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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1 TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
THE DENNIS FUND LIMITED PARTNERSHIP
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(Exact Name of Registrant as Specified in Its Charter)
CONNECTICUT 06-1456461
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
TWO AMERICAN LANE, P.O. BOX 5150, GREENWICH, CONNECTICUT 06831-8150
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 861-1000
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Securities to be registered pursuant to Section 12(b) of the Act: NONE
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Securities to be registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
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(Title of Class)
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ITEM 1. BUSINESS.
OVERVIEW
The Dennis Fund Limited Partnership (the "Partnership") was formed as a limited
partnership on June 18, 1996 under the Connecticut Uniform Limited Partnership
Act (the "Partnership Act"). The Partnership maintains its principal office at
Two American Lane, P.O. Box 5150, Greenwich, Connecticut 06831-8150, with a
telephone number of (203) 861-1000. The Partnership is engaged in the business
of trading, buying, selling, spreading, swapping or otherwise acquiring, holding
or disposing of commodities, futures contracts, forward contracts, foreign
exchange commitments, exchange for physicals, swap contracts, spot (cash)
commodities and other items, options on the foregoing, and any rights pertaining
to the foregoing contracts, instruments or investments throughout the world
("Commodities"). The objective of the Partnership's business is appreciation of
the assets through the speculative trading of Commodities. Although currently
the Partnership's activities are intended to be limited to trading Commodities
and investing capital not needed for margin purposes in securities approved by
the Commodity Futures Trading Commission (the "CFTC") for investment of customer
funds, the Limited Partnership Agreement of the Partnership, dated June 18, 1996
and as amended on December 15, 1997 (the "Partnership Agreement"), also permits
the Partnership to trade (i) any security as defined in Section 2(1) of the
Securities Act of 1933, as amended (the "1933 Act"), (ii) any option, warrant or
other right on or pertaining to any of the foregoing, whether in the United
States of America or anywhere else throughout the world, and (iii) any other
investment or transaction that the General Partner (as defined herein) deems, in
its sole discretion, to be consistent with the objectives of the Partnership
(with Commodities, collectively, the "Investments").
In June, 1996, the Partnership commenced a private placement of units of limited
partnership interest ("Units") in reliance on the exemptions afforded by, among
others, Section 4(2) of the 1933 Act and Rule 506 of Regulation D promulgated
thereunder. Units are offered monthly at a price per Unit equal to the
then-current Net Asset Value per Unit (as defined below) plus a selling
commission equal to 5% unless such selling commission is waived in whole or in
part. Since the Partnership began the private placement in 1996, through June
1999, 31,897.2412 Units had been sold for a total of $47,489,956 See "Item 10.
Recent Sales of Unregistered Securities". The minimum subscription is $26,250
for new investors other than Employee Benefit Plans (as defined herein) or
$10,500 for Employee Benefit Plans and existing limited partners of the
Partnership ("Limited Partners"), which amounts include selling commissions of
$1,250 and $500, respectively. "Net Asset Value" of the Partnership in general
means total assets of the Partnership, including, but not limited to, all cash
and cash equivalents, accrued interest, earned discount, and open Commodities
positions, less total liabilities, including, but not limited to, brokerage
commissions that would be payable with respect to the closing of open
Commodities positions, all as determined in accordance with the principles set
forth in the Partnership Agreement or, where no such principles are specified
therein, in accordance with United States generally accepted accounting
principles applied on a consistent basis ("GAAP"). "Net Asset Value per Unit"
means the Net Asset Value of the Partnership divided by the number of Units
outstanding as of the date of determination. The value of all Commodities shall
be the market value thereof. The market value of a Commodity traded on an
exchange shall be based upon the settlement price on the exchange on the date of
determination; provided, however, that if a Commodity could not be liquidated on
the day with respect to which the assets of the Partnership are being
determined, the settlement price on the first subsequent day on which the
contract could be liquidated shall be the basis for determining the liquidating
value thereof. The market value of a forward contract, a swap contract, or any
other off-exchange contract, instrument, or transaction shall mean its market
value as determined by the General Partner on a basis consistently applied.
Investors receive a Confidential Private Placement Memorandum and Disclosure
Document (the "Disclosure Document") which sets forth the material terms of the
investment. The Disclosure Document is updated every nine (9) months or upon any
material change (whichever is sooner), as required by the regulations
promulgated under the Commodity Exchange Act, as amended (the "CEAct"), and
filed with the CFTC for compliance therewith.
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Since October, 1996, the Partnership has engaged in the speculative trading of
Investments and will continue to do so until its dissolution and liquidation,
which will occur on the earlier of December 31, 2026 or the occurrence of any of
the events set forth in Article VIII, Section 8.1 of the Partnership Agreement.
A copy of the Partnership Agreement has been filed as Exhibit 3.2 to this
Registration Statement.
The Partnership's general partner, Kenmar Advisory Corp. (the "General
Partner"), is a Connecticut corporation formed in September 1983 as a New York
corporation 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 the General Partner's sole directors. All of the
General Partner's stock is owned directly by Kenmar Holdings Inc., which is
ultimately owned, indirectly and equally, by Messrs. Shewer and Goodman. The
General Partner has been registered with the CFTC as a commodity pool operator
("CPO") and has been a member in good standing of the National Futures
Association (the "NFA") in such capacity since February 1984. The registration
of the General Partner 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 the General Partner or the Partnership.
Under the Partnership Agreement, responsibility for managing the Partnership is
vested solely in the General Partner. The Limited Partners will not participate
in the management or operations of the Partnership. Any participation by a
Limited Partner in the management of the Partnership may jeopardize the limited
liability of such Limited Partner. Responsibilities of the General Partner
include, but are not limited to, the following: selecting and monitoring the
commodity broker(s); determining whether the Partnership will make
distributions; administering redemptions of Units; preparing periodic and annual
reports to the Limited Partners; preparing reports, filings, registrations, and
other documents required by applicable regulatory bodies, exchanges or boards;
depositing the Partnership's assets in the form of cash in an account or
accounts at banks or brokers selected by the General Partner; borrowing money
(but only in connection with making or taking delivery of a Commodity);
directing the investment of the Partnership's assets; executing various
documents on behalf of the Partnership and the Limited Partners pursuant to the
power of attorney described below; and supervising the liquidation of the
Partnership if an event causing termination of the Partnership occurs. To
facilitate the execution of various documents by the General Partner on behalf
of the Partnership, each of the Limited Partners appoints the General Partner,
with full power of substitution, such Limited Partner's attorney-in-fact by
executing the Signature Page of the Partnership Agreement and Power of Attorney
and by becoming a Limited Partner. For additional information regarding the
Partnership Agreement, see "Item 11. Description of Registrant's Securities to
be Registered". The General Partner has selected E. D. & F. Man International
Inc. (the "Broker") to be the broker for the Partnership.
The Partnership itself does not have any employees. Rather, the General Partner,
in its capacity as a CFTC-regulated CPO, employs 42 persons (as of June 30,
1999) and provides the Partnership with the services of certain personnel to
conduct its operational activities.
The sole commodity trading advisor ("CTA") to the Partnership is Dennis Trading
Group, Inc. (the "Advisor"), an Illinois corporation and registered CTA and CPO.
The Advisor is responsible for making the trading decisions for the Partnership.
Investors should note that the Advisor is the sole advisor for the Partnership.
The Partnership is not an operating company with "traditional" income or
expenses. It is a stand-alone investment vehicle that offers investors the
opportunity to participate in the futures markets under the guidance of a
professional CTA.
FEES AND EXPENSES
The General Partner has complete discretionary authority regarding the admission
of additional Limited Partners and may admit additional Limited Partners under
terms and conditions comparable to or different from those under which the
existing Limited Partners were solicited.
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Except as otherwise noted, the fees and expenses described are for investors who
subscribe for Units on or after April 1, 1997. Limited Partners who subscribed
for Units prior to April 1, 1997 were charged different Advisor fees and will
continue to be charged those fees on those Units purchased prior to that date
but will pay the Advisor fees described below with respect to any additional
Investments.
Fees to the General Partner
Offering Fee. For managing the continuing offering of Units, as of the end of
each month, the Partnership currently pays to the General Partner a fee (the
"Offering Fee") equal to 0.25% (3% annually) of that month's beginning Net Asset
Value of the Partnership except that the Offering Fee for Million Dollar
Investors will equal 0.0833% (1% annually) of each month's beginning Net Asset
Value of the Partnership. A Million Dollar Investor will be charged the reduced
Offering Fee by receiving a rebate equal to two-thirds of the Offering Fee. The
amount of this reduction will be rebated monthly by the General Partner to the
Partnership for the benefit of such Million Dollar Investor in the form of
additional Units. A "Million Dollar Investor" is an investor whose aggregate
investment in the Partnership (net of redemptions and excluding any appreciation
and/or depreciation in Net Asset Value) equals or exceeds $1,000,000. The
General Partner, in its sole and absolute discretion, will determine whether an
investment or series of investments qualifies for treatment as a Million Dollar
Investor. The General Partner, in its sole discretion, is authorized to set its
compensation for managing the continuing offering of Units. For additional
information on the General Partner's authority, see "Conflicts of Interest --
The General Partner" below.
Advisor's Fees. As compensation for managing the Partnership, the General
Partner currently receives 4/7 of the Advisor's management fee and 4/11 of the
Advisor's incentive fee. See "Fees to the Advisor" below and "Item 7.
Certain Relationships and Related Transactions".
Out of all compensation paid to the General Partner, the General Partner may
also pay selling agents additional selling compensation and/or compensation for
ongoing services up to 3% annually.
Fees to the Advisor
Advisor's Management Fee. Pursuant to the Advisory Agreement (as defined
herein), the Partnership currently pays to the Advisor a monthly management fee
(the "Management Fee"). The monthly Management Fee is assessed proportionately:
(i) for Units purchased prior to April 1, 1997, the monthly Management Fee is
equal to 1/6 of 1% (2% annually) of the Net Asset Value of the Partnership, and
(ii) for Units purchased on or after April 1, 1997, the monthly Management Fee
is equal to 0.1458% (1.75% annually) of the Net Asset Value of the Partnership.
The Management fees paid for the six-month period ended June 30, 1999, the years
ended December 31, 1998 and 1997 and the period June 18, 1996 (the Partnership's
inception) to December 31, 1996 are set forth in a table on page 4 of this
Registration Statement.
Advisor's Incentive Fee. Pursuant to the Advisory Agreement, the Partnership
currently pays to the Advisor (i) a quarterly incentive fee equal to 25% of the
Net New Trading Profits for Units purchased prior to April 30, 1997, and (ii) a
quarterly incentive fee equal to 27.5% of the Net New Trading Profits for Units
purchased on or after April 30, 1997. The incentive fees paid for the six-month
period ended June 30, 1999, the years ended December 31, 1998 and 1997 and the
period June 18, 1996 (the Partnership's inception) to December 31, 1996 are set
forth in a table on page 4 of this Registration Statement.
"Net New Trading Profits" in general means the net trading profits (realized and
change, if any, in unrealized) earned on the Partnership's net assets (excluding
interest or interest-equivalent income), decreased by brokerage commissions
(paid and change, if any, in accrued) and the Management Fee, with all
such items determined from the first day of the calendar quarter that
immediately follows the last calendar quarter for which an incentive fee was
earned by the Advisor (or, if no incentive fee was earned previously by the
Advisor, from the commencement of trading) to the close of business on the last
day of the calendar quarter with respect to which such incentive fee calculation
was made. Operating expenses of the Partnership do not reduce Net New Trading
Profits when calculating the Advisor's incentive fee.
Pursuant to an arrangement between the Advisor and the General Partner: (i) the
Advisor receives 3/7 and the General Partner 4/7 of the Management Fee, and (ii)
the Advisor receives 7/11 and the General Partner 4/11 of the incentive fee.
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Other Fees and Expenses
Brokerage Commissions. The Partnership's current brokerage commission expense is
$10 per roundturn transaction plus administrative "give-up" fees. Such "give-up"
fees are expected to be approximately 0.4% of the Net Asset Value of the
Partnership.
Administrative and Ongoing Operating Fees and Expenses. The Partnership will pay
all administrative and ongoing operating fees and expenses. Ordinary
administrative expenses include, but are not limited to, accounting, auditing,
record keeping, administration, computer and clerical expenses (including
expenses incurred in preparing reports and tax information to Limited Partners
and regulatory authorities, printing and duplication expenses and mailing
expenses), legal fees and expenses and other expenses incurred by such persons
and by the General Partner and its affiliates in providing services to the
Partnership. Legal fees and expenses include outside counsel's fax and copying
charges and other disbursements (such as filing fees, whether paid by the
General Partner or outside counsel). Such fees were approximately 0.5%
(annualized) of the Net Asset Value of the Partnership for 1998 and are not
expected to exceed 0.5% of the Net Asset Value of the Partnership per year.
Extraordinary Expenses. The Partnership is responsible for all extraordinary
expenses (e.g., litigation expenses) incurred on behalf of the Partnership. As
of June 30, 1999, the Partnership has not paid, and does not anticipate paying,
any extraordinary expenses.
Other Expenses of the Limited Partners
Although not an expense of the Partnership, investors may be subject to a
selling commission, payable to independent selling agents, equal to 5% of the
then-current Net Asset Value per Unit unless the payment of all or any portion
of such amount is waived.
The Partnership furnishes each subscriber with monthly statements and a
certified annual report of financial condition covering certain aspects of the
Partnership's operations.
The following chart reflects the actual fees and expenses for the periods
presented.
<TABLE>
<CAPTION>
Year ended December 31, Period June 18, 1996
Six months ended -------------------------- (inception) to
June 30, 1999 1998 1997 December 31, 1996
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(in thousands)
<S> <C> <C> <C> <C>
Brokerage
Commissions $1,006,187 $1,400,182 $943,428 $25,235
Management Fees 400,834 482,628 219,334 13,548
Incentive Fees 2,103,117 3,229,070 702,920 0
General Partner's
Offering Fees 629,480 748,537 324,867 20,516
Operating Expenses 44,144 135,589 79,101 19,825
</TABLE>
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INCOME TAX ASPECTS
THE PRIMARY BENEFIT INTENDED TO BE ACHIEVED FROM AN INVESTMENT IN THE
PARTNERSHIP IS CURRENT INCOME AND CAPITAL APPRECIATION AND NOT TAX BENEFITS. THE
INFORMATION BELOW IS PRESENTED TO GIVE PROSPECTIVE INVESTORS GUIDANCE AS TO
CERTAIN FEDERAL INCOME TAX ASPECTS OF THEIR INVESTMENT IN THE PARTNERSHIP.
This discussion will outline some of the more significant aspects of Federal
income tax law that might affect, or result from, an investment in the
Partnership. This discussion is not intended as a substitute for careful tax
planning. Each prospective Limited Partner should consult his own tax advisor to
satisfy himself as to the income and other tax consequences of an investment in
the Partnership generally and specifically with reference to his own tax
situation.
The statements in this discussion are based upon current provisions of the
United States Internal Revenue Code of 1986, as amended (the "Code"), existing
and currently proposed Treasury Regulations, legislative history, administrative
rulings and judicial decisions, any of which could be changed at any time by
legislation or otherwise. Thus, no assurance can be given that changes,
including retroactive changes, will not be forthcoming which would affect the
accuracy of any statements in this discussion. Prospective Limited Partners
should be aware that, although the Partnership intends to adopt positions it
believes are in accord with current interpretations of the Federal income tax
law, the Internal Revenue Service (the "IRS") may not agree with the tax
positions taken by the Partnership and that, if challenged by the IRS, the
Partnership's tax positions might not be sustained by the courts. An examination
of the Partnership's tax return could result in an audit of a Limited Partner's
personal return and a disallowance or challenge of the treatment thereon or a
challenge or disallowance of other items not attributable to an investment in
the Partnership.
Interests are expected to be purchased by two types of investors: (i) tax-exempt
Employee Benefit Plans (as defined herein) or other entities intended to be
exempt from Federal income taxation, such as certain charitable, scientific and
education organizations, funds and foundations ("Tax-exempt Limited Partners")
and (ii) taxable individuals and entities ("Taxable Limited Partners"). Except
where otherwise noted, the following discussion relates generally to the Federal
income tax consequences of an investment in the Partnership by Taxable Limited
Partners who are individuals who are either United States citizens or United
States residents.
Partnership Status
Provided the Partnership does not elect to be taxed as a corporation, then,
subject to the discussion on publicly-traded partnerships in the following
paragraphs, the Partnership should be classified as a partnership for Federal
income tax purposes (and not as an association taxable as a corporation) and,
therefore, as an entity, will not be subject to any Federal income tax. No
ruling from the IRS with respect to partnership status has been or will be
sought. In the absence of a ruling, there can be no assurance that the IRS will
not successfully contend that the Partnership should be treated as an
association taxable as a corporation.
Generally, a publicly-traded partnership is taxable as a corporation unless 90%
or more of its gross income is composed of "qualifying income," including gains
from the sale of commodities or futures, forwards and options with respect to
commodities. A partnership will be considered publicly-traded if interests in
the partnership are readily tradable on a secondary market or its substantial
equivalent. The Partnership anticipates that at least 90% of its income will be
qualifying income. Therefore, the Partnership should not be classified as an
association taxable as a corporation. However, if the Partnership should at any
time be classified as an association taxable as a corporation, the Limited
Partners would not be treated as partners for tax purposes, income or loss of
the Partnership would not be passed through to the Limited Partners, and the
Partnership would be subject to tax on its income at the rates applicable to
corporations. In addition, all or a portion of distributions made by the
Partnership to the Limited Partners could be taxable to them as dividends (to
the extent of current or accumulated earnings and profits) or capital gains,
while none of those distributions would
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be deductible by the Partnership in computing its taxable income. Any such
recharacterization would reduce the after-tax return to a Limited Partner from
his investment in the Partnership.
Taxation of Limited Partners
Subject to the publicly traded partnership rules, the Partnership, as an entity,
will not be subject to any Federal income tax, and each Limited Partner will be
taxed on his allocable share of the Partnership's taxable income, regardless of
whether any cash is distributed. In any particular year, a Limited Partner's
income tax liability attributable to Partnership income will likely exceed the
cash distributed to him by the Partnership. Each Limited Partner will be
required to report on his Federal income tax return his distributive share of
Partnership income, gain, loss or deduction for each year. The character of an
item of income or loss (e.g., as capital or ordinary) usually will be the same
for the Limited Partner as for the Partnership. Moreover, the taxable income
allocated to a Partner may bear no relationship to the amount debited or
credited to his book Capital Account. Each Limited Partner may be entitled to
deduct on his own income tax return his allocable share of the Partnership's net
losses, if any, to the extent of the tax basis and the amount "at risk" (see
"Tax and `At Risk' Basis of Limited Partnership Interests" below) of his Units
at the end of the Partnership year in which such losses occur. The amount of
each Partner's distributive share of income or loss will be based, in part, upon
the method of accounting and the tax year of the Partnership and of any other
partnership in which the Partnership invests, as discussed below.
Tax and "At Risk" Basis of Limited Partnership Interests
Generally, both the tax and "at risk" basis of any Limited Partner's Units will
be equal to the amount paid for his Units reduced by the Limited Partner's share
of Partnership distributions and net losses and increased by his share of
Partnership net income. Partnership debt (attributable to direct borrowings or
margin) may not be included in the tax or "at risk" basis of a Unit since such
debt will not be a personal liability of the Limited Partners. Instead, the
General Partner will be ultimately liable for such debt if it is not repaid by
the Partnership.
Each Limited Partner's tax basis for his Units is important because it is used
in measuring gain or loss (or tax basis of assets received) upon partial or
complete dispositions and withdrawals by the Limited Partner of his Units. Tax
basis is also important because a Limited Partner may not deduct his share of
any Partnership net losses to the extent that they exceed his at risk tax basis.
This limitation may be material to a Limited Partner who finances the
acquisition of his Units with funds borrowed with non-recourse debt. Each
Limited Partner should compute his own tax basis in the Partnership since the
Partnership does not intend to compute the tax basis of each Limited Partner in
the Partnership.
Partnership Allocation of Profits and Losses
For Federal income tax purposes, a Limited Partner's distributive share of items
of Partnership income, gain, loss or deduction will be determined as provided
under the Partnership Agreement.
Treasury regulations set forth requirements to determine when partnership profit
and loss allocations will be respected for Federal income tax purposes. While
the General Partner believes that, if examined, the Partnership's allocations
will be respected, there is no assurance that the regulations could not be
interpreted by the IRS in a manner materially adverse to the Limited Partners.
If the allocations provided by the Partnership Agreement are not respected by
the IRS or otherwise require amendment for Federal income tax purposes, the
amount of taxable income allocated to any Partner for Federal income tax
purposes may be increased, without any corresponding increase in distributions
to pay the additional tax liability.
Cash Distributions, Withdrawals and Redemptions of Units
Cash distributions from a partnership are generally not equivalent to
partnership income as determined for income tax purposes. A Limited Partner will
normally not recognize additional taxable income resulting from
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Partnership distributions except that a Limited Partner may be allocated taxable
income upon a partial or complete withdrawal from the Partnership. However, any
cash distribution (whether on a withdrawal, redemption or otherwise) in excess
of a Limited Partner's tax basis will be taxable to him as though it was
attributable to a sale or exchange of his Partnership interest. Loss will be
recognized only if, after the distributions following the complete redemption of
a Limited Partner's Partnership interest, he has any tax basis remaining in the
Partnership, in which case he will recognize loss to the extent of such
remaining basis.
Provided the Limited Partner is not a dealer in "securities", such gain or loss
generally will be capital gain or loss, subject to an exception for certain
types of partnership income (e.g., original issue discount or market discount
which has accrued, but not yet been recognized, as discussed in "Recognition and
Characterization of Partnership Income" below.)
Deduction of Partnership Expenses
The Partnership will be deducting certain operating expenses including
reimbursements that it will pay to the General Partner. Applicable case law
indicates that expenses, including reimbursements such as those that will be
paid to the General Partner, must be "ordinary and necessary" in order to be
deductible by the Partnership. Whether such expenses are ordinary and necessary
and incurred in connection with a trade or business depends to a large extent on
a factual determination of the purposes for which they are paid and their
reasonableness in light of the Partnership's forecasted operations. The IRS may
closely examine the deductions for these fees and expenses, and may challenge
such deductions based upon such payments being excessive or based upon a
recharacterization of such payments. In that event, each Limited Partner may be
required to report and pay tax on an increased allocable share of Partnership
income, without any corresponding increase in distributions to pay the
additional tax liability.
The Partnership will take the position that it is engaged in a trade or business
on its Federal income tax returns, and that expenses allocated to Limited
Partners are not investment expenses. Investment expenses characterized as
miscellaneous itemized expenses are deductible only to the extent that the
aggregate amount of such expenses exceeds two percent (2%) of an individual
taxpayer's adjusted gross income. Moreover, the deduction for allowable itemized
deductions (other than medical expenses, casualty and theft losses and
investment interest) is reduced by an amount equal to three percent (3%) of a
taxpayer's adjusted gross income in excess of a threshold amount. This amount is
$126,600 in 1999 for taxpayers filing jointly and is increased annually to
account for inflation. No assurance can be given that the IRS will not
successfully contend that the Partnership's expenses should be treated as
incurred in investment activities, rather than in a trade or business. The IRS
also may attempt to recharacterize any incentive allocation to the General
Partner as a miscellaneous itemized expense.
Offering Fee Rebate for Million Dollar Investors
A Million Dollar Investor will be charged the reduced Offering Fee by receiving
a monthly rebate equal to two-thirds of the Offering Fee, in the form of
additional Units. The General Partner expects that the issuance of additional
Units pursuant to such rebate should not result in any adverse tax consequences
to a Million Dollar Investor. However, the IRS might recharacterize the Offering
Fee such that the rebate and the issuance of additional Units may be treated as
ordinary income in an amount equal to the value of such additional Units, and
any corresponding deduction for the Offering Fee may be disallowed in whole or
in part.
Sale or Redemption of Partnership Units
Upon the sale or redemption of his Units, the selling Limited Partner will
recognize gain or loss measured by the difference between the consideration
received and his adjusted tax basis in the Units (adjusted for such Limited
Partner's distributive share of Partnership net income or net losses or
deduction attributable to such Partnership interest for the portion of the year
such Units are owned by such Limited Partner). If the selling Limited Partner is
not a "dealer" in securities, such gain or loss generally will be capital gain
or loss, subject to an exception for certain types of partnership income (e.g.,
original issue discount or market discount which
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has accrued, but not yet been recognized, as discussed in "Recognition and
Characterization of Partnership Income" below).
Recognition and Characterization of Partnership Income
The Partnership's investments are expected to generate ordinary income (or loss)
as well as short-term and long-term capital gains (or losses). As the character
and timing of Partnership income depends on the performance of each investment,
it is impossible to predict the character or magnitude of such income (or loss)
for any year. The Internal Revenue Service Restructuring and Reform Bill of 1998
revised the treatment of capital gains and losses for non-corporate investors.
For sales and exchanges of capital assets occurring after December 31, 1997,
assets must be held for more than twelve months for gains to qualify as
long-term capital gains, and such gains are generally taxed at a 20% rate. Gains
or losses from sales of capital assets that are held for less than twelve months
are treated as short-term gains (or losses) and are taxed at ordinary income
rates. Capital losses may be used only to offset capital gains plus (for
individuals) up to $3,000 of ordinary income annually. Rules which govern the
manner in which Partnership income will be realized are complex and varied. The
following discussion is intended to highlight only some of those rules; it is
not an exhaustive description. Investors are urged to consult their own tax
advisors as to the specific tax treatment of the Partnership's transactions.
Section 1256 Contracts. The Code distinguishes between "Section 1256 Contracts"
and other interests in property. Section 1256 Contracts include commodity
futures contracts, certain foreign currency contracts and non-equity options.
Moreover, the Partnership may from time to time trade in certain foreign
currency contracts or options. Under the Code, open positions in Section 1256
Contracts at the end of the taxable year are marked-to-market as if they had
been sold at their fair market value on such date. Unrealized gains and losses
on open positions in Section 1256 Contracts held by the Partnership at the end
of its taxable year are taken into account along with realized gains and losses
of the Partnership in determining each Partner's distributive share of taxable
gain and loss. Appropriate adjustment is made to the gain or loss realized upon
the ultimate disposition of Section 1256 Contracts to reflect the fact that
unrealized gain or loss was reported in the prior year.
Except as provided by Section 988 of the Code, gain or loss from
marking-to-market generally is deemed to consist of 60% long-term capital gain
or loss and 40% short-term capital gain or loss (so-called, "60/40 Rule"),
regardless of the period for which the Section 1256 Contracts are held and
regardless of whether the taxpayer's positions in Section 1256 Contracts were
short or long. Net long-term capital gains are subject to Federal income tax at
a maximum stated rate of 20% for individuals, while ordinary income and net
short-term capital gains are subject to tax at a maximum stated rate of 39.6%.
Thus, Section 1256 Contracts may be subject to tax at more favorable rates than
other investments.
Foreign Currency Transactions. The Partnership may recognize income from
contracts that are denominated in a foreign currency. Generally, foreign
currency gain or loss from a transaction described in Code Section 988 realized
by reason of a change in the exchange rate, will give rise to ordinary income or
loss. The Code, however, provides exceptions for certain contracts, options and
other instruments which may either require mark-to-market treatment under rules
applicable to Section 1256 Contracts or may otherwise give rise to short-term
capital gain or loss.
Original Issue Discount; Market Discount and Bond Premium. The Partnership may
acquire bonds and other debt instruments for less than their face amount. The
amount of the discount will generally be treated as original issue discount
("OID") for debt instruments purchased at issue or as "market discount" for
instruments purchased in the secondary market. The OID which accrues will be
reported as interest income by the Limited Partners although the Partnership
will not generally receive payments corresponding to this income until the
maturity of or the disposition by the Partnership of the debt instrument. Market
discount which accrues need not be recognized in income by the Partnership until
maturity or disposition of the debt instrument, but in such case the Partnership
will be unable to deduct interest expense it incurs to purchase or carry the
instrument until the market discount is recognized in income. Taxable income
from OID and market discount recognized by
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the Partnership will result in appropriate adjustments in any gain or loss
recognized upon a sale, exchange or repayment of such obligations. If the
Partnership purchases a bond at a cost which, generally, is in excess of the
amount payable on maturity, the excess may constitute amortizable bond premium
which is treated as a reduction of interest on such bond. If the Partnership
makes an election under Section 171 of the Code, the Partnership generally
allocates amortizable bond premium among the interest payments on the bond and
the amount so allocated generally shall be applied against (and operate to
reduce) the amount of such interest payments.
Conversion Transaction
Capital gains of the Partnership from "conversion transactions" will be
recharacterized in part as ordinary income. "Conversion transactions" result in
a gain that is primarily based upon the time value of a taxpayer's investment
and not upon capital risk. The amount of the taxpayer's ordinary income will be
computed by using 120% of an applicable Federal interest rate times the net
investment in the transaction.
"Conversion transaction" defined. The anti-conversion rules are directed towards
arrangements in which substantially all of the expected return is attributable
to the time value of the net investment in the transaction (i.e., the functional
equivalent of a loan). In addition, the arrangement would have to come within
one of the following:
(1) A transaction in which the taxpayer acquires property and
on a substantially contemporaneous basis enters into a contract to sell the
property (or substantially identical property) for a determined price.
(2) A straddle as defined by Code Section 1092(c) (offsetting
positions in personal property), except that for purposes of the anti-conversion
rules, stock is included in the definition of personal property.
(3) A transaction that is marketed or sold as producing
capital gains.
(4) Other transactions that will be specified in IRS
regulations.
Special rules for options dealers and commodities traders. Transactions of
options dealers in the normal course of dealing in options, and of commodities
traders in the normal course of trading Code Section 1256 contracts will
generally not be treated as conversion transactions. However, this exception
does not apply (and Code Section 1258 applies) to any limited partner or limited
entrepreneur if (i) substantially all of the limited partner's or limited
entrepreneur's expected return from an entity is attributable to the time value
of the net investment, (ii) the transaction was marketed or sold as producing
capital gains treatment, or (iii) the transaction is specified in regulations.
