of
thus-created 12-month returns.
The programs are systematic by nature and require a consistent
application. Therefore, discretionary inputs are not essential to the
effectiveness of the programs. Exceptional market circumstances of the observed
past, both favorable and unfavorable, are integrally reflected in the presented
performance profile of the program(s) selected by the client. While Transtrend
generally will not use discretionary inputs in trading client accounts, in the
event of exceptional market circumstances, it may use discretion in an attempt
to limit risk to a position or account. The use of discretion by it may have a
positive or negative impact on performance of an account.
The trading systems underlying the programs have been developed on the
basis of a methodology called blind-testing. For Transtrend, this means that a
limited sample of diverse markets is used to construct complex entry/exit tools,
the allocation system and risk management in general. Afterwards, the
constructed trading system is applied to a substantially larger number of
markets, most of which formed no part of the design process.
Transtrend uses strategy-related criteria, i.e., not trade-related, which
determines the profit expectancy of each product-tool-combination during
successive periods ("serial correlation"). Over time, these criteria influence
the degree of allocation to particular signals. Such effects are part of a
presented performance profile. This approach effectively avoids, among other
things, bias of hindsight.
Transtrend defines the portfolio composition and the relative weighing of
product groups within each portfolio irrespective of the outcome of historical
trades. The guiding principle is strategic diversification in pursuit of a
maximum attainable risk spreading, taking correlation analysis and degrees of
profit expectancy into account.
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As the applied strategies require particular transaction sizes to allow
for multiple entry and exit points and because certain minimum transaction sizes
may be required or recommendable, the attainable degree of diversification is,
amongst other things, a function of the amount of assets under management.
Generally, larger accounts have a higher degree of diversification.
Specific risk provisions are computed for each market exposure. The risk
provisions are designed to have a pre-defined reliability. In certain trading
(sub) systems, risk assessment can be determined on the basis of a regular or
continuous evaluation of daily price behavior, leading to regular adjustments
during the lifetime of exposures; while in other (sub) systems the risk
assessment can be based on risk factors at the time of entry of individual
trades. In all systems the assessment of price volatility plays a prominent
role.
Collectively and over time, Transtrend's programs have generated a
significant number of favorable trades, and the average profit per trade has
been significantly higher than the average loss per trade. Also, the variance of
monthly returns of profitable months has exceeded the variance of the returns of
losing months over the course of time.
In most trading (sub) systems there are elements which identify and
respect the dominant market direction. The systems are designed to exploit
recurring, non-random characteristics of price behavior in all markets. The
totality of the advised trades has in the past represented an "elevated
collective profit expectancy" over the course of time which is expected to
provide the basis for future profitability as long as past and future market
behavior remain generally compatible over time.
The applied market approach does not forecast markets or price levels but
participates in a systematic and dynamic way in signaled price patterns. The
systems exploit directional price movement of outright prices, time spreads in
one or more time frames and of intermarket and interproduct spreads.
One of the strengths of Transtrend's programs is the disciplined,
systematic and dynamic nature of market participation. The overall performance
is determined by the entirety of all markets and all trades. The results of
individual trades deserve only limited attention in a portfolio strategy. In a
systematic market approach, the consistent (i.e., disciplined) application by
Transtrend and a consistent (i.e., prolonged) participation by the client are
both essential to realize the pursued returns over the course of time.
All programs are designed to be as diversified as possible within the
limits of the amount of funds under Transtrend's management and in the context
of the selected portfolio composition based on reasonable minimum transaction
sizes in the execution process. The degree of diversification in terms of
markets and strategies involved may increase as the account size grows.
The programs may combine different product-market-combinations with
multiple trading (sub) systems. A higher number of markets and trading systems
generally contributes to a higher stability of returns over the course of time.
Simultaneous application of diverging trading strategies (trading
systems), each with a positive profit expectancy over the course of time, can
contribute to a different timing of both purchase and sale transactions, thus
enhancing smoother performance characteristics when compared to a single trading
system.
Description of Trading Programs
Transtrend offers its services to clients on a customized basis. The
amount under management in combination with a selected risk profile and with
relevant market volume constraints determine a portfolio composition. During the
selection process each client can express his preferences for products to be
excluded from the (uniform) approach of Transtrend.
Currently, Transtrend manages client accounts with portfolio composition,
money management principles and entry/exit tools described below.
Portfolio Composition
In Transtrend's Diversified Program the composition of a fully diversified
portfolio includes interest instruments, stock indices, currencies, cross rates
and tangible commodities. Transtrend aims to pursue the highest possible degree
of portfolio diversification within relevant constraints, i.e. specific client
requirements, volume restrictions and limitations as a result of fund size.
Once the acceptable portfolio components have been defined, Transtrend
determines the (relative) proportions of all components within the portfolio on
basis of the signaled degree of correlation over the course of time which is
re-computed at least every six months. Correlation analysis contributes to
minimizing the risk of coinciding trend reversals on a portfolio level.
-86-
<PAGE>
The allocation to markets/instruments can vary over the course of time. As
of the date of this Memorandum, the indicative average allocation within the
various portfolios of Transtrend's Diversified Program tends to be as follows:
PORTFOLIOS OF TRANSTREND'S DIVERSIFIED PROGRAM
(rounded numbers/approximation only)
Short-term Interest Instruments 10%
Spreads between Interest Instruments 5%
Bonds/Notes 10%
Stock Indices 20%
Forex Markets 25%
Metals 5%
Energy Products 10%
Agricultural Markets 15%
---
Total 100%
The portfolio composition of individual accounts is likely to deviate from
this indicative average for all accounts. In addition, portfolios for U.S.
clients such as the Fund which trade only in CFTC-approved instruments are
likely to have a lower percentage exposure to stock indices with the resultant
increase being spread among the other asset classes.
At specific points in time a portfolio composition can deviate
significantly from the indicative average because the trading systems are
designed to avoid market exposure in (individual) markets that are classified as
side-ways (dominated by frequent, unanticipated changes in price direction) or
which are too volatile.
Applied Money Management Techniques
The risk-estimate is trade-based and takes volatility into account. This
implies an (internal) risk-evaluation by the applied signaling-systems, which
may lead to adjustments of position sizes during the lifetime thereof. The
initial risk evaluation determines the position size at the time of entry.
Signaled price behavior may lead to a gradual reduction of the initial position.
Significantly adverse price behavior may lead to an exit for the entire
(remainder of the) position. Transtrend reserves the right to temporarily reduce
individual or overall position sizes under extreme market conditions of any
kind. Such extreme conditions may be real or perceived. It cannot be excluded
that such reductions, which have the sole intention to reduce risk, will reduce
the profitability which could have been achieved otherwise.
Entry/Exit Tools
The entry/exit tools contain both proprietary trend-following and
contra-trend elements and include techniques of (dynamic) profit targets and
(dynamic) stops for individual trades. The systems act upon market opening,
market close and upon specific price levels during a market session or during
the day.
Transtrend reserves the right to change its trading techniques at any
time, without prior notice to or approval from its clients. The implementation
of improvements will be based on the conclusions of research by Transtrend.
Improvements are measured over the course of time and therefore do not
necessarily result in a better performance immediately after implementation.
THERE CAN BE NO ASSURANCE THAT TRANSTREND'S APPROACH TO TRADING THE
FUTURES MARKETS WILL YIELD THE SAME RESULTS IN THE FUTURE AS IT HAS IN THE PAST.
Past Performance Information
The following tables set forth the pro-forma past performance of the
Enhanced Risk Profile subset of Transtrend's Diversified Program, which it will
trade on behalf of the Fund, as well as the Enhanced Risk Profile subset of the
Diversified Program for Euro accounts, the Standard Risk Profile and Standard
Risk Profile for Euro accounts subsets of the Diversified Program, which
Transtrend does not trade on behalf of the Fund. The performance results of
Transtrend's Prime Commodity Program and Financial Portfolio, which programs are
no longer being offered by Transtrend, are also described below. The results set
forth in the following summary performance information are not necessarily
indicative of the results which Transtrend may achieve in the future. No
representation is made that Transtrend will or is likely to achieve for the Fund
profits or incur losses comparable to those shown. Transtrend's performance set
forth below is shown on an account by account basis based upon the amount of
actual funds in each client account. The presenation of past performance based
on actual funds overstates the positive and negative performance of such
accounts as compared to computing the rates of return of such accounts based on
their nominal account size. Transtrend presents its past performance in this
manner in accordance with applicable CFTC guidance because Transtrend does not
qualify for the use of the "Fully-Funded Subset Method" (as set forth in CFTC
Advisory 93-13) and because the results of Transtrend's accounts are not
materially the same thereby not allowing
-87-
<PAGE>
Transtrend to present its past performance on a composite bases including and
excluding notional funds.
Rate of return represents net performance for the period divided by
beginning (aggregate) account equity or an adjusted beginning (aggregate)
account equity. In the event that an addition or withdrawal occurs on the first
day of the month, that addition or withdrawal is added to or subtracted from the
beginning (aggregate) account size.
For a composite performance record for the Diversified Program -- Enhanced
Risk Profile (U.S. Dollar Account Subset -- "Notional" Funds Included), see page
2 of "Part Two -- Statement of Additional Information." For such composite
performance record, rate of return represents pro forma net performance for the
period divided by beginning (aggregate) account size or an adjusted beginning
(aggregate) account size. Pro forma net performance represents the gross
realized trading gain or loss on all transactions closed out during the period,
plus the change in unrealized gain or loss on open positions at the end of the
current month and the end of the previous month adjusted as follows: (a)
brokerage commissions and mark-ups of approximately 2% of net asset value per
annum for Transtrend's standard risk profile (approximately U.S. $10.00 per
round-turn trade); (b) monthly management fees of 0.25% of the (aggregate)
account size at the beginning of a month (approximately 3% per annum); (c)
monthly performance fees at 25% of net new trading profits achieved on the
account, i.e., after making good management fees paid. Interest income is
excluded from the computation of performance fees with respect to the Prime
Commodity Program and the Financial Portfolio. For purposes of computing pro
forma net performance, interest income credits accruing to the accounts have
been included and in negative months also a give-back computation of a negative
incentive fee, which may or may not have been reserved, depending on the account
and specific conditions. In reality reserved (unpaid) incentive fees can be
given back, but incentive fees paid are not. Transtrend believes that the pro
forma adjustments made to the tables fairly reflect a customary fee and expense
structure for clients.
[Remainder of page left blank intentionally.]
-88-
<PAGE>
Diversified Program -- Enhanced Risk Profile (U.S. Dollar Accounts Subset)
Transtrend trades this program on behalf of the Fund. The following
summary performance information and chart reflect the results of the Enhanced
Risk Profile individual accounts of Transtrend's Diversified Program on the
basis of actual funds for the period from January 1995 through September 1999.
Name of CTA: Transtrend, B.V.
Name of program: Diversified Program -- Enhanced Risk Profile
Inception of client account trading by CTA: October 1993
Inception of client account trading in program: January 1995
Number of open accounts: 5
Aggregate assets overall excluding "notional" equity: $121,914,415
Aggregate assets overall including "notional" equity: $242,122,273
Aggregate assets in program excluding "notional" equity: $23,096,243
Aggregate assets in program including "notional" equity: $44,193,367
Largest monthly drawdown: (37.34)% (10/97)
Largest peak-to-valley drawdown: (37.34)% (10/97)
Number of accounts closed with profit: 4
Number of accounts closed with loss: 1
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Actual Funds Largest
Inception of September 30, Compound Annual Rate Largest Monthly Peak-to-Valley
Account No. Trading 1999 of Return Drawdown Drawdown
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. 2/97 $0 1999: 0.55% (7 mos.) (8.24)% (10/97) (11.55)% (10/98-5/99)
1998: 22.50%
1997: 13.85% (11 mos.)
- --------------------------------------------------------------------------------------------------------------------------
2. 4/97 $1,012,412 1999: (8.41)% (9 mos.) (28.80)% (10/97) (28.80)% (10/97)
1998: 23.33%
1997: 47.71% (9 mos.)
- --------------------------------------------------------------------------------------------------------------------------
3. 3/97 $640,642 1999: (7.71)% (9 mos.) (21.27)% (10/97) (30.65)% (3/97-5/97)
1998: 41.22%
1997: 46.34% (10 mos.)
- --------------------------------------------------------------------------------------------------------------------------
4. 6/98 $10,851,721 1999: (11.98)% (9 mos.) (13.50)% (7/98) (24.75)% (6/98-7/98)
1998: 15.49% (7 mos.)
- --------------------------------------------------------------------------------------------------------------------------
5. 6/98 $3,996,402 1999: (12.08)% (9 mos.) (13.81)% (7/98) (25.59)% (6/98-7/98)
1998: 30.37% (7 mos.)
- --------------------------------------------------------------------------------------------------------------------------
6. 6/98 $0 1999: (12.68)% (9 mos.) (13.48)% (7/98) (16.15)% (1/99-5/99)
1998: 42.59% (6 mos.)
- --------------------------------------------------------------------------------------------------------------------------
7. 1/98 $5,060,200 1999: (5.38)% (9 mos.) (8.20)% (4/98) (9.38)% (4/98-7/98)
1998: 26.68%
- --------------------------------------------------------------------------------------------------------------------------
8. 5/97 $0 1997: (15.45)% (2 mos.) (11.65)% (4/97) (15.45)% (3/97-5/97)
- --------------------------------------------------------------------------------------------------------------------------
9. 5/97 $0 1997: 42.31% (7 mos.) (21.83)% (10/97) (21.83)% (10/97)
- --------------------------------------------------------------------------------------------------------------------------
10. 6/95 $0 1999: 23.70% (6 mos.) (37.34)% (10/97) (37.34)% (10/97)
1998: 59.75%
1997: 160.55%
1996: 106.01%
1995: 96.40% (7 mos.)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-89-
<PAGE>
Diversified Program -- Enhanced Risk Profile (Euro Accounts Subset)
The following summary performance information reflects the performance
results of the Enhanced Risk Profile of Transtrend's Diversified Program for
accounts denominated in Euros based on actual funds for the period from August
1999 through September 1999.
Name of CTA: Transtrend, B.V.
Name of program: Diversified Program (Enhanced Risk Euro Accounts Subset)
Inception of client account trading by CTA: October 1993
Inception of client account trading in program: August 1999
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $121,914,415
Aggregate assets (including "notional" equity) overall: $242,122,273
Aggregate assets (excluding "notional" equity) in program: Euro 4,804,297
Aggregate assets (including "notional" equity) in program: Euro 8,030,799
Largest monthly drawdown: (5.72)% (8/99)
Largest peak-to-valley drawdown: (5.93)% (8/99-9/99)
Number of accounts closed with profit: 0
Number of accounts closed with loss: 0
1999 compound rate of return: (5.93)% (2 months)
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: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
-90-
<PAGE>
Diversified Program -- Standard Risk Profile (U.S. Dollar Accounts Subset)
The following summary performance information reflects the performance
results of the Standard Risk Profile of Transtrend's Diversified Program based
on actual funds for the period from October 1995 through September 1999.
Name of CTA: Transtrend, B.V.
Name of program: Diversified Program -- Standard Risk Profile
Inception of client account trading by CTA: October 1993
Inception of client account trading in program: October 1995
Number of open accounts: 17
Aggregate assets (excluding "notional" equity) overall: $121,914,415
Aggregate assets (including "notional" equity) overall: $242,122,273
Aggregate assets (excluding "notional" equity) in program: $81,696,994
Aggregate assets (including "notional" equity) in program: $161,506,902
Largest monthly drawdown: (20.88)% (10/97)
Largest peak-to-valley drawdown: (27.20)% (7/94-10/94)
Number of accounts closed with profit: 7
Number of accounts closed with loss: 0
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Actual Funds Largest
Inception of September 30, Compound Annual Rate Largest Monthly Peak-to-Valley
Account No. Trading 1999 of Return Drawdown Drawdown
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. 10/93 $8,084,973 1999: (8.05)% (9 mos.) (20.36)% (10/97) (20.36)% (10/97)
1998: 37.96 %
1997: 63.63 %
1996: 39.97 %
1995: 49.23 %
1994: 18.47 %
- --------------------------------------------------------------------------------------------------------------------------
2. 7/94 $6,726,418 1999: (7.52)% (9 mos.) (15.79)% (10/97) (27.20)% (7/94-10/94)
1998: 27.90 %
1997: 45.60 %
1996: 35.48 %
1995: 60.45 %
1994: (13.40)% (6 mos.)
- --------------------------------------------------------------------------------------------------------------------------
3. 3/96 $42,787,476 1999: (4.68)% (9 mos.) (9.50)% (10/97) (9.96)% (8/97-10/97)
1998: 15.39 %
1997: 21.55 %
1996: 18.77 % (10 mos.)
- --------------------------------------------------------------------------------------------------------------------------
4. 3/96 $186,368 1999: (10.84)% (9 mos.) (18.40)% (10/97) (18.40)% (10/97)
1998: 34.76 %
1997: 15.10 %
1996: 42.28 % (10 mos.)