The preceding discussion is a basic synopsis of the taxation of transactions
involving various types of securities. The discussion does not cover some of the
more complex provisions relating to the taxation of these and other
transactions. Therefore, investors are urged to consult their own tax advisors
as to the tax treatment of transactions in which the Partnership may engage.
Minimum Tax on Tax Preferences
Noncorporate taxpayers are subject to the alternative minimum tax to the extent
it exceeds their regular tax. The alternative minimum tax rate for individuals
is 26% on alternative minimum taxable income up to $175,000 ($87,500 for married
persons who file separate returns) and 28% thereafter. The alternative minimum
tax exemption amount is $45,000 ($22,500 for married persons who file separate
returns). Taxpayers liable for alternative minimum tax are required to make
estimated tax payments. Miscellaneous itemized deductions are generally not
allowable in computing alternative minimum taxable income. Thus, a Limited
Partner may not be able to deduct his share of Partnership fees and expenses
including, perhaps, his
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share of any incentive allocation to the General Partner, in determining his
alternative minimum taxable income.
The extent, if any, to which a Limited Partner will be subject to the
alternative minimum tax will depend on that Limited Partner's overall tax
situation. Consequently, prospective Limited Partners should consult their tax
advisors to determine the potential impact, if any, of the alternative minimum
tax on their investment in the Partnership in light of their particular tax
situation.
Limitation on Deduction of Investment Interest
The Partnership will take the position that it is engaged in a trade or business
on its Federal income tax returns, and that interest incurred by the Partnership
is not an investment expense. No assurance can be given that the IRS will not
successfully contend that the interest expense should be treated as incurred in
investment activities. In that event, interest expense incurred by a Limited
Partner to acquire or carry his Partnership interest, will be investment
interest ("Investment Interest"). An individual may deduct Investment Interest
only to the extent of his net investment income (i.e., the excess of non-trade
or business income from interest, dividends and gain from the disposition of
investment property over expenses incurred in earning such income) from the
Partnership or other investments. In computing net investment income, long term
capital gains are includable only if a Limited Partner elects to have such gains
taxed at the same rate as his ordinary income.
Investment Interest in excess of net investment income may be deducted in
subsequent years limited by the amount of net investment income in such year(s).
The Investment Interest limitation is computed separately by each Limited
Partner and not by the Partnership.
Interest Incurred to Purchase Tax Exempt Obligations
Section 265(a)(2) of the Code may disallow any deduction for interest on
indebtedness of a taxpayer or a related person incurred or continued to purchase
or carry obligations the interest on which is wholly exempt from tax. The IRS
announced in Revenue Procedure 72-18 that the prescribed purpose will be deemed
to exist with respect to indebtedness incurred to finance a "portfolio
investment." The Revenue Procedure further states that a limited partnership
interest will be regarded as a "portfolio investment," unless rebutted by other
evidence. Therefore, in the case of a Limited Partner owning tax-exempt
obligations, his allocable portion of any interest expense incurred to purchase
or carry a Partnership interest may be viewed as incurred to continue carrying
tax-exempt obligations, and if so, the Limited Partner would not be allowed to
deduct all or a portion of such interest. Moreover, the deduction of any
interest expense incurred by a Limited Partner or by the Partnership may also be
limited if the Partnership invests in tax-exempt obligations.
Income and Losses from Passive Activities
Losses derived by a limited partner from business activities of a limited
partnership in which the taxpayer does not materially participate ("passive
activities") are generally only deductible to the extent of income from other
passive activities. However, portfolio income (such as dividends, interest and
gain from the sale of securities which are actively traded or held for
investment) or "non-passive" income is not treated as income from a passive
activity, and thus may not be offset by losses from passive activities.
All of the Partnership's income will likely be portfolio or non-passive income.
Therefore, Partnership net income allocable to a Limited Partner likely cannot
be offset by losses from a Limited Partner's passive activities. However,
Partnership losses, if any, should not be subject to the limitation on the
deduction of losses from passive activities.
Tax-exempt Partners
Each Tax-exempt Limited Partner will be subject to tax on its unrelated business
income, and must file a tax return reporting such income. As discussed below,
the Partnership may generate unrelated business taxable
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income allocable to Tax-exempt Limited Partners. To the extent a Tax-exempt
Limited Partner is allocated unrelated business income from the Partnership, it
is generally subject to the same provisions as Taxable Limited Partners with
respect to reporting and paying tax (including estimated tax) on such income.
Tax-exempt Limited Partners that have never realized unrelated business income
should thus be aware that they will be subject to the requirement of making
quarterly estimated income tax payments for any unrelated business income
allocated to them by the Partnership beginning with the quarter in which they
are admitted into the Partnership. The Partnership will attempt to provide each
Tax-exempt Limited Partner with an estimate of the Partnership's prior year's
unrelated business income so that each Tax-exempt Limited Partner can attempt to
make timely estimated tax payments. However, there can be no assurance that the
Partnership's unrelated business income for a prior year will be equal to its
unrelated business income in the following tax year. If the Tax-exempt Limited
Partner is a trust, the tax rates would be the rates applicable to trusts
(including alternative minimum tax). If the Tax-exempt Limited Partner is not a
trust, it would be subject to corporate tax rates (including alternative minimum
tax).
"Unrelated business income" is the gross income derived by an exempt
organization from any unrelated trade or business regularly carried on by it or
by a partnership of which it is a member. Specific deductions which are directly
connected with the carrying on of such trade or business, computed with
modifications, are allowed. Even if the Partnership is not characterized as
being in a trade or business, the Partnership will likely be operated in such a
manner as to result in the receipt of unrelated business income by Tax-exempt
Limited Partners, as described below.
Each prospective Tax-exempt Limited Partner is strongly urged to consult its own
advisor regarding the possible repercussions of an investment in the Partnership
since various investment strategies may be viewed differently by the Partnership
and the IRS.
Exclusions from Unrelated Business Income. Unless realized with respect to
"debt-financed" property (discussed below), dividends, interest and gains from
the sale or exchange or other disposition of capital assets are specifically
exempted from classification as unrelated business income. Unrelated business
taxable income also does not include gains or losses recognized in connection
with the organization's investment activities, or from the lapse or termination
of an option to buy or sell securities. Subject to the debt-financed property
rules below, most, if not all, of the Partnership's income should be excluded
from unrelated business income even if the Partnership is regarded as being in a
trade or business.
Debt-financed Property. Notwithstanding the exclusions discussed in the
preceding paragraph, a Tax-exempt Limited Partner will be taxed on its
distributive share of any income from the Partnership to the extent that either
the Tax-exempt Limited Partner's investment in the Partnership or the
Partnership's investment in the asset from which such income is derived is
debt-financed. An investment by the Partnership (or an investment by a Partner
in the Partnership itself) will be debt-financed (i) if indebtedness incurred
before the investment would not have been incurred but for the investment, (ii)
if the investment is actually made with the use of borrowed funds, or (iii) if
the investment necessitates future borrowings and this eventuality was
foreseeable at the time the investment was made.
$1,000 Annual Exemption. Each Tax-exempt Limited Partner is allowed in the
aggregate a $1,000 annual exemption from tax on its unrelated business income.
Therefore, if a Tax-exempt Limited Partner has unrelated business income from
other investments, only a portion of the $1,000 exemption may be available to
offset any taxable income from the Partnership, and the remainder of such income
will be subject to tax.
State and Local Taxes. Tax-exempt Limited Partners will also generally be exempt
from state and local taxation except as to any unrelated business income.
However, Tax-exempt Limited Partners should consult with their own tax advisors
concerning the applicability and impact of state and local tax laws.
Private Foundations, Charitable Remainder Trusts and other Organizations. In
addition to any potential Federal or state income tax liability resulting from
unrelated business income, private foundations that are otherwise exempt from
taxation (and not exempt operating foundations) are subject to tax equal to two
percent
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(2%) of their net investment income in a taxable year. Net investment income is
equal to gross investment income (interests, dividends, rents and payments with
respect to securities, loans and royalties, unless such amounts are unrelated
business income) plus capital gain net income less certain deductions for all
ordinary and necessary expenses. This tax may be reduced to one percent (1%)
where a private foundation meets certain distribution requirements. Private
foundations are likely to be allocated net investment income from the
Partnership.
Private foundations may also be subject to various excise taxes including some
that may be affected by an investment in the Partnership. Such taxes might
include taxes on self-dealing, on excess business holdings, on failure to make
distributions, and from investments which jeopardize the carrying out of any of
their exempt purposes. As a result of their potential tax liabilities resulting
from an investment in the Partnership, private foundations should consult their
own tax advisors prior to investing in the Partnership.
For some types of tax-exempt organizations, such as charitable remainder trusts,
the receipt of any unrelated business income during a year could cause the
trust's income from all sources to be taxable in such year. Potential Tax-exempt
Limited Partners are urged to consult with their tax advisors concerning the
potential consequences of this investment.
Foreign Limited Partners
Foreign Limited Partners will be subject to United States tax on Partnership
income in the same manner as any other Taxable Limited Partner if the
Partnership is regarded as engaged in a trade or business as opposed to an
investment activity. A "Foreign Limited Partner" means a Limited Partner who or
which is not, for U.S. federal income tax purposes, (i) a citizen or resident of
the U.S., (ii) a corporation or partnership created or organized under the laws
of the U.S. or any political subdivision thereof, (iii) an estate the income of
which is includable in gross income for U.S. federal income tax purposes,
regardless of its source, or (iv) a trust described in Section 7701(a)(30) of
the Code (taking into account effective dates, transition rules and elections in
connection therewith).
The determination of whether the Partnership is regarded as engaged in a trade
or business or an investment activity is based on facts and circumstances.
Factors which have been examined in making this determination include, but are
not limited to, whether the taxpayer maintains an office or employs any persons
in the activity, the holding period of the securities in the portfolio and the
magnitude and continuous volume of purchases and sales. Because this
determination is essentially factual in nature, Foreign Limited Partners should
consult with their tax advisors concerning whether the Partnership should be
regarded as engaged in a trade or business.
If the Partnership is deemed to be engaged in a United States trade or business,
a Foreign Limited Partner would be required to file a United States Federal tax
return and may be required to file state tax returns, report his distributive
share of the Partnership's net income and pay United States and state tax
thereon in the same manner as United States citizens and residents. In addition,
the Partnership would be required to withhold 39.6% of the taxable income
allocable to a Foreign Limited Partner who is an individual (35% for
corporations), to be credited against such Foreign Limited Partner's United
States income tax liabilities.
If the Partnership is not deemed to be engaged in a United States trade or
business, a Foreign Limited Partner generally will not be subject to United
States tax on capital gains realized by the Partnership. However, if an
individual Foreign Limited Partner is present in the United States for 183 days
or more during the taxable year, he will be subject to a 30% tax on any capital
gains of the Partnership. (A foreign trust will be subject to tax on capital
gains if the trustee is present in the United States for 183 days or more during
the taxable year.) In general, any Partnership non-contingent interest income
from portfolio investments allocated to a Foreign Limited Partner will not be
subject to United States federal income or withholding tax as long as the
Foreign Limited Partner has provided the General Partner with a statement
certifying that he is not a United States person on IRS Form W-8BEN. Any
Partnership dividend income and non-portfolio or contingent interest income
allocated to a Foreign Limited Partner will be subject to United States
withholding tax of 30% on the gross amount received unless reduced by a treaty
or convention (as discussed below).
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A Foreign Limited Partner's United States tax liability with respect to
Partnership income may be reduced under an applicable tax treaty or other
convention. A Foreign Limited Partner should also note that the amount of tax it
may actually owe with respect to its allocable share of Partnership income may
be greater or less than the amount which may be withheld on its behalf by the
Partnership. If such a disparity exists, the Foreign Limited Partner may have to
pay additional tax or seek a refund from the IRS, as the case may be. If the
withholding rate on any income which is not derived from a United States trade
or business is reduced for any Foreign Limited Partner by a tax treaty or other
convention, the Foreign Limited Partner must file an IRS Form 1001 with the
Partnership at the time of subscription for a Partnership interest to permit the
Partnership to withhold at the lower rate. Under recently issued Treasury
regulations that generally will be effective on January 1, 2001, the required
IRS Form 1001 was replaced by a new IRS Form W-8BEN. Under these Treasury
regulations, a Foreign Limited Partner claiming the benefits of a treaty may be
required to obtain a United States Taxpayer identification number and make
certain certifications to the Partnership. Foreign persons that are considering
investing in the Partnership should consult their own tax advisors regarding the
effect, if any, of these new Treasury Regulations.
Foreign Limited Partners that have been organized as corporations, or are
otherwise treated as corporations for purposes of United States taxation, may
also be subject to a "branch profits tax" of 30% on their earnings and profits
from the Partnership if the Partnership is regarded as engaged in a trade or
business. Where the branch profits tax does not apply to a corporate Foreign
Limited Partner, the Foreign Limited Partner's shareholders may be subject to
the 30% withholding tax (described above) on the Foreign Limited Partner's
dividend distributions if at least 25% of such Foreign Limited Partner's
worldwide gross income for the 3-year period ending with the close of a taxable
year preceding the year of payment of the dividend is effectively connected with
the conduct of a United States trade or business. Foreign corporations
considering investing in the Partnership should consult their own tax advisors
concerning the possible application of these additional taxes.
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and other foreign
investors are very complex and their application to various fact patterns and
financial instruments is uncertain, and the foregoing provides no more than a
summary of such rules. Furthermore, no advice can be given as to the tax
treatment of items of Partnership income, deduction or loss in the foreign
investor's country of residence or other countries or as to whether any country
would allow a credit or other tax benefit with respect to any United States tax
paid on the investor's United States source income. Prospective investors should
be aware that they may be subject to United States Federal and state income
and/or estate taxes if they invest in the Partnership and, accordingly, it is
the responsibility of each prospective investor to consult with its tax advisor
concerning the treatment by its country of residence and other countries (where
applicable) and as to the impact of the United States Federal and state income,
estate and gift tax laws on any foreign investor who makes an investment in the
Partnership.
Partnership Tax Returns and Reports
The Partnership has adopted December 31 as its fiscal year-end and files its
returns on the accrual basis. The Partnership itself will file an annual
informational Federal income tax return.
As a practical matter, because of the number of calendar year taxpayers and the
time needed for preparation of income tax returns, it is highly unlikely that
calendar year Limited Partners of the Partnership will receive final information
in time to file their tax returns by the April 15 due date. It may, therefore,
be necessary for each Limited Partner to obtain an extension of the filing date
for his return.
In order to facilitate this process, the Partnership will request each manager
of a partnership in which it invests to supply estimated tax information to the
Partnership as soon as possible after the close of the year. Then,
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the Partnership will provide its Limited Partners with this information for
their use in determining the amount of the tax payment which they should make
with their extension request. The General Partner does not intend to provide
such information other than on an annual basis. WHILE THE PARTNERSHIP WILL
ATTEMPT TO OBTAIN ACCURATE INFORMATION, IT CANNOT BE CERTAIN THAT THE ESTIMATED
FIGURES WILL BE SUFFICIENTLY ACCURATE TO ENABLE ITS LIMITED PARTNERS TO AVOID
PENALTIES AND INTEREST FOR AN UNDERPAYMENT OF THEIR INCOME TAX LIABILITY.
Partnership Audit Procedure
In general, the tax treatment of items of Partnership income, gain, loss and
deduction will be determined at the Partnership level in a unified partnership
proceeding rather than in separate proceedings with the Partners. In general,
the IRS must send notices to the General Partner acting as the "tax matters
partner" ("TMP") in accordance with the Partnership Agreement. The TMP may act
on behalf of all of the Partners. The TMP is also authorized to litigate matters
on behalf of the Partnership.
Possible Legislative Tax Changes
In recent years there have been a number of proposals made in Congress, by
government agencies and by the executive branch of the Federal government for
changes in the Federal income tax laws. In addition, the IRS has proposed and
may still be considering changes in regulations and procedures, and numerous
private interest groups have lobbied for regulatory and legislative changes in
Federal income taxation. It is impossible to predict what past proposals may be
revived or what new proposals may be forthcoming, the likelihood of adoption of
any such proposals, the likely effect of any such proposals upon the income tax
treatment presently associated with an investment in the Partnership, or the
effective date of any legislation which may derive from any such past or future
proposals. Potential investors are strongly urged to consider ongoing
developments in this uncertain area and to consult their own tax advisors in
assessing the risks of investment in the Partnership.
State and Local Taxes
In addition to the Federal income tax consequences described above, the
Partnership and the Limited Partners may be subject to various state and local
taxes. States or jurisdictions in which the Partnership may conduct business may
require a Limited Partner who does not reside in such state to file a tax return
and may impose a tax on his share of Partnership income derived from activities
in such states or localities. The amount of such taxes may be significant.
Each Limited Partner also will generally be required to include his share of
Partnership income in determining his taxable income in the state and local
jurisdiction in which he is a resident and may also be subject to personal
property taxes. To the extent that a non-resident Limited Partner pays taxes to
Connecticut or other jurisdictions due to the Partnership's conduct of business
there, he may be entitled to a deduction or credit against taxes owed to his
state of residence with respect to the same income.
Since Limited Partners may be affected in different ways by state and local law,
each prospective Limited Partner is advised to consult with his personal tax
advisor regarding the state and local taxes payable in connection with an
investment in the Partnership.
PURCHASES BY EMPLOYEE BENEFIT PLANS
Subject to the following discussion, the purchase of Units may be a suitable
investment for any benefit plan investor (within the meaning of Department of
Labor Regulation ss 2510.3-101(f)(2)) ("Employee Benefit Plan") that meets the
minimum investment requirements that otherwise apply to prospective subscribers
for Units. Such Employee Benefit Plans might include corporate pension, stock
bonus and profit-sharing plans, "simplified employee pension plans," so-called
SIMPLE plans, "Keogh" plans for self-employed individuals
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and individual retirement accounts ("IRAs"), welfare benefit plans (such as
medical plans, death benefit plans and prepaid legal service plans),
governmental plans, church plans or any entity whose underlying assets are
considered to be plan assets by reason of any investment in the entity by
another Employee Benefit Plan or otherwise.
The following discussion is not intended to be exhaustive, but rather
representative of the legal issues that may be of concern to an Employee Benefit
Plan investor. Because of the many factual patterns that may develop in
connection with the purchase or holding of a Unit by an Employee Benefit Plan,
independent advice should be sought regarding each Employee Benefit Plan's
situation.
Employee Benefit Plans and IRAs
Before proceeding with an investment in the Partnership of a portion of the
assets of an Employee Benefit Plan, the person with investment discretion on
behalf of the Employee Benefit Plan ("Fiduciary"), taking into account the facts
and circumstances of such plan, should consider any applicable fiduciary
standards and any prohibitions imposed against certain transactions under ERISA
or the Code, and the permissibility of such investment under the governing
documents of the Employee Benefit Plan. Thus, taking into consideration the
information contained herein, the Fiduciary should give special attention to (i)
the Department of Labor's regulations (the "Regulations") regarding the
definition of plan assets (discussed below) and the impact of the Regulations
upon the Fiduciary's decision to invest in the Partnership, and (ii) the
prudence of an investment in the Partnership considering all facts and
circumstances of the investment that the Fiduciary knows or should know are
relevant to the investment or a series or program of investments of which an
investment in the Partnership is a part.
Fiduciaries can be personally liable for (i) losses incurred by the plan
resulting from a breach of fiduciary duties, (ii) a civil penalty, imposed by
the Department of Labor, of as much as 20% of the amount recovered on behalf of
the Employee Benefit Plan and (iii) prohibited transaction excise taxes.
Plan Asset Regulations. The Regulations set forth guidelines to determine when
an investment by an Employee Benefit Plan in an entity, such as the Partnership,
will cause the assets of the entity to be treated as assets of the investing
plan ("Plan Assets") under the Employee Retirement Income Security Act of 1974
("ERISA"). These Regulations contain an exemption, however, upon which the
Partnership intends to rely. The exemption generally provides that the
acquisition or disposition of an interest in an entity by an Employee Benefit
Plan will not result in the underlying assets of the entity being treated as
Plan Assets provided that the Units are (i) "widely held" (held by 100 or more
investors who are independent of the Partnership and each other), (ii) freely
transferable and (iii) sold as part of an offering pursuant to (A) an effective
registration under the 1933 Act, and then subsequently registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act") or (B) an effective
registration statement under Section 12(b) or 12(g) of the 1934 Act. Potential
Employee Benefit Plan investors should consult with their legal counsel
concerning the impact of ERISA and the Code, the potential application of the
exemption to the purchase and holding of the Units and the potential
consequences to their specific circumstances, prior to making an investment in
the Units.
If the Partnership were treated as a Plan Asset, the General Partner would most
likely become an ERISA fiduciary with respect to the Partnership's assets and
the assets of the Partnership would be subject to the prohibited transaction
rules of ERISA and the Code. Accordingly, although the Partnership will operate
under the assumption (until it has knowledge to the contrary) that the assets of
the Partnership are not Plan Assets, if at any time that assumption is
incorrect, the consequences of the Partnership's assets being treated as Plan
Assets under ERISA could make the Partnership an inappropriate investment for an
Employee Benefit Plan. Also, IRAs could lose their tax-qualified status (which
would cause IRA assets to be treated as if they were distributed), the
investment in Units could violate the prohibition against maintaining the
indicia of ownership of any assets of an Employee Benefit Plan outside the
jurisdiction of the district courts of the United States, and the purchasing or
holding of Units could likely give rise to "unrelated business taxable income"
under Section 512 of the Code. Moreover, because it will be assumed that the
Partnership's assets are not Plan Assets, the consequences of their being Plan
Assets are not being discussed in greater detail. Potential
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Employee Benefit Plan and IRA investors are therefore urged to consult with
their own legal counsel concerning this issue.
Additional Fiduciary Responsibilities and Considerations. In addition, the
purchase and retention of any Units by an Employee Benefit Plan will be subject
to any fiduciary standards of conduct (including the prohibited transaction
rules) that are otherwise applicable to Employee Benefit Plans under ERISA and
the Code. For example, Units should not be purchased by an Employee Benefit Plan
if the General Partner, an Advisor, the Broker, a selling agent or any of their
respective affiliates (i) is a party-in-interest or disqualified person with
respect to the plan as those terms are defined in ERISA and the Code (for
example, an employer of employees covered by ERISA) or (ii) either (A) has
investment discretion with respect to the investment of such plan's assets or
(B) regularly gives investment advice with respect to such plan's assets for a
fee, pursuant to an understanding that such advice will serve as a primary basis
for investment decisions with respect to such plan's assets and that such advice
will be based on the particular investment needs of the plan, if, as result of
exercising such discretion or giving such advice, the Employee Benefit Plan
would acquire any Units.
Also, a prohibited transaction may still occur under ERISA or the Code where
there are circumstances indicating that (i) the investment in a Unit is made or
retained for the purpose of avoiding application of the fiduciary standards of
ERISA, (ii) the investment in a Unit constitutes an arrangement under which it
is expected that the Partnership will engage in transactions that would
otherwise be prohibited if entered into directly by the Employee Benefit Plan
purchasing the Unit, (iii) the investing plan, by itself, has the authority or
influence to cause the Partnership to engage in such transactions or (iv) the
person who is prohibited from transacting with the investing plan may, but only
with the aid of certain of its affiliates and the investing plan, cause the
Partnership to engage in such transactions with such person.
Reporting and Disclosure. ERISA and the Code require that a Form 5500 (Annual
Return/Report) be filed by certain (if not most) ERISA Plans that will be
investing in the Partnership. Pursuant to the Regulations, the Form 5500 for
such plans must include information relating to the fair market value of the
plan's investment in the Partnership as of the close of the plan's fiscal year
(i.e., the plan year), and the plan's acquisition or disposition of any interest
in the Partnership. If the Employee Benefit Plan's fiscal year differs from the
Partnership's fiscal year, such Employee Benefit Plan investor may not be able
to obtain valuation information on its interest in the Partnership as of the
last day of the plan's fiscal year. Also, any prohibited transaction must be
reported on the Form 5500 and any disqualified person involved in a prohibited
transaction is subject to self-reporting on Form 5330.
Exempt Plans
Certain Employee Benefit Plans may be governmental plans or church plans.
Governmental plans and church plans are generally not subject to ERISA, nor do
the above-described prohibited transaction provisions apply to such plans.
However, such plans are subject to prohibitions against certain related-party
transactions under Section 503 of the Code. In addition, the fiduciary of any
governmental or church plan must consider applicable state or local laws, if
any, and the restrictions and duties of common law, if any, imposed upon such
plan.
No view is expressed whether an investment in the Partnership (and any continued
investment in the Partnership), or the operation and administration of the
Partnership, is appropriate or permissible for any governmental plan or church
plan under Code Section 503, or under any state, county, local, or other law
respecting such plan.
Trust Requirement
Purchasing Units does not establish a trust for purposes of the trust
requirement of ERISA or for purposes of the custodial rules that apply to IRAs.
Therefore, each Employee Benefit Plan Fiduciary must ensure that any necessary
trust or custodial requirements are satisfied outside of the Partnership.
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Requests for Information
The General Partner reserves the right to request from any investor or potential
investor in the Partnership such information as the General Partner deems
necessary to monitor Partnership investments relating to Employee Benefit Plans.
Unrelated Business Taxable Income
See "Income Tax Aspects -- Tax-exempt Partners" for a discussion of the extent
to which the purchase of a Unit may give rise to "unrelated business taxable
income" under the Code.
CONFLICTS OF INTEREST
There are substantial and inherent conflicts of interest in the structure of the
Partnership which are, on their face, inconsistent with the fiduciary duties of
the General Partner. Prospective investors should be aware that the General
Partner presently intends to assert that Limited Partners have, by investing in
the Partnership, consented to the following conflicts of interest in the event
of any proceeding alleging that such conflicts violated any duty owed by the
General Partner and its affiliates ("Kenmar") to investors.
The General Partner
The General Partner, in its sole discretion, is authorized under the Partnership
Agreement to set the compensation it shall receive for its services as general
partner of the Partnership. The General Partner may change its compensation to
such amount and/or in such forms as the General Partner, in its sole discretion,
shall determine without the consent of the Limited Partners; provided that the
General Partner has given the Limited Partners ninety (90) days' prior written
notice of such change. As such, the General Partner has a conflict of interest
between limiting fees paid by the Partnership and generating fees for itself.
Kenmar currently manages other commodity pools and managed accounts, each with a
different combination of trading advisors, and intends to continue to solicit
and manage the trading for these other commodity pools and managed accounts.
Thus, Kenmar may be subject to conflicting demands in respect of allocating
management time, services and other functions between the activities the General
Partner has undertaken with respect to the Partnership and the activities Kenmar
has undertaken or will undertake with respect to other investors, commodity
pools, managed accounts and/or trading advisors. As another consequence, the
greater the amount of assets managed by Kenmar, the more difficult it may be for
the General Partner to maintain the quality of these services.
The General Partner and the Broker maintain a business relationship unrelated to
their efforts on behalf of the Partnership. Thus, the General Partner has a
conflict between its responsibility to negotiate an amount and form of
compensation to be paid to the Broker that best serves the Partnership's
interests and the General Partner's desire to maintain its business relationship
with the Broker. In addition, the General Partner may receive a brokerage
commission rebate from the Broker.
The General Partner and the Advisor maintain a business relationship unrelated
to their efforts on behalf of the Partnership. A substantial amount of the
assets under the management of the Advisor are assets of pools and accounts
managed by the General Partner or an affiliate. Thus, the General Partner has a
conflict between its responsibility to negotiate an amount and form of
compensation to be paid to the Advisor that best serves the Partnership's
interests and the General Partner's desire to maintain its business relationship
with the Advisor.
Neither the General Partner nor any of its affiliates, principals, directors,
officers or employees (the "Related Persons") trade Commodities for their own
accounts, although it is possible that they may do so in the future. The records
of such trading and any written policies related thereto would not be available
to the Limited Partners. If the General Partner or a Related Person were to
trade for their own accounts they could take
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positions either similar or opposite to positions taken by the Partnership,
and/or the Partnership and such Related Persons could from time to time be
competing for similar Commodities. Orders placed by the General Partner or a
Related Person to trade Commodities for their proprietary accounts may reach the
market either before or after similar orders are placed for the Partnership and
this difference in timing may result in the Partnership receiving less favorable
(or more favorable) prices than those received by such proprietary accounts.
Neither the General Partner nor any Related Person places orders for the Advisor
and, therefore, neither the General Partner nor any Related Person has control
over such timing. It is also possible that the positions taken by such
proprietary accounts may not be held for the same period of time as those
positions taken by the Partnership. Thus, it is unlikely that trading results in
such proprietary accounts would be the same as the performance in the
Partnership's account.
The Partnership and the General Partner are affiliated entities and are
represented by the same counsel, Katten Muchin & Zavis, Chicago, Illinois. No
independent experts or professionals have been retained on behalf of the Limited
Partners. To the extent that Limited Partners would benefit by further
independent representation, that benefit will not be available to Limited
Partners and they should seek independent counsel.
The Advisor
The Advisory Agreement allows the Advisor and its principals to manage other
commodity pools and managed accounts as well as trade for its own proprietary
accounts. Since the Advisor trades other accounts, the Advisor is subject to
conflicting demands in respect of allocating management time, services and other
functions between the Partnership and such other accounts. In particular, the
Advisor may have a conflict of interest when rendering advice to the Partnership
because its compensation for managing some other account may differ from its
compensation for managing the Partnership's account, and therefore may provide
an incentive to favor such other account.
The Advisor may in the future develop and furnish to, or employ on behalf of,
other investors trading methods or strategies for trading similar to or
different from those employed and traded on behalf of the Partnership's account
and pursuant to which such other investors may take positions similar to or
opposite from positions taken by the Partnership. No assurance may be given that
the trading results in such other accounts will be the same as or similar to the
performance in the Partnership's account.
The Advisor and its employees trade Commodities for their own accounts. The
records of such trading and any written policies related thereto will not be
available for inspection by Limited Partners. Such trading activity could differ
from the trading activity of the Partnership. For example, the trading positions
taken and the length of time such positions are held by the Partnership could
differ from those taken with respect to such proprietary accounts. In addition,
such proprietary accounts could be charged brokerage commissions in a
significantly different form and amount than those charged the Partnership and,
as a result, the Advisor could be more or less likely to modify, liquidate or
open a position for that account than for the Partnership's account. Orders for
trades for such proprietary accounts could be placed either before or after
similar orders are placed for the Advisor's investor accounts, and this
difference in timing could result in the investor accounts receiving less
favorable (or more favorable) prices than those received by such proprietary
accounts. Thus, no assurance may be given that the trading results in such
proprietary accounts will be similar to the performance in the Partnership's
account.
The CFTC and certain United States commodity exchanges have established
"speculative position limits" that limit the net long or net short speculative
position any person(s) may hold, own or control in a particular Commodity on any
given day. An Advisor and its principal(s) may, on any given day, trade up to
the position limit established by such regulatory authorities and, therefore,
might be unable to trade those Commodities for the Partnership. The effect of
speculative position limits may be to preclude the Advisor and, consequently,
the Partnership, from taking potentially profitable positions, thereby reducing
the profit potential of the Partnership.
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The Broker
The Broker effects transactions for other customers (including public and
private commodity pools) who may compete with the Partnership's transactions,
including with respect to priorities of order entry. In addition, employees of
the Broker may trade for their own account. Since the identities of the
purchaser and seller are not disclosed until after the trade, it is possible
that a Broker could effect transactions for the Partnership in which the other
parties to the transactions are that Broker's officers, directors, employees,
customers or affiliates. Such persons might also compete with the Partnership in
making purchases or sales of Commodities without knowing that the Partnership is
also bidding on such Commodities. Since orders are filled in the order in which
they are received by a particular floor broker, transactions for any of such
persons might be executed when similar trades for the Partnership are not
executed or are executed at less favorable prices. However, in entering orders
for the Partnership and such other customer accounts, the Broker will attempt to
achieve an equitable treatment of all accounts, including with respect to
priorities of order entry and allocations of executed trades. In addition, CFTC
regulations prohibit a futures commission merchant ("FCM") from utilizing its
knowledge of one customer's trades for its own or its other customers' benefit.
Recourse by Limited Partners
In evaluating the foregoing potential and actual conflicts of interest, an
investor should be aware that the General Partner will have a responsibility to
the Limited Partners to exercise good faith and fairness in all dealings
affecting the Partnership. The responsibility of a general partner to limited
partners is a changing area of the law and Limited Partners who have questions
concerning the responsibilities of the General Partner should consult their
legal counsel. In the event that a Limited Partner believes that the General
Partner has violated its responsibilities, the Limited Partner may seek legal
relief for himself and all other similarly situated Limited Partners or on
behalf of the Partnership under applicable laws to recover damages from, or to
require an accounting by, the General Partner. Furthermore, Limited Partners are
afforded certain rights to institute reparation proceedings under the CEAct for
violations of the CEAct or of any rule, regulation or order of the CFTC by the
General Partner or the Broker. A Limited Partner may also institute legal
proceedings in court against the General Partner, the Broker or the Advisor for
certain violations of the CEAct or rules, regulations or orders of the CFTC.
Excessive trading of the Partnership's account has been held to constitute a
violation of the antifraud provisions of the CEAct. Limited Partners should be
aware that it may be difficult to establish that excessive trading has occurred
due to the broad trading discretion given to the General Partner in the
Partnership Agreement and the Advisor in the Advisory Agreement, exculpatory
provisions in the Partnership Agreement and in the Advisory Agreement, and the
lack of definitive standards in judicial and administrative decisions as to what
constitutes excessive trading.
Under the exculpatory provisions of the Partnership Agreement, the General
Partner shall not be liable to the Partnership or to any of the Partners except
by reason of acts or omissions constituting fraud, willful misconduct, gross
negligence or bad faith. Limited Partners may have a more limited right of
action than they would absent such limitations. The Partnership has agreed to
indemnify the General Partner and its Limited Partners, officers, directors,
employees, and agents against any loss, liability, damage, cost, or expense
resulting from any claim, action, or proceeding relating to the business or
activities undertaken by them on behalf of the Partnership or actions taken or
omitted to be taken by the General Partner in its capacity as such; provided
that the conduct of such person did not constitute willful malfeasance or gross
negligence and was done in good faith and in a manner reasonably believed to be
in, or not opposed to, the best interests of the Partnership. In any action
brought by a Limited Partner in the right of the Partnership to which the
General Partner or any other person indemnified pursuant to the foregoing are
party defendants, any such person will be indemnified by the Partnership only to
the extent and subject to the conditions specified in the Partnership Act.
Notwithstanding the foregoing, in any action brought by a Limited Partner in the
right of the Partnership to which the General Partner or any other person
indemnified pursuant to the foregoing are party defendants, any such person will
be indemnified by the Partnership only to the extent and subject to the
conditions specified
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in the Partnership Act. Also, indemnification of the General Partner or its
affiliates by the Partnership will be limited for losses and liabilities
resulting from violations of United States Federal, state or foreign securities
law in connection with the offer or sale of Units. The CFTC has issued a
statement of policy relating to indemnification of officers and directors of an
FCM (such as the Broker) and its controlling persons under which the CFTC has
taken the position that whether such an indemnification is consistent with the
policies expressed in the CEAct will be determined by the CFTC on a case-by-case
basis. See "Item 12. Indemnification of Directors and Officers".
COMMODITIES TRADING GENERALLY
Trading Commodities is Speculative and Volatile
The profitability of the Partnership will depend primarily on the Advisor's
ability to predict fluctuations in Commodity prices. Such prices are highly
volatile and, in general, are influenced by a number of external factors,
including, but not limited to, changing supply and demand relationships;
agricultural, trade, fiscal, monetary and exchange control programs and policies
of governments; national and/or international political and economic events and
policies; and changes in interest rates. Certain additional factors may also
affect individual Commodities or certain groups of Commodities. For example,
currency Commodities are influenced by, among other things, political events
(including restrictions on local exchanges or markets, limitations on
investments in a country or on investment by residents of a country in other
countries, and restrictions on currency flows); changes in balances of payments
and trade; rates of inflation; international trade restrictions; currency
devaluations and revaluations; and governmental intervention (which is often
intended to influence prices directly). Metal Commodities can be affected by,
among other things, production and, particularly with respect to gold
Commodities, governmental regulation. Agricultural Commodities are influenced
by, among other things, unexpected weather, damage by insects or plant diseases
and/or unexpected purchases by countries. The above list does not include all of
the factors that influence the price of various Commodities or discuss how much
influence each of those factors has on such prices. Volatile price movements may
result in unprofitable trading by the Advisor, thereby resulting in losses to
the Partnership.
Trading Commodities is Highly Leveraged
To trade futures contracts a trader is not required to deposit funds equal to
the value of the futures contract; rather, the trader need only make a deposit,
called an "initial margin deposit", equal to a small percentage (typically
between 2% and 15%) of the value of the futures contract. As a result, a
relatively small adverse move in the price of a futures contract may result in
immediate and substantial losses to a trader. For example, if at the time of
purchase 10% of the price of a futures contract is deposited as margin, a 10%
decrease in the price of that contract would, if the contract were then closed
out, result in a total loss of the initial margin deposit (brokerage commissions
and other transaction costs also would be incurred). A decrease of more than 10%
would result in a loss of more than the total initial margin deposit.
Trading in the currency forward and interbank markets does not require margin
but generally does require the extension of credit by a bank to those with whom
that bank trades. The General Partner does not anticipate that the banks with
which the Broker (or other commodity broker) and the Partnership may trade will
require margin with respect to the trading of currencies. However, to ensure
payment by the Partnership on currency contracts, the Broker (or other commodity
broker) will generally require margin in amounts approximately equivalent to
those required for trading foreign currency futures contracts on United States
exchanges when the Partnership trades the same currencies for which futures
contracts are traded on such exchanges and amounts that may be higher than such
exchange margin requirements when the Partnership trades world currencies for
which no futures contracts are traded on such exchanges. Thus, as with futures
contracts, a relatively small adverse move in the price of a forward contract
may result in a loss of an amount equal to or greater than the amount deposited.
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To some extent, options are even more highly leveraged than either futures or
forward contracts. For example, if an in-the-money call (put) option is sold for
its intrinsic value plus a premium representing the time value of that option, a
10% rise (drop) in the value of the underlying futures contract or physical
commodity (the "Underlying Interest") does not create a loss equal to just 10%
of the value of the option; rather it creates a loss approximately equal to 10%
of the value of the Underlying Interest, less the time value, which loss may be
many times greater than the price for which a trader sold the option. In
addition, a trader who sells options is required only to deposit a percentage of
the value of the option at the time of sale as margin, thereby leveraging the
investment even further.
Thus, like other leveraged investments, any purchase or sale of certain
Commodities may result in losses in excess of the amount invested. Investors
should note, however, that while the Partnership's assets are subject to losses
in excess of margin deposits, a Limited Partner cannot lose more than his
unredeemed capital contribution, undistributed profits (if any) and, under
certain limited circumstances, capital distributed to him or received by him
upon redemption, with interest thereon. See "Nature of the Partnership" under
Item 11.
Trading Commodities May be Illiquid
While the Partnership normally will trade only Commodities that have sufficient
liquidity to enable the Partnership to enter and close out positions without
causing value price movements, there is no assurance that intervening events,
such as an exchange or the CFTC suspending trading in a particular futures
contract, ordering immediate liquidation or settlement of a particular futures
contract or ordering trading in a particular futures contract be conducted for
liquidation only, will not render a once-liquid Commodity illiquid.
In addition, most United States commodity exchanges limit the amount by which
certain Commodities may move during a single day by regulations referred to as
"daily price fluctuation limits", or "daily limits". Pursuant to such
regulations, no trades may be executed on any given day at prices beyond the
daily limits. The price of a futures contract has occasionally moved the daily
limit for several consecutive days with little or no trading, thereby
effectively preventing a party from liquidating his position.
Similarly, trading options may become illiquid if trading in the Underlying
Interest becomes illiquid. Also, it is possible that major banks may, from time
to time, effectively stop making markets in certain currency forward contracts
or that governments may intervene to stabilize or fix exchange rates or impose
credit controls, thereby restricting or substantially eliminating trading in the
affected currencies.
While the occurrence of such events may reduce or effectively eliminate the
liquidity of a particular market, they do 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 Partnership is trading, whether
such illiquidity is caused by any of the above reasons or otherwise, the
Partnership 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 Partnership to make or take delivery of the Underlying
Interest.
Trading Forward Contracts
The Partnership may trade forward contracts in certain items (such as currencies
and metals) with United States and foreign banks and dealers.
A forward contract is a contractual obligation to purchase or sell a specified
quantity of a Commodity at or before a specified date in the future at a
specified price and, therefore, is similar to a futures contract. Forward
contracts, however, are not traded on exchanges and, as a consequence, investors
in forward contracts are not afforded the regulatory protections of such
exchanges or the CFTC; rather, banks and dealers act as principals in such
markets. Neither the CFTC nor banking authorities regulate trading in forward
contracts on currencies, and non-United States banks may not be regulated by any
United States governmental agency. The principals who deal in the forward
contract markets are not required to continue to make markets in the forward
contracts
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they trade. There have been periods during which certain participants in forward
markets have refused to quote prices for contracts or have quoted prices with an
unusually wide spread between the price at which they are prepared to buy and
that at which they are prepared to sell.
The Partnership may trade forward contracts with and through a limited number of
entities. As a result, liquidity problems might be greater in the Partnership's
forward trading than would be the case if trades were to be placed with and
through a larger number of forward market participants. The imposition of
exchange and credit controls or the fixing of currency exchange rates by
governmental authorities (e.g., Latin American countries) might eliminate or
substantially reduce trading in certain currencies and might limit such forward
trading to less than the amount that the Advisor would otherwise recommend, to
the possible detriment of the Partnership. See "Trading Commodities May be
Illiquid" above. The amount of loss that may be claimed for tax purposes in
respect of the Partnership's unprofitable forward trades may be limited by the
loss limitation rules applicable to straddles. See "Income Tax Aspects".
Because performance under forward contracts is not guaranteed by any exchange or
clearinghouse, the Partnership will be subject to the risk of the inability, or
refusal by, the counterparty to perform with respect to such contracts. Any such
failure or refusal, whether due to insolvency, bankruptcy or other causes, could
subject the Broker (or other commodity broker) and in turn the Partnership to
substantial losses. The Broker (or other commodity broker) and the Partnership
will not be excused from the performance of any forward contracts into which
they have entered due to the default of third parties in respect of other
forward trades in the Advisor's trading strategies that were to have
substantially offset such contracts.
In addition, the CFTC has been studying the regulatory propriety of "exchange of
futures for physicals" or "EFP" transactions, whereby traders are able to
exchange positions in the forward markets for ones on regulated exchanges on a
24-hour basis. If the Partnership's ability to engage in such transactions were
restricted, trading techniques that may be employed by the Advisor might be
impaired to the potential detriment of the Partnership.
Trading Options
Options on futures contracts and physical commodities are traded on United
States and foreign exchanges. A call (put) option grants the purchaser thereof
the right, but not the obligation, to buy (sell) the Underlying Interest during
a certain period of time for a fixed price. An option is purchased for its
intrinsic value, if any, plus a premium, representing the time value of that
option. Unless the price of the Underlying Interest increases (decreases) by at
least the time value of that option, the Partnership may lose the entire amount
of such premium. (The more out-of-the-money an option is, the greater the
increase (decrease) would have to be before the Partnership would recover the
entire amount of such premium.) Conversely, if the Partnership sells an option
(whether a call or a put), it will be credited with the sales price but will
have to deposit margin due to its contingent liability to make or take delivery
of the Underlying Interest in the event the option is exercised. A trader who
sells options may be subject to loss in an amount equal to the entire price
movement that occurs in the Underlying Interest (less any premium received) from
the date he sold the option until the date he liquidates such position. The
ability to trade or exercise options may be restricted in the event that trading
in the Underlying Interest becomes restricted. Options trading on United States
commodity exchanges is subject to regulation by both the CFTC and such
exchanges. Options trading on foreign exchanges is not regulated by the CFTC.
Trading on Non-United States Exchanges
The Partnership may trade Commodities on exchanges located outside of the United
States, where CFTC regulations and other protections customary on United States
exchanges may not apply. The Advisor has limited experience trading on
non-United States exchanges and markets. The collapse of Baring Securities
Limited ("Barings") in early 1995, which was caused by a Barings trader making a
series of large, unauthorized and unprofitable trades in Japanese stock index
futures and options contracts on the Singapore International Monetary Exchange
and various Japanese exchanges, illustrated some of the potential risks of
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trading on foreign contract markets. Although, ultimately, customer funds were
recovered, the Barings collapse, and much of the initial uncertainty regarding
the disposition of customer funds and positions, may have been avoided had these
foreign markets established certain regulatory practices and financial
safeguards that exist in the United States, such as omnibus account reporting,
strict customer funds segregation, position transfer mechanisms, and risk
assessment and audit procedures.
In contrast to United States exchanges, some non-United States exchanges are
"principals' markets" in which performance with respect to a contract is the
responsibility only of the individual member with whom the trader has entered
into a contract. In the case of its trading on non-United States exchanges, the
Partnership will be subject to the risk of the inability of, or refusal by, the
counterparty to perform with respect to such contracts. Any such failure could
subject the Partnership to substantial losses or substantial reductions of the
profits it might otherwise have realized.
The Partnership will determine the Partnership's assets in United States
dollars. Unless the Partnership hedges itself against fluctuations in exchange
rates between the United States dollar and the currencies in which trading is
done on such non-United States exchanges, any profits that the Partnership might
realize in such trading could be eliminated as a result of adverse changes in
exchange rates, and the Partnership could even incur losses as a result of any
such changes. The Partnership, in general, does not intend to hedge itself.
Trading Facilities and Electronic Trading
Most open-outcry and electronic trading facilities are supported by
computer-based component systems for the order-routing, execution, matching,
registration and clearing of trades. As with all facilities and systems, they
are vulnerable to disruption or failure. The Partnership's ability to recover
losses may be subject to limits on liability imposed by the system provider, the
market, the clearing house and/or member firms.
Trading on an electronic system may differ not only from trading in an
open-outcry market but also from trading on other electronic systems. If the
Partnership undertakes transactions on an electronic trading system, the
Partnership will be exposed to risks associated with the system including the
failure of hardware and software. The result of any system failure may be that
the Partnership's order is either not executed according to its instructions or
is not executed at all.
THE ADVISOR
The Advisor is responsible for making the trading decisions for the Partnership.
Investors should note that the Advisor is the sole advisor for the Partnership.
The Advisor has prepared the following description. This description is simply a
synopsis and is therefore qualified in its entirety by reference to the detailed
descriptions contained in the Advisor's disclosure document, copies of which may
be obtained by a prospective investor upon request to the General Partner. Due
to the confidential and/or proprietary nature of most of the information, such
as trading methods and strategies and the performance tables, the General
Partner is relying on the Advisor for the accuracy thereof.
Dennis Trading Group, Inc., (the "Advisor"), formerly known as Richard J. Dennis
& Company, is an Illinois corporation and registered CTA and CPO. The address
and telephone number of the Advisor are 250 South Wacker Drive, Suite #650,
Chicago, Illinois 60606 and (312) 559-1895. The principals of the Advisor are
Richard J. Dennis, President, and Thomas A. Dennis, Chairman. The Advisor may
employ agents and employees to implement the trading program described herein.
Except with respect to partnership interests in Richard J. Dennis & Company
Preferred Futures Fund, L.P., and Richard J. Dennis & Company Preferred Futures
Fund II, L.P. and a limited partnership interest in another commodity pool, the
Advisor has not traded for its own account in the past and does not trade for
itself
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presently. The Advisor, however, may trade for its own account in the future. If
the Advisor trades for its own account in the future, Limited Partners will not
be permitted to inspect records of such trading or any written policies relating
thereto. Richard J. Dennis and Thomas A. Dennis presently trade commodities for
their own accounts. Due to the confidential nature of such trading, Limited
Partners will not be permitted to inspect such trading or any written policies
relating thereto.
As of June 30, 1999, neither the Advisor nor its principals owned any Units.
Principals
The Advisor was incorporated in Illinois as Richard J. Dennis & Company in
September 1982 and is registered as a CTA and CPO under the CEAct. The Advisor
became registered with the NFA as a CTA and CPO on May 11, 1983. In July 1991,
the Advisor changed its name to Dennis Trading Group, Inc.
Richard J. Dennis ("R. Dennis") is the founder of the Advisor. He has had over
29 years experience in the futures industry. R. Dennis has been trading futures
for his own account since 1970 and will continue to do so. Throughout his
career, he has been a member, at various times, of the Chicago Mercantile
Exchange, the Chicago Board of Trade, the Mid-America Commodity Exchange and the
Commodity Exchange, Inc. (commonly known as COMEX). Currently, R. Dennis is not
a member of any exchange. R. Dennis was a partner of C&D Commodities ("C&D"),
which formerly was registered as an FCM. C&D, however, is no longer engaged in
business. In March 1991, C&D Commodities, Inc. ("C&D, Inc.") was formed. R.
Dennis is a Vice-President of C&D, Inc. which is primarily engaged in providing
administrative services to CTAs, including the Advisor. However, R. Dennis has
no ownership interest in C&D, Inc. R. Dennis was first registered as a CTA in
his individual capacity in 1982 and rendered commodity advisory services in his
individual capacity from July 1982 through May 1983. In May 1983, the Advisor
assumed responsibility for managing the accounts previously managed by R.
Dennis. R. Dennis has been a director of the Advisor from its inception until
June 1991. R. Dennis also served as Chairman of the Advisor. R. Dennis' duties
for the Advisor include the direction and supervision of the Advisor's account
management services, research and development of trading strategies, review of
account performance and other administrative and managerial functions relating
to the business of the Advisor.
Thomas A. Dennis ("T. Dennis") joined the Mid-America Commodity Exchange in 1974
and traded for his own account. In 1976, he purchased a seat on the Chicago
Board of Trade and for the next four years was both a floor broker and a floor
trader there. In late 1979, he joined the COMEX, the New York Cotton Exchange
and the Coffee, Sugar, and Cocoa Exchange. T. Dennis was both a floor broker and
a floor trader at these exchanges. In the early eighties, he also joined the New
York Mercantile Exchange. In 1981, T. Dennis embarked upon a career as an
"off-floor" trader, and has continued to trade off-floor since then. T. Dennis
is the sole shareholder and President of C&D, Inc.
Except as described below, during the past five years neither the Advisor nor
its principals have been the subject of any material administrative, civil or
criminal action relating to the way in which client accounts were traded or
managed. Beginning in or about December 1988, the Advisor and R. Dennis were the
subject of a number of actions, filed as class actions, which involved the
manner in which the accounts of two commodity pools, the Richard J. Dennis &
Company Preferred Futures Fund, L.P. and the Richard J. Dennis & Company
Preferred Futures Fund II, L.P. were traded. The actions were consolidated under
the caption In Re: Richard J. Dennis & Co. Securities Litigation. The
consolidated action was settled in or about September 1990.
In connection with the consolidated action, the Advisor and R. Dennis deny any
and all liability. The consolidated action is subject to the ongoing
jurisdiction of the court in which it was pending at the time of settlement.
This procedure exists in order to insure compliance by the parties with the
terms of the Settlement Agreement. The terms of the Settlement Agreement
provided for the payment of a cash amount which had no material impact on the
Advisor's ability to conduct its business. The terms of the Settlement Agreement
also provided for certain contingent payments by R. Dennis through December 31,
1993. For the period from September 1988 through June 1991, the Advisor had not
managed customer accounts.
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The General Partner has been advised that there have never been any criminal
actions against the Advisor or its principals and that there have never been any
administrative, civil or criminal proceedings brought against any of the other
principals of the Advisor. The General Partner has been advised that there are
no pending actions against the Advisor or its principals.
Trading Methods and Strategies
The trading ideas utilized by the Advisor are proprietary and confidential. The
following description therefore is general by necessity and is not intended to
be exhaustive.
The Advisor's objective is to effect appreciation of its clients' assets through
the speculative trading of Commodities. The Advisor currently expects the
majority of its trading for clients to be limited to regulated futures contracts
and options on regulated futures contracts on commodity exchanges within the
United States which are designated by the CFTC as contract markets. However, the
Advisor may engage in the trading of forward contracts (which may not be traded
on exchanges), including forward contracts on foreign currencies, and contracts
on foreign exchanges (which are not regulated by the CFTC). The specific futures
contracts and options on futures contracts to be traded will be selected from
time to time by the Advisor on the basis discussed below. Examples of futures
contracts and options on futures contracts which have been traded by the Advisor
include, but are not necessarily limited to: gold, silver, copper, grains, the
soybean complex, sugar, United States Treasury bonds and notes, certain foreign
currencies, foreign bonds traded on foreign exchanges, heating and crude oil,
Eurodollars and the S & P 500 Stock Price Index and various foreign stock
indices. The Advisor may also engage in transactions in physical commodities,
including exchange for physical transactions. An exchange for physical is a
transaction permitted under the rules of many futures exchanges in which two
parties holding futures positions may close out their positions without making
an open, competitive trade on the exchange.
Trading decisions of the Advisor for accounts for which it provides trading
advice are based in part on ideas which have been developed over time by R.
Dennis, T. Dennis and their associates, acting individually or from time to time
in connection with the activities of the Advisor. The ideas are basically
trend-following and are not generally based on analysis of fundamental supply
and demand factors, economic factors or anticipated world events ("fundamental
factors"), but rather upon a study of actual price fluctuations. The Advisor
may, however, consider certain fundamental factors in applying the trading idea.
Further, the Advisor may at times trade on the basis of its analysis of the
impact of various fundamental factors on the market. The Advisor will exercise
no discretionary judgment in following its trading systems, except in regard to
timing of trade executions or as needed to reduce risk in extreme circumstances.
The Advisor may, however, elect to add new trading systems, eliminate systems
that have been in use or restore systems that have been eliminated.
The markets traded, generally, have been chosen for their historical performance
and for their customary liquidity. From time to time, the Advisor may trade in
less liquid markets. There can be no assurance of liquidity in any of the
markets in which the Advisor trades.
The Advisor believes that the development of a commodity trading strategy is a
continual process. As a result of further analysis and research into the
performance of the Advisor's ideas, changes have been and will be made from time
to time in the specific manner in which these trading ideas evaluate price
movements in various Commodities. As a result of such modifications, the trading
ideas that may be used by the Advisor in the future might differ from those
previously used. Limited Partners will not be informed with respect to such
changes in the Advisor's trading ideas. For diversification, a number of
different ideas may be used concurrently.
Judgment is required in the evaluation of the trading ideas used by the Advisor,
in the evaluation and consideration of modifications of the trading ideas from
time to time and in the implementation of the trading ideas. The decision not to
trade certain Commodities or not to make certain trades may result at times in
missing price moves and hence profits of great magnitude, which other trading
managers who are willing to trade these Commodities may be able to capture.
Specific trading decisions for the Advisor are made by R. Dennis, T. Dennis or
other traders who are, or become, associated with the Advisor. However, all
trading
25
<PAGE> 27
directed by the Advisor is under the supervision of R. Dennis or T. Dennis.
There is no assurance that the performance of the Advisor will result in
profitable trading.
The periods at the commencement of trading or at which a drawdown from starting
equity has occurred are considered to be the periods of highest risk. From these
points, risk management techniques are emphasized over those which invite
greater risk in the interest of enhancing performance. These risk management
techniques include diversification, such as the commitment of equity to many
markets and to a number of trading strategies. Also, the Advisor generally
considers money management techniques which determine and limit the equity
committed to each trade, market, complex and account.
Furthermore, the risk assumed and, consequently, the potential for profit
experienced by a particular account at different times, and by different
accounts at the same time, vary significantly among the accounts due to a number
of factors, including market conditions, the size of each account, the
percentage gained or lost in each account, and the perceived risk aversion of
each account's owner. For these and other reasons described in this document, no
investor should expect necessarily the same performance as that of any other
account traded previously, simultaneously, or subsequently by the Advisor or any
of its principals.
The Advisory Agreement
To utilize the commodity trading advice of the Advisor, the Partnership has
entered into a management agreement (the "Advisory Agreement") with the Advisor.
Set forth below is a brief description of certain points of the Advisory
Agreement. Accordingly, the following description is qualified in its entirety
by the actual Advisory Agreement, a copy of which has been filed as Exhibit 10.2
to this Registration Statement.
Indemnification. The Partnership has agreed to indemnify the Advisor from and
against any loss, liability, claim, demand, damage, cost or expense (including
reasonable attorneys' and accountants' fees) arising out of the Advisor's
performance of its services except for certain actions by an Advisor, including
but not limited to (i) a material breach of the Advisory Agreement; (ii) an act
of, or omission to act due to, breach of fiduciary duty, bad faith, misconduct
or negligence by the Advisor or its principal; or (iii) a materially misleading
or untrue statement of material fact contained in the Advisor's disclosure
document or an omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not materially misleading.
The Advisor shall be liable to the Partnership for, and shall indemnify, hold
harmless, and defend the Partnership from and against, any loss, liability,
claim, demand, damage, cost and expense (including reasonable attorneys' and
accountants' fees), to which the Partnership may become subject arising out of
or based upon an act, omission, conduct or activity of the Advisor arising from
(i) a material breach of any term of the Advisory Agreement; (ii) an act of, or
omission to act due to, breach of fiduciary duty, bad faith, misconduct or
negligence by the Advisor; or (iii) a materially misleading or untrue statement
of material fact contained in the Advisor's disclosure document or an omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not materially misleading.
Status. The Advisor is, and for all purposes shall be deemed to be, an
independent contractor and, unless otherwise expressly provided in the Advisory
Agreement or with the prior written authorization of the Partnership, the
Advisor and its principals shall have no authority to act for or represent the
Partnership in any way and shall not otherwise be deemed to be an agent of the
Partnership. The Advisor is neither a sponsor nor promoter of the Partnership.
THE BROKER
The General Partner has responsibility for monitoring the Partnership's brokers
and for negotiation of their brokerage commission rates. The General Partner has
selected E. D. & F. Man International Inc. to be the clearing broker for the
Partnership. The Broker is registered under the CEAct, as amended,
26
<PAGE> 28
as an FCM and a CPO, and is a member of the NFA in such capacities. In addition,
the Broker is registered with the National Association of Securities Dealers,
Inc. as a broker-dealer. The Broker, which is part of the E. D. & F. Man Group
of companies, is a member of major United States futures and securities
exchanges. The Broker's main office is located at Two World Financial Center,
27th Floor, New York, New York 10281-2700. The Broker's telephone number at such
location is (212) 566-9000.
At any given time, the Broker is involved in numerous legal actions and
administrative proceedings, which in the aggregate, are not, as of the date of
this registration statement, expected to have a material effect upon its
condition, financial or otherwise or to the services it will render to the
Partnership. There have been no material, administrative, civil or criminal
proceedings pending on appeal or concluded against the Broker or its principals
within five years preceding the date of this registration statement.
The Broker acts only as clearing broker for the Partnership and as such is paid
commissions for executing and clearing trades on behalf of the Partnership. The
Broker has not passed upon the adequacy or accuracy of this registration
statement. The Broker neither will act in any supervisory capacity with respect
to the General Partner nor participate in the management of the General Partner
or the Partnership. Therefore, prospective investors should not rely on the
Broker in deciding whether or not to participate in the Partnership.
Customer Agreement
The Partnership and the Broker have entered into a non-exclusive customer
agreement (the "Customer Agreement") that provides that the Broker may execute
some, and clear all, transactions by or on behalf of the Partnership in
accordance with the instructions of the Advisor. The Broker is responsible for
holding and maintaining certain Partnership assets; execution of some and
clearance of all foreign currency Commodity transactions; preparation and
transmittal of daily confirmations of transactions and monthly statements of
account; calculation of equity balances and margin requirements, and similar
transaction-related administrative functions. The Customer Agreement provides
that the Partnership will post margin as required. For a description of the
brokerage commissions payable, see "Item 1. Business--Fees and Expenses--Other
Fees and Expenses". A copy of the Customer Agreement has been filed as Exhibit
10.1 to this Registration Statement.
ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The following Selected Financial Data is derived from the audited financial
statements of the Partnership for the years ended December 31, 1998 and 1997
and for the period June 18, 1996 (inception) to December 31, 1996, and the
unaudited financial statements for the six months ended June 30, 1999. The
Partnership commenced trading operations on October 9, 1996. See "Index to
Financial Statements" at page F-1.
<TABLE>
<CAPTION>
Six Months
Ended Period Ended
June 30, Year Ended December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total Assets $59,457,278 $35,864,129 $13,814,909 $ 6,641,963
Total Partners' Capital 56,913,897 35,559,179 13,550,922 6,535,088
Total Income 12,761,266 12,380,097 4,056,330 25,451
Total Expenses 4,183,762 5,996,006 2,269,650 79,124
Net Income (Loss) 8,577,504 6,384,091 1,786,680 (53,673)
A Units
Net Asset Value Per A Unit $ 2,219.36 $ 1,829.21 $ 1,283.62 $ 1,081,40
=========== =========== =========== ===========
Net Income (Loss) Per A Unit
(Based on weighted average number of
A Units outstanding during the period) $ 387.62 $ 555.83 $ 130.21 $ (21.29)
=========== =========== =========== ===========
Increase in Net Asset Value Per A Unit $ 390.15 $ 545.59 $ 202.22 $ 81.40
=========== =========== =========== ===========
B Units
Net Asset Value Per B Unit $ 2,117.69 $ 1,760.76 $ 1,253.94
=========== =========== ===========
Net Income Per B Unit
(Based on weighted average number of
B Units outstanding during the period) $ 378.91 $ 307.36 $ 285.90
=========== =========== ===========
Increase in Net Asset Value Per B Unit $ 356.93 $ 506.82 $ 198.02
=========== =========== ===========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion below and elsewhere in this Registration Statement contains
"forward looking" information that are based on the beliefs of the Partnership,
as well as assumptions made by, and information currently available to, the
Partnership. A number of important factors could cause the Partnership's actual
growth, results, performance and business prospects and opportunities in 1999
and beyond to differ materially from those expressed in, or implied by, any such
forward looking information. These factors include, without limitation, the
factors described below and in "Item 1. Business -- Commodities Trading
Generally."
The assets of the Partnership are used to engage, directly or indirectly, in the
speculative trading of Investments. From time to time, a portion of such
proceeds may be used for transactions in the cash markets or for interbank
trading.
The assets of the Partnership are deposited with the Broker in a trading account
established by the Partnership for the Advisor and are used by the Partnership
as margin to engage in trading. Such assets are held in either a non-interest
bearing bank account or in securities approved by the CFTC for investment of
customer funds. In addition, certain of the Partnership's assets may also be
placed in a custodian account with a cash manager to maximize the interest
earned on assets not committed as margin.
27
<PAGE> 29
Capital Resources
The Partnership does not have, nor does it expect to have, any capital assets.
Redemptions and sales of additional Units in the future will affect the amount
of funds available for trading Investments in subsequent periods.
There are only three factors that affect the Partnership's capital resources:
(i) the trading profit or loss generated by the Advisor (including interest
income); (ii) the money invested or redeemed by the Limited Partners; and (iii)
capital invested or redeemed by the General Partner. The General Partner has
maintained, and shall maintain, at all times a capital account in such an
amount, up to a total of $500,000, as is necessary for the General Partner to
maintain a one percent (1%) interest in the capital, income and losses of the
Partnership. All capital contributions by the General Partner necessary to
maintain such capital account balance shall be evidenced by Units of general
partnership interest, each of which shall have an initial value equal to the Net
Asset Value per Unit at the time of such contribution. The General Partner, in
its sole discretion, may withdraw any excess above its required capital
contribution without notice to the Limited Partners. The General Partner, in its
sole discretion, may also contribute any greater amount to the Partnership, for
which it shall receive, at its option, additional Units of general partnership
interest at their then-current Net Asset Value.
Results of Operations
The success of the Partnership is dependent upon the ability of the Advisor to
generate trading profits through the speculative trading of Investments
sufficient to produce capital appreciation after payment of all fees and
expenses. Future results will depend in large part upon the Investment markets
in general, the performance of the Advisor, the amount of additions and
redemptions, and changes in interest rates. Due to the highly leveraged nature
of Investment trading, small price movements may result in substantial losses.
Because of the nature of these factors and their interaction, it is impossible
to predict future operating results.
The Partnership has incurred and will continue to incur substantial charges from
the payment of brokerage commissions to the Broker, management and/or incentive
fees to the Advisor, management fees, offering fees and/or incentive fees to the
General Partner and operating expenses. The Partnership is required to make
substantial trading profits to avoid depletion and exhaustion of its assets from
the above-mentioned fees and expenses.
Due to the nature of the Partnership's business, the Partnership's trading
results depend on the Advisor and the ability of its individual trading system
to take advantage of price movement or other profit opportunities in the
Investment markets. The following paragraphs present a summary of the
Partnership's operations since inception. It is important to note, however, that
the Advisor trades 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. Consequently, the results of
operations of the Partnership can only be discussed in the context of the
overall trading activities of the Partnership, the Advisor's trading activities
on behalf of the Partnership as a whole and how the Partnership has performed in
the past.
Set forth below is a summary of the results of operations of the Partnership
since inception.
As of the six-month period ended June 30, 1999 the Net Asset Value of the
Partnership was $56,913,897, an increase of $21,354,718 from its Net Asset Value
of $35,559,179 at December 31, 1998. The Partnership's subscriptions and
redemptions as of the six-month period ended June 30, 1999 totaled $14,240,320
and $1,463,106, respectively. For the six-month period ended June 30, 1999, the
Partnership had revenue comprised of $11,254,577 in realized trading gains,
$696,399 in unrealized trading gains and $810,290 in interest income. For that
same period, the Partnership had expenses comprised of $1,006,187 in brokerage
commissions, $400,834 in management fees, $2,103,117 in incentive fees, $629,480
in General Partner offering fees and $44,144 in operating expenses. This
resulted in the Partnership having a net gain of $8,577,504 for that period. For
the six-month period ended June 30, 1999, the Net Asset Value of Class A Units
increased 21.33% from $1,829.21 to $2,219.36 and the Net Asset Value of Class B
Units increased 20.27% from $1,760.76 to $2,117.69. Approximately 61% of the
Partnership's net
28
<PAGE> 30
gains during the six-month period ended June 30, 1999 were attributable to S
& P 500 futures, 20% to currencies, 11% to grains and 8% to Japanese interest
rates.
As of December 31, 1998 the Net Asset Value of the Partnership was $35,559,179,
an increase of $22,008,257 from its Net Asset Value of $13,550,922 at December
31, 1997. The Partnership's 1998 subscriptions and redemptions totaled
$18,134,670 and $2,510,504, respectively. For the year ended December 31, 1998,
the Partnership had revenue comprised of $10,374,018 in realized trading gains,
$943,011 in unrealized trading gains and $1,063,068 in interest income. For that
same period, the Partnership had expenses comprised of $1,400,182 in brokerage
commissions, $482,628 in management fees, $3,229,070 in incentive fees, $748,537
in General Partner offering fees and $135,589 in operating expenses. This
resulted in the Partnership having a net gain of $6,384,091 for that period. For
the year ended December 31, 1998, the Net Asset Value of Class A Units increased
42.5% from $1,283.62 to $1,829.21 and the Net Asset Value of Class B Units
increased 40.42% from $1,253.94 to $1,760.76. Approximately 76% of the
Partnership's net gains during 1998 were attributable to global interest rates,
15% to European and U.S. stock indices, 6% to grains and 3% to meats.
As of December 31, 1997 the Net Asset Value of the Partnership was $13,550,922,
an increase of $7,015,834 from its Net Asset Value of $6,535,088 at December 31,
1996. The Partnership's 1997 subscriptions and redemptions totaled $8,507,205
and $3,278,051, respectively. For the year ended December 31, 1997, the
Partnership had revenue comprised of $3,239,951 in realized trading gains,
$353,365 in unrealized trading gains and $463,014 in interest income. For that
same period, the Partnership had expenses comprised of $943,428 in brokerage
commissions, $219,334 in management fees, $702,920 in incentive fees, $324,867
in General Partner offering fees and $79,101 in operating expenses. This
resulted in the Partnership having a net gain of $1,786,680 for that period. For
the year ended December 31, 1997, the Net Asset Value of Class A Units increased
18.70% from $1,081.40 to $1,283.62. For the period April 1997 (inception of the
Class B Units) to December 31, 1997, the Net Asset Value of Class B Units
increased 18.75% from $1,055.92 to $1,253.94. Approximately 81% of the
Partnership's net gains during 1997 were attributable to European and U.S.
interest rates, 18% to energies and 1% to metals.
As of December 31, 1996 the Net Asset Value of the Partnership was $6,535,088.
The Partnership's 1996 subscriptions and redemptions totaled $6,607,761 and
$19,000, respectively. For the year ended December 31, 1996, the Partnership
had revenue comprised of $80,440 in realized trading losses, $84,444 in
unrealized trading gains and $21,447 in interest income. For that same period,
the Partnership had expenses comprised of $25,235 in brokerage commissions,
$13,548 in management fees, $20,516 in General Partner offering fees and
$19,825 in operating expenses. This resulted in the Partnership having a net
loss of $53,673 for that period. The Net Asset Value of a Unit at December 31,
1996 increased 8.14% from $1,000 at June 18, 1996 (inception) to $1,081.40 at
December 31, 1996. Approximately 58% of the Partnership's net losses during 1996
were attributable to global interest rates, 36% to grains, 4% to metals and 2%
to European stock indices.
For the reasons described in this section, past performance is not indicative of
future results. As a result, any recent increases in net realized or unrealized
trading gains may have no bearing on any results that may be obtained in the
future.
To enhance the foregoing comparison of results of operations from year to year,
prospective investors can examine the Statements of Financial Condition and the
Statements of Operations for the periods described above.
Liquidity
Although there is no public market for the Units, a Limited Partner may redeem
his Units in the Partnership as of any month-end upon ten days' written notice
to the General Partner in the form of a request for redemption. See "Item 11.
Description of Registrant's Securities to be Registered - Redemption".
With respect to the Partnership's trading, in general, the Advisor will trade
only Investments that have sufficient liquidity to enable it to enter and close
out positions without causing major price movements. Notwithstanding the
foregoing, most United States commodity exchanges limit the amount by which
certain
29
<PAGE> 31
commodities may move during a single day by regulations referred to as "daily
price fluctuation limits", or "daily limits". Pursuant to such regulations, no
trades may be executed on any given day at prices beyond daily limits. The price
of a futures contract has occasionally moved the daily limit for several
consecutive days, with little or no trading, thereby effectively preventing a
party from liquidating its position. While the occurrence of such an event may
reduce or effectively eliminate the liquidity of a particular market, it will
not limit ultimate losses and may in fact substantially increase losses because
of this inability to liquidate unfavorable positions. In addition, if there is
little or no trading in a particular futures or forward contract that the
Partnership is trading, whether such illiquidity is caused by any of the above
reasons or otherwise, the Partnership 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 Partnership to make or take
delivery of the Underlying Interest.
The Partnership's trading also may be impacted by the various conflicts of
interest between the Partnership and the General Partner, the Advisor, the
Broker, and their affiliates. See "Item 1. Business - Conflicts of Interest".
Year 2000 Compliance
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 Partnership could be adversely affected if
the computer systems used by the General Partner or the Partnership's service
providers do not properly address this problem prior to January 1, 2000.
Currently, the General Partner does not anticipate that the transition to the
21st century will have any material effect on the Partnership.
The General Partner 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. The General Partner is currently in
the process of requesting confirmation from all third parties with which it and
the Partnership have a material relationship that said parties have taken the
same actions. In-house compliance for all mission-critical software is in
progress. 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. The
General Partner has addressed all of the issues as a part of its ongoing
operations, so the Partnership will not be required to reimburse the General
Partner for any expenses incurred.
Despite the corrective measures that the General Partner has implemented, no
assurance can be given that the Partnership's service providers have anticipated
every step necessary to avoid any adverse effect on the Partnership attributable
to the Year 2000 Problem. A most likely worst case scenario would be one in
which trading of contracts on behalf of the Partnership becomes impossible as a
result of the Year 2000 Problem. The General Partner 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 Partnership.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Past Results Not Necessarily Indicative of Future Performance
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of
30
<PAGE> 32
trading loss. Unlike an operating company, the risk of market sensitive
instruments is integral, not incidental, to the Partnership's main line of
business.
Market movements result in frequent changes in the fair market value of the
Partnership's open positions and, consequently, in its earnings and cash flow.
The Partnership's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership, under the direction of the Advisor, rapidly acquires and
liquidates both long and short positions in a wide range of different markets.
Consequently, it is not possible to predict how a particular future market
scenario will affect performance, and the Partnership's past performance is not
necessarily indicative of its future results.
"Value at Risk" is a measure of the maximum amount which the Partnership could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Partnership's speculative trading and the recurrence in the
markets traded by the Partnership of market movements far exceeding expectations
could result in actual trading or non-trading losses far beyond the indicated
Value at Risk or the Partnership's experience to date (i.e., "risk of ruin"). In
light of the foregoing as well as the risks and uncertainties intrinsic to all
future projections, the inclusion of the quantification included in this section
should not be considered to constitute any assurance or representation that the
Partnership's losses in any market sector will be limited to Value at Risk or by
the Partnership's attempts to manage its market risk.
Standard of Materiality. Materiality as used in this section, "Qualitative and
Quantitative Disclosures About Market Risk", is based on an assessment of
reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage, optionality and multiplier features
of the Partnership's market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
Quantitative Forward-Looking Statements. The following quantitative disclosures
regarding the Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil liability provided
for such statements by the Private Securities Litigation Reform Act of 1995 (set
forth in Section 27A of the 1933 Act and Section 21E of the 1934 Act. All
quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact (such as the terms of particular contracts and the number of market risk
sensitive instruments held during or at the end of the reporting period).
The Partnership's risk exposure in the various market sectors traded by the
Advisor is quantified below in terms of Value at Risk. Due to the Partnership's
mark-to-market accounting, any loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership's earnings (realized or
unrealized) and cash flow (at least in the case of exchange-traded contracts in
which profits and losses on open positions are settled daily through variation
margin).
Exchange maintenance margin requirements have been used by the Partnership as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component which is not relevant to Value
at Risk.
31
<PAGE> 33
In quantifying the Partnership's Value at Risk, 100% positive correlation in the
different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Partnership's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of June 30, 1999. All open
position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of June 30, 1999, the Partnership's
total capitalization was approximately $56.9 million.
June 30, 1999
-------------
% of Total
Market Sector Value at Risk Capitalization
- ------------- ------------- --------------
Currencies 1.6 million 2.99%
Interest Rates 5.5 million 10.29%
Commodities 0.7 million 1.21%
Stock Indices 0.3 million 0.52%
Metals 0.6 million 1.09%
Energy 1.1 million 2.11%
------------- --------------
Total 9.8 million 18.21%
============= ==============
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is
typically many times the applicable maintenance margin requirement (maintenance
margin requirements generally ranging between approximately 1% and 10% of
contract face value) as well as many times the capitalization of the
Partnership. The magnitude of the Partnership's open positions creates a "risk
of ruin" not typically found in most other investment vehicles. Because of the
size of its positions, certain market conditions-unusual, but historically
recurring from time to time-could cause the Partnership to incur severe losses
over a short period of time. The foregoing Value at Risk table-as well as the
past performance of the Partnership-give no indication of this "risk of ruin".
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as the market risk they
represent) are immaterial.
As of June 30, 1999, the Partnership held the following fixed income
securities in its portfolio:
<TABLE>
<CAPTION>
Face Value Description Value
---------- ----------- -----
U.S. GOVERNMENT OBLIGATIONS
<S> <C> <C>
1,350,000 U.S. Treasury Notes, 5.00%, 4/30/01 $ 1,349,924
8,000,000 U.S. Treasury Notes, 5.25%, 5/31/01 7,996,934
450,000 U.S. Treasury Notes, 6.625%, 4/30/02 466,457
300,000 U.S. Treasury Notes, 6.00%, 8/15/00 308,640
FEDERAL AGENCY OBLIGATIONS
1,000,000 Federal Home Loan Bank,
4.875%, 1/22/02 997,082
251,365 Federal Home Loan Mortgage Corporation,
Gold 7-Year Balloon, 6.00%, 8/1/00 251,458
800,000 Federal Home Loan Mortgage Corporation,
5.75%, 7/15/03 810,819
1,060,000 Federal National Mortgage Association,
6.375%, 1/16/02 1,101,943
200,000 Federal National Mortgage Association,
6.03%, 10/23/00 202,950
-----------
TOTAL FIXED INCOME SECURITIES
(COST, INCLUDING ACCRUED INTEREST, - $13,562,899) $13,486,207
===========
</TABLE>
32
<PAGE> 34
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market risk
exposures-except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Partnership manages its primary market
risk exposures-constitute forward-looking statements within the meaning of
Section 27A of the 1933 Act and Section 21E of the 1934 Act. The Partnership's
primary market risk exposures as well as the strategies used and to be used by
the General Partner and the Advisor for managing such exposures are subject to
numerous uncertainties, contingencies and risks, any one of which could cause
the actual results of the Partnership's risk controls to differ materially from
the objectives of such strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an influx of new
market participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the
risk management strategies of the Partnership. There can be no assurance that
the Partnership's current market exposure and/or risk management strategies will
not change materially or that any such strategies will be effective in either
the short- or long-term. Investors must be prepared to lose all or substantially
all of their investment in the Partnership.
The following were the primary trading risk exposures of the Partnership as of
June 30, 1999, by market sector.
Interest Rates. Interest rate movements directly affect the price of the
sovereign bond positions held by the Partnership and indirectly the value of its
stock index and currency positions. Interest rate movements in one country as
well as relative interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United Stated and the other G-7 countries
(Canada, France, Germany, Great Britain, Italy and Japan). However, the
Partnership also takes positions in the government debt of other nations-e.g.,
New Zealand and Australia. The General Partner anticipates that G-7 interest
rates will remain the primary market exposure of the Partnership for the
foreseeable future.
Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Partnership trades in a large number of
currencies, including cross-rates-i.e., positions between two currencies other
than the United States dollar. However, the Partnership's major exposures have
typically been in the dollar/yen, dollar/mark and dollar/pound positions.
Stock Indices. The Partnership's primary equity exposure is in the S & P 500.
The stock index futures traded by the Partnership are by law limited to futures
on broadly based indices. The General Partner anticipates little, if any trading
in non-G-7 stock indices. The Partnership is primarily exposed to the risk of
adverse price trends or static markets in the major United States, European and
Japanese indices. (Static markets would not cause major market changes but would
make it difficult for the Partnership to avoid being "whipsawed" into numerous
small losses.)
Metals. The Partnership's primary metals market exposure is to fluctuations in
the price of gold, silver and copper. Although the Advisor may from time to time
trade base metals such as aluminum and tin, the principal market exposures of
the Partnership have consistently been in the precious metals, gold, silver and
copper (and, to a much lesser extent, platinum). The General Partner anticipates
that gold, silver and copper will remain the primary metals market exposure for
the Partnership.
Commodities. The Partnership's primary commodities exposure is to agricultural
price movements which are often directly affected by severe or unexpected
weather conditions. Corn and coffee accounted for the substantial bulk of the
Partnership's commodities exposure as of June 30, 1999. The General Partner
anticipates that the Advisor will maintain an emphasis on grains and tropicals,
in which the Partnership has historically taken its largest positions.
Energy. The Partnership's primary energy market exposure is to gas and oil price
movements, often resulting from political developments in the Middle East.
Although the Advisor trades natural gas to a limited extent, oil is by far the
dominant energy market exposure of the Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership as of
June 30, 1999.
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<PAGE> 35
Foreign Currency Balances. The Partnership's primary foreign currency balances
are in Japanese yen, German marks, British pounds and French francs. The
Partnership controls the non-trading risk of these balances by regularly
converting these balances back into dollars.
Securities Positions. The Partnership's only market exposure in instruments held
other than for trading is in its securities portfolio. The Partnership holds
only cash or interest-bearing money market accounts, short-term Treasury bills
and agency securities with durations generally less than 3 years. Violent
fluctuations in prevailing interest rates could cause interim mark-to-market
losses on the Partnership's securities, although substantially all of these
short-term instruments are held to maturity.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Advisor attempt to manage the risk of
the Partnership's open positions is essentially the same in all market
categories traded. The Advisor applies its own risk management policies to its
trading. These policies generally limit the total exposure that may be taken per
"risk unit" of assets under management. In addition, the Advisor follows
diversification guidelines (often formulated in terms of the maximum margin
which they will commit to positions in any one contract or group of related
contracts), as well as imposing "stop-loss" points at which open positions must
be closed out. Occasionally, the Advisor will limit the market exposure of its
Partnership account through acquiring put or call options which "collar" the
risk of open positions. However, because of the typically high degree of
liquidity in the markets traded by the Partnership and the expense of acquiring
options, the Advisor mostly relies on stop-loss policies, requiring the
liquidation of positions once losses of a certain magnitude have been incurred.
The General Partner controls the risk of the Partnership's non-trading
instruments (interest-bearing securities held for cash management purposes)-the
only Partnership investments, as opposed to Advisor selections, directed by the
General Partner-generally limiting the duration of such instruments to no more
than 3 years.
ITEM 3. PROPERTIES.
The Partnership does not own or lease any physical properties. The Partnership's
office is located within the office of the General Partner at Two American Lane,
P.O. Box 5150, Greenwich, Connecticut 06831-8150.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Partnership has no directors or officers. The Partnership delegates all
management of the Partnership's affairs to the General Partner. As of June 30,
1999, the General Partner owned 266.0092 units of general partnership interest,
representing a 1.01% investment in the Partnership. The General Partner is
indirectly and equally owned by Messrs. Kenneth A. Shewer and Marc S. Goodman.
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<PAGE> 36
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The General Partner, Kenmar Advisory Corp., is the sole general partner of the
Partnership. The General Partner, a corporation originally organized as a New
York corporation in September 1983 and reorganized as a Connecticut corporation
on January 1, 1996. The General Partner has been registered with the CFTC as a
CPO and a member in good standing of the NFA in such capacity since February
1984. Its address is Two American Lane, P.O. Box 5150, Greenwich, Connecticut
06831-8150 and its telephone number is (203) 861-1000. It is owned equally and
indirectly by Messrs. Shewer and Goodman. The directors and executive officers
of the General Partner currently are as follows:
MR. KENNETH A. SHEWER, age 45, has been the Chairman and a director of the
General Partner since September 1983. Mr. Shewer was employed by Pasternak, Baum
and Co., Inc. ("Pasternak, Baum"), an international cash commodity firm, from
June 1976 until September 1983. Mr. Shewer left Pasternak, Baum in September
1983 to form Kenmar Advisory Corp. with Mr. Goodman. 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, age 50, has been the President and a director of the
General Partner since September 1983. Mr. Goodman joined Pasternak, Baum in
September 1974 and was a Vice President and Director from July 1981 until
September 1983. Mr. Goodman left Pasternak, Baum in September 1983 to form
Kenmar Advisory Corp. with Mr. Shewer. 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 was awarded an Economics and Finance Department
Fellowship from September 1969 through June 1971. 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.
MS. ESTHER ECKERLING GOODMAN, age 46, has been the Senior Executive Vice
President of the General Partner since March 1991 and has also served as Chief
Operating Officer of the General Partner since October 1995. Ms. Goodman 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 the development and management of a managed futures
program which, in 1979, became the trading system for an independent CTA 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
Association and its predecessor, the Managed Futures Trade Association, from
1987 through 1995. In addition, she has written several articles and has spoken
before various professional groups and organizations on the subject of managed
futures. Ms. Goodman attended Vassar College from 1970-1972 and graduated from
Stanford University in 1974 with a B.A. degree. Ms. Goodman is married to Mr.
Marc S. Goodman.
MR. ROBERT L. CRUIKSHANK, age 62, joined the General Partner as its Executive
Vice President in March 1991. Mr. Cruikshank spent 20 years (1958-1978) at Blyth
Eastman Dillon in New York and was its Executive Vice President in charge of the
Securities Division, which included all domestic and international sales and
branch office activities, all trading departments and the research areas. In
1979, Mr. Cruikshank jointly formed Neild, Cruikshank & Co., an independent
market-maker on the Chicago Board of Options Exchange ("CBOE"), where he
remained until 1984, when he formed his own market making firm, Nassau
Corporation. From 1982 to 1984 Mr. Cruikshank also served as Director and Vice
Chairman of the Board of the CBOE, during which time he was instrumental in the
development of the S&P 100 (OEX) option contract. From 1985, when he left Nassau
Corporation, 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.
Each director of the General Partner serves until the next annual meeting of
stockholders or until a successor is elected. Executive officers of the General
Partner are appointed annually and serve at the discretion of its Board of
Directors. Messrs. Shewer and Goodman hold directorships in various affiliates
of the General Partner.
Significant Employees of the General Partner
MR. THOMAS J. DIVUOLO, age 38, Senior Vice President responsible for account
administration, oversight and risk management, joined the General Partner in
March 1989. From 1982 through 1984, Mr. DiVuolo was
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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 the General Partner in 1989, Mr. DiVuolo worked for Lloyds
International Trading, a commodity trading division of Lloyds Bank. Mr. DiVuolo
is a 1982 graduate of Pace University with a B.B.A. degree in Public Accounting.
He received his M.B.A. in Finance from Wagner College in 1990.
MR. GARY J. YANNAZZO, age 46, Senior Vice President and Chief Financial Officer,
joined the General Partner in August 1997. From March 1992 to July 1995, he was
Senior Vice President and Controller of Mettallgesellschaft Corp., a diversified
commodity marketing and trading company, with 30 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 the General
Partner, 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
certified public accountant certification in 1977.
MR. JEFFREY S. ROTHSTEIN, age 41, Vice President and Chief Information Officer,
joined the General Partner in May of 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, AIG'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 received an MBA from Columbia
University in December 1985 and a B.S. in Computer Science from Cornell
University in 1979.
ITEM 6. EXECUTIVE COMPENSATION.
The Partnership has no directors or officers. As a limited partnership, the
business of the Partnership is managed by its General Partner which is
responsible for the administration of the business affairs of the Partnership
and receives the compensation described in "Item 1. Business".
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The General Partner is the sole general partner of the Partnership and manages
and conducts the business of the Partnership. The Partnership Agreement provides
that the General Partner may be compensated in such form(s) and in such amount
as the General Partner, in its sole discretion, shall determine, after giving
due weight to industry standards. As more fully described in Item 1 hereto, to
compensate the General Partner for its management and operations of the
Partnership, its management and monitoring of the portfolio of the Advisor, the
Partnership currently pays the General Partner a management fee and/or incentive
fee, which is subsequently shared with the Advisor (as described below), and an
offering fee. For the period January 1, 1999 to June 30, 1999, the General
Partner received $400,834 in management fees, $2,103,117 in incentive fees and
$629,480 in offering fees. For the year ending December 31, 1998, the General
Partner received $482,628 in management fees, $3,229,070 in incentive fees and
$748,537 in offering fees. The General Partner forwards to the Advisor 3/7 of
the management fees and 7/11 of the incentive fees it receives. See "Item 1.
Business - Fees and Expenses - Fees to the Advisor." In addition, because the
General Partner negotiated a brokerage commission rate for the Partnership which
is generally lower than the rate available to the public, the General Partner
may
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receive from the Broker a portion of the brokerage commissions paid by the
Partnership to the Broker. See "Item 1. Business--Fees and Expenses--Fees to
the General Partner".
ITEM 8. LEGAL PROCEEDINGS.
The General Partner is not aware of any material pending legal proceedings to
which the Partnership or the General Partner is a party or to which any of its
or the Partnership's assets is subject.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
Market Information
There is no established public trading market for the Units.
Holders
The number of holders of Units at June 30, 1999 was approximately 590.
Dividends
Pursuant to the Partnership Agreement, distributions of profits, if any, will be
made at the sole discretion of the General Partner. As of June 30, 1999, the
General Partner has not made, and does not intend presently to make,
distributions.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In June, 1996, the Partnership commenced a private placement of Units in
reliance on the exemptions afforded by, among others, Section 4(2) of the 1933
Act and Rule 506 of Regulation D promulgated thereunder. Similar reliance has
been placed on available exemptions from securities qualification requirements
under applicable state securities laws. Units are offered monthly at a price per
Unit equal to the then-current Net Asset Value per Unit plus a selling
commission equal to 5% unless such selling commission is waived in whole or in
part. The minimum subscription is $26,250 for new investors other than Employee
Benefit Plans, or $10,500 for Employee Benefit Plans and existing Limited
Partners, which amounts include selling commissions of $1,250 and $500,
respectively. The Units are being sold by Kenmar Securities, Inc., an affiliate
of the General Partner, and certain other selling agents.
As of the date hereof, Units are continuing to be offered and there is no
maximum number of Units that may be purchased or sold. The sales qualify as an
exempt offering under Rule 506 of Regulation D because all of the Investors are
"accredited investors" as defined by Regulation D. Since the Partnership began
the private placement in 1996, through June 1999, 31,897.2412 Units had been
sold for an aggregate subscription amount of $47,489,956.
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ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The securities to be registered are Units of the Partnership. The rights of the
Limited Partners are governed by the Partnership Act and the Partnership
Agreement. The following is an explanation of certain terms and provisions of
the Partnership Agreement, which has been filed as Exhibit 3.2 to this
Registration Statement. The following description is a summary only, is not
intended to be complete, and is qualified in its entirety by the Partnership
Agreement.
Nature of the Partnership
The Partnership is a limited partnership governed by the Partnership Act. If the
assets of the Partnership are insufficient to discharge all of the liabilities
and obligations of the Partnership, the General Partner will be liable for all
excess liabilities and obligations. Except as provided in the Partnership Act,
no Limited Partner shall be personally liable for any debt, liability or
obligation of the Partnership or be required to return any distribution made to
him or to contribute any capital in addition to his capital contribution. Absent
fraud, willful misconduct, gross negligence or bad faith, the General Partner
will not be liable for the return of a Limited Partner's capital contribution if
such Limited Partner were to experience a loss.