- --------------------------------------------------------------------------------------------------------------------------
5. 10/96 $1,720,561 1999: (7.45)% (9 mos.) (10.25)% (10/97) (10.49)% (3/97-6/97)
1998: 16.54 %
1997: 19.28 %
1996: 1.32 % (3 mos.)
- --------------------------------------------------------------------------------------------------------------------------
6. 11/96 $1,904,123 1999: (5.89)% (9 mos.) (10.34)% (10/97) (11.86)% (3/97-6/97)
1998: 20.17 %
1997: 22.23 %
1996: (3.19)% (2 mos.)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
-91-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Actual Funds Largest
Inception of September 30, Compound Annual Rate Largest Monthly Peak-to-Valley
Account No. Trading 1999 of Return Drawdown Drawdown
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7. 10/95 $4,146,150 1999: (9.00)% (9 mos.) (16.94)% (10/95) (19.00)% (10/95-3/96)
1998: 29.08 %
1997: 32.17 %
1996: 30.77 %
1995: (10.34)% (3 mos.)
- --------------------------------------------------------------------------------------------------------------------------
8. 11/96 $1,823,364 1999: (4.95)% (9 mos.) (11.51)% (10/97) (13.76)% (10/98-5/99)
1998: 18.04 %
1997: 37.48 %
1996: (2.70)% (2 mos.)
- --------------------------------------------------------------------------------------------------------------------------
9. 4/97 $2,231,893 1999: (11.34)% (9 mos.) (13.95)% (10/97) (14.90)% (10/98-5/99)
1998: 41.38 %
1997: 34.11 % 9 mos.)
- --------------------------------------------------------------------------------------------------------------------------
10. 11/95 $2,105,641 1999: (4.50)% (9 mos.) (9.46)% (10/97) (18.34)% (3/97-6/97)
1998: 20.03%
1997: 4.48%
1996: 24.95%
1995: 4.94% (2 mos.)
- --------------------------------------------------------------------------------------------------------------------------
11. 9/97 $2,640,790 1999: (8.31)% (9 mos.) (13.93)% (10/97) (13.93)% (10/97)
1998: 21.44%
1997: 5.96% (4 mos.)
- --------------------------------------------------------------------------------------------------------------------------
12. 11/98 $2,010,310 1999: (9.46)% (9 mos.) (7.16)% (1/99) (11.39)% (11/98-5/99)
1998: (0.92)%
- --------------------------------------------------------------------------------------------------------------------------
13. 7/97 $1,287,508 1999: (3.48)% (9 mos.) (10.12)% (10/97) (11.32)% (4/98-7/98)
1998: 12.54%
1997: 18.18% (6 mos.)
- --------------------------------------------------------------------------------------------------------------------------
14. 7/97 $638,638 1999: (12.18)% (9 mos.) (19.50)% (10/97) (19.50)% (10/97)
1998: 23.06%
1997: 42.56% (6 mos.)
- --------------------------------------------------------------------------------------------------------------------------
15. 10/97 $2,307,632 1999: (12.55)% (9 mos.) (19.26)% (10/97) (19.26)% (10/97)
1998: 34.98%
1997: 8.57% (3 mos.)
- --------------------------------------------------------------------------------------------------------------------------
16. 11/98 $548,131 1999: (4.36)% (9 mos.) (6.87)% (11/98) (12.63)% (11/98-3/99)
1998: (5.27)% (2 mos.)
- --------------------------------------------------------------------------------------------------------------------------
17. 11/98 $547,019 1999: (7.45)% (9 mos.) (9.38)% (5/99) (12.19)% (11/98-5/99)
1998: (0.55)% (2 mos.)
- --------------------------------------------------------------------------------------------------------------------------
18. 10/95 $0 1997: (6.05)% (6 mos.) (12.18)% (10/95) (17.12)% (3/97-5/97)
1996: 18.34%
1995: (6.41)% (3 mos.)
- --------------------------------------------------------------------------------------------------------------------------
19. 1/97 $0 1997: 13.10% (11 mos.) (20.88)% (10/97) (25.38)% (3/97-5/97)
- --------------------------------------------------------------------------------------------------------------------------
20. 4/98 $0 1998: 4.97% (9 mos.) (4.26)% (4/98) (5.81)% (4/98-7/98)
- --------------------------------------------------------------------------------------------------------------------------
21. 1/95 $0 1999: (10.90)% (4 mos.) (15.55)% (10/97) (15.55)% (10/97)
1998: 30.12%
1997: 33.26%
1996: 24.97%
1995: 46.27%
- --------------------------------------------------------------------------------------------------------------------------
22. 4/98 $0 1999: (12.06)% (4 mos.) (18.57)% (4/98) (23.15)% (4/98-7/98)
1998: 25.09% (9 mos.)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
-92-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Actual Funds Largest
Inception of September 30, Compound Annual Rate Largest Monthly Peak-to-Valley
Account No. Trading 1999 of Return Drawdown Drawdown
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
23. 1/96 $0 1999: (4.50)% (7 mos.) (14.67)% (10/97) (14.67)% (10/97)
1998: 30.76%
1997: 46.13%
1996: 27.04%
- --------------------------------------------------------------------------------------------------------------------------
24. 10/93 $0 1995: 9.88% (10 mos.) (11.04)% (8/94) (15.05)% (6/94-1/95)
1994: 17.96%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Diversified Program -- Standard Risk Profile (Euro Accounts Subset)
The following summary performance information reflects the composite
performance results of the Standard Risk Profile of Transtrend's Diversified
Program for accounts denominated in Euros based on aggregate nominal account
size for the period from February, 1999 through September, 1999.
Name of CTA: Transtrend, B.V.
Name of program: Diversified Program (Standard Risk Euro Accounts Subset)
Inception of client account trading by CTA: October 1993
Inception of client account trading in program: February 1999
Number of open accounts: 4
Aggregate assets (excluding "notional" equity) overall: $121,914,415
Aggregate assets (including "notional" equity) overall: $242,122,273
Aggregate assets (excluding "notional" equity) in program: Euro 11,218,516
Aggregate assets (including "notional" equity) in program: Euro 26,054,648
Largest monthly drawdown: (5.73)% (5/99)
Largest peak-to-valley drawdown: (6.15)% (3/99-5/99)
Number of accounts closed with profit: 0
Number of accounts closed with loss: 0
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Actual Funds Largest
Inception of September 30, Compound Annual Rate Largest Monthly Peak-to-Valley
Account No. Trading 1999 of Return Drawdown Drawdown
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. 2/99 Euro 1,503,436 1999: 1.34% (8 mos.) (5.41)% (5/99) (6.15)% (3/99-5/99)
- --------------------------------------------------------------------------------------------------------------------------
2. 4/99 Euro 2,251,860 1999: 2.68% (5 mos.) (5.15)% (5/99) (5.15)% (5/99)
- --------------------------------------------------------------------------------------------------------------------------
3. 4/99 Euro 3,098,639 1999: 3.47% (6 mos.) (5.73)% (5/99) (5.73)% (5/99)
- --------------------------------------------------------------------------------------------------------------------------
4. 7/99 Euro 4,364,581 1999: (2.50)% (3 mos.) (4.65)% (7/99) (4.65)% (7/99)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE FUND'S
ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-93-
<PAGE>
Financial Portfolio
The following summary performance information reflects the composite
performance results of Transtrend's Financial Portfolio on the basis of actual
funds for the period from November 1994 through its cessation of trading in
November 1994. Percentages exclude interest income.
Name of CTA: Transtrend, B.V.
Name of program: Financial Portfolio
Inception of client account trading by CTA: October 1993
Inception of client account trading in program: November 1994
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $121,914,415
Aggregate assets (including "notional" equity) overall: $242,122,273
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (16.48)% (10/94)
Largest peak-to-valley drawdown: (46.71)% (3/94-10/94)
Number of accounts closed with profit: 0
Number of accounts closed with loss: 1
1999 compound rate of return: N/A
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: (20.75)% (11 months)
Prime Commodity Program
The following summary performance information reflects the composite
performance results of Transtrend's Prime Commodity Program on the basis of
actual funds for the period from January 1994 through its cessation of trading
in October 1995. Percentages exclude interest income.
Name of CTA: Transtrend, B.V.
Name of program: Prime Commodity Program
Inception of client account trading by CTA: October 1993
Inception of client account trading in program: October 1993
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $121,914,415
Aggregate assets (including "notional" equity) overall: $242,122,273
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (11.04)% (8/94)
Largest peak-to-valley drawdown: (15.05)% (6/94-1/95)
Number of accounts closed with profit: 1
Number of accounts closed with loss: 0
1999 compound rate of return: N/A
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: 9.88% (10 months)
1994 compound rate of return: 17.96%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE FUND'S
ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-94-
<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 September 30,
1999 (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.]
-95-
<PAGE>
ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
<S> <C>
Kenmar -- Total assets under management as of September 30, 1999: $146 million
Kenmar -- Total assets under multi-advisor management as of September 30, 1999: $80 million
Kenmar and affiliates -- Total assets under management as of September 30, 1999: $819 million
(excluding notional funds)
Kenmar and affiliates-- Total assets under management as of September 30, 1999: $903 million
(including notional funds)
</TABLE>
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.]
-96-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
%
WORST
AGGRE- MONTHLY
TYPE GATE CURRENT CURRENT DRAW-
OF START CLOSE SUB- TOTAL NAV PER DOWN &
POOL DATE DATE SCRIPT. NAV UNIT MONTH
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
==================================--------------------------------------------------------------------------------------------------
Kenmar Performance Partners L.P. ** 08/85 N/A 264,380,534 50,720,446 14,990.94 (19.12)
- ------------------------------------------------------------------------------------------------------------------------------------
1/94
- ------------------------------------------------------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. * 07/95 N/A 3,577,775 737,342 954.35 (8.40)
- ------------------------------------------------------------------------------------------------------------------------------------
3/99
==================================--------------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
==================================--------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "A" single 09/96 N/A 11,341,364 12,181,267 1,860.58 (10.75)
- ------------------------------------------------------------------------------------------------------------------------------------
8/97
- ------------------------------------------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" single 04/97 N/A 45,627,073 43,447,449 1,773.97 (10.70)
- ------------------------------------------------------------------------------------------------------------------------------------
8/97
- ------------------------------------------------------------------------------------------------------------------------------------
Dennis Friends & Family L.P. single 05/97 N/A 2,363,437 2,185,203 1,486.96 (14.79)
- ------------------------------------------------------------------------------------------------------------------------------------
8/97
- ------------------------------------------------------------------------------------------------------------------------------------
Hirst Investment Fund L.P. single 10/97 N/A 4,347,088 1,848,419 1,021.26 (10.43)
- ------------------------------------------------------------------------------------------------------------------------------------
3/99
- ------------------------------------------------------------------------------------------------------------------------------------
Hirst Investment 2X Fund LP single 3/99 N/A 4,127,659 2,411,379 917.87 (18.13)
- ------------------------------------------------------------------------------------------------------------------------------------
3/99
==================================--------------------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND
DEVELOPMENT OF TRADERS
==================================--------------------------------------------------------------------------------------------------
Kenmar Venture Partners L.P. * 03/87 N/A 2,625,000 3,578,296 3,835.93 (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 4/99 1,607,000 0 1,246.18 (20.65)
- ------------------------------------------------------------------------------------------------------------------------------------
5/98
====================================================================================================================================
<CAPTION>
========================================================================================================
% PERCENTAGE RATE OF RETURN
WORST (COMPUTED ON A COMPOUNDED
PEAK-TO- MONTHLY BASIS)
VALLEY ----------------------------------------------------
DRAW-
DOWN
& PERIOD
1994 1995 1996 1997 1998 1999
========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
==================================----------------------------------------------------------------------
Kenmar Performance Partners L.P. (33.20) (9.79) 8.12 3.04 (2.1) 18.88 (12.2)
- --------------------------------------------------------------------------------------------------------
11/90-5/92 (9 mos.)
- --------------------------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. (15.46) - 2.26 (1.87) 3.05 10.59 (7.73)
- --------------------------------------------------------------------------------------------------------
9/98-5/99 (9 mos.)
==================================----------------------------------------------------------------------
SINGLE ADVISOR POOLS
==================================----------------------------------------------------------------------
The Dennis Fund L.P. "A" (25.63) - - 8.14 18.70 42.50 1.72
- --------------------------------------------------------------------------------------------------------
3/97-8/97 (9 mos.)
- --------------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" (17.63) - - - 18.75 40.42 0.75
- --------------------------------------------------------------------------------------------------------
5/97-8/97 (9 mos.)
- --------------------------------------------------------------------------------------------------------
Dennis Friends & Family L.P. (19.96) - - - 0.24 42.95 3.77
- --------------------------------------------------------------------------------------------------------
6/97-8/97 (9 mos.)
- --------------------------------------------------------------------------------------------------------
Hirst Investment Fund L.P. (16.33) - - - 3.31 9.54 (9.75)
- --------------------------------------------------------------------------------------------------------
1/99-5/99 (9 mos.)
- --------------------------------------------------------------------------------------------------------
Hirst Investment 2X Fund LP 18.49 (8.21)
- --------------------------------------------------------------------------------------------------------
3/99-5/99 (7 mos.)
==================================----------------------------------------------------------------------
POOLS FOR RESEARCH AND
DEVELOPMENT OF TRADERS
==================================----------------------------------------------------------------------
Kenmar Venture Partners L.P. (48.75) 3.27 5.55 14.72 36.00 (6.15) (9.58)
- --------------------------------------------------------------------------------------------------------
11/90-4/92 (9 mos.)
- --------------------------------------------------------------------------------------------------------
GLH Strategic Performance L.P. (29.41) (21.95) - - - - -
- --------------------------------------------------------------------------------------------------------
9/93-10/94
- --------------------------------------------------------------------------------------------------------
Oberdon Partners L.L.C. (30.16) - - - 43.37 (16.55) 4.16
- --------------------------------------------------------------------------------------------------------
4/98-10/98 (4 mos.)
========================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-97-
<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 September 30,
1999.
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 September 30,
1999. 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 September 30, 1999.
[Remainder of page left blank intentionally.]
-98-
<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.
Dramatic Changes in Futures Industry
[The following was represented as a pie chart in the printed material]
1974(1)
Agriculturals 82%
Lumber & Energy 2%
Metals 14%
Currencies 2%
[The following was represented as a pie chart in the printed material]
1999(2)
European Rates 13%
European Stock Indexes 3%
Pac Rim Rates 4%
Pac Rim Indexes 3%
US Rates 7%
Energies 13%
US Stock Indexes 8%
Metals 21%
Grains 4%
Tropicals 7%
Meats 1%
Currencies 16%
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 September 30, 1999
99
<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 dark 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-SEPTEMBER 1999
Monthly
Compounded Standard Maximum
Annual ROR Deviation Drawdown
- ---------- --------- --------
14.80 2.92 -18.33
14.54 2.95 -19.41
[The following was represented as a mountain chart in the printed material]
60% US Stocks/
30% US Bonds/ 60% US Stocks/
10% Mgd. Fut. 40% US Bonds/
------------- -------------
Dec '80 $ 0 $ 0
Dec '82 $ 850 $ 400
Dec '84 $ 1,500 $ 600
Dec '86 $ 2,000 $ 1,000
Dec '88 $ 3,000 $ 2,000
Dec '90 $ 4,000 $ 4,300
Dec '92 $ 6,000 $ 6,000
Dec '94 $ 9,500 $ 8,000
Dec '96 $11,500 $ 9,000
Dec '98 $16,000 $15,000
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
securitieswhich 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.
100
<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
QUALIFIIED UNIVERSE
VS. A STOCKS AND BONDS PORTFOLIO
JANUARY 1980 - SEPTEMBER 1999
[The following was represented as a bar chart in the printed material]
Growth of Initial $10,000 Investment
60% Stocks/40% Bonds 60% Stocks/30% Bonds 10% Managed Futures
- -------------------- ----------------------------------------
$146,054 $152,639
[The following was represented as a bar chart in the printed material]
Risk as Measured by Standard Deviation of Annual Returns
60% Stocks/ 40% Bonds 60% Stocks/30% Bonds/10% Managed Futures
- --------------------- ----------------------------------------
10.23% 10.12%
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.
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.
101
<PAGE>
CORRELATION OF MANAGED FUTURES
JANUARY 1980 - SEPTEMBER 1999
MANAGED S&P* EAFE* US
FUTURES* 500 BONDS*
MANAGED FUTURES 1.00
S&P 500 0.09 1.00
EAFE -0.01 0.49 1.00
US BONDS 0.04 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.
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.