Management of Partnership Affairs
Responsibility for managing the Partnership is vested solely in the General
Partner. The Limited Partners will not participate in the management or
operations of the Partnership. Any participation by a Limited Partner in the
management of the Partnership may jeopardize the limited liability of such
Limited Partner. To facilitate the General Partner's management of the
Partnership, each Limited Partner has appointed the General Partner, with full
power of substitution, such Limited Partner's attorney-in-fact.
Monthly Allocations
Each Partner, including the General Partner, has a capital account with an
initial balance equal to the amount such Partner paid for his Units and, in the
case of the General Partner, its capital contribution. The Partnership's Net
Assets will be determined monthly and any increase or decrease from the end of
the preceding month will be credited or charged to the capital account of each
Partner in the ratio that the balance of each Partner's account bears to the
balance of all accounts. Realized income and expense shall be allocated pro rata
among the Partners based on their respective capital accounts (exclusive of such
items of income and expense) as of the end of each month in which such items are
paid or accrued.
Sharing of Profits and Losses
See "Income Tax Aspects -- Partnership Allocation of Profits and Losses".
Additional Limited Partners
The General Partner may, in its sole discretion, admit at month end, or at such
other time as the General Partner determines, additional Limited Partners who
subscribe for Units. The General Partner has complete discretionary authority
regarding the admission of additional Limited Partners (including but not
limited to the right to admit additional Limited Partners under terms and
conditions comparable to or different from those under which the existing
Limited Partners were solicited), the number that may be admitted and the
acceptance of additional capital contributions from existing Limited Partners;
provided that no offer or sale to investors shall be made if it would violate
any applicable law, rule or regulation.
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Restrictions on Transfers or Assignments
No Limited Partner may assign, sell, transfer, pledge, hypothecate or otherwise
dispose of his interest in the Partnership, in whole or in part (and the
transferee may not become a substituted Limited Partner), unless the interest
is subsequently registered under the 1933 Act and applicable state securities
or Blue Sky laws or the disposition is exempt from registration, and the Limited
Partner has received the express prior written consent of the General Partner,
which may be granted or denied in its sole discretion. Any attempt in violation
of the above shall be null and void.
Termination of the Partnership
The affairs of the Partnership will be wound up and the Partnership liquidated
as soon as practicable upon the first to occur of a number of events including
but not limited to December 31, 2026 or the election of the General Partner to
terminate the Partnership upon thirty (30) days' prior written notice to the
Limited Partners.
Mandatory Withdrawal of Limited Partner
The General Partner may, at any time in its sole discretion, require any Limited
Partner to withdraw entirely from the Partnership or to withdraw a portion of
his Units (i) by giving no less than ten (10) days' written notice to the
Limited Partner(s) thus designated; or (ii) without giving notice if (A) the
General Partner determines such Limited Partner is a benefit plan investor
(within the meaning of DOL Regulations Section 2510.3-101(f)(2)) and such action
is advisable, in the sole discretion of the General Partner, to ensure that the
assets of the Partnership are not treated as "plan assets" under ERISA, (B) such
Limited Partner made a misrepresentation to the General Partner in connection
with his purchase of Units, or (C) such Limited Partner's ownership of a Unit
would result in the violation of any Law or Rule and Regulation applicable to
the Partnership or a Partner. See "Item 1. Business -- Purchases by Employee
Benefit Plans".
Amendments
The Partnership Agreement may not be amended except upon consent by the General
Partner and by Limited Partners owning more than 50% of the Units then-owned by
Limited Partners; provided, however, that without the consent of the Limited
Partners, the General Partner may amend the Partnership Agreement (i) to clarify
any ambiguity or to supplement or clarify any inconsistent provisions, (ii) to
reflect changes validly made in the membership of the Partnership or in
contributions of the Partners to the Partnership, (iii) to conform to changes in
GAAP applicable to the Partnership or to bring the Partnership into compliance
with applicable laws, rules and regulations, including but not limited to the
Code, Federal and state securities laws, rules and regulations, (iv) to amend
Article V, (v) to amend the General Partner's compensation as provided under
Section 6.2(b) of the Partnership Agreement and/or (vi) to amend provisions of
Article VII regarding redemption of Units if the General Partner, in its sole
discretion, deems that such amendment is necessary or advisable to prevent the
Partnership from being classified as a publicly-traded partnership pursuant to
Section 7704(b) of the Code, without reference to Section 7704(c) thereof.
Notwithstanding the preceding, without the vote of a majority-in-interest of the
Limited Partners, the General Partner may not amend this Agreement if such
amendment would (i) directly or indirectly, affect or jeopardize the then status
of the Partnership as a partnership for Federal income tax purposes or (ii)
reduce the capital account of any Partner, or modify the percentage of profits,
losses, or distributions to which any Partner is entitled.
Books and Records
The General Partner shall keep at the principal office of the Partnership such
books and records relating to the business of the Partnership as it deems
necessary or advisable or as are required by the CEAct and the rules and
regulations thereunder. To the extent required by applicable laws, rules and
regulations, such books and records shall be available to Limited Partners or
their authorized attorneys or agents for inspection and copying during normal
business hours of the Partnership and, upon request, copies shall be sent to any
Limited Partner
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upon payment by such Partner of reasonable reproduction and distribution costs.
Ten (10) business days' written notice to the General Partner shall be required
for such inspection and copying by a Limited Partner or his authorized attorney.
Redemption
With respect to redemption by a Limited Partner, upon ten (10) days' prior
written notice, a Limited Partner may require the Partnership to redeem all or
part of its Units effective as of the close of business on the last day of any
month at the Net Asset Value thereof on such date.
Notwithstanding the above, pursuant to the Partnership Agreement, the General
Partner may, in its sole discretion and on ten (10) days' notice, require a
Limited Partner to redeem all or part of its Units in the Partnership as of the
end of any month.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 6.5 of the Partnership Agreement, the Partnership has agreed
to indemnify, defend, and hold harmless the General Partner and its affiliates,
shareholders, officers, directors, employees and agents from and against any
Damages (as defined below) actually and reasonably incurred resulting from
actions, omissions, or conduct concerning the business or activities undertaken
by or on behalf of the Partnership, including, without limitation, any demands,
claims, lawsuits, or proceedings initiated by a Limited Partner (or assignee);
provided that a court of competent jurisdiction upon entry of a final judgment
shall find (or, if no final judgment is entered, an opinion is rendered to the
Partnership by independent legal counsel) to the effect that the conduct that
was the basis for such Damages was not the result of gross negligence or willful
misconduct and was done in good faith and in the reasonable belief that it was
in, or not opposed to, the best interests of the Partnership.
Notwithstanding the above, no indemnification of the General Partner or any
other party indemnified by the Partnership is permitted for damages, losses,
claims, liabilities, whether for it or several expenses (including legal fees
and disbursements), judgments, fines, settlements, and other amounts suffered in
connection with or arising from any and all claims, demands, actions, suits or
proceedings, whether civil or criminal, administrative or investigative
("Damages") resulting from any violation of federal or state securities laws in
connection with the offer or sale of Units. In addition, in any action or
proceeding brought by a Limited Partner in the right of the Partnership to which
the General Partner or any other party indemnified under the Partnership
Agreement, is a party defendant, any such person shall be indemnified only to
the extent and subject to the conditions specified in the Partnership Act.
To the extent permitted by law, expenses (including attorneys' fees) incurred by
the General Partner or any person to be indemnified in defending any action,
proceeding or claim referred to in Section 6.5 of the Partnership Agreement may
be paid voluntarily by the Partnership in advance of the final disposition of
the action, proceeding or claim; provided that the indemnified person or entity
shall agree to reimburse the Partnership unless it is ultimately determined that
indemnification of such expenses is permitted under the Partnership Agreement.
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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership's and the General Partner's financial statements, together with
the auditors' reports thereon, appearing on pages F-1 through F-32 hereof, are
incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) INDEX TO FINANCIAL STATEMENTS
(1) Financial Statements:
<TABLE>
THE DENNIS FUND LIMITED PARTNERSHIP:
<S> <C>
Independent Auditor's Report................................................................F-2
Audited Financial Statements:
Statements of Financial Condition as of December 31, 1998 and 1997.....................F-3
Schedule of Securities as of December 31, 1998.........................................F-4
Statements of Operations For the Years Ended December 31, 1998 and 1997
and For the Period June 18, 1996 (inception) to December 31, 1996 ..................F-5
Statements of Changes in Partners' Capital (Net Asset Value)
For the Years Ended December 31, 1998 and 1997 and
For the Period June 18, 1996 (inception) to December 31, 1996.......................F-6
Notes to Financial Statements..................................................F-7 -- F-11
Interim Financial Statements (Unaudited):
Statement of Financial Condition as of June 30, 1999..................................F-12
Schedule of Securities as of June 30, 1999............................................F-13
Statements of Operations For the Six Months Ended June 30, 1999 and 1998..............F-14
Statements of Changes in Partners' Capital (Net Asset Value)
For the Six Months Ended June 30, 1999 and 1998....................................F-15
Notes to Financial Statements.................................................F-16 -- F-20
KENMAR ADVISORY CORP.:
Independent Auditor's Report...............................................................F-21
Audited Financial Statement:
Statement of Financial Condition as of September 30, 1998.............................F-22
Notes to Statement of Financial Condition.....................................F-23 -- F-30
Interim Financial Statements (Unaudited):
Statement of Financial Condition as of June 30, 1999..................................F-31
Notes to Statement of Financial Condition.............................................F-32
</TABLE>
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(2) Financial Statement Schedules:
No financial statement schedules are required to be filed with
this report because the information included therein is
included in the financial statements and the footnotes
thereto.
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(b) EXHIBITS
--------
Exhibit No. Description
----------- -----------
*3.1 Certificate of Limited Partnership for The
Dennis Fund Limited Partnership, dated June 17, 1996
*3.2 Limited Partnership Agreement of The Dennis Fund
Limited Partnership, dated June 18, 1996 and as
amended December 15, 1997
8.1 Tax opinion of Katten Muchin & Zavis
*10.1 Customer Agreement between the Partnership and
E. D. & F. Man International Inc., dated August 27,
1996.
*10.2 Cover Letter and Model Advisory Agreement between The
Dennis Fund Limited Partnership and Kenmar Advisory
Corp., dated August 27, 1996, as amended January 15,
1997.
27.1 Financial Data Schedule (Class A Units).
27.2 Financial Data Schedule (Class B Units).
99.1 Disclosure Document of Dennis Trading Group, Inc.,
dated January 22, 1999.
- ------------
* Previously Filed.
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<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 12 of the 1934 Act, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE DENNIS FUND LIMITED PARTNERSHIP
BY: KENMAR ADVISORY CORP., ITS GENERAL PARTNER
Dated: September 21 , 1999
BY: /s/ ESTHER ECKERLING GOODMAN
------------------------------------
Esther Eckerling Goodman
Senior Executive Vice President and
Chief Operating Officer
<PAGE> 46
-----------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
THE DENNIS FUND LIMITED PARTNERSHIP
Independent Auditor's Report F-2
Audited Financial Statements:
Statements of Financial Condition as of December 31, 1998 and 1997 F-3
Schedule of Securities as of December 31, 1998 F-4
Statements of Operations For the Years Ended December 31, 1998 and 1997 and
For the Period June 18, 1996 (inception) to December 31, 1996 F-5
Statements of Changes in Partners' Capital (Net Asset Value)
For the Years Ended December 31, 1998 and 1997 and
For the Period June 18, 1996 (inception) to December 31, 1996 F-6
Notes to Financial Statements F-7 - F-11
Interim Financial Statements (Unaudited):
Statement of Financial Condition as of June 30, 1999 F-12
Schedule of Securities as of June 30, 1999 F-13
Statements of Operations For the Six Months Ended June 30, 1999 and 1998 F-14
Statements of Changes in Partners' Capital (Net Asset Value)
For the Six Months Ended June 30, 1999 and 1998 F-15
Notes to Financial Statements F-16 - F-20
KENMAR ADVISORY CORP.
Independent Auditor's Report F-21
Audited Financial Statement:
Statement of Financial Condition as of September 30, 1998 F-22
Notes to Statement of Financial Condition F-23 - F-30
Interim Financial Statement (Unaudited):
Statement of Financial Condition as of June 30, 1999 F-31
Notes to Statement of Financial Condition F-32
</TABLE>
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> 47
INDEPENDENT AUDITOR'S REPORT
To the Partners
The Dennis Fund Limited Partnership
We have audited the accompanying statements of financial condition of The Dennis
Fund Limited Partnership as of December 31, 1998 and 1997, including the
December 31, 1998 schedule of securities, and the related statements of
operations and changes in partners' capital (net asset value) for the years then
ended and for the period June 18, 1996 (inception) to December 31, 1996. These
financial statements are the responsibility of the Partnership'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. Our procedures included
confirmation of securities owned as of December 31, 1998 and 1997, by
correspondence with brokers. 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 The Dennis Fund Limited
Partnership as of December 31, 1998 and 1997, and the results of its operations
and the changes in its net asset values for the years then ended and for the
period June 18, 1996 (inception) to December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Hunt Valley, Maryland
February 24, 1999
F-2
<PAGE> 48
THE DENNIS FUND LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
December 31, 1998 and 1997
___________
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Equity in broker trading accounts
Cash $19,677,383 $ 9,190,301
Unrealized gain on open contracts 1,383,936 428,797
----------- -----------
Deposits with broker 21,061,319 9,619,098
Cash and cash equivalents 3,279,209 796,414
Fixed income securities (cost, including
accrued interest, - $11,322,815 and $3,390,385) 11,319,699 3,399,397
Subscriptions receivable 203,902 0
----------- -----------
Total assets $35,864,129 $13,814,909
=========== ===========
LIABILITIES
Accounts payable $ 84,488 $ 20,541
Commissions and other trading fees
on open contracts 22,505 10,560
General Partner offering fee 77,444 24,180
Advisor management fee 50,836 21,343
Advisor incentive fee 0 83,027
Redemptions payable 44,677 104,336
Subscription received in advance 25,000 0
----------- -----------
Total liabilities 304,950 263,987
----------- -----------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner:
A Units - 107.1387 units outstanding
at December 31, 1998 and 1997 195,979 137,525
B Units - 131.8532 and 32.3102 units outstanding
at December 31, 1998 and 1997 232,161 40,515
Limited Partners:
A Units - 6,923.1908 and 7,537.4040 units
outstanding at December 31, 1998 and 1997 12,663,939 9,675,138
B Units - 12,759.9200 and 2,948.9024 units outstanding
at December 31, 1998 and 1997 22,467,100 3,697,744
----------- -----------
Total partners' capital
(Net Asset Value) 35,559,179 13,550,922
----------- -----------
$35,864,129 $13,814,909
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 49
THE DENNIS FUND LIMITED PARTNERSHIP
SCHEDULE OF SECURITIES
December 31, 1998
___________
FIXED INCOME SECURITIES
- -----------------------
<TABLE>
<CAPTION>
Face Value Description Value
---------- ----------- -----
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
---------------------------
5,650,000 U.S. Treasury Notes, 4.625%, 11/30/00 $ 5,677,718
1,000,000 U.S. Treasury Notes, 6.25%, 6/30/02 1,049,653
470,000 U.S. Treasury Notes, 6.375%, 5/15/00 484,484
300,000 U.S. Treasury Notes, 6.00%, 8/15/00 313,069
FEDERAL AGENCY OBLIGATIONS
--------------------------
304,411 Federal Home Loan Mortgage Corporation,
Gold 7-Year Balloon, 6.00%, 8/1/00 306,213
300,000 Federal Home Loan Mortgage Corporation,
5.75%, 7/15/03 316,782
1,060,000 Federal National Mortgage Association,
6.375%, 1/16/02 1,129,662
450,000 Federal National Mortgage Association,
6.50%, 1/1/13 456,471
450,000 Federal National Mortgage Association,
6.50%, 1/1/28 452,322
450,000 Federal National Mortgage Association,
7.50%, 1/1/28 462,303
450,000 Federal National Mortgage Association,
8.00%, 1/1/28 465,084
200,000 Federal National Mortgage Association,
6.03%, 10/23/00 205,938
-----------
TOTAL FIXED INCOME SECURITIES
(COST, INCLUDING ACCRUED INTEREST, - $11,322,815) $11,319,699
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 50
THE DENNIS FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997 and
For the Period June 18, 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
Commodity trading gains (losses)
Realized $10,291,095 $ 3,238,488 $ (80,440)
Change in unrealized 955,139 344,353 84,444
----------- ----------- ------------
Gain from commodity trading 11,246,234 3,582,841 4,004
----------- ----------- ------------
Fixed income securities gains (losses)
Realized 82,923 1,463 0
Change in unrealized (12,128) 9,012 0
----------- ----------- ------------
Gain from fixed income securities 70,795 10,475 0
----------- ----------- ------------
Interest income 1,063,068 463,014 21,447
----------- ----------- ------------
Total income 12,380,097 4,056,330 25,451
----------- ----------- ------------
EXPENSES
Brokerage commissions 1,400,182 943,428 25,235
General Partner offering fee 748,537 324,867 20,516
Advisor management fee 482,628 219,334 13,548
Advisor incentive fee 3,229,070 702,920 0
Operating expenses 135,589 79,101 19,825
----------- ----------- ------------
Total expenses 5,996,006 2,269,650 79,124
----------- ----------- ------------
NET INCOME (LOSS) $ 6,384,091 $ 1,786,680 $ (53,673)
=========== =========== ============
A UNITS
NET INCOME (LOSS) PER A UNIT
(based on weighted average number of
A Units outstanding during the period) $ 555.83 $ 130.21 $ (21.29)
=========== =========== ============
INCREASE IN NET ASSET VALUE PER A UNIT $ 545.59 $ 202.22 $ 81.40
=========== =========== ============
B UNITS
NET INCOME PER B UNIT
(based on weighted average number of
B Units outstanding during the period) $ 307.36 $ 285.90
=========== ===========
INCREASE IN NET ASSET VALUE PER B UNIT $ 506.82 $ 198.02
=========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 51
<TABLE>
<CAPTION>
THE DENNIS FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 1998 and 1997 and For the Period June 18, 1996 (inception) to December 31, 1996
___________
Partners' Capital
----------------------------------------------------------------------------------
A Units B Units
-------------------------------------- ----------------------------------------
General Limited General Limited
Units Partner Partners Units Partner Partners Total
----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
June 18, 1996 (inception) 0.0000 $ 0 $ 0 0.0000 $ 0 $ 0 $ 0
Additions 6,060.5461 71,000 6,536,761 0.0000 0 0 6,607,761
Net (loss) for the period
June 18, 1996 (inception) to
December 31, 1996 (598) (53,075) 0 0 (53,673)
Redemptions (17.3947) 0 (19,000) 0.0000 0 0 (19,000)
----------- -------- ----------- ----------- -------- ----------- -----------
Balances at
December 31, 1996 6,043.1514 70,402 6,464,686 0.0000 0 0 6,535,088
Net income for the year
ended December 31, 1997 19,123 1,077,109 6,515 683,933 1,786,680
Additions 4,046.4401 48,000 4,577,840 3,676.3211 34,000 3,847,365 8,507,205
Redemptions (2,445.0488) 0 (2,444,497) (695.1085) 0 (833,554) (3,278,051)
----------- -------- ----------- ----------- -------- ----------- -----------
Balances at
December 31, 1997 7,644.5427 137,525 9,675,138 2,981.2126 40,515 3,697,744 13,550,922
Net income for the year
ended December 31, 1998 58,454 4,010,069 23,646 2,291,922 6,384,091
Additions 0.0000 0 0 10,729.4750 168,000 17,966,670 18,134,670
Redemptions (614.2132) 0 (1,021,268) (818.9144) 0 (1,489,236) (2,510,504)
----------- -------- ----------- ----------- -------- ----------- -----------
Balances at
December 31, 1998 7,030.3295 $195,979 $12,663,939 12,891.7732 $232,161 $22,467,100 $35,559,179
=========== ======== =========== =========== ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
A Units B Units
---------------------------------- ------------------------
Net Asset Value Per Unit Net Asset Value Per Unit
---------------------------------- ------------------------
December 31, December 31,
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$1,829.21 $1,283.62 $1,081.40 $1,760.76 $1,253.94
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 52
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
___________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Partnership
The Dennis Fund Limited Partnership (the Partnership) is a
Connecticut limited partnership which operates as a commodity pool.
The Partnership engages in the speculative trading of futures
contracts and other financial instruments. It is subject to the
regulations of the Commodity Futures Trading Commission, an agency
of the United States (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 commodity exchanges and Futures Commission Merchants
(brokers) through which the Partnership trades.
The Partnership was organized on June 18, 1996 and commenced trading
on October 9, 1996.
Investments made prior to April 30, 1997 are referred to as "A
Units" and investments made on or after April 30, 1997 are referred
to as "B Units." The initial net asset value per B Unit was the net
asset value per A Unit at April 30, 1997; accordingly, net income
applicable to B Units during 1997 is for the period May 1, 1997 to
December 31, 1997. The only difference between A Units and B Units
are the advisor management and incentive fee rates as further
described in Note 3.
B. Method of Reporting
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles, which require the use
of certain estimates made by the Partnership's management.
C. Commodities
Gains or losses are realized when contracts are liquidated.
Unrealized gains or losses on open contracts (the difference between
contract purchase price and market price) at the date of the
statement of financial condition are included in equity in broker
trading accounts. Any change in net unrealized gain or loss from the
preceding period is reported in the statement of operations.
Brokerage commissions include other trading fees and are charged to
expense when contracts are opened.
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash and all highly liquid
investments, including money market mutual funds and other
investments with a maturity of three months or less from the date of
purchase.
F-7
<PAGE> 53
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
___________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Fixed Income Securities
Fixed income securities are reported at market value plus accrued
interest. Fixed income securities transactions are accounted for on
the trade date. Interest income is recorded on the accrual basis.
F. Income Taxes
The Partnership prepares calendar year U.S. and state information
tax returns and reports to the partners their allocable shares of
the Partnership's income, expenses and trading gains or losses.
G. Foreign Currency Transactions
The Partnership'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. GENERAL PARTNER
The General Partner of the Partnership is Kenmar Advisory Corp., which
conducts and manages the business of the Partnership. The Limited
Partnership Agreement requires the General Partner to maintain a capital
account of no less than the lesser of 1% of the aggregate capital
accounts of all partners or $500,000.
Effective February 1, 1998, for managing the continuing offering of
units, the General Partner receives a monthly offering fee equal to
0.25% (3% annually) of that month's beginning Net Asset Value (as
defined in the Limited Partnership Agreement) of the Partnership. Prior
to February 1, 1998, the General Partner received a monthly offering fee
equal to .25% (3% annually) of the prior month's beginning Net Asset
Value (as defined) of the Partnership. Commencing April 1998, the
General Partner rebated to Million Dollar Investors (as defined in the
Confidential Private Placement Memorandum and Disclosure Document) a
monthly amount equal to two-thirds of the offering fee applicable to
such Million Dollar Investors. Such rebates were made to Million Dollar
Investors by issuing additional B Units.
F-8
<PAGE> 54
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
___________
Note 3. COMMODITY TRADING ADVISOR
The Partnership has an advisory agreement with Dennis Trading Group,
Inc. (the commodity trading advisor) pursuant to which the A Units pay a
monthly management fee of 1/6 of 1% (2% annually) of the month-end Net
Asset Value of the subaccount (as defined in the advisory agreement) and
a quarterly incentive fee equal to 25% of the Net New Trading Profits
(as defined). The commodity trading advisor and General Partner each
receive one-half of the management and incentive fees applicable to A
Units. Pursuant to the advisory agreement, the B Units pay a monthly
management fee of 1/12 of 1.75% (1.75% annually) of the month-end Net
Asset Value of the subaccount (as defined) and a quarterly incentive fee
equal to 27.5% of the Net New Trading Profits (as defined). The
commodity trading advisor receives 3/7 of the management fee and 7/11 of
the incentive fee applicable to B Units and the General Partner receives
4/7 of the management fee and 4/11 of the incentive fee applicable to B
Units.
Note 4. DEPOSITS WITH BROKER
The Partnership deposits cash with E.D. & F. Man International Inc. to
act as broker subject to Commodity Futures Trading Commission
regulations and various exchange and broker requirements. Margin
requirements are satisfied by the deposit of cash with such broker. The
Partnership earns interest income on its cash deposited with the broker.
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the General Partner. The subscription price is
equal to the Net Asset Value of the units purchased plus a 5% selling
commission, unless such selling commission is waived in whole or in part
by the General Partner. Additions to partners' capital are shown net of
such selling commissions which amounted to $198,839, $164,086 and
$141,781 in 1998, 1997 and 1996, respectively.
The Partnership is not required to make distributions, but may do so at
the sole discretion of the General Partner. A Limited Partner may
request and receive redemption of units owned, subject to restrictions
in the Limited Partnership Agreement.
Note 6. TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and foreign
futures contracts ("derivatives"). These derivatives include both
financial and non-financial contracts held as part of a diversified
trading program. The Partnership is exposed to both market risk, the
risk arising from changes in the market value of the contracts, and
credit risk, the risk of failure by another party to perform according
to the terms of a contract.
F-9
<PAGE> 55
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
___________
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Purchase and sale of futures contracts requires margin deposits with the
broker. Additional deposits may be necessary for any loss on contract
value. The Commodity Exchange Act requires a broker to segregate all
customer transactions and assets from such broker's proprietary
activities. A customer's cash and other property (for example, U.S.
Treasury bills) deposited with a broker are considered commingled with
all other customer funds subject to the broker's segregation
requirements. In the event of a broker's insolvency, recovery may be
limited to a pro rata share of segregated funds available. It is
possible that the recovered amount could be less than total cash and
other property deposited.
The Partnership has a substantial portion of its assets on deposit with
brokers and dealers in securities and other financial institutions in
connection with its cash management activities. In the event of a
financial institution's insolvency, recovery of Partnership assets on
deposit may be limited to account insurance or other protection afforded
such deposits. In the normal course of business, the Partnership does
not require collateral from such financial institutions.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market risk
equal to the value of futures contracts purchased and unlimited
liability on such contracts sold short.
The fair value of derivatives represents unrealized gains and losses on
open futures contracts. The average fair value of derivatives during
1998 and 1997, was approximately $880,000 and $600,000, respectively,
and was approximately $100,000 during the period October 9, 1996
(commencement of trading) to December 31, 1996. The related year-end
fair values as of December 31, 1998 and 1997, are approximately
$1,384,000 and $429,000, respectively.
Net trading results from derivatives for the years ended December 31,
1998 and 1997 and for the period June 18, 1996 (inception) to December
31, 1996, are reflected in the statement of operations and equal gain
from commodity trading less brokerage commissions. Such trading results
reflect the net gain (loss) arising from the Partnership's speculative
trading of futures contracts.
At December 31, 1998 and 1997, the notional amount of open contracts is
as follows:
1998 1997
---- ----
Contracts to Contracts to Contracts to Contracts to
Purchase Sell Purchase Sell
-------- ---- -------- ----
$766,400,000 $499,500,000 $278,000,000 $173,000,000
F-10
<PAGE> 56
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
___________
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
The above amounts do not represent the Partnership's risk of loss due to
market and credit risk, but rather represent the Partnership's extent of
involvement in derivatives at the date of the statement of financial
condition.
The General Partner has established procedures to actively monitor
market risk and minimize credit risk. The Limited Partners bear the risk
of loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
F-11
<PAGE> 57
THE DENNIS FUND LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL CONDITION
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Equity in broker trading accounts
Cash $30,915,114
Unrealized gain on open contracts 2,153,911
-----------
Deposits with broker 33,069,025
Cash and cash equivalents 11,615,447
Fixed income securities (cost, including
accrued interest, - $13,562,899) 13,486,207
Subscriptions receivable 1,286,599
-----------
Total assets $59,457,278
===========
LIABILITIES
Accounts payable $ 59,680
Commissions and other trading fees
on open contracts 25,915
General Partner offering fee 129,354
Advisor management fee 83,268
Advisor incentive fee 2,103,118
Redemptions payable 142,046
-----------
Total liabilities 2,543,381
-----------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner:
A Units - 107.1387 units outstanding 237,779
B Units - 158.8705 units outstanding 336,438
Limited Partners:
A Units - 6,660.1983 units outstanding 14,781,350
B Units - 19,624.3919 units outstanding 41,558,330
-----------
Total partners' capital
(Net Asset Value) 56,913,897
-----------
$59,457,278
===========
</TABLE>
See accompanying notes.
F-12
<PAGE> 58
THE DENNIS FUND LIMITED PARTNERSHIP
SCHEDULE OF SECURITIES
June 30, 1999
(Unaudited)
--------------------
FIXED INCOME SECURITIES
- -----------------------
<TABLE>
<CAPTION>
Face Value Description Value
---------- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
---------------------------
1,350,000 U.S. Treasury Notes, 5.00%, 4/30/01 $ 1,349,924
8,000,000 U.S. Treasury Notes, 5.25%, 5/31/01 7,996,934
450,000 U.S. Treasury Notes, 6.625%, 4/30/02 466,457
300,000 U.S. Treasury Notes, 6.00%, 8/15/00 308,640
FEDERAL AGENCY OBLIGATIONS
--------------------------
1,000,000 Federal Home Loan Bank,
4.875%, 1/22/02 997,082
251,365 Federal Home Loan Mortgage Corporation,
Gold 7-Year Balloon, 6.00%, 8/1/00 251,458
800,000 Federal Home Loan Mortgage Corporation,
5.75%, 7/15/03 810,819
1,060,000 Federal National Mortgage Association,
6.375%, 1/16/02 1,101,943
200,000 Federal National Mortgage Association,
6.03%, 10/23/00 202,950
-----------
TOTAL FIXED INCOME SECURITIES
(COST, INCLUDING ACCRUED INTEREST, - $13,562,899) $13,486,207
===========
</TABLE>
See accompanying notes.
F-13
<PAGE> 59
THE DENNIS FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
-----------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
INCOME
Commodity trading gains
Realized $ 11,415,368 $ 8,009,718
Change in unrealized 769,975 607,514
------------ ------------
Gain from commodity trading 12,185,343 8,617,232
------------ ------------
Fixed income securities gains (losses)
Realized (160,791) 10,329
Change in unrealized (73,576) (1,568)
------------ ------------
Gain (loss) from fixed income securities (234,367) 8,761
------------ ------------
Interest income 810,290 417,906
------------ ------------
Total income 12,761,266 9,043,899
------------ ------------
EXPENSES
Brokerage commissions 1,006,187 762,012
General Partner offering fee 629,480 282,933
Advisor management fee 400,834 191,296
Advisor incentive fee 2,103,117 1,991,497
Operating expenses 44,144 51,989
------------ ------------
Total expenses 4,183,762 3,279,727
------------ ------------
NET INCOME $ 8,577,504 $ 5,764,172
============ ============
A UNITS
NET INCOME PER A UNIT
(based on weighted average number of
A Units outstanding during the period) $ 387.62 $ 496.34
============ ============
INCREASE IN NET ASSET VALUE PER A UNIT $ 390.15 $ 498.04
============ ============
B UNITS
NET INCOME PER B UNIT
(based on weighted average number of
B Units outstanding during the period) $ 378.91 $ 412.23
============ ============
INCREASE IN NET ASSET VALUE PER B UNIT $ 356.93 $ 469.94
============ ============
</TABLE>
See accompanying notes.
F-14
<PAGE> 60
THE DENNIS FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
-------------
<TABLE>
<CAPTION>
Partners' Capital
-------------------------------------------------------------------------------------
A Units B Units
---------------------------------------- ------------------------------------------
General Limited General Limited
Units Partner Partners Units Partners Partners Total
------------ ----------- -------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Balances at December 31, 1998 7,030.3295 $ 195,979 $ 12,663,939 12,891.7732 $ 232,161 $ 22,467,100 $ 35,559,179
Net income for the six months
ended June 30, 1999 41,800 2,633,293 55,277 5,847,134 8,577,504
Additions 0.0000 0 0 7,384.4589 49,000 14,191,320 14,240,320
Redemptions (262.9925) 0 (515,882) (492.9697) 0 (947,224) (1,463,106)
------------ ---------- -------------- ------------ ---------- ------------ -------------
Balances at June 30, 1999 6,767.3370 $ 237,779 $ 14,781,350 19,783.2624 $ 336,438 $ 41,558,330 $ 56,913,897
============ ========== ============== ============ ========== ============ =============
SIX MONTHS ENDED JUNE 30, 1998
Balances at December 31, 1997 7,644.5427 $ 137,525 $ 9,675,138 2,981.2126 $ 40,515 $ 3,697,744 $ 13,550,922
Net income for the six months
ended June 30, 1998 53,359 3,666,025 20,815 2,023,973 5,764,172
Additions 0.0000 0 0 5,183.3949 77,000 8,212,103 8,289,103
Redemptions (439.5419) 0 (695,210) (85.1648) 0 (144,148) (839,358)
------------ ---------- -------------- ------------ ---------- ------------ -------------
Balances at June 30, 1998 7,205.0008 $ 190,884 $ 12,645,953 8,079.4427 $ 138,330 $ 13,789,672 $ 26,764,839
============ ========== ============== ============ ========== ============ =============
</TABLE>
<TABLE>
<CAPTION>
A Units
-------------------------------------------------------------------------
Net Asset Value Per Unit
-------------------------------------------------------------------------
June 30, December 31, June 30, December 31,
1999 1998 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 2,219.36 $ 1,829.21 $ 1,781.66 $ 1,283.62
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
B Units
-------------------------------------------------------------------------
Net Asset Value Per Unit
-------------------------------------------------------------------------
June 30, December 31, June 30, December 31,
1999 1998 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 2,117.69 $ 1,760.76 $ 1,723.88 $ 1,253.94
============== ============== ============== ==============
</TABLE>
See accompanying notes.
F-15
<PAGE> 61
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
----------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Partnership
The Dennis Fund Limited Partnership (the Partnership) is a
Connecticut limited partnership which operates as a commodity
pool. The Partnership engages in the speculative trading of
futures contracts and other financial instruments. It is
subject to the regulations of the Commodity Futures Trading
Commission, an agency of the United States (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 commodity exchanges and Futures Commission Merchants
(brokers) through which the Partnership trades.
Investments made prior to April 30, 1997 are referred to as
"A Units" and investments made on or after April 30, 1997 are
referred to as "B Units." The initial net asset value per B
Unit was the net asset value per A Unit at April 30, 1997.
The only difference between A Units and B Units are the
advisor management and incentive fee rates as further
described in Note 3.
B. Method of Reporting
The Partnership's financial statements are presented in
accordance with generally accepted accounting principles,
which require the use of certain estimates made by the
Partnership's management.
C. Commodities
Gains or losses are realized when contracts are liquidated.
Unrealized gains or losses on open contracts (the difference
between contract purchase price and market price) at the date
of the statement of financial condition are included in
equity in broker trading accounts. Any change in net
unrealized gain or loss from the preceding period is reported
in the statement of operations. Brokerage commissions include
other trading fees and are charged to expense when contracts
are opened.
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash and all highly liquid
investments, including money market mutual funds and other
investments with a maturity of three months or less from the
date of purchase.
F-16
<PAGE> 62
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-------------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. Fixed Income Securities
Fixed income securities are reported at market value plus
accrued interest. Fixed income securities transactions are
accounted for on the trade date. Interest income is recorded
on the accrual basis.
F. Income Taxes
The Partnership prepares calendar year U.S. and state
information tax returns and reports to the partners their
allocable shares of the Partnership's income, expenses and
trading gains or losses.
G. Foreign Currency Transactions
The Partnership'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. GENERAL PARTNER
The General Partner of the Partnership is Kenmar Advisory Corp.,
which conducts and manages the business of the Partnership. The
Limited Partnership Agreement requires the General Partner to
maintain a capital account of no less than the lesser of 1% of the
aggregate capital accounts of all partners or $500,000.
Effective February 1, 1998, for managing the continuing offering of
units, the General Partner receives a monthly offering fee equal to
0.25% (3% annually) of that month's beginning Net Asset Value (as
defined in the Limited Partnership Agreement) of the Partnership.
Prior to February 1, 1998, the General Partner received a monthly
offering fee equal to .25% (3% annually) of the prior month's
beginning Net Asset Value (as defined) of the Partnership.
Commencing April 1998, the General Partner rebated to Million Dollar
Investors (as defined in the Confidential Private Placement
Memorandum and Disclosure Document) a monthly amount equal to
two-thirds of the offering fee applicable to such Million Dollar
Investors. Such rebates were made to Million Dollar Investors by
issuing additional B Units.
F-17
<PAGE> 63
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------------
Note 3. COMMODITY TRADING ADVISOR
The Partnership has an advisory agreement with Dennis Trading Group,
Inc. (the commodity trading advisor) pursuant to which the A Units
pay a monthly management fee of 1/6 of 1% (2% annually) of the
month-end Net Asset Value of the subaccount (as defined in the
advisory agreement) and a quarterly incentive fee equal to 25% of
the Net New Trading Profits (as defined). The commodity trading
advisor and General Partner each receive one-half of the management
and incentive fees applicable to A Units. Pursuant to the advisory
agreement, the B Units pay a monthly management fee of 1/12 of 1.75%
(1.75% annually) of the month-end Net Asset Value of the subaccount
(as defined) and a quarterly incentive fee equal to 27.5% of the Net
New Trading Profits (as defined). The commodity trading advisor
receives 3/7 of the management fee and 7/11 of the incentive fee
applicable to B Units and the General Partner receives 4/7 of the
management fee and 4/11 of the incentive fee applicable to B Units.
Note 4. DEPOSITS WITH BROKER
The Partnership deposits cash with E.D. & F. Man International Inc.
to act as broker subject to Commodity Futures Trading Commission
regulations and various exchange and broker requirements. Margin
requirements are satisfied by the deposit of cash with such broker.
The Partnership earns interest income on its cash deposited with the
broker.
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the General Partner. The subscription price
is equal to the Net Asset Value of the units purchased plus a 5%
selling commission, unless such selling commission is waived in
whole or in part by the General Partner. Additions to partners'
capital are shown net of such selling commissions which amounted to
$179,508 and $44,145 for the six months ended June 30, 1999 and
1998, respectively.
The amount of subscriptions receivable at June 30, 1999, of
$1,286,599 was received by the Partnership on or prior to the eighth
business day of July 1999.
The Partnership is not required to make distributions, but may do so
at the sole discretion of the General Partner. A Limited Partner may
request and receive redemption of units owned, subject to
restrictions in the Limited Partnership Agreement.
F-18
<PAGE> 64
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
--------------------
Note 6. TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and
foreign futures contracts ("derivatives"). These derivatives include
both financial and non-financial contracts held as part of a
diversified trading program. The Partnership 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.
Purchase and sale of futures contracts requires margin deposits with
the broker. Additional deposits may be necessary for any loss on
contract value. The Commodity Exchange Act requires a broker to
segregate all customer transactions and assets from such broker's
proprietary activities. A customer's cash and other property (for
example, U.S. Treasury bills) deposited with a broker are considered
commingled with all other customer funds subject to the broker's
segregation requirements. In the event of a broker's insolvency,
recovery may be limited to a pro rata share of segregated funds
available. It is possible that the recovered amount could be less
than total cash and other property deposited.
The Partnership has a substantial portion of its assets on deposit
with brokers and dealers in securities and other financial
institutions in connection with its cash management activities. In
the event of a financial institution's insolvency, recovery of
Partnership assets on deposit may be limited to account insurance or
other protection afforded such deposits. In the normal course of
business, the Partnership does not require collateral from such
financial institutions.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market risk
equal to the value of futures contracts purchased and unlimited
liability on such contracts sold short.
The fair value of derivatives represents unrealized gains and losses
on open futures contracts. The average fair value of derivatives
during the six months ended June 30, 1999 and 1998, was approximately
$3,640,000 and $880,000, respectively, and the related fair value as
of June 30, 1999, is approximately $2,154,000.
Net trading results from derivatives for the six months ended June
30, 1999 and 1998, are reflected in the statement of operations and
equal gain from commodity trading less brokerage commissions. Such
trading results reflect the net gain arising from the Partnership's
speculative trading of futures contracts.
At June 30, 1999, the notional amount of open contracts to purchase
totaled approximately $360,300,000, and the notional amount of open
contracts to sell totaled approximately $672,100,000. These amounts
do not represent the Partnership's risk of loss due to market and
credit risk, but rather represent the Partnership's extent of
involvement in derivatives at the date of the statement of financial
condition.
F-19
<PAGE> 65
THE DENNIS FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
--------------------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
The General Partner has established procedures to actively monitor
market risk and minimize credit risk. The Limited Partners 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 June 30, 1999, and the
statements of operations and changes in partners' capital (net asset
value) for the six months ended June 30, 1999 and 1998, are
unaudited. In the opinion of the Partnership's 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 June 30, 1999, and the results of operations for the
six months ended June 30, 1999 and 1998.
F-20
<PAGE> 66
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> 67
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
==========
See accompanying notes.
F-22
<PAGE> 68
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-23
<PAGE> 69
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
___________
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. State taxing jurisdictions also assess taxes on bases
in addition to income.
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS
The Company has General Partner interests in various limited
partnerships, is the Managing Owner of a trust and is the Managing
Member of a limited liability company, collectively referred to as
commodity pools.
Summarized activity as of and for the year ended September 30, 1998,
related to these General Partner, Managing Owner or Managing Member
interests is as follows:
<TABLE>
<CAPTION>
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 Partnership 112,706 0 (2,805) 109,901
The Dennis Fund Limited Partnership 168,685 128,000 124,507 421,192
Kenmar Global Trust 115,550 65,400 29,113 210,063
Oberdon Partners L.L.C. 29,109 0 (946) 28,163
The Dennis Friends & Family Limited
Partnership 0 27,437 12,768 40,205
The Hirst Investment Fund Limited
Partnership 0 25,000 2,339 27,339
---------- -------- -------- ----------
$1,211,256 $245,837 $375,173 $1,832,266
========== ======== ======== ==========
</TABLE>
F-24
<PAGE> 70
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
___________
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
As General Partner, Managing Owner or Managing Member of these commodity
pools, the Company conducts and manages the respective businesses of
such commodity pools. Each limited partnership, trust or operating
agreement requires the Company to maintain a specified investment in the
respective commodity pools. The limited partnership agreement of Kenmar
Performance Partners L.P. requires the Company to maintain an investment
in the Partnership of 1% of Net Asset Value, up to a total of $500,000.
The limited partnership agreement of The Dennis Fund Limited Partnership
requires the Company to maintain a capital account of no less than the
lesser of 1% of the aggregate capital accounts of all partners or
$500,000. The limited partnership agreement of Kenmar Venture Partners
Limited Partnership requires the Company to maintain an investment of 1%
of the aggregate capital contributions as well as a net worth of not
less than 10% of the total contributions to the Partnership. The
operating agreement of Oberdon Partners L.L.C. requires the Company, as
Managing Member, to maintain a capital account of no less than $25,000.
The limited partnership agreements of The Dennis Friends & Family
Limited Partnership and The Hirst Investment Fund Limited Partnership
require the company to maintain a capital account of no less than the
Net Asset Value of twenty-five units. The Trust Agreement of Kenmar
Global Trust (KGT) requires the Company, as Managing Owner, to maintain
a capital account equal to 1% of the total capital accounts of KGT. As
of September 30, 1998, the minimum aggregate investments required under
the terms of the agreements with these commodity pools was approximately
$1,200,000. Each limited partnership agreement also requires the Company
to maintain a net worth as required for the partnership to be treated as
a partnership for U.S. income tax purposes. The Company, as Managing
Owner of KGT, has also agreed to maintain a net worth of not less than
$1,000,000. The Company is currently maintaining net worth in excess of
$3,900,000.
For managing the business of the commodity pools, the Company earns fees
and commissions in accordance with the terms of the respective limited
partnership, trust or operating agreements. As General Partner, Managing
Owner or Managing Member, the Company has a fiduciary responsibility to
the pools, and potential liability beyond the amounts recognized as an
asset in the statement of financial condition. In addition, the Company
has similar, shared fiduciary responsibilities in connection with two
offshore investment funds sponsored by its affiliate, Kenmar Management
Ltd.
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.
F-25
<PAGE> 71
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
___________
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
Summarized financial information for the most significant commodity
pool, Kenmar Performance Partners L.P., as of and for the year ended
September 30, 1998, is as follows:
Assets $77,740,000
Liabilities 4,559,000
-----------
Net asset value $73,181,000
===========
Income $38,224,000
Expenses 22,676,000
-----------
Net income $15,548,000
===========
Note 3. PROPERTY AND EQUIPMENT
At September 30, 1998, the Company's property and equipment consists of:
Furniture and fixtures $ 55,231
Office equipment 307,178
Leasehold improvements 10,541
Leased assets 585,736
---------
958,686
Less: Accumulated depreciation and
amortization (482,052)
---------
$ 476,634
=========
Leased assets are comprised primarily of furniture, fixtures and office
equipment. Accumulated amortization related to leased assets aggregated
$298,694 at September 30, 1998.
F-26
<PAGE> 72
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
___________
Note 4. OBLIGATIONS UNDER LEASES
The Company leases furniture, fixtures and office equipment under
noncancelable capital leases which expire at various dates through 2001.
The future minimum lease payments required by these capital leases are
as follows:
Year Ending September 30
------------------------
1999 $154,164
2000 150,970
2001 56,502
--------
Total minimum lease payments 361,636
Less: Amounts representing interest (50,795)
--------
Present value of obligations under
capital leases $310,841
========
The Company leases office facilities in Greenwich, Connecticut. The
lease commenced in January, 1996 for an initial term of nine years with
one five year option to renew. The future minimum lease payments under
this noncancelable operating lease are as follows:
Year Ending September 30
------------------------
1999 $ 379,851
2000 403,719
2001 471,334
2002 477,300
2003 477,300
Thereafter 517,075
----------
$2,726,579
==========
Note 5. INCOME TAXES
The Company is included in the consolidated U.S. and state income tax
returns filed by the Parent. Deferred income taxes are provided for all
significant temporary differences in the recognition of assets and
liabilities for tax and financial reporting purposes. These temporary
differences have resulted principally from the tax benefit of operating
loss carryforwards, differences in the timing of recognition of income
from affiliated commodity pools, and from differences in the
depreciation methods and useful lives of property and equipment.
Income taxes payable to the Parent as of September 30, 1998, was
$110,921. Such amount is included in due from affiliates on the
statement of financial condition.
F-27
<PAGE> 73
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
___________
Note 6. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with members of
a group of affiliated companies that result in advances to and from such
affiliates. The Company provides administrative, accounting, research,
marketing and other services to its affiliates. The Company also pays
certain expenses on behalf of the Parent that benefit the group. The
Company, in turn, charges the appropriate portion of such common
expenses among the affiliates.
The following amounts are due from the affiliates at September 30, 1998:
Members of the Parent group, net $1,348,294
Kenmar Management Limited 276,745
Kenmar Institutional Investment
Management L.L.C. 239,275
Kenmar Global Strategies, Inc. 136,262
Kenmar Investment Management Limited 11,520
KAS Commodities, Inc. 114,113
Receivables from officers 76,645
Other 122,991
----------
$2,325,845
==========
No specific terms apply to the liquidation of amounts due from
affiliates; however, such amounts are settled periodically. The Company
has reflected its right of offset in reporting net intercompany balances
in the statement of financial condition.
As compensation for services provided to affiliated commodity pools, the
Company receives from commodity brokers a portion of the brokerage
commissions paid to them by the commodity pools. The Company also
receives commissions, management, incentive, organization, offering,
redemption and other fees directly from the commodity pools, in
accordance with the respective agreements. For certain pools, the
Company in turn pays management and incentive fees to the trading
advisors. At September 30, 1998, the Company is owed fees of $2,396,241
from these commodity pools.
Note 7. COMMERCIAL LOAN PAYABLE AND LINE OF CREDIT AGREEMENT
The Company entered into a line of credit agreement with a financial
institution in April 1997 under which secured notes may be executed to
fund specified costs incurred by the Company as Managing Owner of Kenmar
Global Trust (KGT). The aggregate borrowings may not exceed $1,000,000.
Each note executed under the agreement is payable in eighteen equal
monthly installments. Interest is payable monthly at a floating rate,
which is based upon the higher of: a) the Federal Funds Rate plus .5%,
or b) the Prime Rate, as specified in the agreement. The average
interest rate is approximately 8.5% as of September 30, 1998, for all
notes outstanding.
F-28
<PAGE> 74
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
___________
Note 7. COMMERCIAL LOAN PAYABLE AND LINE OF CREDIT AGREEMENT (CONTINUED)
Amounts outstanding under the agreement are secured by the amounts due
to the Company from KGT and the intercompany note to an affiliate from
Kenmar Management Limited. The agreement also contains certain covenants
which, if not met, could subject amounts outstanding under the agreement
to accelerated repayment.
At September 30, 1998, notes totaling $613,264 are outstanding under
this line of credit agreement, of which $552,370 is due within twelve
months.
Note 8. TRADING ACTIVITIES AND RELATED RISKS
The commodity pools for which the Company is either the General Partner,
Managing Owner or Managing Member engage in the speculative trading of
futures contracts, options on futures contracts and forward contracts
(collectively, "derivatives") in U.S. and foreign markets.
Theoretically, the commodity pools, and therefore, the Company, as
General Partner, Managing Owner or Managing Member, are exposed to both
market risk (the risk arising from changes in the market value of the
contracts) and credit risk (the risk of failure by another party to
perform according to the terms of a contract). The commodity pools are
exposed to market risk equal to the value of contracts purchased and
unlimited liability on contracts sold short. Written options expose the
commodity pools to potentially unlimited liability and purchased options
expose the commodity pools to a risk of loss limited to the premiums
paid. Since forward contracts are traded in unregulated markets between
principals, the commodity pools also assume the risk of loss from
counterparty nonperformance.
The commodity pools have a substantial portion of their assets on
deposit with futures commission merchants, brokers and dealers in
securities and other financial institutions in connection with trading
and cash management activities. In the event of a financial
institution's insolvency, recovery of partnership, trust or company
assets on deposit may be limited to account insurance or other
protection afforded such deposits.
The fair value of derivatives represents unrealized gains and losses on
open futures and forward contracts, and the market value of option
contracts. The average month-end fair value of open derivatives held by
the commodity pools during the year ended September 30, 1998, was
approximately $6,640,000. The related year-end fair value was
approximately $6,264,000.
At September 30, 1998, the notional amount of open contracts is as
follows:
Contracts to Contracts to
Purchase Sell
-------- ----
Derivatives (excluding
purchased options) $1,083,000,000 $747,800,000
Purchased options 3,200,000 100,000
F-29
<PAGE> 75
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
___________
Note 8. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
The Company, as General Partner, Managing Owner or Managing Member, has
established procedures to actively monitor and minimize market and
credit risk.
F-30
<PAGE> 76
KENMAR ADVISORY CORP.
STATEMENT OF FINANCIAL CONDITION
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 386,378
Fees receivable 3,098,474
Due from affiliates, net 3,934,447
Investments in affiliated commodity pools 2,020,976
Property and equipment, net 473,031
Other assets 4,978
----------
Total assets $9,918,284
==========
LIABILITIES
Accrued expenses and other liabilities $5,305,290
Obligations under capital leases 220,609
Commercial loan payable 525,842
----------
Total liabilities 6,051,741
----------
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 2,386,859
----------
Total stockholder's equity 3,866,543
----------
Total liabilities and stockholder's equity $9,918,284
==========
</TABLE>
See accompanying notes.
F-31
<PAGE> 77
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
(Unaudited)
The interim statement of financial condition as of June 30, 1999, is unaudited
and does not include all disclosures required by generally accepted accounting
principles. Such interim statement of financial condition should be read in
conjunction with the Company's audited statement of financial condition as of
September 30, 1998, included on the preceding pages. In the opinion of
management, such financial statement reflects all adjustments, which were of a
normal and recurring nature, necessary for a fair presentation of financial
position as of June 30, 1999.
Subsequent to September 30, 1998, the Company entered into a partnership
agreement with The Hirst Investment (2X) Fund Limited Partnership. The Company,
as General Partner, is required to maintain its capital account at no less than
the Net Asset Value of twenty-five (25) units. The Company had 25.6497 units
with a Net Asset Value of $22,105 in its capital account as of June 30, 1999.
As discussed in Note 2 of the September 30, 1998, audited statement of financial
condition, the remaining organizational and initial offering costs of Kenmar
Global Trust have been fully reimbursed as of June 30, 1999.
F-32
<PAGE> 1
EXHIBIT 8.1
KATTEN MUCHIN & ZAVIS
525 WEST MONROE STREET
SUITE 1600
CHICAGO, IL 60661-3693
(312) 902-5200
September 21, 1999
The Dennis Fund Limited Partnership
c/o Kenmar Advisory Corp.
Two American Lane
P.O. Box 5150
Greenwich, CT 06831-8150
Re: Registration Statement on Form 10
Ladies and Gentlemen:
We have acted as counsel for The Dennis Fund Limited Partnership, a
Connecticut limited partnership (the "Partnership"), in connection with the
registration under the Securities Exchange Act of 1934, as amended, of units of
limited partnership interest (the "Units").
In rendering the opinions expressed herein, we have examined the
Registration Statement on Form 10 (the "Registration Statement") and the Limited
Partnership Agreement of The Dennis Fund Limited Partnership, dated June 18,
1996 and as amended December 15, 1997. We have also examined such other records,
documents and instruments as we have deemed necessary for purposes of this
opinion.
In rendering this opinion letter, as to questions of fact material to
this opinion, we have relied to the extent we have deemed such reliance
appropriate, without investigation, on certificates and other communications
from public officials and from the Partnership's General Partner.
In connection with this opinion, we have assumed the legal capacity of
all natural persons, the accuracy and completeness of all documents and records
that we have reviewed, the genuineness of all signatures, the authenticity of
the documents submitted to us as originals and the conformity to authentic
original documents of all documents submitted to us as certified, conformed or
reproduced copies. In making our examination of documents executed by parties
other than the Partnership, we have assumed that such parties had the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity and binding effect thereof.
Based upon and subject to the foregoing, and subject to the penultimate
paragraph of this letter, it is our opinion that the description of federal
income tax consequences appearing under the heading "Income Tax Aspects"
contained in the Registration Statement, while not purporting to discuss all
possible federal income tax consequences of an investment in the Units, is
accurate in all material respects with respect to those tax consequences which
are discussed.
<PAGE> 2
The Dennis Fund Limited Partnership
September 21, 1999
Page 2
Our opinions represent our best judgment regarding the application of
federal income tax laws arising under the Internal Revenue Code of 1986, as
amended; existing judicial decisions; administrative regulations; and published
rulings and procedures. No opinion is expressed as to any transaction undertaken
by the Partnership that is not described in the Registration Statement. We do
not express any opinion herein concerning any other law. In addition, we express
no opinion concerning any statutes, ordinances, administrative decisions, rules
or regulations of any county, town, municipality or special political
subdivision (whether created or enabled through legislative action at the
federal, state or regional level). This opinion is given as of the date hereof
and we assume no obligation to advise you of changes that may hereafter be
brought to our attention. This opinion is solely for the information of the
addressee hereof and is not to be quoted in whole or in part or otherwise
referred to, nor is it to be filed with any governmental agency or any other
person, without our prior written consent. No one other than the addressee
hereof is entitled to rely on this opinion. This opinion is rendered solely for
purposes of the transactions described in the Registration Statement and should
not be relied on for any other purpose.
We hereby consent to the filing of this opinion letter as an Exhibit to
the Registration Statement without admitting that we are "persons" within the
meaning of Section 7(a) or 11(a)(4) of the Securities Act of 1933, as amended,
or "experts" within the meaning of Section 11 thereof with respect to any
portion of the Registration Statement.
Very truly yours,
KATTEN MUCHIN & ZAVIS
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,615,447
<SECURITIES> 13,486,207
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 59,457,278
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,457,278
<CURRENT-LIABILITIES> 2,543,381
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 56,913,897
<TOTAL-LIABILITY-AND-EQUITY> 59,457,278
<SALES> 0
<TOTAL-REVENUES> 12,761,266
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,183,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,577,504
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,577,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,577,504
<EPS-BASIC> 387.62
<EPS-DILUTED> 387.62
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,615,447
<SECURITIES> 13,486,207
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 59,457,278
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,457,278
<CURRENT-LIABILITIES> 2,543,381
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 56,913,897
<TOTAL-LIABILITY-AND-EQUITY> 59,457,278
<SALES> 0
<TOTAL-REVENUES> 12,761,266
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,183,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,577,504
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,577,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,577,504
<EPS-BASIC> 378.91
<EPS-DILUTED> 378.91
</TABLE>
<PAGE> 1
EXHIBIT 99.1
DISCLOSURE DOCUMENT
OF
DENNIS TRADING GROUP, INC.
An Illinois corporation registered with the Commodity Futures Trading Commission
as a Commodity Trading Advisor and Commodity Pool Operator.
DENNIS TRADING GROUP, INC.
250 South Wacker Drive
Suite 650
Chicago, Illinois 60606
(312) 559-1895
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
No person is authorized by Dennis Trading Group, Inc. to give any information or
to make any representations that are not contained in this Disclosure Document.
The Date of this Disclosure Document is
January 22, 1999
The delivery of this Disclosure Document at any time does not imply that the
information contained herein is correct as of any time subsequent to the date
shown above. This Disclosure Document is not to be distributed under any
circumstances after October 22, 1999, and will be superseded after that date by
a Disclosure Document containing then current information about this program.
<PAGE> 2
RISK DISCLOSURE STATEMENT
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD
THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT
OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE
SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING:
1. IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE
PREMIUM AND OF ALL TRANSACTION COSTS.
2. IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION, YOU
MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AND ANY ADDITIONAL FUNDS
THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE
MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO
DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN
ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUIRED FUNDS WITHIN
THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE
LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT.
3. UNDER CERTAIN MARKET CONDITIONS, BETWEEN YOU MAY FIND IT DIFFICULT OR
IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET
MAKES A "LIMIT MOVE."
4. THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A
"STOP LOSS" OR "STOP LIMIT" ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE
INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH
ORDERS.
5. A "SPREAD" POSITION MAY NOT BE LESS RISKY THAN A SIMPLE "LONG" OR "SHORT"
POSITION.
6. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN
WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE
LOSSES AS WELL AS GAINS.
7. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES
FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT
ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS, AT
PAGE 8, A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE
COMMODITY TRADING ADVISOR.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT
ASPECTS OF THE COMMODITY MARKETS. YOU SHOULD THEREFORE CAREFULLY STUDY THIS
DISCLOSURE DOCUMENT AND COMMODITY TRADING BEFORE YOU TRADE, INCLUDING THE
DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE 7.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY ENGAGE IN
TRADING 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. 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 YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE
YOU TRADE YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR PARTICULAR
CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO TRADE FOR
DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR LOCAL AND OTHER
RELEVANT JURISDICTIONS.
THIS COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING FUNDS IN
THE TRADING ADVISOR'S NAME FROM A CLIENT FOR TRADING COMMODITY INTERESTS. YOU
MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM DIRECTLY WITH WITH A
FUTURES COMMISSION MERCHANT.
-2-
<PAGE> 3
SPECIAL DISCLOSURE FOR NOTIONALLY-FUNDED ACCOUNTS
YOU SHOULD REQUEST YOUR COMMODITY TRADING ADVISOR TO ADVISE YOU OF THE
AMOUNT OF CASH OR OTHER ASSETS (ACTUAL FUNDS) WHICH SHOULD BE DEPOSITED TO THE
ADVISOR'S TRADING PROGRAM FOR YOUR ACCOUNT TO BE CONSIDERED "FULLY-FUNDED." THIS
IS THE AMOUNT UPON WHICH THE COMMODITY TRADING ADVISOR WILL DETERMINE THE NUMBER
OF CONTRACTS TRADED IN YOUR ACCOUNT AND SHOULD BE AN AMOUNT SUFFICIENT TO MAKE
IT UNLIKELY THAT ANY FURTHER CASH DEPOSITS WOULD BE REQUIRED FROM YOU OVER THE
COURSE OF YOUR PARTICIPATION IN THE COMMODITY TRADING ADVISOR'S PROGRAM.