ALTHOUGH ADDING A MANAGED FUTURES INVESTMENT SUCH AS THE FUND MAY PROVIDE
DIVERSIFICATION TO A PORTFOLIO, THE FUND IS NOT A HEDGING MECHANISM; THERE IS NO
GUARANTEE THE FUND WILL APPRECIATE DURING PERIODS OF STOCK MARKET DECLINES. IN
ADDITION, THE PERFORMANCE OF A MANAGED FUTURES INVESTMENT SUCH AS THE FUND CAN
BE ANTICIPATED TO BE GENERALLY UNRELATED, BUT MAY FREQUENTLY BE SIMILAR TO THE
PERFORMANCE OF GENERAL EQUITY MARKETS.
* SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS" AT THE END OF
THIS SECTION.
(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.
MARKET COMPARISONS
FOUR LARGEST S&P 500 DECLINES SINCE 1980 AND
CORRESPONDING MANAGED FUTURES PERFORMANCE
[The following was represented as a bar chart in the printed material]
12/80-7/82 9/87-11/87 6/90-10/90 7/98-8/98
---------- ---------- ---------- ---------
S&P 500 -16.6% -29.6% -14.6% -15.4%
Managed Futures 33.8% 7.8% 15.5% 4.1%
FOUR LARGEST MANAGED FUTURES DECLINES SINCE 1980
AND CORRESPONDING STOCK MARKET PERFORMANCE
[The following was represented as a bar chart in the printed material]
2/83-11/84 4/86-12/86 8/89-10/89 1/92-5/92
---------- ---------- ---------- ---------
Managed Futures -18.9% -28.1% -10.3% -11.8%
S&P 500 22.3% 4.0% -0.8% 0.8%
102
<PAGE>
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 September 1999. 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 -0.9 31.1
1983 - 7.6 22.6 24.6 8.0
1984 4.2 6.2 7.9 15.0
1985 21.8 31.9 56.7 21.4
1986 -11.5 18.7 69.9 15.6
1987 46.9 5.2 24.9 2.3
1988 8.4 16.5 28.6 7.6
1989 10.1 31.7 10.8 14.3
1990 19.5 -3.1 -23.2 5.7
1991 10.7 30.5 12.5 15.0
1992 1.0 7.7 -11.9 7.5
1993 15.2 10.1 32.9 8.8
1994 - 2.2 1.3 8.1 -2.0
1995 9.7 37.6 11.6 15.1
1996 11.9 22.9 6.3 4.1
1997 9.2 33.4 2.1 7.8
1998 10.0 28.6 20.3 8.3
1999** 2.03 5.4 8.7 0.3
* SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS" AT THE END
OF THIS SECTION.
** Through September 1999.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
WORST PEAK-TO-VALLEY LOSS FROM JANUARY 1980 THROUGH SEPTEMBER 1999
[The following was represented as a bar chart in the printed material]
Managed Futures -28.1% Apr. 86 to Dec. 86
S&P 500 -29.6% Sep. 87 to Nov. 87
EAFE -30.6% Jan. 90 to Sep. 90
US Bonds -8.5% Jan. 80 to Feb. 80
103
<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
Many of the Advisors are 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.
104
<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 .................................... 35
CBOE ............................................................. 20
CFTC.............................................................. -i-
Clearing Brokers ................................................. 28
Code.............................................................. 33
Declaration of Trust ............................................. 22
Employee benefit plan............................................. 36
ERISA ............................................................ 36
Fund.............................................................. Cover page
high water mark................................................... 25
ING BARINGS....................................................... 28
IRS............................................................... 11
Kenmar............................................................ Cover page
Kenmar Related Parties ........................................... 22
Loss Carryforward................................................. 26
NASAA Guidelines ................................................. 22
Net Asset Value................................................... 45
Net Asset Value Per Unit.......................................... 45
Net Assets........................................................ 45
New Overall Appreciation.......................................... 26
New Trading Profits............................................... 26
NFA............................................................... -i-
PaineWebber ...................................................... 28
SEC .............................................................. 22
Selling Agents.................................................... 39
Subscription Requirements......................................... 39
Trading Profit.................................................... 25
Units............................................................. Cover page
Year 2000 Problem................................................. 13
-105-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
KENMAR GLOBAL TRUST
Statements of Financial Condition as of September 30, 1999
(unaudited) and December 31, 1998 (audited)............................F-2
Statements of Operations for the Three Months and Nine Months
Ended September 30, 1999 and 1998 (unaudited)..........................F-3
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (unaudited)................................F-4
Statements of Changes in Unitholders' Capital (Net Asset Value)
for the Nine Months Ended September 30, 1999 and 1998
(unaudited)............................................................F-5
Notes to Financial Statements (unaudited)...........................F-6 - F-10
Independent Auditor's Report................................................F-11
Statements of Financial Condition as of December 31, 1998 and 1997........F-12
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-13
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-14
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-15
Notes to Financial Statements........................................F-16-F-20
KENMAR ADVISORY CORP.
Independent Auditor's Report................................................F-21
Statement of Financial Condition as of September 30, 1998
(audited)..............................................................F-22
Notes to Statement of Financial Condition............................F-23-F-28
Statement of Financial Condition as of September 30, 1999
(unaudited)............................................................F-29
Notes to Statement of Financial Condition............................F-30-F-36
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>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
September 30, 1999 (Unaudited) and December 31, 1998 (Audited)
----------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Equity in broker trading accounts
Cash $11,651,477 $14,288,556
Net option premiums paid 22,212 0
Unrealized gain on open contracts 2,465,246 1,219,956
----------- -----------
Deposits with brokers 14,138,935 15,508,512
Cash 15,281,919 10,582,645
----------- -----------
Total assets $29,420,854 $26,091,157
=========== ===========
LIABILITIES
Accounts payable $ 51,194 $ 65,017
Commissions and other trading fees on open contracts 23,803 18,122
Managing Owner brokerage commissions 182,416 160,616
Managing Owner incentive fee 0 42,368
Advisor profit shares 0 109,106
Reimbursable offering costs 0 44,975
Redemptions payable 356,992 255,238
Redemption charges payable to Managing Owner 1,117 4,897
Subscription deposits 0 27,720
----------- -----------
Total liabilities 615,522 728,059
----------- -----------
UNITHOLDERS' CAPITAL (NET ASSET VALUE)
Managing Owner - 2,802.9608 and 2,331.0461 units
outstanding at September 30, 1999 and December 31, 1998 297,102 263,850
Other Unitholders - 268,956.6017 and 221,745.5512 units
outstanding at September 30, 1999 and December 31, 1998 28,508,230 25,099,248
----------- -----------
Total unitholders' capital
(Net Asset Value) 28,805,332 25,363,098
----------- -----------
$29,420,854 $26,091,157
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1999 and 1998 and
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
----------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME
Trading gains (losses)
Realized $ (111,940) $ 1,945,436 $(1,105,015) $ 3,538,619
Change in unrealized 957,964 2,023,463 1,245,290 1,436,347
----------- ----------- ----------- -----------
Gain from trading 846,024 3,968,899 140,275 4,974,966
Interest income 287,366 179,518 781,267 549,361
----------- ----------- ----------- -----------
Total income 1,133,390 4,148,417 921,542 5,524,327
----------- ----------- ----------- -----------
EXPENSES
Brokerage commissions 61,767 39,010 208,303 100,591
Managing Owner brokerage commissions 674,747 410,894 1,932,307 1,110,523
Advisor profit shares 0 637,231 95,925 875,702
Managing Owner incentive fee 0 99,152 0 100,182
Operating expenses 36,477 87,417 165,855 154,108
----------- ----------- ----------- -----------
Total expenses 772,991 1,273,704 2,402,390 2,341,106
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 360,399 $ 2,874,713 $(1,480,848) $ 3,183,221
=========== =========== =========== ===========
NET INCOME (LOSS) PER UNIT
(based on weighted average number of
units outstanding during the period) $ 1.39 $ 18.47 $ (6.06) $ 22.26
=========== =========== =========== ===========
INCREASE (DECREASE) IN NET
ASSET VALUE PER UNIT $ 1.27 $ 17.34 $ (7.19) $ 8.27
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Net income (loss) $ (1,480,848) $ 3,183,221
Adjustments to reconcile net income (loss)
to net cash from (for) operating activities:
Net change in unrealized (1,245,290) (1,436,347)
Increase (decrease) in accounts payable
and accrued expenses (137,816) 748,990
(Increase) decrease in net option premiums (22,212) 12,165
Decrease in other assets 0 123,842
------------ ------------
Net cash from (for) operating activities (2,886,166) 2,631,871
------------ ------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Addition of units 8,110,024 6,525,844
Decrease in subscription deposits (27,720) (25,720)
Offering costs paid (153,076) (369,968)
Redemption of units (2,980,867) (1,639,493)
------------ ------------
Net cash from financing activities 4,948,361 4,490,663
------------ ------------
Net increase in cash 2,062,195 7,122,534
CASH
Beginning of period 24,871,201 11,754,908
------------ ------------
End of period $ 26,933,396 $ 18,877,442
============ ============
END OF PERIOD CASH CONSISTS OF:
Cash in broker trading accounts $ 11,651,477 $ 14,560,861
Cash 15,281,919 4,316,581
------------ ------------
Total end of period cash $ 26,933,396 $ 18,877,442
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE)
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
----------
<TABLE>
<CAPTION>
Unitholders' Capital
Total ------------------------------------------------
Number of Managing Other
Units Owner Unitholders Total
------------ ------------ ------------ ------------
Nine Months Ended September 30, 1999
<S> <C> <C> <C> <C>
Balances at
December 31, 1998 224,076.5973 $263,85 $ 25,099,248 $ 25,363,098
Net (loss) for the nine months
ended September 30, 1999 (15,617) (1,465,231) (1,480,848)
Additions 77,252.6975 50,000 8,060,024 8,110,024
Redemptions (29,569.7323) 0 (3,078,841) (3,078,841)
Offering costs (1,131) (106,970) (108,101)
------------ ------------ ------------ ------------
Balances at
September 30, 1999 271,759.5625 $ 297,102 $ 28,508,230 $ 28,805,332
============ ============ ============ ============
Nine Months Ended September 30, 1998
Balances at
December 31, 1997 123,650.8308 $ 125,970 $ 12,251,351 $ 12,377,321
Net income for the nine months
ended September 30, 1998 32,951 3,150,270 3,183,221
Additions 61,475.3446 55,400 6,470,444 6,525,844
Redemptions (16,199.3313) 0 (1,674,179) (1,674,179)
Offering costs (4,258) (411,763) (416,021)
------------ ------------ ------------ ------------
Balances at
September 30, 1998 168,926.8441 $ 210,063 $ 19,786,123 $ 19,996,186
============ ============ ============ ============
</TABLE>
Net Asset Value Per Unit
- --------------------------------------------------------------------------------
September 30, December 31, September 30, December 31,
1999 1998 1998 1997
---- ---- ---- ----
$106.00 $113.19 $118.37 $100.10
======= ======= ======= =======
See accompanying notes.
F-5
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
----------
Note (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Fund
Kenmar Global Trust (the "Fund") is a Delaware business trust. The
Fund is a multi-advisor, multi- strategy commodity pool which trades
in United States (U.S.) and foreign futures, options, forwards and
related markets. The Fund was formed on July 17, 1996 and commenced
trading on May 22, 1997.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Fund is subject to the regulatory requirements under the Securities
Act of 1933 and the Securities Exchange Act of 1934. As a commodity
pool, the Fund is subject to the regulations of the Commodity
Futures Trading Commission, an agency of the U.S. government which
regulates most aspects of the commodity futures industry; rules of
the National Futures Association, an industry self-regulatory
organization; and the requirements of the various commodity
exchanges where the Fund executes transactions. Additionally, the
Fund is subject to the requirements of the Futures Commission
Merchants (FCMs) and interbank market makers (collectively,
"brokers") through which the Fund trades.
C. Method of Reporting
The Fund's financial statements are presented in accordance with
generally accepted accounting principles, which require the use of
certain estimates made by the Fund's management. Gains or losses are
realized when contracts are liquidated. Net unrealized gain or loss
on open contracts (the difference between contract purchase prices
and market prices) is reported in the statement of financial
condition in accordance with Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to Certain
Contracts." Any change in net unrealized gain or loss from the
preceding period is reported in the statement of operations.
Brokerage commissions paid directly to brokers include other trading
fees and are charged to expense when contracts are opened.
D. Income Taxes
The Fund prepares calendar year U.S. and state information tax
returns and reports to the Unitholders their allocable shares of the
Fund's income, expenses and trading gains or losses.
F-6
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Organizational and Offering Costs
Organizational and initial offering costs (exclusive of selling
commissions) of approximately $540,000 were advanced to the Fund by
the Managing Owner. Such costs are charged to unitholder's 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.
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.
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-7
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
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 of unitholders'
capital and amounted to $14,661 and $35,057 during the nine months ended
September 30, 1999 and 1998, 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-8
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
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 nine months ended
September 30, 1999 and 1998, and the related fair values as of September
30, 1999 and December 31, 1998, are as follows:
<TABLE>
<CAPTION>
For the Nine As of
Months Ended September As of
September 30, 30, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Exchange traded futures and $1,510,000 $1,110,000 $2,414,000 $1,240,000
options on futures contracts (6,000) 200 73,000 (20,000)
Forward contracts
</TABLE>
Net trading results from derivatives for the three months and nine months
ended September 30, 1999 and 1998, are reflected in the statement of
operations and consists of the gain from trading less brokerage
commissions and the portion of the Managing Owner brokerage commissions
that is payable to the brokers. For the three months and nine months ended
September 30, 1999, the net trading gain (loss) from derivatives was
approximately $731,000 and $(225,000), respectively. For the three months
and nine months ended September 30, 1998, the net trading gain from
derivatives was approximately $3,899,000 and $4,804,000, respectively.
Such trading results reflect the net gain (loss) arising from the Fund's
speculative trading of futures contracts, options on futures contracts and
forward contracts.
F-9
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note (6) TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Open contracts generally mature within one year, however, the Fund intends
to close all contracts prior to maturity. The latest maturity date for
open contracts at September 30, 1999 and December 31, 1998, is June 2000
and September 1999, respectively. At September 30, 1999 and December 31,
1998, the notional amount of open contracts is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
Contracts to Contracts to Contracts to Contract to
Purchase Sell Purchase Sell
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Exchange traded futures contracts:
- Financial instruments $ 61,900,000 $ 86,800,000 $ 96,900,000 $ 99,000,000
- Metals 19,600,000 3,300,000 4,200,000 11,100,000
- Energy 6,000,000 500,000 0 1,800,000
- Agricultural 4,700,000 4,100,000 900,000 9,300,000
- Currencies 25,900,000 13,400,000 6,800,000 6,400,000
Forward Contracts:
- Currencies 13,100,000 10,000,000 4,600,000 2,600,000
------------ ------------ ------------ ------------
$131,200,000 $118,100,000 $113,400,000 $130,200,000
============ ============ ============ ============
Exchange traded purchased options on futures contracts:
- Metals $ 400,000 $ 1,500,000 $ 0 $ 0
- Currencies 500,000 0 0 0
------------ ------------ ------------ ------------
$ 900,000 $ 1,500,000 $ 0 $ 0
============ ============ ============ ============
</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.
Note (7) INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of September 30, 1999, the
statements of operations for the nine months ended September 30, 1999 and
1998, and for the three months ended September 30, 1999 and 1998, and the
statements of cash flows and changes in unitholders' capital (net asset
value) for the nine months ended September 30, 1999 and 1998, are
unaudited. In the opinion of management, such financial statements reflect
all adjustments, which were of a normal and recurring nature, necessary
for a fair presentation of financial position as of September 30, 1999,
the results of operations for the three months and nine months ended
September 30, 1999 and 1998, and cash flows for the nine months ended
September 30, 1999 and 1998.
F-10
<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-11
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
December 31, 1998 and 1997
----------
<TABLE>
<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-12
<PAGE>
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
----------
<TABLE>
<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 $ 13.09 $ 0.10 $ 0.00
VALUE PER UNIT ========== ========== ==========
</TABLE>
See accompanying notes.
F-13
<PAGE>
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
----------
<TABLE>
<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-14
<PAGE>
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
----------
<TABLE>
<CAPTION>
Unitholders' Capital
Total --------------------------------------------
Number of Managing Other
Units Owner Unitholders Total
----- ----- ----------- -----
<S> <C> <C> <C> <C>
Balances at
July 17, 1996 (inception) 0.0000 $ 0 $ 0 $ 0
Additions 20.0000 400 1,600 2,000
------------ ------------ ------------ ------------
Balances at
December 31, 1996 20.0000 400 1,600 2,000
Additions 128,219.1639 125,800 12,721,762 12,847,562
Net income for the year
ended December 31, 1997 1,279 125,131 126,410
Redemptions (4,588.3331) 0 (450,887) (450,887)
Offering costs (1,509) (146,255) (147,764)
------------ ------------ ------------ ------------
Balances at
December 31, 1997 123,650.8308 125,970 12,251,351 12,377,321
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-15
<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-16
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------
Note (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (C0NTINUED)
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-17
<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-18
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------
Note (6) TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
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-19
<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-20
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholder
Kenmar Advisory Corp.
We have audited the accompanying statement of financial condition of Kenmar
Advisory Corp. as of September 30, 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-21
<PAGE>
KENMAR ADVISORY CORP.
STATEMENT OF FINANCIAL CONDITION
September 30, 1998
----------
ASSETS
Cash and cash equivalents $ 432,380
Fees receivable 2,449,276
Due from affiliates, net 2,325,845
Investments in affiliated commodity pools 1,832,266
Property and equipment, net 476,634
Other assets 5,063
----------
Total assets $7,521,464
==========
LIABILITIES
Accrued expenses and other liabilities $2,663,940
Obligations under capital leases 310,841
Commercial loan payable 613,264
----------
Total liabilities 3,588,045
----------
STOCKHOLDER'S EQUITY
Common stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares 100
Additional paid-in capital 1,479,584
Retained earnings 2,453,735
----------
Total stockholder's equity 3,933,419
----------
Total liabilities and stockholder's equity $7,521,464
==========
THE INVESTOR WILL NOT RECEIVE AN INTEREST IN THIS COMPANY.
See accompanying notes.
F-22
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
----------
Note 1. GENERAL DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
A. General
Kenmar Advisory Corp. (the "Company"), a registered commodity pool
operator, organizes and operates commodity pools that engage in the
speculative trading of futures, forwards and option contracts and
receives the majority of its revenue from the management thereof.
The Company is a wholly-owned subsidiary of Kenmar Holdings Inc.
(the "Parent"), which, in turn, is wholly-owned by Kenmar Investment
Associates ("KIA"). Two of the Company's officers are the sole
shareholders of KAS Commodities, Inc. and MSG Commodities, Inc.,
respectively, which, in turn, are the sole and equal owners of KIA.
The accompanying statement of financial condition is presented in
accordance with generally accepted accounting principles, which
require the use of certain estimates made by the Company's
management.
B. Cash and Cash Equivalents
Cash and cash equivalents include all cash and money market account
balances. The Company maintains its cash and cash equivalents with
primarily one financial institution. Such balances on deposit may be
in excess of available federal deposit insurance.
C. Investments in Affiliated Commodity Pools
The Company's investments in affiliated commodity pools, of which
the Company is General Partner, Managing Owner or Managing Member,
are carried at its share of the underlying equity in the net assets
of the commodity pools.
D. Revenue Recognition
Commissions are recognized as affiliated commodity pools place
transactions with clearing brokers. Management and incentive fees
accrue in accordance with the terms of the respective agreements.
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-23
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
----------
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>
Income
Value at (Loss) Value at
September 30, 1997 Additions Allocation September 30, 1998
------------------ --------- ---------- ------------------
<S> <C> <C> <C> <C>
Kenmar Performance Partners L.P. $ 785,206 $ 0 $ 210,197 $ 995,403
Kenmar Venture Partners Limited 112,706 0 (2,805) 109,901
Partnership
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.
For managing the business of the commodity pools, the Company earns fees
and commissions in accordance with the terms of the respective limited
partnership, trust or operating agreements. As General Partner, Managing
Owner or Managing Member, the Company has a fiduciary responsibility to
the pools, and potential liability beyond the amounts recognized as an
asset in the statement of financial condition. In addition, the Company
has similar, shared fiduciary responsibilities in connection with two
offshore investment funds sponsored by its affiliate, Kenmar Management
Ltd.
F-24
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
----------
Note 2 INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
Kenmar Global Trust (KGT) is a public fund which commenced operations in
May 1997. As Managing Owner, the Company has paid KGT's organizational and
initial offering costs. KGT is reimbursing the Company for such costs in
monthly installments of .2% of KGT's beginning of month net asset value,
commencing with the first month of trading operations. As of September 30,
1998, the Company has paid $527,000, of which $412,000 has been
reimbursed. The Company recorded an expense when such amounts were
incurred and records the reimbursement from KGT as income when it is
received. In the event KGT terminates prior to the completion of the
reimbursement of such costs, the Company will not be entitled to any
additional reimbursement from KGT.
Summarized financial information for the most significant commodity pool,
Kenmar Performance Partners L.P., as of and for the year ended September
30, 1998, is as follows:
Assets $77,740,000
Liabilities 4,559,000
-----------
Net asset value $73,181,000
===========
Income $38,224,000
Expenses 22,676,000
-----------
Net income $15,548,000
===========
Note 3. PROPERTY AND EQUIPMENT
At September 30, 1998, the Company's property and equipment consists of:
Furniture and fixtures $ 55,231
Office equipment 307,178
Leasehold improvements 10,541
Leased assets 585,736
---------
958,686
=========
Less: Accumulated depreciation and (482,052)
amortization ---------
$ 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:
F-25
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
----------
Note 4. OBLIGATIONS UNDER LEASES (CONTINUED)
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 $ 310,841
capital leases ==========
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.
F-26
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
----------
Note 6. RELATED PARTY TRANSACTIONS (CONTINUED)
The following amounts are due from the affiliates at September 30, 1998:
Members of the Parent group, net $1,348,294
Kenmar Management Limited 276,745
Kenmar Institutional Investment
Management L.L.C. 239,275
Kenmar Global Strategies, Inc. 136,262
Kenmar Investment Management
Limited 11,520
KAS Commodities, Inc. 114,113
Receivables from officers 76,645
Other 122,991
----------
$2,325,845
==========
No specific terms apply to the liquidation of amounts due from affiliates;
however, such amounts are settled periodically. The Company has reflected
its right of offset in reporting net intercompany balances in the
statement of financial condition.
As compensation for services provided to affiliated commodity pools, the
Company receives from commodity brokers a portion of the brokerage
commissions paid to them by the commodity pools. The Company also receives
commissions, management, incentive, organization, offering, redemption and
other fees directly from the commodity pools, in accordance with the
respective agreements. For certain pools, the Company in turn pays
management and incentive fees to the trading advisors. At September 30,
1998, the Company is owed fees of $2,396,241 from these commodity pools.
Note 7. COMMERCIAL LOAN PAYABLE AND LINE OF CREDIT AGREEMENT
The Company entered into a line of credit agreement with a financial
institution in April 1997 under which secured notes may be executed to
fund specified costs incurred by the Company as Managing Owner of Kenmar
Global Trust (KGT). The aggregate borrowings may not exceed $1,000,000.
Each note executed under the agreement is payable in eighteen equal
monthly installments. Interest is payable monthly at a floating rate,
which is based upon the higher of: a) the Federal Funds Rate plus .5%, or
b) the Prime Rate, as specified in the agreement. The average interest
rate is approximately 8.5% as of September 30, 1998, for all notes
outstanding.
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.
F-27
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
----------
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.
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 $1,083,000,000 $747,800,000
options)
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-28
<PAGE>
KENMAR ADVISORY CORP.
STATEMENT OF FINANCIAL CONDITION
September 30, 1999
(Unaudited)
ASSETS
Cash and cash equivalents $ 864,932
Fees and other receivables 861,181
Due from affiliates, net 2,059,574
Investments in affiliated commodity pools 1,783,644
Property and equipment, net 434,306
Other assets 4,978
----------
Total assets $6,008,615
==========
LIABILITIES
Accrued expenses and other liabilities $1,485,806
Obligations under capital leases 188,912
Commercial loan payable 528,445
----------
Total liabilities 2,203,163
----------
STOCKHOLDER'S EQUITY
Common stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares 100
Additional paid-in capital 1,479,584
Retained earnings 2,325,768
----------
Total stockholder's equity 3,805,452
----------
Total liabilities and stockholder's equity $6,008,615
==========
THE INVESTOR WILL NOT RECEIVE AN INTEREST IN THIS COMPANY.
See accompanying notes.
F-29
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
(Unaudited)
----------
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 market value of the net
assets of the commodity pools.
D. Revenue Recognition
Incentive, management, administrative and other fees accrue in
accordance with the terms of the respective agreements. Commissions
are recognized as they occur, as a result of affiliated commodity
pools conducting transactions with clearing brokers.
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 leased
assets and 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-30
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
(Unaudited)
-----------
Note 1. GENERAL DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
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, 1999,
related to these General Partner, Managing Owner or Managing Member
interests is as follows:
<TABLE>
<CAPTION>
Value at Income Value at
September 30, Additions (Loss) September 30,
1998 (Redemptions) Allocation 1999
---- ------------- ---------- ----
<S> <C> <C> <C> <C>
Kenmar Performance Partners, L.P. $ 995,403 $ 0 $ (192,179) $ 803,224
Kenmar Venture Partners Limited Partnership 109,901 0 (14,003) 95,898
The Dennis Fund Limited Partnership 421,192 113,000 (33,021) 501,171
Kenmar Global Trust 210,063 113,000 (25,961) 297,102
Oberdon Partners L.L.C 28,163 (31,155) 2,992 0
The Dennis Friends & Family Limited Partnership 40,205 0 (3,031) 37,174
The Hirst Investment Fund Limited Partnership 27,339 0 (1,807) 25,532
The Hirst Investment (2X) Fund Limited 0 21,000 2,543 23,543
Partnership ---------- --------- ----------- ----------
$1,832,266 $ 215,845 $ (264,467) $1,783,644
========== ========= =========== ==========
</TABLE>
F-31
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
(Unaudited)
-----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
As General Partner, Managing Owner or Managing Member of these
commodity pools, the Company conducts and manages the respective
businesses of such commodity pools. Each limited partnership, trust
or operating agreement requires the Company to maintain a specified
investment in the respective commodity pools. The limited
partnership agreement of Kenmar Performance Partners L.P. requires
the Company to maintain an investment in the Partnership of 1% of
Net Asset Value, up to a total of $500,000. The limited partnership
agreement of The Dennis Fund Limited Partnership requires the
Company to maintain a capital account of no less than the lesser of
1% of the aggregate capital accounts of all partners or $500,000.
The limited partnership agreement of Kenmar Venture Partners Limited
Partnership requires the Company to maintain an investment of 1% of
the aggregate capital contributions as well as a net worth of not
less than 10% of the total contributions to the Partnership. The
limited partnership agreements of The Dennis Friends & Family
Limited Partnership, The Hirst Investment Fund Limited Partnership
and The Hirst Investment (2X) 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, 1999, the minimum aggregate investments required
under the terms of the agreements with these commodity pools was
approximately $1,400,000. The Company, as Managing Owner of KGT, has
also agreed to maintain a net worth of not less than $1,000,000. As
of September 30, 1999, the Company maintained net worth in excess of
$3,800,000.
For managing the business of the commodity pools, the Company earns
fees and commissions in accordance with the terms of the respective
limited partnership, trust or operating agreements. As General
Partner, Managing Owner or Managing Member, the Company has a
fiduciary responsibility to the commodity pools, and potential
liability beyond the amounts recognized as an asset in the statement
of financial condition.
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 was 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, 1999, the Company has
incurred $527,000 which has been fully reimbursed by KGT. The
Company recorded an expense when such amounts were incurred and
recorded the reimbursement from KGT as income when it was received.
F-32
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
(Unaudited)
-----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
Summarized financial information for Kenmar Performance Partners
L.P., the Company's most significant commodity pool investment, as
of and for the year ended September 30, 1999, is as follows:
Assets $ 51,082,362
Liabilities 1,005,756
------------
Net asset value $ 50,076,606
============
Income $ 758,143
Expenses 13,770,335
------------
Net (loss) $(13,012,192)
============
Note 3. PROPERTY AND EQUIPMENT
At September 30, 1999, the Company's property and equipment consists
of:
Furniture and fixtures $ 76,887
Office equipment 356,317
Leasehold improvements 10,541
Leased assets 585,736
-----------
1,029,481
===========
Less: Accumulated depreciation and
amortization (595,175)
-----------
$ 434,306
===========
Leased assets are comprised primarily of furniture, fixtures and
office equipment. Accumulated amortization related to leased assets
aggregated $416,895 at September 30, 1999.
F-33
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
(Unaudited)
-----------
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
------------------------
2000 $ 150,970
2001 62,299
---------
Total minimum lease payments 213,269
Less: Amounts representing interest
and execution costs (24,357)
---------
Present value of net minimum
lease payments $ 188,912
=========
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
------------------------
2000 $ 379,413
2001 442,959
2002 448,567
2003 448,567
2004 448,567
Thereafter 37,379
----------
$2,205,452
==========
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 result principally from 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.
F-34
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
(Unaudited)
-----------
Note 5. INCOME TAXES (CONTINUED)
Income taxes payable to the Parent as of September 30, 1999, was
$41,234. 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
and also pays certain expenses on behalf of the group. The Company,
in turn, charges the appropriate portion of such expenses, at cost,
to its affiliates.
The following amounts are due from affiliates at September 30,
1999:
Members of the Parent group, net $1,288,341
Kenmar Management Ltd. 379,410
Select Advisors L.L.C 170,523
Kenmar Greenwich Holdings LLC 45,150
Kenmar Global Strategies Inc. 93,100
Other 83,050
----------
$2,059,574
==========
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 incurred by such commodity pools. The Company
also receives incentive, management, administrative, and other fees
directly from the commodity pools, in accordance with the respective
agreements. For certain commodity pools, the Company in turn pays
management and incentive fees to the trading advisors. At September
30, 1999, the Company is owed fees of $499,284 from these commodity
pools.
The Company is party to protection and security agreements in
connection with two offshore investment funds managed by its
affiliate, Kenmar Management Ltd., which require that the Company
ensure its affiliate's operational compliance with the terms of such
agreements.
F-35
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
(Unaudited)
-----------
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 a series of secured notes may
be executed to fund specified costs incurred by the Company as
Managing Owner of 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 8.25% as of
September 30, 1999, 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 Ltd. The agreement also contains
certain covenants which, if not met, could subject amounts
outstanding under the agreement to accelerated repayment.
At September 30, 1999, notes totaling $528,445 are outstanding under
this line of credit agreement, of which $473,072 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.
The Company, as General Partner, Managing Owner or Managing Member,
has established procedures to actively monitor market risk and to
minimize credit risk of its affiliated commodity pools.
F-36
<PAGE>
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
KENMAR GLOBAL TRUST
$72,000,000
UNITS OF BENEFICIAL INTEREST
-----------------------------------
THIS IS A SPECULATIVE AND LEVERAGED INVESTMENT WHICH INVOLVES THE RISK OF LOSS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE "THE RISKS YOU FACE" BEGINNING AT PAGE 8 IN PART ONE.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE
DOCUMENT AND A STATEMENT OF ADDITIONAL
INFORMATION. THESE PARTS ARE BOUND
TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION
-----------------------------------
KENMAR ADVISORY CORP.
MANAGING OWNER
<PAGE>
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PROSPECTUS SECTION PAGE
- ------------------ ----
THE FUTURES AND FORWARD MARKETS................................................1
Futures and Forward Contracts...............................................1
Hedgers and Speculators.....................................................1
Commodity Exchanges.........................................................1
Speculative Position and Daily Price Fluctuation Limits.....................1
Margins.....................................................................2
Transtrend B.V. Supplemental Performance Information........................2
EXHIBIT A--AMENDED AND RESTATED
DECLARATION OF TRUST AND
TRUST AGREEMENT..........................................................TA-1
ANNEX--REQUEST FOR REDEMPTION
EXHIBIT B--SUBSCRIPTION REQUIREMENTS........................................SR-1
EXHIBIT C--SUBSCRIPTION INSTRUCTIONS,
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY.......................................................SA-1
-i-
<PAGE>
THE FUTURES AND FORWARD MARKETS
FUTURES AND FORWARD CONTRACTS
Commodity futures contracts in the United States are required to be made
on approved commodity exchanges and call for the future delivery of various
commodities at a specified time, place and price. These contractual obligations,
depending on whether one is a buyer or a seller, may be satisfied either by
taking or making physical delivery of an approved grade of the particular
commodity (or, in the case of some contracts, by cash settlement) or by making
an offsetting sale or purchase of an equivalent commodity futures contract on
the same exchange prior to the designated date of delivery. Certain futures
contracts call for cash settlement rather than settlement by delivery, and the
Fund will, in any event, offset virtually all of its futures contracts prior to
any actual delivery occurring.
Currencies may be purchased or sold for future delivery through banks or
dealers pursuant to what are commonly referred to as "spot" or "forward"
contracts. Spot contracts settle two days after the trade date; forward
contracts have more delayed settlements. Spot and forward contracts are commonly
referred to collectively as "cash" contracts. In trading cash currency contracts
for the Fund, banks or dealers act as principals and include their anticipated
profit and costs in the prices they quote; such mark-ups are known as "bid-ask"
spreads. Brokerage commissions are typically not charged in cash trading.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade in commodity futures
are "hedgers" and "speculators." Commercial interests, including farmers, 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 there is no clearinghouse to 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. The
principal purpose of speculative position limits is to prevent a "corner" on the
market or undue influence on prices by
1
<PAGE>
any single trader or group of traders. 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 potentially profitable positions which
such Advisor otherwise would acquire on behalf of the Fund.