YOU ARE REMINDED THAT THE ACCOUNT SIZE YOU HAVE AGREED TO IN WRITING
(THE "NOMINAL" OR "NOTIONAL" ACCOUNT SIZE) IS NOT THE MAXIMUM POSSIBLE LOSS THAT
YOUR ACCOUNT MAY EXPERIENCE. YOU SHOULD CONSULT THE ACCOUNT STATEMENTS RECEIVED
FROM YOUR FUTURES COMMISSION MERCHANT IN ORDER TO DETERMINE THE ACTUAL ACTIVITY
IN YOUR ACCOUNT, INCLUDING PROFITS, LOSSES AND CURRENT CASH EQUITY BALANCE. TO
THE EXTENT THAT THE EQUITY IN YOUR ACCOUNT IS AT ANY TIME LESS THAN THE NOMINAL
ACCOUNT SIZE YOU SHOULD BE AWARE OF THE FOLLOWING:
1. ALTHOUGH YOUR GAINS AND LOSSES, FEES AND COMMISSIONS MEASURED IN DOLLARS WILL
BE THE SAME, THEY WILL BE GREATER WHEN EXPRESSED AS A PERCENTAGE OF ACCOUNT
EQUITY.
2. YOU MAY RECEIVE MORE FREQUENT AND LARGER MARGIN CALLS.
3. THE DISCLOSURES WHICH ACCOMPANY THE PERFORMANCE TABLE MAY BE USED TO CONVERT
THE RATES OF RETURN IN THE PERFORMANCE TABLE TO THE CORRESPONDING RATES OF
RETURN FOR PARTICULAR FUNDING LEVELS.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE TRADING ADVISOR 4
BUSINESS BACKGROUND 4
THE TRADING PROGRAM 5
RISK FACTORS 7
FUTURES COMMISSION MERCHANTS 7
FEES 8
CONFLICTS OF INTEREST 10
PERFORMANCE CAPSULES 14
DETAILED PERFORMANCE RECORDS 23
APPENDICES 36
</TABLE>
-3-
<PAGE> 4
THE TRADING ADVISOR
Dennis Trading Group, Inc., (the "Trading Advisor"), formerly known as
Richard J. Dennis & Company, is an Illinois corporation and registered commodity
trading advisor and commodity pool operator. The address and telephone number of
the Trading Advisor are 250 South Wacker Drive, Suite #650, Chicago, Illinois
60606 and (312) 559-1895. The principals of the Trading Advisor are Richard J.
Dennis, President, and Thomas A. Dennis, Chairman. The Trading Advisor may
employ agents and employees to implement the trading program described herein.
Except with respect to partnership interests in Richard J. Dennis &
Company Preferred Futures Fund, L.P., and Richard J. Dennis & Company Preferred
Futures Fund II, L.P. and a limited partnership interest in another commodity
pool, commissions the Trading Advisor has not traded for its own account in the
past and does not trade for itself presently. The Trading Advisor, however, may
trade for its own account in the future. If the Trading Advisor trades for its
own account in the future, clients will not be permitted to inspect records of
such trading. Richard J. and Thomas A. Dennis presently trade commodities for
their own accounts. See "Conflicts of Interest." Due to the confidential nature
of such trading, clients of the Trading Advisor will not be permitted to inspect
such trading.
BUSINESS BACKGROUND
The Trading Advisor was incorporated in Illinois as Richard J. Dennis &
Company in September 1982 and is registered as a commodity trading advisor and
commodity pool operator under the Commodity Exchange Act (the "Act"). The
Trading Advisor became registered with the National Futures Association,
("NFA"), as a commodity trading advisor and commodity pool operator on May 11,
1983. In July 1991, the Trading Advisor changed its name to Dennis Trading
Group, Inc. Performance information begins on page 14.
Richard J. Dennis ("R. Dennis"), age 50, is the founder of the Trading
Advisor. He has had over 29 years experience in the futures industry. R. Dennis
has been trading futures for his own account since 1970 and will continue to do
so. Throughout his career, he has been a member, at various times, of the
Chicago Mercantile Exchange, the Chicago Board of Trade, the Mid America
Commodity Exchange and the Commodity Exchange, Inc. (commonly known as COMEX).
Currently, R. Dennis is not a member of any exchange. R. Dennis was a partner of
C&D Commodities ("C&D") which formerly was registered as a Futures Commission
Merchant ("FCM"). C&D, however, is no longer engaged in business. In March 1991,
C&D Commodities, Inc. ("C&D, Inc.") was formed. R. Dennis is a Vice-President of
C&D, Inc. which is primarily engaged in providing administrative services to
Commodity Trading Advisors, including the Trading Advisor. However, R. Dennis
has no ownership interest in C&D, Inc.. R. Dennis was first registered as a
commodity trading advisor in his individual capacity in 1982 and rendered
commodity advisory services in his individual capacity from July 1982 through
May 1983. In May 1983, the Trading Advisor assumed responsibility for managing
the accounts previously managed by R. Dennis. R. Dennis has been a director of
the Trading Advisor from its inception until June 1991, R. Dennis also served as
Chairman of the Trading Advisor. R. Dennis' duties for the Trading Advisor
include the direction and supervision of the Trading Advisor's account
management services, research and development of trading strategies, review of
account performance and other administrative and managerial functions relating
to the business of the Trading Advisor.
Thomas A. Dennis ("T. Dennis"), age 45, joined the Mid-America
Commodity Exchange in 1974 and traded for his own account. In 1976, he purchased
a seat on the Chicago Board of Trade and for the next four years was both a
floor broker and floor trader there. In late 1979, he joined the COMEX, the New
York Cotton Exchange and the Coffee, Sugar, and Cocoa Exchange. T. Dennis was
both a floor broker and a floor trader at these exchanges. In the early
eighties, he also joined the New York Mercantile Exchange. In 1981, T. Dennis
embarked upon a career as an "off-floor" trader, and has continued to trade
off-floor since then. T. Dennis is not currently a member of any exchange. T.
Dennis is the sole shareholder and President of C&D, Inc.
-4-
<PAGE> 5
Except as described below, during the past five years neither the
Trading Advisor nor its principals have been the subject of any material
administrative, civil or criminal action relating to the way in which client
accounts were traded or managed. Beginning in or about December 1988, the
Trading Advisor and R. Dennis were the subject of a number of actions, filed as
class actions, which involved the manner in which the accounts of two commodity
pools, the Richard J. Dennis & Company Preferred Futures Fund, L.P. and the
Richard J. Dennis & Company Preferred Futures Fund II, L.P., were traded. The
actions were consolidated under the caption In Re: Richard J. Dennis & Co.
Securities Litigation. The consolidated action was settled in or about September
1990.
In connection with the consolidated action, the Trading Advisor and R.
Dennis denied any and all liability. The consolidated action is subject to the
ongoing jurisdiction of the court in which it was pending at the time of
settlement. This procedure exists in order to insure compliance by the parties
with the terms of the Settlement Agreement. The terms of the Settlement
Agreement provided for the payment of a cash amount which had no material impact
on the Trading Advisor's ability to conduct its business. The terms of the
Settlement Agreement also provided for certain contingent payments by R. Dennis
through December 31, 1993. For the period from September 1988 through June 1991,
the Trading Advisor had not managed customer accounts.
There have never been any criminal actions against the Trading Advisor
or its principals. There have never been any Administrative, civil or criminal
proceedings brought against any of the other principals of the Trading Advisor .
There are no pending actions against the trading Advisor or its principals.
THE TRADING PROGRAM
The Trading Advisor's objective is to effect appreciation of its
clients' assets through speculative trading of commodity interests. The Trading
Advisor currently expects the majority of its trading for clients to be limited
to regulated futures contracts and options on regulated futures contracts on
commodity exchanges within the United States which are designated by the CFTC as
contract markets. However, the Trading Advisor may engage in the trading of
forward contracts (which may not be traded on exchanges,) including forward
contracts on foreign currencies, and contracts on foreign exchanges (which are
not regulated by the CFTC). The specific futures contracts and options on
futures contracts to be traded will be selected from time to time by the Trading
Advisor on the basis discussed below. Examples of futures contracts and options
on futures contracts which have been traded by the Trading Advisor include, but
are not necessarily limited to: gold, silver, copper, grains, the soybean
complex, sugar, U.S. Treasury bonds and notes, certain foreign currencies,
heating and crude oil, Eurodollars and the S & P 500 Stock Price Index. The
Trading Advisor may also engage in transactions in physical commodities,
including exchange for physical transactions ("EFP"). An exchange for physical
is a transaction permitted under the rules of many futures exchanges in which
two parties holding futures positions may close out their positions without
making an open, competitive trade on the exchange.
Trading decisions of the Trading Advisor for accounts for which it
provides trading advice will be based in part on ideas which have been developed
over time by R. Dennis, T. Dennis and their associates, acting individually or
from time to time in connection with the activities of the Trading Advisor. The
ideas are basically trend-following and are not generally based on analysis of
fundamental supply and demand factors, economic factors or anticipated world
events ("fundamental factors"), but rather upon a study of actual price
fluctuations. Application of the trading ideas is mechanical, but may require
the judgment of the Trading Advisor to determine whether trade indications
should be followed under extreme market conditions. The Trading Advisor may,
however, consider certain fundamental factors in applying the trading idea.
Further, the Trading Advisor may at times trade on the basis of its analysis of
the impact of various fundamental factors on the market.
The markets traded, generally, have been chosen for their historical
performance and for their customary liquidity. From time to time, the Trading
Advisor may trade in less liquid markets. There can be no assurance of liquidity
in any of the markets in which the Trading Advisor trades. Execution of futures
contracts always anticipates making or accepting delivery. In certain cases, the
Trading Advisor may determine to accept or make delivery for a client's account
or market conditions may be such that an open position cannot be liquidated to
avoid delivery. In the event of a delivery, it may be necessary for the account
to borrow money. Such borrowing may be
-5-
<PAGE> 6
arranged by the Trading Advisor and in that event, will be from independent
third parties (generally banks) at market rates for short-term loans and will be
at the client's expense.
The Trading Advisor believes that the development of a commodity
trading strategy is a continual process. As a result of further analysis and
research into the performance of the Trading Advisor's ideas, changes have been
and will be made from time to time in the specific manner in which these trading
ideas evaluate price movements in various commodities. As a result of such
modifications, the trading ideas that may be used by the Trading Advisor in the
future might differ from those previously used. Managed account clients will not
be informed with respect to such changes in the Trading Advisor's trading ideas.
For diversification, a number of different ideas may be used concurrently.
The trading ideas utilized by the Trading Advisor are proprietary and
confidential. The foregoing description therefore is general by necessity and is
not intended to be exhaustive.
Trading decisions will require the exercise of judgment by the Trading
Advisor. Judgment is required in the evaluation of the trading ideas used by the
Trading Advisor, in the evaluation and consideration of modifications of the
trading ideas from time to time and in the implementation of the trading ideas.
The decision not to trade certain commodities or not to make certain trades may
result at times in missing price moves and hence profits of great magnitude,
which other trading managers who are willing to trade these commodities may be
able to capture (see "Conflicts of Interest.") Specific trading decisions for
the Trading Advisor will be made by R. Dennis, T. Dennis or other traders who
are, or become, associated with the Trading Advisor. However, all trading
directed by the Trading Advisor will be under the supervision of R. Dennis or T.
Dennis. There is no assurance that the performance of the Trading Advisor will
result in profitable trading. Trading commodity options involves additional
risks as discussed in the commodity option disclosure document which will be
provided to clients by their respective FCMs.
The periods at the commencement of trading or at which a drawdown from
starting equity has occurred are considered to be the periods of highest risk.
From these points risk management techniques are emphasized over those which
invite greater risk in the interest of enhancing performance. These risk
management techniques include diversification, such as the commitment of equity
to many markets and to a number of trading strategies. Also, the Trading Advisor
generally considers money management techniques which determine and limit the
equity committed to each trade, market, complex and account.
Furthermore, the risk assumed and, consequently, the potential for
profit experienced by a particular account at different times, and by different
accounts at the same time, vary significantly among the accounts due to a number
factors, including market conditions, the size of each account, the percentage
gained or lost in each account, and the perceived risk aversion of each
account's owner. For these and other reasons described in this document, no
investor should expect necessarily the same performance as that of any other
account traded previously, simultaneously, or subsequently by the Trading
Advisor or any of its principals.
The Trading Advisor believes that only the risk portion of a client's
portfolio should be used to trade commodity interests. Clients should anticipate
substantial losses of their original capital over long periods of time since
profits, if any, are usually generated by only a few trades. Clients should
anticipate even more substantial losses of profits because all profits are
subjected to ever-increasing risk by the Trading Advisor and because significant
portions of unrealized profits in particular are usually eroded before the
Trading Advisor determines that trend reversals against its positions have
occurred. For these reasons and others, some of which are described throughout
this document, an account traded by Dennis Trading Group, Inc.
should be considered to be a long-term and extremely speculative investment.
-6-
<PAGE> 7
IF YOU REQUEST A COMMODITY TRADING ADVISOR TO TRADE YOUR ACCOUNT WITH A
DEGREE OF LEVERAGE THAT EXCEEDS THAT RECOMMENDED AS APPROPRIATE BY THE ADVISOR,
YOU SHOULD BE AWARE OF THE FOLLOWING:
1. YOU WILL INCUR GREATER RISK BECAUSE YOU MAY EXPERIENCE GREATER
LOSSES, AS MEASURED BY A PERCENTAGE OF ASSETS ACTUALLY DEPOSITED IN YOUR
ACCOUNT, THAN IN AN ACCOUNT FUNDED AT THE LEVEL RECOMMENDED BY THE ADVISOR.
2. YOUR ACCOUNT WILL EXPERIENCE GREATER VOLATILITY, AS MEASURED BY
RATES OF RETURN ACHIEVED IN RELATION TO ASSETS ACTUALLY DEPOSITED IN YOUR
ACCOUNT, THAN AN ACCOUNT FUNDED AT THE LEVEL RECOMMENDED BY THE ADVISOR.
3. YOU WILL PAY HIGHER ADVISORY FEES AND BROKERAGE COMMISSIONS, AS
MEASURED BY THE PERCENTAGE OF SUCH FEES AND COMMISSIONS IN RELATION TO ASSETS
ACTUALLY DEPOSITED IN YOUR ACCOUNT, THAN A CLIENT'S ACCOUNT FUNDED AT THE LEVEL
RECOMMENDED BY THE ADVISOR.
RISK FACTORS
Volatility of Prices. A principal risk in commodity interest trading is the
volatility in the market prices of commodities. The prices of commodity
interests may fluctuate rapidly and over a wide range, and may reflect
unforeseeable events or changing conditions. The price movements of commodity
interests are influenced by, among other things, changing supply and demand
relationships; governmental trade, fiscal, monetary and exchange control
programs and policies; domestic and foreign political and economic events and
policies; and emotions of the marketplace. None of these factors can be
controlled by the Trading Advisor.
High Leverage. The low margins normally required to trade commodity interest
contracts (typically between 5% and 15% of the value of the contract purchased
or sold) permit a high degree of leverage. In addition, the use of
partially-funded accounts may increase this leverage. Increased leverage
accentuates the rates of return that may be achieved in an account -- negative
as well as positive.
Illiquidity. It is not always possible to execute a buy or sell order, or to
liquidate an open position, at the desired price due to market illiquidity. Such
illiquidity may be caused by intrinsic market conditions (e.g., lack of demand,
overabundance of supply, or imposition of price limits by the exchange) or
extrinsic factors (e.g., changes in monetary policies or political or economic
events).
Lack of Diversification. Although the Trading Advisor seeks to trade a
diversified portfolio of commodity interest contracts, there may be times, due
to market or other conditions, that the program is not well diversified. In
fact, on occasion, there may even be a heavy concentration of a given commodity
or commodity complex, which could increase the possibility of loss (as well as
gain) in a client's account.
TRADING THROUGH A FUTURES COMMISSION MERCHANT
It will be necessary for each client of the Trading Advisor to select
an FCM which will hold all client funds and through which trades will be
cleared. Brokerage fees and other charges to such accounts charged by the FCMs
may vary significantly and are negotiated between the client and his FCM. The
Trading Advisor does not require its clients to use any introducing broker, but
a client may select an introducing broker to introduce trades for his account.
However, use of the services of an introducing broker may increase per trade
commission charges.
-7-
<PAGE> 8
FEES
In return for the management of its account and execution of trades, a
client will be required to pay certain fees. The Trading Advisor may elect not
to charge uniform fees to all persons for whom the Trading Advisor manages
accounts. Certain employees, agents or affiliates of the Trading Advisor and
certain other persons at the discretion of the Trading Advisor, may pay reduced
fees or will not be required to pay any fees to the Trading Advisor or may pay
fees to the Trading Advisor on a basis other than as set forth below. Fees,
which will be deducted directly from the client's account, will be determined as
follows:
1. The Trading Advisor will receive a quarterly incentive fee of up to
one third (1/3) (the exact amount to be negotiated with each client) of "New
Trading Profits". This incentive fee will vary based on account size and other
factors to be determined by the Trading Advisor. New Trading Profits will
represent, in general, that part of quarter-end equity, before equity additions
or withdrawals, if any, which exceeds the sum of the greater of the highest
previous value of quarter-end equity or beginning equity for the first quarter
of trading, after provision for the Trading Advisor's fee. Equity, for the
purpose of computing this fee, is the sum of all cash, Treasury bills (if any)
at their cost plus accrued interest income, and other obligations at their cost
(plus accrued interest), accrued interest receivable, if any, from the
respective FCM, and the current market value of all open commodity positions,
without reduction for brokerage commissions which would be incurred upon
liquidation.
For example, suppose a client were initially to deposit $100,000 in his
commodity trading account. If, at the end of the first quarter of trading, the
equity were $110,000 without any additional capital contributions, New Trading
Profits would equal $10,000 and the Trading Advisor would receive a fee of
$3,333 (1/3 of $10,000) which would be debited from the Trading accounts and
paid to the Trading Advisor. If account equity at the end of the second quarter
were $115,000, the increase in equity would be $8,333 ($115,000-$106,667) and
the Trading Advisor's fee would be $2,778 (1/3 of $8,333).
Fees will be based upon a calendar quarter. Fees which accrue for the
three month periods ending March, June, September and December will be paid to
the Trading Advisor in April, July, October and January, respectively. Fees
which have been paid will not be returned in the event of losses in subsequent
months. However, any account which has a decline in ending equity for such a
three month period will not be required to pay an incentive fee until that
decline in ending equity is recovered, after adjustment for additions and
withdrawals. Any unrecovered trading loss carryover will be reduced on a pro
rata basis, for any subsequent withdrawal of equity from the account.
2. The Trading Advisor may charge a monthly management fee of up to
1/2% of Account Equity (the exact amount to be negotiated with each client) at
the end of each month (6% annually). Any management fee charged will be paid
whether or not trading has been profitable. Account Equity shall mean an
account's total assets less total liabilities, to be determined on the basis of
generally accepted accounting principles, consistently applied, unless otherwise
specified below. Account Equity will include the sum of all cash, Treasury bills
(if any) at their cost plus accrued interest, other interest-bearing obligations
at their cost plus accrued interest, accrued interest receivable, if any, from
the respective FCM and the current market value of all open commodity positions,
without reduction for brokerage commissions which would be incurred upon
liquidation as indicated by the settlement price determined by the exchanges on
which such positions are maintained. If there are no trades on the date of the
calculation due to the operation of the daily price fluctuation limits or due to
closing of the exchange on which positions are maintained, the contract will be
valued at the nominal settlement price as determined by the exchange on which
positions are maintained. The monthly management fee will be calculated monthly
and be payable quarterly.
If the Account Equity includes nominal equity, such accounts management
fees will be higher when expressed as a percentage of actual funds deposited.
Please refer to the Management Fee Matrix to see the affect on the management
fee of a partially funded account.
-8-
<PAGE> 9
DENNIS TRADING GROUP, INC. - MANAGEMENT FEE MATRIX
FOR PARTIALLY FUNDED ACCOUNTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Actual
Management Fee(1) Management Fee based upon various funding levels(3)
- ----------------- ---------------------------------------------------
<S> <C> <C> <C> <C>
6.00% 8.57% 10.00% 12.00% 15.00%
Funding Level(2) 70.00% 60.00% 50.00% 40.00%
- --------------------------------------------------------------------------------
</TABLE>
The above table is intended to show the management fees paid by
partially funded accounts expressed as a percent of actual funds deposited at
the inception of the account.
(1) Represents the Advisor's standard management fee, which is charged based
upon the nominal account size, which includes notional funds for partially
funded account.
(2) The funding levels cover the approximate range of customer accounts at
inception. The amount of notional funds in any actual account may vary over time
due to the fact that losses, profits and fees change the amount of actual funds.
(3) Represents the standard management fee expressed as a percent of actual
funds deposited at the inception of the account.
3. The FCM selected by the client will receive brokerage commissions
from the client's account and may receive other benefits. These commissions may
vary over time and from one FCM to another.
At the discretion of the Trading Advisor, quarterly incentive fees and
monthly management fees may not be charged to certain of its clients.
In the event that the Trading Advisor, directly or indirectly, agrees
to pay any person registered with the Commodity Futures Trading Commission under
the Commodity Exchange Act (other than an employee of the Trading Advisor and
other than an FCM receiving only brokerage commissions or other benefits) a fee
for referring a client to the Trading Advisor, the Trading Advisor will disclose
to the client in writing the name of the person being compensated and the nature
of the fee.
-9-
<PAGE> 10
CONFLICTS OF INTEREST
The following inherent or potential conflicts of interest should be
considered by prospective clients:
1. Large Positions Taken by Messrs. Dennis and the Trading Advisor's
Affiliates. Under the Act and/or the rules and regulations of the commodity
exchanges, the CFTC and the commodity exchanges in the United States have
established speculative position limits that restrict the number of contracts
that may be held or controlled by traders. These limits are intended to prevent
excessive speculation in these markets and to prevent a trader (or group of
traders acting together) from exercising an undue influence on markets that
would distort prices. The speculative position limits apply only to commodity
interests traded on commodity exchanges. Published positions of the CFTC
indicate that positions will be aggregated for purposes of applying the
speculative position limits if they are: 1) under common ownership (as indicated
by an interest of 10% or more in any given account); 2) under common control,
directly or indirectly, as in the case of accounts directed by a single
commodity trading advisor; or 3) traded according to an express or implied
agreement.
Although the Trading Advisor has traded for its own account in the
past, it does not currently trade for its own account, but may do so in the
future. Both R. Dennis and T. Dennis conduct substantial trading for their own
personal accounts, as they have done since prior to the establishment of the
Trading Advisor. In addition, both R. Dennis and T. Dennis may maintain personal
trading accounts which are traded by others. T. Dennis currently maintains 2
such accounts. Because trading conducted by the Trading Advisor for its clients
has (or will be) under the direction of Messrs. Dennis, positions in such
accounts will be aggregated with those other positions owned or controlled by
Messrs. Dennis. Consequently, the application of the speculative position limits
could prevent positions being taken for accounts managed by the Trading Advisor,
as described below. If any other employees of the Trading Advisor were to direct
trading for the client, all trading for accounts controlled by them would be
combined for speculative position limit purposes. It is also possible that if
other employees of the Trading Advisor were to direct trading on its behalf for
its clients, the trading of Messrs. Dennis and employees of the Trading Advisor
could be combined for speculative position limit purposes. The speculative
position limits are applied on an exchange-by-exchange basis. In the past, one
exchange aggregated the positions owned or controlled by R. Dennis with
positions owned or controlled by T. Dennis and a partner in C&D Commodities.
That exchange has since reversed its decision and ceased to aggregate those
positions. If positions owned or controlled by other employees or agents of the
Trading Advisor were to be aggregated with positions owned or controlled by
Messrs. Dennis, the ability of the Trading Advisor to trade its clients'
accounts according to its regular trading methods could be materially impaired.
In the event of such aggregation, substantial losses could result to client
accounts if the Trading Advisor were required to liquidate positions immediately
in those accounts. In addition, client accounts could be foreclosed from future
profit opportunities by such aggregation. The Trading Advisor might have to
develop alternative trading methods and strategies if it were to continue to
manage client accounts after such aggregation were ordered. In addition, it is
possible that should such aggregation of positions be required, the Trading
Advisor could decide to curtail or to discontinue its rendering of trading
advice.
The trading conducted by Messrs. Dennis for their own accounts is so
substantial that at any given time each of them, even if their positions were
not aggregated, expects to approach or reach the speculative position limits
established for a number of commodity interests. Such commodity interests will
vary from time to time, depending on the analyses of the markets. In some
circumstances, either R. Dennis or T. Dennis may desire to establish positions
in a commodity interest at or about the same time that similar positions in that
commodity interest are indicated for accounts of the Trading Advisor's clients.
In such cases, positions would be taken for the account of R. Dennis or T.
Dennis or clients' accounts, as the case may be, in the order that such trades
are placed, up to the applicable speculative position limits. If trades were
indicated for clients' accounts and such trades could be filled without
exceeding the applicable speculative position limit, those trades would be made
for the clients' accounts, which might preclude the establishment later by R.
Dennis or T. Dennis of a position in that same commodity interest. If a trade
were to be made by either R. Dennis or T. Dennis and that trade could be filled
without exceeding the applicable speculative position limit, it would be made
for their respective account. As a result, the client accounts could later be
precluded from taking a position or additional position in that commodity
interest. Therefore, there is a conflict of interest between the duty of the
Trading Advisor and Messrs. Dennis to trade the accounts of its clients in the
best interests of those clients and the interest of Messrs. Dennis in obtaining
priority for trades for their personal accounts for commodity interests. While
the speculative position limits may
-10-
<PAGE> 11
from time to time impair the ability of the Trading Advisor to establish
positions in certain commodity interests for the client when either R. Dennis or
T. Dennis has previously established positions for their own accounts in such
commodity interests, each of them might also be precluded from taking or
expanding a position in a commodity interest if clients had previously
established positions in that commodity interest. Under no circumstances would
positions in the account of any client be liquidated to permit positions to be
taken for the personal accounts of either R. Dennis or T. Dennis.
2. Differences in Trading Conducted for the Trading Advisor's Clients
and by Messrs. Dennis and the Trading Advisor's Affiliates for their own
accounts. The methods to be employed by the Trading Advisor in directing trading
is described above. Potential investors should note that the trading methods and
general principles described there are applied in a substantially different
manner in trading directed by Messrs. Dennis for their respective accounts, as
described below. The Trading Advisor and Messrs. Dennis constantly review and
update a substantial number of trading strategies and employ, at any given time,
those which they believe demonstrate the best opportunities for profitable
trading. The actual strategies used from time to time are expected to vary. It
is these selected strategies which are applied differently by Messrs. Dennis in
trading their respective accounts and by the Trading Advisor in directing
trading for clients. As a result, performance of a client's account is likely to
differ significantly over time from the performance of the accounts of R. Dennis
or T. Dennis, as described below. In general, these differences are due to the
willingness of Messrs. Dennis to accept greater risks for what are perceived to
be greater opportunities for profits in the trading which they conduct for their
own accounts.
The Trading Advisor believes that trading conducted for its clients
varies in three primary ways from the trading conducted by Messrs. Dennis for
their respective accounts. These differences include: (1) levels of risk; (2)
market liquidity; and (3) commission rates. These differences are explained
below.
First, Messrs. Dennis are generally willing to make trades for their
respective accounts which may involve a high probability of loss if any profits
that could be achieved could be substantial. In contrast, the Trading Advisor
will make trades for client accounts which may, in its view, involve lower
probability of loss but may also generally present lower profit opportunities.
As indicated earlier, Messrs. Dennis are continually willing to take what are
perceived to be substantial trading risks continually for their respective
accounts, while the Trading Advisor seeks to avoid exposing clients' accounts to
trades analyzed as having a high probability of loss. However, the Trading
Advisor's analysis of the relative risk of loss in such transactions could be
incorrect. Accordingly, the results of actual trading for client accounts could
involve greater risk and a higher rate of failure to earn profits than the
Trading Advisor's analysis indicated, the trading conducted for either R. Dennis
or T. Dennis or both.
Second, Messrs. Dennis are generally willing to trade markets with low
liquidity, while the Trading Advisor generally will establish positions for
clients in the more liquid markets. Market liquidity is analyzed quantitatively
to ascertain those markets and contracts which may be traded for client accounts
of the Trading Advisor if appropriate profit opportunities exist. One
consequence of trading less liquid markets is possible exposure to market
conditions which do not permit easy entry and exit, and therefore could expose a
trader to greater losses than might otherwise be incurred, or cause a trader to
lose opportunities for profit.
Third, Messrs. Dennis pay commission rates for the trades made for
their respective accounts at rates which are substantially lower than rates
generally available to public investors, such as clients of the Trading Advisor.
Accordingly, there is less cost to modifying, liquidating or opening a position
for their accounts than for the clients' account. As a result, they are able to
enter into certain positions in which profit opportunities are perceived to
exist while clients are not able to enter into such positions because, in part,
of the relative cost of entering and exiting such positions. Such costs reduce
the size of any gain on a profitable trade and increase the size of any loss on
a losing trade. Many of the positions taken for any of the accounts of R. Dennis
or T. Dennis would not present opportunities for profit if higher commissions
were to be paid. In addition, low commission rates permit them to move in and
out of markets, often several times within a single day, as conditions are
perceived to change. The Trading Advisor does not believe such trading can be
conducted prudently for client accounts paying significantly higher commissions
rates.