Most United States exchanges limit by regulations the maximum permissible
fluctuation in commodity futures contract prices during a single trading day.
These regulations establish what are commonly referred to as "daily limits."
Daily limits restrict the maximum amount by which the price of a futures
contract may vary either up or down from the previous day's settlement price.
Because these limits apply on a day-to-day basis, they do not limit ultimate
losses, but may reduce or eliminate liquidity. Daily limits are generally not
applicable to currency futures or to forward contracts.
MARGINS
Margins represent a security deposit to assure futures traders'
performance under their open positions. When a position is established, "margin"
is deposited and at the close of each trading day "variation margin" is either
credited or debited from a trader's account, representing the unrealized gain or
loss on open positions during the day. If "variation margin" payments cause a
trader's "margin" to fall below "maintenance margin" levels, a "margin call"
will be made requiring the trader to deposit additional margin or have his
position closed out.
TRANSTREND B.V. SUPPLEMENTAL PERFORMANCE INFORMATION
Diversified Program (Enhanced Risk Subset Composite -- "Notional" Equity
Included)
The following summary performance information and chart constitute
supplemental information and reflect the composite pro forma performance results
of the program traded on behalf of the Fund. Based on aggregate nominal account
size ("notional" equity included) for the period from January 1995 through
September 1999, the largest monthly drawdown was (9.47)% (10/97) and the largest
peak-to-valley drawdown was (9.72)% (3/97-5/97).
================================================================================
Monthly 1999(%) 1998(%) 1997(%) 1996(%) 1995(%)
Performance
- --------------------------------------------------------------------------------
January (3.86) 0.25 9.64 5.38 (6.16)
- --------------------------------------------------------------------------------
February 1.22 0.21 5.12 (6.65) 9.57
- --------------------------------------------------------------------------------
March (2.77) 2.79 (2.17) (0.48) 10.15
- --------------------------------------------------------------------------------
April 3.11 (5.43) (4.07) 8.59 2.16
- --------------------------------------------------------------------------------
May (3.10) 3.55 (0.62) (4.40) 6.49
- --------------------------------------------------------------------------------
June 4.51 1.36 0.20 (0.30) 3.63
- --------------------------------------------------------------------------------
July 1.95 (4.75) 19.27 3.88 (3.70)
- --------------------------------------------------------------------------------
August (2.51) 19.57 1.02 7.26 (0.58)
- --------------------------------------------------------------------------------
September 0.63 1.93 1.87 7.51 1.75
- --------------------------------------------------------------------------------
October 0.86 (8.58) 10.37 (3.81)
- --------------------------------------------------------------------------------
November (1.06) 5.72 1.46 2.07
- --------------------------------------------------------------------------------
December 2.70 7.95 (3.12) 5.70
- --------------------------------------------------------------------------------
Compound Rate (1.18) 21.94 37.92 31.68 29.10
of Return (9 mos.)
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
2
<PAGE>
EXHIBIT A
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
DATED AS OF
DECEMBER 17, 1996
KENMAR ADVISORY CORP.
MANAGING OWNER
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
PAGE
----
1. Declaration of Trust...................................................TA-1
2. The Trustee............................................................TA-2
(a) Term; Resignation................................................TA-2
(b) Powers...........................................................TA-2
(c) Compensation and Expenses of the Trustee.........................TA-2
(d) Indemnification..................................................TA-2
(e) Successor Trustee................................................TA-3
(f) Liability of the Trustee.........................................TA-3
(g) Reliance by the Trustee and the Managing Owner; Advice
of Counsel ......................................................TA-4
(h) Not Part of Trust Estate.........................................TA-4
3. Principal Office.......................................................TA-4
4. Business...............................................................TA-4
5. Term, Dissolution, Fiscal Year and Net Asset Value.....................TA-5
(a) Term.............................................................TA-5
(b) Dissolution......................................................TA-5
(c) Fiscal Year......................................................TA-5
(d) Net Asset Value; Net Asset Value per Unit........................TA-5
6. Net Worth of Managing Owner............................................TA-5
7. Capital Contributions; Units...........................................TA-6
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-9
(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-15
(a) Standard of Liability for the Managing Owner.....................TA-15
(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-17
(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-20
24. Legal Title............................................................TA-20
25. Creditors..............................................................TA-20
TA-i
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This Amended and Restated Declaration of Trust and Trust Agreement (the
"Declaration of Trust Agreement") is made as of December 17, 1996, by and among
Kenmar Advisory Corp., a Connecticut corporation (the "Managing Owner"),
Wilmington Trust Company, a Delaware banking corporation, as trustee (the
"Trustee") and each other party who becomes a party to this Declaration of Trust
Agreement as an owner of a unit ("Unit") of beneficial interest of the Trust or
who becomes a party to this Declaration of Trust as a Unitholder by execution of
a Subscription Agreement and Power of Attorney Signature Page or otherwise and
who is shown in the books and records of the Trust as a Unitholder
(individually, a "Unitholder" and, collectively, the "Unitholders").
WITNESSETH:
WHEREAS, the Managing Owner, the Trustee and a private partnership of
which the Managing Owner is a general partner, as the initial beneficial owner,
formed a business trust pursuant to and in accordance with the Delaware Business
Trust Act, 12 Del. C. ss. 3801, et seq., as amended from time to time (the
"Act"), by filing a Certificate of Trust with the office of the Secretary of
State of the State of Delaware on July 17, 1996, and entering into the
Declaration and Agreement of Trust, dated as of July 17, 1996 (the "Original
Declaration"); and
WHEREAS, the parties hereto desire to continue the Trust for the business
and purpose of issuing Units, the capital of which shall be used to engage in
trading, buying, selling or otherwise acquiring, holding or disposing of futures
contracts, forward contracts, foreign exchange commitments, swaps, exchange for
physicals, spot (cash) commodities, hybrid instruments and other items, options
on and any rights pertaining to the foregoing throughout the world with the
objective of capital appreciation through speculative trading by allocating
Trust Assets to independent professional trading advisors ("Advisors") selected
from time to time by the Managing Owner and to amend and restate the Original
Declaration in its entirety.
NOW THEREFORE, the parties hereto agree as follows:
1. Declaration of Trust.
The Managing Owner hereby acknowledges that the Trust has received the sum
of $400 in a bank account opened in the name of the Trust from the Managing
Owner as grantor of the Trust and $1,600 from the initial beneficial owner (the
"Initial Unitholder"), and the Trustee hereby declares that it shall hold such
sums in trust upon and subject to the conditions set forth herein for the use
and benefit of the Unitholders. It is the intention of the parties hereto that
the Trust shall be a business trust under the Act, and that this Declaration of
Trust shall constitute the governing instrument of the Trust. The Trustee has
filed the Certificate of Trust required by Section 3810 of the Act.
Nothing in this Declaration of Trust shall be construed to make the
Unitholders partners or members of a joint stock association except to the
extent that such Unitholders, as constituted from time to time, are deemed to be
partners under the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable state and local tax laws. Notwithstanding the foregoing, it is the
intention of the parties hereto that the Trust be treated as a partnership for
purposes of taxation under the Code and applicable state and local tax laws.
Effective as of the date hereof, the Trustee shall have all of the rights,
powers and duties set forth herein and in the Act with respect to accomplishing
the purposes of the Trust.
TA-1
<PAGE>
2. The Trustee.
(a) Term; Resignation.
(i) Wilmington Trust Company has been appointed and hereby agrees to
serve as the Trustee of the Trust. The Trust shall have only one trustee
unless otherwise determined by the Managing Owner. The Trustee shall serve
until such time as the Managing Owner removes the Trustee or the Trustee
resigns and a successor Trustee is appointed by the Managing Owner in
accordance with the terms of Section 2(e) hereof.
(ii) The Trustee may resign at any time upon the giving of at least
sixty (60) days' advance written notice to the Trust; provided, that such
resignation shall not become effective unless and until a successor
Trustee shall have been appointed by the Managing Owner in accordance with
Section 2(e) hereof. If the Managing Owner does not act within such sixty
(60) day period, the Trustee may apply to the Court of Chancery of the
State of Delaware for the appointment of a successor Trustee.
(b) Powers. Except to the extent expressly set forth in this Section 2,
Section 3 and Section 24, the duty and authority of the Trustee to manage the
business and affairs of the Trust are hereby delegated to the Managing Owner.
The Trustee shall have only the rights, obligations or liabilities specifically
provided for herein and in the Act and shall have no implied rights, obligations
or liabilities with respect to the business or affairs of the Trust. The Trustee
shall have the power and authority to execute, deliver, acknowledge and file all
necessary documents, including any amendments to or cancellation of the
Certificate of Trust as required by the Act. The Trustee shall provide prompt
notice to the Managing Owner of its performance of any of the foregoing. The
Managing Owner shall keep the Trustee informed of any actions taken by the
Managing Owner with respect to the Trust that affect the rights, obligations or
liabilities of the Trustee hereunder or under the Act.
(c) Compensation and Expenses of the Trustee. The Trustee shall be
entitled to receive from the Trust or, if the assets of the Trust are
insufficient, from the Managing Owner reasonable compensation for its services
hereunder in accordance with the Trustee's standard fee schedule, and shall be
entitled to be reimbursed by the Trust or, if the assets of the Trust are
insufficient, by the Managing Owner for reasonable out-of-pocket expenses
incurred by the Trustee in the performance of its duties hereunder, including
without limitation, the reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the Trustee may employ in
connection with the exercise and performance of its rights and duties hereunder,
to the extent attributable to the Trust.
(d) Indemnification. The Managing Owner agrees, whether or not any of the
transactions contemplated hereby shall be consummated, to assume liability for,
and does hereby indemnify, protect, save and keep harmless the Trustee and its
successors, assigns, legal representatives, officers, directors, agents and
servants (the "Indemnified Parties") from and against any and all liabilities,
obligations, losses, damages, penalties, taxes (excluding any taxes payable by
the Trustee on or measured by any compensation received by the Trustee for its
services hereunder or as indemnity payments pursuant to this Section 2(d)),
claims, actions, suits, costs, expenses or disbursements (including legal fees
and expenses) of any kind and nature whatsoever (collectively, "Expenses"),
which may be imposed on, incurred by or asserted against the Indemnified Parties
in any way relating to or arising out of the formation, operation or termination
of the Trust, the execution, delivery and performance of any other agreements to
which the Trust is a party or the action or inaction of the Trustee hereunder or
thereunder, except for Expenses resulting from the gross negligence or willful
misconduct of the Indemnified Parties. The indemnities contained in this Section
2(d) shall survive the termination of this Declaration of Trust or the removal
or resignation of the Trustee. In addition, the Indemnified Parties shall be
entitled to indemnification from any cash, net equity in any commodity futures,
forward and option contracts, all funds on deposit in the accounts of the Trust,
any other property held by the Trust, and all proceeds therefrom, including any
rights of the Trust pursuant to any agreements to which this Trust is a party
(the "Trust Estate") to the extent such expenses are attributable to the
formation, operation or termination of the Trust as set forth above, and to
secure the same the Trustee shall have a lien against the Trust Estate which
shall be prior to the rights of the Managing Owner and the Unitholders to
receive distributions from the Trust Estate. The Trustee nevertheless agrees
that it will, at its own cost and expense, promptly take all action as may be
necessary to discharge any liens on any part of the Trust Estate which result
from claims against the Trustee personally that are not related to the ownership
or the administration of the Trust Estate or the transactions contemplated by
any documents to which the Trust is a party.
TA-2
<PAGE>
(e) Successor Trustee. Upon the resignation or removal of the Trustee, the
Managing Owner shall appoint a successor Trustee by delivering a written
instrument to the outgoing Trustee. Any successor Trustee must satisfy the
requirements of Section 3807 of the Act. Any resignation or removal of the
Trustee and appointment of a successor Trustee shall not become effective until
a written acceptance of appointment is delivered by the successor Trustee to the
outgoing Trustee and the Managing Owner and any fees and expenses due to the
outgoing Trustee are paid. Following compliance with the preceding sentence, the
successor Trustee shall become fully vested with all of the rights, powers,
duties and obligations of the outgoing Trustee under this Declaration of Trust,
with like effect as if originally named as Trustee, and the outgoing Trustee
shall be discharged of its duties and obligations under this Declaration of
Trust.
(f) Liability of the Trustee. Except as otherwise provided in this Section
2, in accepting the trust created hereby, Wilmington Trust Company acts solely
as Trustee hereunder and not in its individual capacity, and all persons having
any claim against the Trustee by reason of the transactions contemplated by this
Declaration of Trust and any other agreement to which the Trust is a party shall
look only to the Trust Estate for payment or satisfaction thereof. The Trustee
shall not be liable or accountable hereunder or under any other agreement to
which the Trust is a party, except for the Trustee's own gross negligence or
willful misconduct. In particular, but not by way of limitation:
(i) the Trustee shall have no liability or responsibility for the
validity or sufficiency of this Declaration of Trust or for the form,
character, genuineness, sufficiency, value or validity of the Trust
Estate;
(ii) the Trustee shall not be liable for any actions taken or
omitted to be taken by it in accordance with the instructions of the
Managing Owner or any Unitholder;
(iii) the Trustee shall not have any liability for the acts or
omissions of the Managing Owner;
(iv) the Trustee shall not be liable for its failure to supervise
the performance of any obligations of the Managing Owner, any commodity
broker, any Selling Agents or any additional Selling Agents;
(v) no provision of this Declaration of Trust shall require the
Trustee to expend or risk funds or otherwise incur any financial liability
in the performance of any of its rights or powers hereunder if the Trustee
shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured or provided to it;
(vi) under no circumstances shall the Trustee be liable for
indebtedness evidenced by or other obligations of the Trust arising under
this Declaration of Trust or any other agreements to which the Trust is a
party;
(vii) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Declaration of Trust, or to
institute, conduct or defend any litigation under this Declaration of
Trust or any other agreements to which the Trust is a party, at the
request, order or direction of the Managing Owner or any Unitholders
unless the Managing Owner or such Unitholders have offered to the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Trustee (including, without
limitation, the reasonable fees and expenses of its counsel) therein or
thereby; and
(viii) notwithstanding anything contained herein to the contrary,
the Trustee shall not be required to take any action in any jurisdiction
other than in the State of Delaware if the taking of such action will (a)
require the consent or approval or authorization or order of or the giving
of notice to, or the registration with or taking of any action in respect
of, any state or other governmental authority or agency of any
jurisdiction other than the State of Delaware, (b) result in any fee, tax
or other governmental charge under the laws of any jurisdiction or any
political subdivision thereof in existence as of the date hereof other
than the State of Delaware becoming payable by the Trustee or
TA-3
<PAGE>
(c) subject the Trustee to personal jurisdiction other than in the
State of Delaware for causes of action arising from personal acts
unrelated to the consummation by the Trustee of the transactions
contemplated hereby.
(g) Reliance by the Trustee and the Managing Owner; Advice of
Counsel.
(i) In the absence of bad faith, the Trustee and the Managing Owner
may conclusively rely upon certificates or opinions furnished to the
Trustee or the Managing Owner and conforming to the requirements of this
Declaration of Trust in determining the truth of the statements and the
correctness of the opinions contained therein, and shall incur no
liability to anyone in acting on any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper which is believed to be genuine and believed to be
signed by the proper party or parties, and need not investigate any fact
or matter pertaining to or in any such document; provided, however, that
the Trustee or the Managing Owner shall have examined any certificates or
opinions so as to determine compliance of the same with the requirements
of this Declaration of Trust. The Trustee or the Managing Owner may accept
a certified copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive evidence that such
resolution has been duly adopted by such body and that the same is in full
force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Trustee or the
Managing Owner 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
TA-4
<PAGE>
Trust's participation in any of the foregoing has no adverse economic or
liability consequences for the Unitholders, which consequences would not be
present had the Trust engaged in that same business or purpose directly.
5. Term, Dissolution, Fiscal Year.
(a) Term. The term of the Trust commenced on the day on which the
Certificate of Trust was filed with the Secretary of State of the State of
Delaware pursuant to the provisions of the Act and shall end upon the first to
occur of the following: (1) December 31, 2026; (2) receipt by the Managing Owner
of an approval to dissolve the Trust at a specified time by Unitholders owning
Units representing more than fifty percent (50%) of the outstanding Units then
owned by Unitholders, notice of which is sent by certified mail return receipt
requested to the Managing Owner not less than 90 days prior to the effective
date of such dissolution; (3) death, insanity, bankruptcy, retirement,
resignation, expulsion, withdrawal, insolvency or dissolution of the Managing
Owner or any other event that causes the Managing Owner to cease to be a
managing owner unless (i) at the time of such event there is at least one
remaining managing owner of the Trust who carries on the business of the Trust
(and each remaining managing owner of the Trust is hereby authorized to carry on
the business of the Trust in such an event), or (ii) within one hundred twenty
days after such event Unitholders holding a majority of Units agree in writing
to continue the business of the Trust and to the appointment, effective as of
the date of such event, of one or more managing owners of the Trust; (4) a
decline in the aggregate Net Assets of the Trust to less than $250,000; (5)
dissolution of the Trust pursuant hereto; or (6) any other event which shall
make it unlawful for the existence of the Trust to be continued or require
termination of the Trust. In the event that the Managing Owner (or an affiliate
thereof) ceases to be the trust's managing owner, the word "Kenmar" shall be
deleted from the name of the Trust, and any appropriate filings shall be made.
(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.
TA-5
<PAGE>
7. Capital Contributions; Units.
The Unitholders' respective capital contributions to the Trust shall be as
shown on the books and records of the Trust. The Initial Unitholder will
withdraw upon the admission of additional Unitholders.
The Managing Owner, so long as it is generally liable for the obligations
of the Trust, or any substitute managing owner, shall invest in the Trust, as a
general liability interest, sufficient capital so that the Managing Owner will
have at all times a capital account equal to 1% of the total capital accounts of
the Trust (including the Managing Owner's). The Managing Owner may withdraw any
interest it may have in excess of such requirement, and may redeem as of any
month-end any interest which it may acquire on the same terms as any Unitholder,
provided that it must maintain the minimum interest described in the preceding
sentence.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws and qualify
under any guidelines or statements of policy promulgated by any body or agency
constituted by the various state securities administrators having jurisdiction
in the premises.
The Managing Owner may, without the consent of any Unitholders of the
Trust, admit to the Trust purchasers of Units as Unitholders of the 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
TA-6
<PAGE>
the case may be, of all Units; provided that the Managing Owner may allocate
Incentive Fees and Profit Shares first to Units whose Net Asset Value was
reduced by accrued Incentive Fees and Profit Shares upon redemption, in an
amount up to the amount of such reduction.
(3) Third, capital gain or loss shall be allocated as follows:
(A) There shall be established a tax account with respect to each
outstanding Unit. The balance of each tax account shall be the amount paid
to the Trust for each Unit. As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of
income or gain allocated to each Unit pursuant to Sections 8(b)(1)
and 8(b)(3)(B) and (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)(D) and (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
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preceding sentence shall be allocated among all Unitholders described in
such sentence in proportion to their holdings of such Units.
(F) For purposes of this Section 8(b), "Capital Gain" or "Capital
Loss" shall mean gain or loss characterized as gain or loss from the sale
or exchange of a capital asset, by the Code, including, but not limited
to, gain or loss required to be taken into account pursuant to Section
1256 thereof.
(4) The allocation of profit and loss for federal income tax
purposes set forth herein is intended to allocate taxable profit and loss among
Unitholders generally in the ratio and to the extent that profit and loss are
allocated to such Unitholders so as to eliminate, to the extent possible, any
disparity between the Unitholder's capital account and his tax account,
consistent with principles set forth in Section 704 of the Code, including
without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the Unitholders in respect
of the Units shall not exceed the allocations permitted under Subchapter K of
the Code, as determined by the Managing Owner, whose determination shall be
binding.
(c) Incentive Fees; Profit Shares. Incentive Fees shall be payable to the
Managing Owner as of the end of each calendar year and upon redemption of Units.
Incentive Fees shall equal 5% of New Overall Appreciation (if any)
calculated as of each fiscal year-end and upon redemption of Units. New Overall
Appreciation shall be calculated, not on a per-Unit basis, but on the basis of
the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
Incentive Fees shall be paid by the Trust as a whole, irrespective of
whether the Net Asset Value has declined below the purchase price of such Unit.
Accrued Incentive Fees shall reduce the redemption price of Units and shall be
paid to the Managing Owner upon redemption. The amount (if any) of the accrued
Incentive Fee that shall be paid to the Managing Owner upon the redemption of
any Unit shall be determined by dividing the total Incentive Fee as of such
redemption date by the number of Units then outstanding (including Units
redeemed as of such date); the remainder of the accrued Incentive Fee shall be
paid to the Managing Owner on December 31 of each year.
For capital account purposes, accrued Incentive Fees shall, in all cases,
be reflected equally as a reduction in the Net Asset Value per Unit of all Units
outstanding at the time the Incentive Fee accrued, and reversals of accrued
Incentive Fees shall equally increase the Net Asset Value per Unit of all Units
outstanding at the time of the accrual of such reversal, irrespective of whether
a particular Unit was outstanding when a particular Incentive Fee was accrued.
Early redemption charges shall in no respect reduce New Overall
Appreciation.
The Profit Shares paid to the Advisors pursuant to the Advisory Agreements
among the Managing Owner, the Trust and each such Advisor shall result in
deductions being allocated to the Unitholders. Such allocation shall apply the
same principles as the allocation of Incentive Fee deductions described above.
Profit Shares with respect to any calendar quarter will be paid to an Advisor as
of the last day of such period, except that Profit Shares with respect to Units
redeemed as of the last day of any month that does not end a calendar quarter
shall be paid as of the 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.
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(d) Expenses. The Managing Owner shall pay, without reimbursement, the
selling and "trailing commissions" relating to the offering of the Units. The
Trust shall pay the Managing Owner brokerage commissions at the rate of 11% per
annum of the average beginning of month Net Assets of the Trust. The Trust shall
bear all administrative costs, ongoing offering costs and any taxes applicable
to it and any charges incidental to trading, including agency brokerage
commissions (e.g., "bid-ask" spreads). In no event shall organizational and
offering expenses, including selling commissions and redemption fees, exceed 15%
of the capital contributions to the Trust. Any unreimbursed organizational and
initial offering expenses as of the date of the Trust's dissolution shall not be
reimbursed to the Managing Owner from the proceeds resulting from such
dissolution. However, none of the Managing Owner's "overhead" expenses incurred
in connection with the administration of the Trust (including, but not limited
to, salaries, rent and travel expenses) shall be charged to the Trust. Any goods
and services provided to the Trust by the Managing Owner shall be provided at
rates and terms at least as favorable as those which may be obtained from third
parties in arm's-length negotiations. All of the expenses which are for the
Trust's account shall be billed directly to the Trust. Appropriate reserves may
be created, accrued and charged against Net Assets for contingent liabilities,
if any, as of the date any such contingent liability becomes known to the
Managing Owner. Such reserves shall reduce Net Asset Value for all purposes.
(e) Limited Liability of Unitholders. Each Unit, when purchased in
accordance with this Declaration of Trust and Trust Agreement, shall, except as
otherwise provided by law, be fully paid and nonassessable. Any provisions of
this Declaration of Trust and Trust Agreement to the contrary notwithstanding,
except as otherwise provided by law, no Unitholder shall be liable for Trust
obligations in excess of the capital contributed by such Unitholder, plus his
share of undistributed profits and assets.
(f) Return of Capital Contributions. No Unitholder or subsequent assignee
shall have any right to demand the return of his capital contribution or any
profits added thereto, except through redeeming Units or upon dissolution of the
Trust, in each case as provided herein and in accordance with the Act. In no
event shall a Unitholder or subsequent assignee be entitled to demand or receive
property other than cash.
9. Management of the Trust.
The Managing Owner, to the exclusion of all Unitholders, shall control,
conduct and manage the business of the Trust. The Managing Owner shall have sole
discretion in determining what distributions of profits and income, if any,
shall be made to the Unitholders (subject to the allocation provisions hereof),
shall execute various documents on behalf of the Trust and the Unitholders
pursuant to powers of attorney and supervise the liquidation of the Trust if an
event causing dissolution of the Trust occurs.
The Managing Owner may in furtherance of the business of the Trust cause
the Trust to retain Advisors to buy, sell, hold, or otherwise acquire or dispose
of commodities, futures contracts and options traded on exchanges or otherwise,
arbitrage positions, repurchase agreements, interest-bearing securities, deposit
accounts and similar instruments, provided that the Trust shall not invest in
any debt instruments other than Treasury securities, short-term sovereign debt
instruments and other investments authorized by the Commodity Futures Trading
Commission (the "CFTC") for the investment of "customer funds," and shall not
invest in any equity security without prior notice to Unitholders, all as
described in the Prospectus relating to the offering of the Units in effect as
of the time that such Unitholder last purchased Units while in receipt of a
current Prospectus (the "Prospectus"). The Managing Owner may engage, and
compensate on behalf of the Trust from funds of the Trust, or agree to share
profits and losses with, such persons, firms or corporations, including (except
as described in this Declaration of 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
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preceding year. The Managing Owner is hereby specifically authorized to enter
into, on behalf of the Trust, the Advisory Agreements and the Selling Agreement
as described in the Prospectus. The Managing Owner shall not enter into an
Advisory Agreement with any trading advisor that does not satisfy the relevant
experience (i.e., ordinarily a minimum of three years) requirements under the
NASAA Guidelines. The Trust's brokerage commissions may not be increased (i)
during any period when redemption charges are in effect or (ii) without prior
written notice to Unitholders within sufficient time for the exercise of their
redemption rights prior to such increase becoming effective. Such notification
shall contain a description of Unitholder's voting and redemption rights and a
description of any material effect of such increase.
In addition to any specific contract or agreements described herein, the
Trust may enter into any other contracts or agreements specifically described in
or contemplated by the Prospectus without any further act, approval or vote of
the Unitholders, notwithstanding any other provisions of this Declaration of
Trust and Trust Agreement, the Act or any applicable law, rule or regulations.
The Managing Owner shall be under a fiduciary duty to conduct the affairs
of the Trust in the best interests of the Trust. The Unitholders will under no
circumstances be deemed to have contracted away the fiduciary obligations owed
them by the Managing Owner under the common law. The Managing Owner's fiduciary
duty includes, among other things, the safekeeping of all Trust funds and assets
and the use thereof for the benefit of the Trust. The Managing Owner shall at
all times act with integrity and good faith and exercise due diligence in all
activities relating to the conduct of the business of the Trust and in resolving
conflicts of interest. The Trust's brokerage arrangements shall be
non-exclusive, and the brokerage commissions paid by the Trust shall be
competitive. The Trust shall seek the best price and services available for its
commodity transactions.
The Managing Owner is hereby authorized to perform all other duties
imposed by Sections 6221 through 6232 of the Code on the Managing Owner as the
"tax matters partner" of the Trust.
The Trust shall make no loans to any party, and the funds of the Trust
will not be commingled with the funds of any other person or entity (deposit of
funds with a commodity broker, clearinghouse or forward dealer or entering into
joint ventures or partnerships shall not be deemed to constitute "commingling"
for these purposes). The Managing Owner shall make no loans to the Trust unless
approved by the Unitholders in accordance with Section 18(a) of this Declaration
of Trust and Trust Agreement. If the Managing Owner makes a loan to the Trust,
the Managing Owner shall not receive interest in excess of its interest costs,
nor may the Managing Owner receive interest in excess of the amounts which would
be charged the Trust (without reference to the Managing Owner's financial
resources or guarantees) by unrelated banks on comparable loans for the same
purpose. The Managing Owner shall not receive "points" or other financing
charges or fees regardless of the amount. Except in respect of the Incentive
Fee, no person or entity may receive, directly or indirectly, any advisory,
management or incentive fees, or any profit-sharing allocation from joint
ventures, partnerships or similar arrangements in which the Trust participates,
for investment advice or management who shares or participates in any commodity
brokerage commissions; no broker may pay, directly or indirectly, rebates or
give-ups to any trading advisor or manager or to the Managing Owner or any of
their respective affiliates in respect of sales of the Units; and such
prohibitions may not be circumvented by any reciprocal business arrangements.
The foregoing prohibition shall not prevent the Trust from executing, at the
direction of any Advisor, transactions with any futures commission merchant or
broker. No trading advisor for the Trust shall be affiliated with the Trust's
commodity broker, the Managing Owner or their affiliates. The maximum period
covered by any contract entered into by the Trust, except for the various
provisions of the Selling Agreement which survive each closing of the sales of
the Units, shall not exceed one year. Any material change in the Trust's basic
investment policies or structure shall require the approval of Unitholders
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."
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The Managing Owner may take such other actions on behalf of the Trust as
the Managing Owner deems necessary or desirable to manage the business of the
Trust.
The Managing Owner shall reimburse the Trust for any advisory fees paid by
the Trust to any trading advisor over the course of any fiscal year, to the
extent that the fees paid during such year exceed the 6% annual management fees
and the 15% quarterly incentive fees (calculating New Trading Profit, as defined
in the Prospectus, after all expenses and without including interest income)
contemplated by the NASAA Guidelines (as the NASAA Guidelines permit such limits
to be adjusted). Any such reimbursement shall be made on a present value basis,
fully compensating the Trust for having made payments at any time during the
year which would not otherwise have been due from it. The Managing Owner shall
disclose any such reimbursement in the Annual Report delivered to Unitholders.
The Managing Owner is engaged, and may in the future engage, in other
business activities and shall not be required to refrain from any other activity
nor forego any profits from any such activity, whether or not in competition
with the Trust. Unitholders may similarly engage in any such other business
activities. The Managing Owner shall devote to the Trust such time as the
Managing Owner may deem advisable to conduct the Trust's business and affairs.
10. Audits and Reports to Unitholders.
The Trust books shall be audited annually by an independent certified
public accountant. The Trust will use its best efforts to cause each Unitholder
to receive (i) within 90 days after the close of each fiscal year certified
financial statements of the Trust for the fiscal year then ended, (ii) within 90
days of the end of each fiscal year (but in no event later than March 15 of each
year) such tax information as is necessary for a Unitholder to complete his
federal income tax return and (iii) such other annual and monthly information as
the CFTC may by regulation require. The Managing Owner shall include in the
Annual Reports sent to Unitholders an approximate estimate (calculated as
accurately as may be reasonably practicable) of the round-turn equivalent
brokerage commission rate paid by the Trust during the preceding year. The Trust
shall notify Unitholders within seven business days of any material change (i)
in the agreements with the Trust's advisors, including any modification in the
method of calculating the advisory fee and (ii) in the compensation of any party
relating to the Trust. Unitholders or their duly authorized representatives may
inspect the Trust books and records during normal business hours upon reasonable
written notice to the Managing Owner and obtain copies of such records
(including by post upon payment of reasonable mailing costs); upon payment of
reasonable reproduction costs provided, however, upon request by the Managing
Owner, the Unitholder shall represent that the inspection and/or copies of such
records will not be for commercial purposes unrelated to such Unitholder's
interest as a beneficial owner of the Trust. The Managing Owner shall have the
right to keep confidential from the Unitholders, for such period of time as the
Managing Owner deems reasonable, any information that the Managing Owner
reasonably believes that the Trust is required by law or by agreement with a
third party to keep confidential.
The Managing Owner shall calculate the approximate Net Asset Value per
Unit on a daily basis and furnish such information upon request to any
Unitholder.
The Managing Owner shall maintain and preserve all Trust records for a
period of not less than six (6) years.
The Managing Owner will, with the assistance of the Trust's commodity
broker, make an annual review of the commodity brokerage arrangements applicable
to the Trust. In connection with such review, the Managing Owner will ascertain,
to the extent practicable, the commodity brokerage rates charged to other major
commodity pools whose trading and operations are, in the opinion of the Managing
Owner, comparable to those of the Trust in order 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
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applicable federal or state securities laws or without giving written notice to
the Managing Owner. No assignment, transfer or disposition by an assignee of
Units or of any part of his right, title and interest in the capital or profits
of the Trust shall be effective against the Trust or the Managing Owner until
the Managing Owner receives the written notice of the assignment; the Managing
Owner shall not be required to give any assignee any rights hereunder prior to
receipt of such notice. The Managing Owner may, in its sole discretion, waive
any such notice. No such assignee, except with the consent of the Managing
Owner, which consent may be withheld in the absolute discretion of the Managing
Owner, may become a substituted Unitholder, nor will the estate or any
beneficiary of a deceased Unitholder or assignee have any right to redeem Units
from the Trust except by redemption as provided in Section 12 hereof. Each
Unitholder agrees that with the consent of the Managing Owner any assignee may
become a substituted Unitholder without need of the further act or approval of
any Unitholder. If the Managing Owner withholds consent, an assignee shall not
become a substituted Unitholder, and shall not have any of the rights of a
Unitholder, except that the assignee shall be entitled to receive that share of
capital and profits and shall have that right of redemption to which his
assignor would otherwise have been entitled. No assignment, transfer or
disposition of Units shall be effective against the Trust or the Managing Owner
until the first day of the month succeeding the month in which the Managing
Owner receives notice of such assignment, transfer or disposition. No Units may
be transferred where, after the transfer, either the transferee or the
transferor would hold less than the minimum number of Units equivalent to an
initial minimum purchase, except for transfers by gift, inheritance, intrafamily
transfers, family dissolutions, and transfers to Affiliates.
12. Redemptions.
A Unitholder or any assignee of Units of whom the Managing Owner has
received written notice as described above may redeem all or any of his Units
(such redemption being herein referred to as a "redemption") effective as of the
close of business (as determined by the Managing Owner) on the last day of any
month, beginning with the end of the sixth month after such Units are sold;
provided that: (i) all liabilities, contingent or otherwise, of the Trust
(including the Trust's allocable share of the liabilities, contingent or
otherwise, of any entities in which the Trust invests), except any liability to
Unitholders on account of their capital contributions, have been paid or there
remains property of the Trust sufficient to pay them; and (ii) the Managing
Owner shall have timely received a request for redemption, as provided in the
second following paragraph.
Units redeemed on or before the end of the twelfth full calendar month and
after the end of the twelfth full month but on or before the end of the
eighteenth full calendar month after the date as of which such Units begin to
participate in the profits and losses of the Trust are subject to early
redemption charges of 3% and 2%, respectively, of the Net Asset Value at which
they are redeemed. Such charges will be paid to the Managing Owner. In the event
that a Unitholder acquires Units at more than one month-end, such Units will be
treated on a "first-in, first-out" basis for purposes of determining whether
such Units are redeemable and whether early redemption charges apply.
Requests for redemption must be received by the Managing Owner at least
ten calendar days, or such lesser period as shall be acceptable to the Managing
Owner, in advance of the requested effective date of redemption. The Managing
Owner may declare additional redemption dates upon notice to the Unitholders as
well as to those assignees of whom the Managing Owner has received notice as
described above.
If at the close of business (as determined by the Managing Owner) on any
day, the Net Asset Value per Unit has decreased to less than 50% of the Net
Asset Value per Unit as of the most recent Valuation Date, after adding back all
distributions, the Trust shall notify investors within seven business days and
shall liquidate all open positions as expeditiously as possible and suspend
trading. Within ten business days after the date of suspension of trading, the
Managing Owner (and any other managing owners of the Trust) shall declare a
Special Redemption Date. Such Special Redemption Date shall be a business day
within 30 business days from the date of suspension of trading by the Trust, and
the Managing Owner shall mail notice of such date to each Unitholder and
assignee of 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
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Redemption Date. As in the case of a regular redemption, an assignee shall not
be entitled to redemption until the Managing Owner has received written notice
(as described above) of the assignment, transfer or disposition under which the
assignee claims an interest in the Units to be redeemed. If, after such Special
Redemption Date, the Net Assets of the Trust are at least $250,000 and the Net
Asset Value of a Unit is in excess of $25, the Trust may, in the discretion of
the Managing Owner, resume trading. The Managing Owner may at any time and in
its discretion declare a Special Redemption Date, should the Managing Owner
determine that it is in the best interests of the Trust to do so. The Managing
Owner in its notice of a Special Redemption Date may, in its discretion,
establish the conditions, if any, under which other Special Redemption Dates
must be called, which conditions may be determined in the sole discretion of the
Managing Owner, irrespective of the provisions of this paragraph. The Managing
Owner may also, in its discretion, declare additional regular redemption dates
for Units and permit certain Unitholders to redeem at other than month-end.
Redemption payments will be made within fifteen business days after the
month-end of redemption (and notice that the redemption has occurred will be
provided to Unitholders within ten business days after such month-end), except
that under special circumstances, including, but not limited to, inability to
liquidate commodity positions as of a redemption date or default or delay in
payments due the Trust from commodity brokers, banks or other persons or
entities, the Trust may in turn delay payment to Unitholders or assignees
requesting redemption of their Units of the proportionate part of the Net Asset
Value of such Units equal to that proportionate part of the Trust's aggregate
Net Asset Value represented by the sums which are the subject of such default or
delay.
Only whole Units may be redeemed, except upon complete redemption of an
investor's Units, unless the Managing Owner specifically otherwise consents.
Redemptions may be requested for a minimum of the lesser of $1,000 or ten (10)
Units provided that, for investors redeeming less than all their Units, such
investors remaining units equal at least $500.
The Managing Owner may require a Unitholder to redeem all or a portion of
such Unitholder's Units if the Managing Owner considers doing so to be desirable
for the protection of the Trust, and will use best efforts to do so to the
extent necessary to prevent the Trust from being deemed to hold "plan assets"
under the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code, with respect to any "employee benefit plan"
subject to ERISA or with respect to any plan or account subject to Section 4975
of the Code.
13. Offering of Units.
The Managing Owner on behalf of the Trust shall (i) cause to be filed a
Registration Statement or Registration Statements, and such amendments thereto
as the Managing Owner deems advisable, with the Securities and Exchange
Commission for the registration and ongoing public offering of the Units, (ii)
use its best efforts to qualify and to keep qualified Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the Managing Owner shall deem advisable and (iii) take such action with respect
to the matters described in (i) and (ii) as the Managing Owner shall deem
advisable or necessary.
The Managing Owner shall use its best efforts not to accept any
subscriptions for Units if doing so would cause the Trust to hold "plan assets"
under ERISA or the Code with respect to any "employee benefit plan" subject to
ERISA or with respect to any plan or account subject to Section 4975 of the
Code. If such a subscriber has its subscription reduced for such reason, such
subscriber shall be entitled to rescind its subscription in its entirety even
though subscriptions are otherwise irrevocable.
14. Additional Offerings.
The Managing Owner may, in its discretion, make additional public or
private offerings of Units, provided that the net proceeds to the Trust of any
such sales shall in no event be less than the Net Asset Value per Unit (as
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
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affect the holders of outstanding Units; and provided further that the assets
attributable to each such series or class shall, to the maximum extent permitted
by law, be treated as legally separate and distinct pools of assets, and the
assets attributable to one such series or class be prevented from being used in
any respect to satisfy or discharge any debt or obligation of any other such
series or class.
15. Special Power of Attorney.
Each Unitholder by his execution of this Declaration of Trust and Trust
Agreement does hereby irrevocably constitute and appoint the Managing Owner and
each officer of the Managing Owner, with power of substitution, as his true and
lawful attorney-in-fact, in his name, place and stead, to execute, acknowledge,
swear to (and deliver as may be appropriate) on his behalf and file and record
in the appropriate public offices and publish (as may in the reasonable judgment
of the Managing Owner be required by law): (i) this Declaration of Trust and
Trust Agreement, including any amendments and/or restatements hereto duly
adopted as provided herein; (ii) certificates in various jurisdictions, and
amendments and/or restatements thereto, and of assumed name or of doing business
under a fictitious name with respect to the Trust; (iii) all conveyances and
other instruments which the Managing Owner deems appropriate to qualify or
continue the Trust in the State of Delaware and the jurisdictions in which the
Trust may conduct business, or which may be required to be filed by the Trust or
the Unitholders under the laws of any jurisdiction or under any amendments or
successor statutes to the Act, to reflect the dissolution or termination of the
Trust or the Trust being governed by any amendments or successor statutes to the
Act or to reorganize or refile the Trust in a different jurisdiction; and (iv)
to file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust. The Power of Attorney granted herein shall
be irrevocable and deemed to be a power coupled with an interest (including,
without limitation, the interest of the other Unitholders in the Managing Owner
being able to rely on the Managing Owner's authority to act as contemplated by
this Section 14) and shall survive and shall not be affected by the subsequent
incapacity, disability or death of a Unitholder.
16. Withdrawal of a Unitholder.
The Trust shall be dissolved upon the death, insanity, bankruptcy,
retirement, resignation, expulsion, withdrawal, dissolution, admitted or
court-decreed insolvency or the removal of the Managing Owner, or any other
event that causes the Managing Owner to cease to be a managing owner under the
Act, unless the Trust is continued pursuant to the terms of Section 5(a)(3). In
addition, the Managing Owner may withdraw from the Trust, without any breach of
this Declaration of Trust and Trust Agreement, at any time upon 120 days'
written notice by first class mail, postage prepaid, to each Unitholder and
assignee of whom the Managing Owner has notice. If the Managing Owner withdraws
as managing owner and the Trust's business is continued, the withdrawing
Managing Owner shall pay all expenses incurred as a result of its withdrawal. In
the event of the Managing Owner's removal or withdrawal, the Managing Owner
shall be entitled to a redemption of its interest in the Trust at its Net Asset
Value on the next valuation date following the date of removal or withdrawal.
The Managing Owner may not assign its general liability interest or its
obligation to direct the trading of the Trust assets without the consent of each
Unitholder. The Managing Owner will notify all Unitholders of any change in the
principals 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.
TA-14
<PAGE>
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The Managing Owner and
its Affiliates, as defined below, shall have no liability to the Trust or to any
Unitholder for any loss suffered by the Trust which arises out of any action or
inaction of the Managing Owner or its Affiliates if the Managing Owner, in good
faith, determined that such course of conduct was in the best interests of the
Trust and such course of conduct did not constitute negligence or misconduct of
the Managing Owner or its Affiliates.
(b) Indemnification of the Managing Owner by the Trust. To the fullest
extent permitted by law, subject to this Section 17, the Managing Owner and its
Affiliates shall be indemnified by the Trust against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims sustained by
them in connection with the Trust; provided that such claims were not the result
of negligence or misconduct on the part of the Managing Owner or its Affiliates,
and the Managing Owner, in good faith, determined that such conduct was in the
best interests of the Trust; and provided further that Affiliates of the
Managing Owner shall be entitled to indemnification only for losses incurred by
such Affiliates in performing the duties of the Managing Owner and acting wholly
within the scope of the authority of the Managing Owner.
Notwithstanding anything to the contrary contained in the preceding two
paragraphs, the Managing Owner and its Affiliates and any persons acting as
Selling Agents for the Units shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission, the California Department of
Corporations, the Massachusetts Securities Division, the Pennsylvania Securities
Commission, the Tennessee Securities Division, the Texas Securities Board and
any other state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
The Trust shall not bear the cost of that portion of any insurance which
insures any party against any liability the indemnification of which is herein
prohibited.
For the purposes of this Section 17, the term "Affiliates" shall mean any
person acting on behalf of or performing services on behalf of the Trust who:
(1) directly or indirectly controls, is controlled by, or is under common
control with the Managing Owner; or (2) owns or controls 10% or more of the
outstanding voting securities of the Managing Owner; or (3) is an officer or
director of the Managing Owner; or (4) if the Managing Owner is an officer,
director, partner or trustee, is any entity for which the Managing Owner acts in
any such capacity.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of any legal action
initiated against the Managing Owner by a Unitholder are prohibited.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of a legal action will be
made only if the following three conditions are satisfied: (1) the legal action
relates to the performance of duties or services by the Managing Owner or its
Affiliates on behalf of the Trust; (2) the legal action is initiated by a third
party who is not a Unitholder; and (3) the Managing Owner or its Affiliates
undertake to repay the advanced funds, with interest from the date of such
advance, to the Trust in cases in which they would not be entitled to
indemnification under the standard of liability set forth in Section 17(a).
In no event shall any indemnity or exculpation provided for herein be more
favorable to the Managing Owner or any Affiliate than that contemplated by the
NASAA Guidelines as in effect on the date of this Declaration of Trust and Trust
Agreement.
TA-15
<PAGE>
In no event shall any indemnification permitted by this subsection (b) of
Section 17 be made by the Trust unless all provisions of this Section for the
payment of indemnification have been complied with in all respects. Furthermore,
it shall be a precondition of any such indemnification that the Trust receive a
determination of qualified independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion shall not,
however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Trust hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Trust under this
subsection (b) of this Section 17 subject a Unitholder to any liability in
excess of that contemplated by subsection (e) of Section 8 hereof.
(c) Indemnification of the Trust by the Unitholders. In the event the
Trust is made a party to any claim, dispute or litigation or otherwise incurs
any loss or expense as a result of or in connection with any Unitholder's
activities, obligations or liabilities unrelated to the Trust's business, such
Unitholder shall indemnify and reimburse the Trust for all loss and expense
incurred, including reasonable attorneys' fees.
18. Amendments; Meetings.
(a) Amendments with Consent of the Managing Owner. If at any time during
the term of the Trust the Managing Owner shall deem it necessary or desirable to
amend this Declaration of Trust and Trust Agreement, the Managing Owner may
proceed to do so, provided that such amendment shall be effective only if
embodied in an instrument approved by the Managing Owner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the Managing Owner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The Managing Owner may amend this Declaration of Trust and Trust
Agreement without the consent of the Unitholders in order (i) to clarify any
clerical inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Declaration of Trust and Trust Agreement and the
Prospectus), (ii) to effect the intent of the tax allocations proposed herein to
the maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations, (iii) to attempt to ensure
that the Trust is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Trust as a trust in any jurisdiction, (v) to delete or add any provision of
or to this Declaration of Trust and Trust Agreement required to be deleted or
added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state "Blue Sky" official or similar official or in order
to opt to be governed by any amendment or successor statute to the Act, (vi) to
make any amendment to this Declaration of Trust and Trust Agreement which the
Managing Owner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Unitholders, or that
is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the Managing Owner, to prevent the Trust or the
Managing Owner or its directors, officers or controlling persons from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, or to prevent the assets of the Trust from being considered for any
purpose of ERISA or Section 4975 of the Code to constitute assets of any
"employee benefit plan" as defined in and subject to ERISA or of any "plan"
subject to Section 4975 of the Code.
(b) Amendments and Actions without Consent of the Managing Owner. In any
vote called by the Managing Owner or pursuant to section (c) of this Section 18,
upon the affirmative vote (which may be in person or by proxy) of more than
fifty percent (50%) of the Units then owned by Unitholders, the following
actions may be taken, irrespective of whether the Managing Owner concurs: (i)
this Declaration of Trust and Trust Agreement may be amended, provided, however,
that approval of all Unitholders shall be required in the case of amendments
changing or altering this Section 18, extending the term of the Trust, or
materially changing the Trust's basic investment policies or structure; in
addition, reduction of the capital account of any Unitholder or assignee or
modification of the percentage of profits, losses or distributions to which a
Unitholder or an assignee is entitled hereunder shall not be effected by any
amendment or supplement to this Declaration of Trust and Trust Agreement without
such Unitholder's or assignee's written consent; (ii) the Trust may be
dissolved; (iii) the Managing Owner may be removed and replaced; (iv) a new
managing owner or managing owners may be elected if the Managing Owner withdraws
from the Trust; (v) the sale of all or substantially all of the assets of the
Trust may be approved; and (vi) any contract with the Managing Owner or any
affiliate thereof may be disapproved of and, as a result, terminated upon 60
days' notice.
TA-16
<PAGE>
(c) Meetings; Other Voting Matters. Any Unitholder upon request addressed
to the Managing Owner shall be entitled to obtain from the Managing Owner, upon
payment in advance of reasonable reproduction and mailing costs, a list of the
names and addresses of record of all Unitholders and the number of Units held by
each (which shall be mailed by the Managing Owner to the Unitholder within ten
days of the receipt of the request); provided, that the Managing Owner may
require any Unitholder requesting such information to submit written
confirmation that such information will not be used for commercial purposes.
Upon receipt of a written proposal, signed by Unitholders owning Units
representing at least 10% of the Units then owned by Unitholders, that a meeting
of the Trust be called to vote upon any matter upon which the Unitholders may
vote pursuant to this Declaration of Trust and Trust Agreement, the Managing
Owner shall, by written notice to each Unitholder of record sent by certified
mail within 15 days after such receipt, call a meeting of the Trust. Such
meeting shall be held at least 30 but not more than 60 days after the mailing of
such notice, and such notice shall specify the date of, a reasonable place and
time for, and the purpose of such meeting.
The Managing Owner may not restrict the voting rights of Unitholders as
set forth herein.
In the event that the Managing Owner or the Unitholders vote to amend this
Declaration of Trust and Trust Agreement in any material respect, the amendment
will not become effective prior to all Unitholders having an opportunity to
redeem their Units.
(d) Consent by Trustee. The Trustee's written consent to any amendment of
this Declaration of Trust and Trust Agreement shall be required, such consent
not to be unreasonably withheld; provided, however, that the Trustee may, in its
sole discretion, withhold its consent to any such amendment that would adversely
affect any right, duty or liability of, or immunity or indemnity in favor of,
the Trustee under this Declaration of Trust and Trust Agreement or any of the
documents contemplated hereby to which the Trustee is a party, or would cause or
result in any conflict with or breach of any terms, conditions or provisions of,
or default under, the charter documents or by-laws of the Trustee or any
document contemplated thereby to which the Trustee is a party.
19. Governing Law.
The validity and construction of this Declaration of Trust and Trust
Agreement shall be determined and governed by the laws of the State of Delaware
without regard to principles of conflicts of law; provided, however, that causes
of action for violations of federal or state securities laws shall not be
governed by this Section 19.
20. Miscellaneous.
(a) Notices. All notices under this Declaration of Trust and Trust
Agreement shall be in writing and shall be effective upon personal delivery, or
if sent by first class mail, postage prepaid, addressed to the last known
address of the party to whom such notice is to be given, upon the deposit of
such notice in the United States mail.
(b) Binding Effect. This Declaration of Trust and Trust Agreement shall
inure to and be binding upon all of the parties, all parties indemnified under
Sections 2 and 17 hereof, and their respective successors and assigns,
custodians, estates, heirs and personal representatives. For purposes of
determining the rights of any Unitholder or assignee hereunder, the Trust and
the Managing Owner may rely upon the Trust records as to who are Unitholders and
assignees, and all Unitholders and assignees agree that their rights shall be
determined and they shall be bound thereby.
(c) Captions. Captions in no way define, limit, extend or describe the
scope of this Declaration of Trust and Trust Agreement nor the effect of any of
its provisions. Any reference to "persons" in this Declaration of Trust and
Trust Agreement shall also be deemed to include entities, unless the context
otherwise requires.
21. Benefit Plan Investors.
Each Unitholder that is an "employee benefit plan" as defined in and
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or a "plan" as defined in Section 4975 of the Code (each such
employee benefit plan and plan, a "Plan"), and each fiduciary thereof who has
caused the Plan to become a Unitholder (a
TA-17
<PAGE>
"Plan Fiduciary"), represents and warrants that: (a) the Plan Fiduciary has
considered an investment in the Trust for such Plan in light of the risks
relating thereto; (b) the Plan Fiduciary has determined that, in view of such
considerations, the investment in the Trust for such Plan is consistent with the
Plan Fiduciary's responsibilities under ERISA; (c) the investment in the Trust
by the Plan does not violate and is not otherwise inconsistent with the terms of
any legal document constituting the Plan or any trust agreement thereunder; (d)
the Plan's investment in the Trust has been duly authorized and approved by all
necessary parties; (e) none of Kenmar, any advisor to the Trust, any selling
agent, the clearing broker, the escrow agent, any broker through which any
advisor requires the Trust to trade, the Trustee, any of their respective
affiliates or any of their respective agents or employees: (i) has investment
discretion with respect to the investment of assets of the Plan used to purchase
the Units; (ii) has authority or responsibility to or regularly gives investment
advice with respect to the assets of the Plan used to purchase the Units for a
fee and pursuant to an agreement or understanding that such advice will serve as
a primary basis for investment decisions with respect to the Plan and that such
advice will be based on the particular investment needs of the Plan; or (iii) is
an employer maintaining or contributing to the Plan; and (f) the Plan Fiduciary:
(i) is authorized to make, and is responsible for, the decision for the Plan to
invest in the Trust, including the determination that such investment is
consistent with the requirement imposed by Section 404 of ERISA that Plan
investments be diversified so as to the risks of large losses; (ii) is
independent of Kenmar, any advisor to the Trust, any selling agent, the clearing
broker, the escrow agent, any broker through which any Advisor requires the
Trust to trade, the Trustee and any of their respective affiliates; and (iii) is
qualified to make such investment decision.
22. Certain Definitions.
This Declaration of Trust and Trust Agreement contains certain provisions
required by the NASAA Guidelines. The terms used in such provisions are defined
as follows (the following definitions are included verbatim from the NASAA
Guidelines and, accordingly, may not in all cases be relevant to this
Declaration of Trust and Trust Agreement):
Administrator. The official or agency administering the securities
laws of a state.
Advisor. Any Person who for any consideration engages in the
business of advising others, either directly or indirectly, as to
the value, purchase, or sale of Commodity Contracts or commodity
options.
Affiliate. An Affiliate of a Person means: (a) any Person directly
or indirectly owning, controlling or holding with power to vote 10%
or more of the outstanding voting securities of such Person; (b) any
Person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote,
by such Person; (c) any Person, directly or indirectly, controlling,
controlled by, or under common control with such Person; (d) any
officer, director or partner of such Person; or (e) if such Person
is an officer, director or partner, any Person for which such Person
acts in any such capacity.
Capital Contributions. The total investment in a Program by a
Participant or by all Participants, as the case may be.
Commodity Broker. Any Person who engages in the business of
effecting transactions in Commodity Contracts for the account of
others or for his own account.
Commodity Contract. A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade
of a traded commodity at a specified price and delivery point.
Cross Reference Sheet. A compilation of the Guidelines sections,
referenced to the page of the Prospectus, Program agreement, or
other exhibits, and justification of any deviation from the
Guidelines.
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.
TA-18
<PAGE>
Net Asset Value Per Program Interest. The Net Assets divided by the
number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth
shall be determined exclusive of home, home furnishings and
automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period
or Net Assets at the date trading commences, whichever is higher,
and as further adjusted to eliminate the effect on Net Assets
resulting from new Capital Contributions, redemptions, or capital
distributions, if any, made during the period decreased by interest
or other income, not directly related to trading activity, earned on
Program assets during the period, whether the assets are held
separately or in the margin account.
Organizational and Offering Expenses. All expenses incurred by the
Program in connection with and in preparing a Program for
registration and subsequently offering and distributing it to the
public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the
underwriters' attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program
Interests under federal and state law including taxes and fees,
accountants' and attorneys' fees.
Participant. The holder of a Program Interest.
Person. Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Program. A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
Commodity Contracts.
Program Broker. A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
Program Interest. A limited partnership interest or other security
representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized profit
in a Commodity Contract position to provide margin for any
additional Commodity Contracts of the same or related commodities.
Sponsor. Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or participate in
the management of a Program, including a Commodity Broker who pays
any portion of the Organizational Expenses of the Program, and the
general partner(s) and any other Person who regularly performs or
selects the Persons who perform services for the Program. Sponsor
does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of
the units. The term "Sponsor" shall be deemed to include its
Affiliates.
Valuation Date. The date as of which the Net Assets of the Program
are determined.
Valuation Period. A regular period of time between Valuation Dates.
TA-19
<PAGE>
23. No Legal Title to Trust Estate.
The Unitholders shall not have legal title to any part of the Trust
Estate.
24. Legal Title.
Legal title to all the Trust Estate shall be vested in the Trust as a
separate legal entity; except where applicable law in any jurisdiction requires
any part of the Trust Estate to be vested otherwise, the Managing Owner (or the
Trustee, if required by law) may cause legal title to the Trust Estate of any
portion thereof to be held by or in the name of the Managing Owner or any other
person as nominee.
25. Creditors.
No creditors of any Unitholders shall have any right to obtain possession
of, or otherwise exercise legal or equitable remedies with respect to, the Trust
Estate.
TA-20
<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-21
<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-22
<PAGE>
ANNEX
KENMAR GLOBAL TRUST
REQUEST FOR REDEMPTION
KENMAR GLOBAL TRUST DATE:__________________
c/o Kenmar Advisory Corp., Managing Owner
Two American Lane
P.O. Box 5150
Greenwich, CT 06831
Dear Sirs:
The undersigned (Unitholder #______________) 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") as
indicated below. PLEASE CHECK APPLICABLE BOX BELOW (IF NO BOXES ARE CHECKED
BELOW ALL UNITS HELD OF RECORD BY THE UNDERSIGNED WILL BE REDEEMED):
FULL REDEMPTION (ALL WHOLE AND FRACTIONAL UNITS) |_|
PARTIAL REDEMPTION (INDICATE EITHER DOLLAR AMOUNT |_| $_______ (minimum $1,000)
OR # OF UNITS BEING REDEEMED - WHOLE UNITS ONLY) or _____ units (minimum
(REMAINING UNITS EQUAL AT LEAST 500) 10 units)
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.
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. Units redeemed after the 18th month-end after sale
will be redeemed with no redemption charge.
REMIT PAYMENT TO MY BROKERAGE ACCOUNT BELOW:
- --------------------------------------------------------------------------------
Name of Brokerage firm Account name & Account # Street City, State and Zip
OR REMIT TO ME DIRECTLY:
- --------------------------------------------------------------------------------
Name Mailing address Street City, State and Zip
Telephone: __________________
PRINT NAME(S) OF REGISTERED INDIVIDUAL PRINT NAME OF ENTITY UNITHOLDER BELOW:
UNITHOLDER(S) OR ASSIGNEE(S) BELOW:
- -------------------------------------- --------------------------------------
- --------------------------------------
SIGNATURES BELOW MUST BE IDENTICAL TO NAMES (S) IN WHICH UNITS ARE REGISTERED
INDIVIDUAL UNITHOLDER(S) OR ASSIGNEE(S) AUTHORIZED CORPORATE OFFICER, TRUSTEE
SIGN BELOW OR PARTNER OF ENTITY UNITHOLDER SIGN
BELOW
Title:
- -------------------------------------- --------------------------------
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<PAGE>
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<PAGE>
EXHIBIT B
KENMAR GLOBAL TRUST
--------------------
SUBSCRIPTION REQUIREMENTS
By executing a Subscription Agreement and Power of Attorney Signature Page
for Units of Beneficial Interest ("Units") of KENMAR GLOBAL TRUST (the "Fund"),
each purchaser ("Purchaser") of Units irrevocably subscribes for Units at Net
Asset Value, as described in the Fund's Prospectus dated December 30, 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 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.
--------------------
SR-1
<PAGE>
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 annual 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.
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."
SR-2
<PAGE>
EXHIBIT C
- ----------------------- --------------------
NOT FOR MAINE RESIDENTS NOT TO BE USED AFTER
SEPTEMBER 30, 2000
- ----------------------- --------------------
KENMAR GLOBAL TRUST
SUBSCRIPTION INSTRUCTIONS
ANY PERSON CONSIDERING SUBSCRIBING FOR THE UNITS SHOULD CAREFULLY
READ AND REVIEW A CURRENT PROSPECTUS OF THE FUND DATED DECEMBER 30, 1999.
THE PROSPECTUS SHOULD BE ACCOMPANIED BY THE MOST RECENT
MONTHLY REPORT OF THE FUND.
1. Enter the total dollar amount being invested on line 1.
2. Enter the investor's brokerage account number on line 2, and check the box
if the account is to be debited for investment.
3. Enter the Social Security Number OR Taxpayer ID Number, as applicable, on
line 3 and check the appropriate box to indicate ownership type. For IRA
accounts, the Taxpayer ID Number of the Custodian should be entered, as
well as the Social Security Number of the investor.
4. Check box in line 4 if this is an addition to an existing account and list
Unitholder #.
5. Enter the name of the investor on line 5. For UGMA/UTMA (Minor), enter the
Minor name on line 5, followed by "Minor".
6. For UGMA/UTMA accounts, enter the custodian name on line 6. For Trusts,
enter the Trustee(s) name(s) on line 6. For Corporations, Partnerships,
and Estates, enter the officer or contact person name on line 6. SPECIAL
NOTE: COPIES OF TRUST AGREEMENTS, CORPORATE PAPERS AND OTHER APPROPRIATE
DOCUMENTS MAY BE REQUIRED FOR SELLING AGENT APPROVAL.
7. Enter the legal address (which is the resident or domicile address used
for tax purposes) of the investor on line 7 (no post office boxes). Line 7
must be completed.
8. If the mailing address is different from the legal address, enter on line
8.
9. If an IRA account, enter Custodian's name and address on line 9.
10. The investor must sign and date line 10. If it is a joint account, both
investors must sign. In the case of IRA's, the Custodian's signature, as
well as the investor's signature, is required.
11. The Registered Representative and office manager must sign in line 11.
12. The name of the selling firm, Registered Representative name, Registered
Representative number, and address and phone number must be entered in
line 12.
THE CLIENT SHOULD RETURN THIS SUBSCRIPTION AGREEMENT AND PAYMENT TO HIS OR HER
REGISTERED REPRESENTATIVE'S OFFICE ADDRESS.
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. TELEPHONE: (732) 560-6221.
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.
SA-1
<PAGE>
- ----------------------- --------------------
NOT FOR MAINE RESIDENTS NOT TO BE USED AFTER
SEPTEMBER 30, 2000
- ----------------------- --------------------
SIGNATURE PAGE
KENMAR GLOBAL TRUST
SUBSCRIPTION AGREEMENT
IMPORTANT: READ REVERSE SIDE BEFORE SIGNING
The investor named below, by execution and delivery of this Subscription
Agreement and Power of Attorney, by payment of the purchase price for units of
beneficial interest ("Units") in Kenmar Global Trust and by either (i) enclosing
a check payable to "Kenmar Global Trust," or (ii) authorizing the Selling Agent
(or Additional Seller, as the case may be) to debit investor's customer
securities account in the amount set forth below, hereby subscribes for the
purchase of Units at net asset value per unit.
The named investor further acknowledges receipt of the prospectus of the
Fund dated December 30, 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 the
Prospectus by amendment or supplement).
The named investor meets the minimum income and net worth standards
established for the Fund as set forth in Exhibit B to the Prospectus.
The named investor is purchasing Units for their 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, the named investor has satisfied themself as to the
potential tax consequences of this investment.
1) Total $ Amount___________________________________________
(minimum of $5,000, except $2,000 minimum for IRAs, other tax-exempt
accounts, and existing investors)
2) Selling Agent Account # __________________ (must be completed)
|_| if payment is made by debit to investor's securities amount, check box
3) Social Security # or Taxpayer ID ___________ - ___________ - ___________
Custodian ID # ___________ - ___________ - ___________
Taxable Investors (check one)
|_| Individual Ownership |_| Tenants in Common
|_| Partnership |_| Joint Tenants with Right of Survivorship
|_| Corporation |_| Community Property
|_| Estate |_| UGMA/UTMA
(Minor)
|_| Grantor or Other Revocable Trust
|_| Trust other than a Grantor or Revocable Trust
Non-Taxable Investors (check one): (CUSTODIANS MUST SIGN ITEM 10 BELOW)
|_| IRA |_| Profit Sharing
|_| IRA Rollover |_| Defined Benefit
(TRUST DOCUMENTS MUST ACCOMPANY APPLICATION)
|_| Pension |_| Other (specify)
|_| SEP
________________________________________________________________________________
4) |_| Check here if this is an addition to an existing account. Kenmar #:
________________________________________________________________________________
5) Name ________________________________________________________________________
6) Trustee/officer, if applicable ______________________________________________
7) Resident Address ____________________________________________________________
Street City State Zip Code
8) Mailing Address ____________________________________________________________
(if different) Street City State Zip Code
9) Custodian Name
and Mailing Address _________________________________________________________
Street City State Zip Code
________________________________________________________________________________
10) INVESTOR(S) MUST SIGN
X ______________________________________________________________________________
Signature of Investor Date Telephone
X ______________________________________________________________________________
Signature of Joint Investor Date
X ______________________________________________________________________________
Signature of Custodian Date
EXECUTING AND DELIVERING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SHALL
IN NO RESPECT BE DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THE
SECURITIES EXCHANGE ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934.
UNITED STATES INVESTOR 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: |_|.
Under penalties of perjury, by signature above I hereby certify that the Social
Security Number or Taxpayer ID Number 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 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 State corporation,
partnership, estate or trust.
________________________________________________________________________________
11) I hereby certify that I have informed the investor of all pertinent facts
relating to the risks, tax consequences, liquidity, marketability, management
and control of the Managing Owner with respect to an investment in the Units, as
set forth in the Prospectus dated December 30, 1999.
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 Registered Representative MUST sign below in order to substantiate
compliance with NASD Conduct Rule 2810.
X ______________________________________________________________________________
Signature of Registered Representative Date
X ______________________________________________________________________________
Signature of of Office Manager Date
________________________________________________________________________________
12) Selling Firm _______________________________________________________________
R.R. Name __________________________________________________________________
R.R. Telephone R.R. Fax R.R. Number
R.R. Address _________________________________________________________
(for confirmation) Street (P.O. Box not acceptable) City State Zip Code
SA-2
<PAGE>
KENMAR GLOBAL TRUST
UNITS OF BENEFICIAL INTEREST
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
(minimum $5,000; $2,000 in the case of (i) trustees or custodians of employee
benefit plans or individual retirement accounts; and (ii) existing investors
(all existing Unitholders are required to submit a new Subscription Agreement
and Power of Attorney in order to acquire additional Units)) in the Subscription
Agreement and Power of Attorney Signature Page, at net asset value per unit as
set forth in the prospectus of the Fund dated December 30, 1999 (the
"Prospectus"). 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" contained in the
Prospectus including without limitation, those representations and warranties
relating to my net worth and annual income set forth therein.
3. Power of Attorney. In connection with my acceptance of an interest in
the Fund, 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 Amended and Restated Declaration
of Trust and Trust Agreement of the Fund, which is attached as Exhibit A to the
Prospectus, including, without limitation, the execution of the said Agreement
itself and effecting all amendments permitted by the terms thereof. The Power of
Attorney granted hereby shall be deemed to be coupled with an interest and shall
be irrevocable and shall survive, and shall not be affected by, my subsequent
death, incapacity, disability, insolvency or dissolution or any delivery by me
of an assignment of the whole or any portion of my Units.
4. Irrevocability; Governing Law. I hereby acknowledge and agree that I am
not entitled to cancel, terminate or revoke this subscription or any of my
agreements hereunder after the Subscription Agreement and Power of Attorney has
been submitted (and not rejected) and that this subscription and such agreements
shall survive my death or disability, but shall terminate with the full
redemption of all my Units in the Fund. 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, 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 Clearing
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 8 of
the Prospectus.
READ AND COMPLETE REVERSE SIDE
SA-3