-11-
<PAGE> 12
One consequence of the lower commission rates paid by Messrs. Dennis on
trades conducted in their personal accounts is that the velocity or turnover
rate of trading conducted for their own accounts has been and is expected in the
future to be substantially higher than turnover in client accounts of the
Trading Advisor. Each of them are more likely to engage in trading for the short
term, including in some cases, positions held for less than a day. High velocity
trading is not, in the opinion of the Trading Advisor, compatible with
profitable trading for client accounts due in part to the high commission/equity
ratio which such trading would produce.
All of the factors described above as distinguishing trading conducted
by Messrs. Dennis for their respective accounts from trading conducted for the
Trading Advisor's clients are not necessarily present in every trade made by
them, since different combinations of those factors at different times are
likely under varying conditions in different markets. Due to those differences
in trading, the Trading Advisor believes that R. Dennis and T. Dennis will
seldom be making the identical trades for their respective accounts that the
Trading Advisor is making for client accounts at the same time. Accordingly,
trading conducted by Messrs. Dennis for their own accounts, or trades in
accounts of Messrs. Dennis which are managed by others, may, at times, involve
positions which differ from, or are opposite to (e.g. in the case of short term
trading) trades made for other clients at the direction of the Trading Advisor,
and at other times may compete with other clients in bidding on sales or
purchases of the same commodity interests.
In addition to trading conducted by Messrs. Dennis for their own
accounts, certain employees and agents of the Trading Advisor may trade for
their own accounts. Some trading conducted by the employees and agents of the
Trading Advisor is based on advice obtained from sources other than the Trading
Advisor and such trading may differ from or be opposite to trading directed for
the client by the Trading Advisor. Additionally, some employees have in the past
retained, and in the future may retain, the Trading Advisor to manage accounts.
Some of these accounts may pay lower brokerage commissions (comparable to those
paid by Messrs. Dennis for trades for their respective accounts) and pay no
advisory fees to the Trading Advisor because of the close business relationship
the account owners and Messrs. Dennis. The performance results of such accounts
are expected to vary from those for other clients accounts due to the lower fees
payable by them. The past performance of any of these accounts as well as the
performance of the accounts of certain partners, employees and agents of C&D
formerly managed by the Trading Advisor are included in the tables presenting
the performance of Messrs. Dennis and of the Trading Advisor.
3. Distribution of Trades. Because of price volatility, variations in
liquidity from time to time and differences in order execution, it is impossible
for the Trading Advisor to obtain identical trade executions for all of its
clients. In addition to differences in brokerage commission rates and advisory
fees payable by client accounts, such variations and differences will produce
performance differences among client accounts over time. In an effort to treat
its clients fairly when block orders for client accounts are filled at different
prices, the Trading Advisor will, to the extent possible, assign trades to the
various FCMs carrying client accounts on a random basis. R. Dennis, T. Dennis or
the employees or agents of the Trading Advisor may maintain accounts managed by
the Trading Advisor. Those accounts, if any, will be treated in the same manner
as other client accounts managed by the Trading Advisor with respect to the
distribution of trades when block orders for client accounts are filled. Trades
made by Messrs. Dennis for their personal accounts and trades made for the
personal accounts of employees or agents, which are not managed by the Trading
Advisor, are specifically identified at the time orders are placed with an FCM
and are not subject to such an allocation. As a result, orders are expected to
be placed in the ordinary course of business for the personal accounts of either
Mr. Dennis (including those accounts which are managed by others) and for the
accounts of other employees or agents of the Trading Advisor either before or
after orders are placed for clients' accounts. This manner of placing trades has
been established by the Trading Advisor and Messrs. Dennis without the benefit
of negotiation with any independent parties. This manner of entering trades for
the personal accounts of Messrs. Dennis may result in clients receiving less
favorable prices for trades than those received by the personal accounts and by
the accounts of other employees or agents of the Trading Advisor when they are
all competing for the same trades. In certain circumstances, it may also result
in clients' accounts being unable to take or exit a position at prices indicated
as optimal by the Trading Advisor's trading ideas when their accounts of Messrs.
Dennis employees and agents of the Trading Advisor and clients have positions in
the same commodity in the same month. However, as described above, trading for
the accounts of Messrs. Dennis and for the accounts of other employees or agents
of the Trading Advisor will generally not be identical with trading conducted
for clients of the Trading Advisor. The Trading Advisor and Messrs. Dennis will
-12-
<PAGE> 13
not deliberately favor their personal accounts or any client accounts under its
management over other client accounts. Clients will not be permitted to inspect
the trading records of Messrs. Dennis.
4. Management of Other Accounts by Trading Advisor. The Trading Advisor
may advise other clients, including commodity pools. Positions held by such
accounts will be aggregated with those held by the client, the Trading Advisor,
and Messrs. Dennis for the purpose of applying the speculative position limits.
If these limits were reached by trading directed by the Trading Advisor or
Messrs. Dennis, the client's account might be unable to enter or hold certain
positions. Such other accounts managed by the Trading Advisor could also compete
with the client's account for the execution of the same trades. However, the
Trading Advisor will place trades in a manner intended to treat all client
accounts equitably.
5. Incentive Fee as Possible Sole Basis of Trading Advisor's
Compensation. Because the Trading Advisor may negotiate with some clients a
compensation arrangement based exclusively, or more substantially on an
incentive fee and because the Trading Advisor will not be directly penalized for
trading losses in client accounts, the Trading Advisor may adopt a more
aggressive trading strategy than might be chosen by the Trading Advisor if it
were to be compensated in a different manner. Because some clients may pay
incentive fees which are greater than some incentive fees payable to the Trading
Advisor by other managed accounts, the Trading Advisor may have an economic
incentive to trade some client accounts more aggressively in order to maximize
profits for accounts in which it will share profits through the incentive fee.
There is a potential conflict of interest between the Trading fiduciary duty to
treat all its clients fairly and its interest in obtaining higher incentive fees
from its clients willing to pay more for its services. The Trading Advisor
intends to manage all client accounts in the same manner and thus intends not to
differentiate among client accounts on the basis of differences in its fees or
in brokerage commissions.
6. Other Activities of Mr. Dennis. Both R. Dennis and T. Dennis are
currently, and expect in the future to be, engaged in other business activities,
some of which could involve the futures industry. Further, they are, or may
become, engaged in various philanthropic and political activities. In addition,
each may be engaged in trading for his own personal account. Accordingly,
neither R. Dennis nor T. Dennis intends to devote his full time to the conduct
of trading for client accounts. As a result, each will have a conflict of
interest between his obligations to devote appropriate attention to client
accounts and his interests in engaging in other activities. However, both R.
Dennis and T. Dennis intend to devote sufficient attention to the operation and
activities of the Trading Advisor.
7. Designation of Floor Brokers by Trading Advisor. It is expected that
the Trading Advisor will designate the floor brokers who are to execute trades
for the client accounts on the floors of various exchanges. The same floor
brokers would generally be used by Messrs. Dennis in trading for their own
accounts. The Trading Advisor intends to select floor brokers based upon its
good faith judgment of their skills in executing orders. If such floor brokers
were to receive orders for the same trades for the accounts of clients and
either R. Dennis or T. Dennis at the same time, Messrs. Dennis might compete
with the client accounts for trade execution and thereby detrimentally affect
the ability of the floor broker designated by the Trading Advisor to execute
orders on behalf of client accounts. Such floor brokers will also generally
trade for their own accounts. On exchanges where crossing of trades is
permitted, these arrangements can also result in a client account and one or
more of the accounts of R. Dennis and T. Dennis being on opposite sides of the
same transaction handled by a single floor broker.
8. Commodity Transactions of C&D, Trading Advisor and their Affiliates
and Customers. The directors, officers and employees of the Trading Advisor and
its affiliates may trade in commodity interests from time to time for their own
accounts. Transactions for such accounts may be identical, similar, opposite or
inconsistent with those executed for client accounts. It is likely that the
volume of trading by such parties will result in the client accounts competing
with such other parties from time to time in bidding on similar purchases or
sales of commodity interests. Transactions for such parties might be affected
when similar trades for the client accounts are not executed or are executed at
less favorable prices. The operating policies of the Trading Advisor require
that orders be transmitted to the trading floors of the commodity exchanges in
the sequence received, regardless of customer size or identity. Clients will not
be permitted to inspect the trading records of the Trading Advisor, or its
directors, officers, partners and employees in light of the proprietary and
confidential nature of such records.
-13-
<PAGE> 14
PERFORMANCE CAPSULES
The Performance Capsules included in this document have not been audited, but in
the opinions of T. Dennis, R. Dennis and the Trading Advisor, reasonably present
performance of the accounts under management in conformity with the regulations
of the CFTC. The Performance Capsules do not include the results of trading of
the non-discretionary personal trading accounts of T. Dennis or R. Dennis.
The results set forth in the following capsules are not indicative of the
results which may be achieved by the Trading Advisor in the future. Past results
are not necessarily indicative of future results. No representation is made that
any account will or is likely to achieve profits or incur losses similar to
those shown. Such results are presented on a composite basis rather than on an
account by account basis and each individual account' experience may differ from
the composite figures shown. In addition, because the Trading Advisor has
modified and will continue to modify its trading methods, the results are shown
in the Capsules do not necessarily reflect the precise trading methods which
will be used by the Trading Advisor on behalf of any particular client account.
The markets in which the Performance Capsules were compiled have been and are
continuing to change. A trading method or approach which was successful in a
particular set of market conditions might not be successful in market conditions
existing currently or in the future. Apart from the effects of a larger account
size on particular trading decisions such as the relative size of positions
taken, degree of diversification and particular commodities traded, the size of
an account may generally affect the design or execution of the Trading Advisor's
trading methods.
DENNIS TRADING GROUP, INC. - PERFORMANCE CAPSULE A-1
Performance Capsule A-1 represents the results of all customer accounts of the
Advisor in the current trading program which commenced trading activities in May
1994. The current trading program is the program currently being offered to
customers.
For the period from May 1994 through October 31, 1998, the Advisor managed 35
customer accounts in the current program. As of October 31, 1998, 24 accounts
remained open and 11 accounts had closed. For closed accounts, the largest
trading gain was approximately $1,665,000 over a twenty-nine month period and
the greatest trading loss was approximately $8,000 over a ten month period. As
of October 31, 1998 for open accounts, the largest trading gain was
approximately $20,334,000 over a thirty-one month period and the greatest
trading loss was approximately $84,000 over a four month period. At October 31,
1998 account size of the open accounts ranged from $628,000 to $40,400,000. For
Capsule A-1, for the period from May 1994 to July 1995, no Trading Advisor's
Fees were actually charged to certain accounts. However, management fees and
incentive fees have been provided on a pro forma basis. Pro forma management
fees are provided at a rate of .167% monthly (2% per annum) times the then month
end value of the account before pro forma Trading Advisor's fees. Pro forma
incentive fees are based upon 20% of quarterly net profits after deducting for
pro forma management fees. Certain accounts, at the discretion of the FCM which
clears the account, were charged brokerage commissions and miscellaneous
expenses at rates which are generally not available to the public. However,
brokerage commissions and miscellaneous expenses have been provided for such
accounts on a pro forma basis at a rate of $13 per actual round-turn trade.
DENNIS TRADING GROUP, INC. - PERFORMANCE CAPSULE A-2
Performance Capsule A-2 represents the results of all customer accounts under
the Former Program of the Advisor from August 1991 (when Dennis Trading Group,
Inc. commenced trading client accounts) through May 1994. All accounts in the
former trading program were closed in May 1994 and this program is no longer
being offered to customers.
For the period from August 1991 to May 1994, 20 accounts had been traded in the
former program. All the accounts in the former trading program closed with
trading losses. The accounts ranged in size from $100,000 to $22,900,000. The
greatest trading loss of accounts in this program was $9,600,000 are 48% of
average equity over a 10 month period. The maximum drawdown for this program was
77% for the period from March 1993 to May 1993.
-14-
<PAGE> 15
Certain accounts, at the discretion of the FCM which clears the
account, were charged brokerage commissions and miscellaneous expenses at rates
which are generally not available to the public. However, brokerage commissions
and miscellaneous expenses have been provided for such accounts on a pro forma
basis at a rate of $13 per actual round-turn trade.
DENNIS TRADING GROUP, INC. - RATE OF RETURN MATRIX
FOR PARTIALLY FUNDED ACCOUNTS
The following matrix is provided to enable a prospective customer to
convert any indicated Fully Funded Rate of Return to an equivalent Rate of
Return at various funding levels.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Actual
RORs(1) ROR based upon various funding levels(3)
------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
-15.6% -22.3% -26.0% -31.2% -39.0%
-12.4% -17.7% -20.7% -24.8% -31.0%
-1.5% -2.1% -2.5% -3.0% -3.8%
4.1% 5.9% 6.8% 8.2% 10.3%
12.6% 18.0% 21.0% 25.2% 31.5%
Funding Level(2) 100.0% 70.0% 60.0% 50.0% 40.0%
</TABLE>
- --------------------------------------------------------------------------------
The above table is intended to show the rates of return which
notionally funded accounts at various levels may have achieved based upon a
range of the Advisor's actual rates of return.
(1) Represents actual monthly rate of returns as reported in Capsule A-1.
(2) The funding levels cover an approximate range of notionally funded accounts.
(3) Represents hypothetical rates of return and attempt to represent the rate of
return a partially funded account may have achieved. The returns are inversely
proportional to the actual rates of return based upon the funding level.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
-15-
<PAGE> 16
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
DENNIS TRADING GROUP, INC.
CURRENT PROGRAM
PERFORMANCE CAPSULE A-1
AS OF OCTOBER 31, 1998
RATE OF RETURN
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
MONTH
<S> <C> <C> <C> <C> <C>
JANUARY 16.9% 7.0% 5.8% -5.3%**
FEBRUARY 3.0% -0.1% 3.6% -8.6%**
MARCH 7.2% -5.3% 7.1% 17.1%**
APRIL -9.0% -5.3% 33.8% 7.6%**
MAY 9.5% -2.5% -3.2% 12.6%** 1.9%**
JUNE 9.0% -5.4% -4.2% 8.6%** 12.6%**
JULY -6.6% -1.5% -4.0% -15.1%** 4.1%**
AUGUST 14.3% -11.0% 9.5% 21.5% -15.6%**
SEPTEMBER 6.9% 45.9% 19.4% 2.4% 1.3%**
OCTOBER -7.2% -2.7% 18.9% 1.3% -12.4%**
NOVEMBER 8.2% 1.1% 24.5% - 1.5%**
DECEMBER -3.5% -3.2% 17.6% 22.7%**
YEAR 48.2% 15.0% 112.9% 109.0% 8.1%
</TABLE>
OFFERED PROGRAM:
NAME OF CTA:DENNIS TRADING GROUP, INC.
NAME OF PROGRAM: CURRENT PROGRAM
START DATE:
CLIENT ACCOUNTS - JULY 1982
THIS PROGRAM - MAY 1994
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, CASH@ OCTOBER 31, 1998:
$178,989,926
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, NOMINAL@ OCTOBER 31, 1998:
$224,439,642
WORST MONTHLY PERCENTAGE DRAWDOWN: 18.2% - 7/95
WORST PEAK TO VALLEY DRAWDOWN: 38.6% - 2/97 TO 8/97
<TABLE>
<S> <C> <C>
NO. OF ACCOUNTS: 35
CLOSED ACCOUNTS:
PROFITABLE 10
UNPROFITABLE 1
TOTAL 11
OPEN ACCOUNTS:
PROFITABLE 22
UNPROFITABLE 2
TOTAL 24
</TABLE>
LARGEST MONTHLY DRAWDOWN: REPRESENTS THE LARGEST LOSS EXPERIENCED BY AN ACCOUNT
IN THE TRADING PROGRAM IN ANY CALENDAR MONTH EXPRESSED AS A PERCENTAGE OF
BEGINNING NET ASSET VALUE. THE TERM "DRAWDOWN" MEANS LOSSES EXPERIENCED BY AN
ACCOUNT OVER A SPECIFIED PERIOD.
LARGEST PEAK-TO-VALLEY MONTHLY DRAWDOWN: REPRESENTS THE GREATEST CUMULATIVE
PERCENTAGE DECLINE IN MONTH END NET ASSET VALUE DUE TO LOSSES SUSTAINED BY AN
ACCOUNT IN THE TRADING PROGRAM 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.
THE MONTHLY RATE OF RETURN IS COMPUTED BY USING THE "FULLY FUNDED SUBSET"
METHOD. THE MONTHLY RATES ARE THEN COMPOUNDED TO ARRIVE AT THE ANNUAL RATE OF
RETURN.
** REPRESENTS PRO FORMA RATE OF RETURN AS CERTAIN ACCOUNTS INCLUDE PRO FORMA
BROKERAGE COMMISSIONS OR TRADING ADVISOR'S FEES (MAY 1994 TO JULY 1995). (SEE
"PAST PERFORMANCE OF ADVISOR").
-16-
<PAGE> 17
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
DENNIS TRADING GROUP, INC.
FORMER PROGRAM
PERFORMANCE CAPSULE A-2
REPRESENTS PRO FORMA RATE OF RETURN AS
CERTAIN ACCOUNTS INCLUDE PRO FORMA BROKERAGE
COMMISSIONS OR TRADING ADVISOR'S FEES.
AS OF OCTOBER 31, 1998
RATE OF RETURN
<TABLE>
<CAPTION>
1994 1993 1992 1991
----- ----- ----- ----
MONTH
<S> <C> <C> <C> <C>
JANUARY -14.3% -9.9% -0.1%
FEBRUARY 49.2% 4.3% -7.9%
MARCH 18.8% -19.2% -3.5%
APRIL 3.0% -14.2% -16.0%
MAY -25.8% -66.4% -12.4%
JUNE 313.7% -16.0%
JULY 71.9% 11.1%
AUGUST -0.1% -17.0% 14.4%
SEPTEMBER -0.2% -11.5% -0.5%
OCTOBER 6.1% -9.8% 2.1%
NOVEMBER -25.2% -0.3% 7.6%
DECEMBER -15.7% -2.1% 13.6%
YEAR 16.0% 3.8% -60.5% 42.2%
</TABLE>
CLOSED PROGRAM:
NAME OF CTA:DENNIS TRADING GROUP, INC.
NAME OF PROGRAM: FORMER PROGRAM
START DATE:
CLIENT ACCOUNTS - JULY 1982
THIS PROGRAM - AUGUST 1991
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,CASH@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,NOMINAL@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, CASH@ OCTOBER 31, 1998:
$178,989,926
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, NOMINAL@ OCTOBER 31, 1998:
$224,439,642
WORST MONTHLY PERCENTAGE DRAWDOWN: 78.3% - 5/93
WORST PEAK TO VALLEY DRAWDOWN: 96.8% - 2/92 TO 5/93
<TABLE>
<S> <C> <C>
NO. OF ACCOUNTS: 20
CLOSED ACCOUNTS:
PROFITABLE 0
UNPROFITABLE 20
20
OPEN ACCOUNTS:
PROFITABLE 0
UNPROFITABLE 0
TOTAL 0
</TABLE>
LARGEST MONTHLY DRAWDOWN: REPRESENTS THE LARGEST LOSS EXPERIENCED BY AN ACCOUNT
IN THE TRADING PROGRAM IN ANY CALENDAR MONTH EXPRESSED AS A PERCENTAGE OF
BEGINNING NET ASSET VALUE. THE TERM "DRAWDOWN" MEANS LOSSES EXPERIENCED BY AN
ACCOUNT OVER A SPECIFIED PERIOD.
LARGEST PEAK-TO-VALLEY MONTHLY DRAWDOWN: REPRESENTS THE GREATEST CUMULATIVE
PERCENTAGE DECLINE IN MONTH END NET ASSET VALUE DUE TO LOSSES SUSTAINED BY AN
ACCOUNT IN THE TRADING PROGRAM 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.
THE MONTHLY RATE OF RETURN WAS COMPUTED USING THE "FULLY FUNDED SUBSET" METHOD
FOR MONTHS WHICH INCLUDED NOMINALLY FUNDED ACCOUNTS. THE MONTHLY RATE OF RETURN
FOR FEBRUARY 1993 AND JULY 1993 WAS COMPUTED USING THE DAILY COMPOUNDED METHOD.
THE MONTHLY RATES ARE THEN COMPOUNDED TO ARRIVE AT THE ANNUAL RATE OF RETURN.
-17-
<PAGE> 18
DENNIS TRADING GROUP, INC.
NOTES TO CAPSULES A-1 AND A-2 PERFORMANCE INFORMATION
The accompanying capsule information presents certain results of customer
accounts managed by Dennis Trading Group, Inc., (the "Advisors"). A summary of
the significant account policies which have been followed in preparing the
accompanying capsule performance is set forth below. All performance has been
prepared on an accrual basis in accordance with generally accepted accounting
principles.
NO. OF ACCOUNTS: Represents total accounts as of the date shown in this program
and in all programs traded by the Advisor.
TOTAL ASSETS UNDER MANAGEMENT, CASH: Represents the Net Assets in this program
and all programs traded by the Advisor as of the date shown, computed on an
accrual basis in accordance with generally accepted accounting principles, and
includes the sum of all cash, securities, options, and open commodity futures
positions, US Treasury securities, and accrued interest income less accrued
expenses and fees.
TOTAL ASSETS UNDER MANAGEMENT, NOMINAL: Represents the dollar amount that the
Advisor and its customers have agreed in writing will determine the level of
trading regardless of the amount of Actual Funds.
LARGEST MONTHLY DRAWDOWN: Represents the largest loss experienced by an account
in the Trading Program in any calendar month expressed as a percentage of the
beginning net asset value. The term "drawdown" means losses experienced by an
account over a specified period.
LARGEST PEAK-TO-VALLEY DRAWDOWN: Represents the greatest cumulative percentage
decline in month end net asset value due to losses sustained by an account in
the Trading Program 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.
CLOSED ACCOUNTS: Shows the accounts which were traded by the Advisor pursuant to
this program but are now closed, broken down by profitable and unprofitable.
MONTHLY RATE OF RETURN: For Capsule A-1, Monthly Rate of Return is computed and
presented using the Fully-Funded Subset method. For Capsule A-2, Monthly Rate of
Return was computed using the Fully-Funded Subset method for months which
included Nominally Funded Accounts. The Monthly Rate of Return for February 1993
and July 1993 was computed using the Daily Compounded method.
-17(a)-
<PAGE> 19
DENNIS TRADING GROUP, INC.
NOTES TO CAPSULES A-1 AND A-2 PERFORMANCE INFORMATION
(CONTINUED)
ANNUAL RATE OF RETURN: Represents the cumulative compounded rate of return for
each year or portion thereof. It is computed by applying successively the
respective monthly rate of return for each month beginning with the first month
presented in each period and represents the net percentage change since the
beginning of the period presented.
TRADING ADVISOR'S FEES: For Capsule A-1, for the period from May 1994 to July
1995, no Advisor's Fees were charged to certain accounts. However, management
and incentive fees have been provided on a pro forma basis. Pro forma management
fees are being provided at a rate of .167% monthly (2% annual) and pro forma
incentive fees have been provided on a quarterly basis at 20% of net profits
after pro forma management fees.
For Capsule A-1, from December 1994 the Advisor charged management fees ranging
form 0% to 3% (annually) and incentive fees ranging from 13.75% to 30% of net
new trading profits, as defined in the respective advisory agreements.
For Capsule A-2 the Advisor charged management fees ranging from 0% to 2%
(annually) and incentive fees from 15% to 25% of net new trading profits, as
defined in the respective advisory agreements.
-17(b)-
<PAGE> 20
RICHARD J. DENNIS & COMPANY - PERFORMANCE CAPSULES B-1 THROUGH B-3
The Trading Advisor changed its name from Richard J. Dennis & Company
to Dennis Trading Group, Inc. in July 1991. Richard J. Dennis & Company has
managed no customer accounts since August 1988. From July 1982 until June 1983,
R. Dennis managed customer accounts as an individual commodity trading advisor.
The actual composite performance of accounts subject to such authority during
this period is set forth in Capsule B-1. On June 1, 1983, the management of
those accounts was transferred to Richard J. Dennis & Company and the actual
performance of such accounts continues in Capsule B-2.
The Capsules are prepared on a composite basis and do not reflect the
actual performance of any individual account. Through May 31, 1983, R. Dennis
advised 253 accounts, and to August 1988 Richard J. Dennis & Company had advised
434 accounts. In August 1988, Richard J. Dennis & Company ceased trading
customer accounts. Any individual account may have had more or less favorable
results than that indicated by the composite information presented in the
Capsules. Results among the accounts will vary depending on a number of factors
such as the size of the account, risk tolerance, commission rates, advisory fee
structure, the date the account started trading and the order in which trades
for the various accounts were entered. Capsule B-2 includes the accounts of two
publicly-traded commodity pools for which Richard J. Dennis & Company was the
general partners and the accounts of certain employees..
Performance Capsule B-1
Capsule B-1 reflects the composite trading performance of accounts
managed by R. Dennis through May 1983. For approximately the first twelve months
during which R. Dennis and the Trading Advisor managed client accounts, it
traded for those accounts in a manner similar to that employed by R. Dennis for
his own trading. Thereafter, trading for client accounts was conducted under
modifications of that system. On May 31, 1983, R. Dennis was advising 253
commodity accounts. To that date, 253 accounts had been closed. As of May 31,
1983, for open accounts and as of the date of closing for closed accounts, 207
had a positive net performance, 46 accounts had a negative net performance. Of
the accounts which had not been closed as of May 31, 1983, the one with the
greatest dollar gain was approximately $966,000 or 84% of invested capital (over
a 38-week period) and the one with the greatest dollar loss was approximately
$6,100 or 6% of invested capital (over a 12-week period). Of the accounts which
had been closed on or by May 31, 1983, the one with greatest dollar gain was
approximately $76,000 or 153% of invested capital (over a 27-week period) and
the one with the greatest dollar loss was approximately $485,000 or 37% of
invested capital (over a 5-week period). The foregoing percentages are based on
a weighted average of invested capital (additions less withdrawals) in customer
accounts and are not presented on an annualized basis. Such additions and
withdrawals are assumed to have been made on the 15th day of the applicable
months.
Performance Capsule B-2
The accounts formerly managed by R. Dennis were transferred to Richard
J. Dennis & Company as of June 1, 1983. The following discussion pertains to the
trading performance of Richard J. Dennis & Company from that date through August
1988 (when all customer accounts were closed). Its composite trading performance
during this period is reflected in Capsule B-2. To that date, 434 accounts had
been closed. As of the date of closing, 69 accounts had a positive net
performance, and 365 accounts had a negative net performance. The account with
the greatest dollar gain was approximately $1,700,000 or 109% of average
invested capital (over a 235-week period). The account with the greatest dollar
loss was approximately $38,600,000 or 52% of average invested capital (over a
50-week period). The foregoing percentages are based on a weighted average of
invested capital (additions less withdrawals) plus average net profits
reinvested in a customer accounts and are not presented on an annualized basis.
Additions and withdrawals are assumed to have been made on the 15th day of
applicable months. Profits are assumed to have been reinvested in equal
installments during the period under management.
-18-
<PAGE> 21
Performance Capsule B-3
In April 1988, due to a series of trading losses, Richard J. Dennis &
Company temporarily suspended trading for two accounts which were limited
partnerships for which it was also the general partner. The accounts remained
inactive, other than for administrative matters, until August 1988 when trading
resumed.
Since other client accounts remained active during the period, the
inactive accounts are presented separately from the composite table and appear
in Capsule B-3.
-19-
<PAGE> 22
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
RICHARD J. DENNIS
PERFORMANCE CAPSULE B-1
AS OF OCTOBER 31, 1998
RATE OF RETURN
<TABLE>
<CAPTION>
1983 1982
---- ----
MONTH
<S> <C> <C>
JANUARY 53.3%
FEBRUARY -5.5%
MARCH -27.8%
APRIL 29.0%
MAY 4.1%
JUNE
JULY 0.0%
AUGUST 54.0%
SEPTEMBER 5.4%
OCTOBER 18.5%
NOVEMBER 2.5%
DECEMBER 15.0%
YEAR 40.5% 126.7%
</TABLE>
CLOSED PROGRAM:
NAME OF CTA:RICHARD J. DENNIS
NAME OF PROGRAM: RICHARD J. DENNIS
START DATE:
CLIENT ACCOUNTS - JULY 1982
THIS PROGRAM - JULY 1982
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,CASH@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,NOMINAL@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, CASH@ OCTOBER 31, 1998:
$178,989,926
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, NOMINAL@ OCTOBER 31,
1998:$224,436,642
WORST MONTHLY PERCENTAGE DRAWDOWN: 27.8% - 3/83
WORST PEAK TO VALLEY DRAWDOWN: 31.7% - 2/83 TO 3/83
<TABLE>
<S> <C> <C>
NO. OF ACCOUNTS: 253
CLOSED ACCOUNTS:
PROFITABLE 207
UNPROFITABLE 46
TOTAL 253
OPEN ACCOUNTS:
PROFITABLE 0
UNPROFITABLE 0
TOTAL 0
</TABLE>
LARGEST MONTHLY DRAWDOWN: REPRESENTS THE LARGEST LOSS EXPERIENCED BY THE TRADING
PROGRAM IN ANY CALENDAR MONTH EXPRESSED AS A PERCENTAGE OF BEGINNING NET ASSET
VALUE. THE TERM "DRAWDOWN" MEANS LOSSES EXPERIENCED BY THE TRADING PROGRAM OVER
A SPECIFIED PERIOD.
LARGEST PEAK-TO-VALLEY MONTHLY DRAWDOWN: REPRESENTS THE GREATEST CUMULATIVE
PERCENTAGE DECLINE IN MONTH END NET ASSET VALUE DUE TO LOSSES SUSTAINED BY THE
TRADING PROGRAM 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.
MONTHLY RATE OF RETURN WAS COMPUTED USING THE "TIME WEIGHTING" METHOD. THE
MONTHLY RATES ARE THEN COMPOUNDED TO ARRIVE AT THE ANNUAL RATE OF RETURN.
-20-
<PAGE> 23
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
RICHARD J. DENNIS & COMPANY
PERFORMANCE CAPSULE B-2
AS OF OCTOBER 31, 1998
RATE OF RETURN
<TABLE>
<CAPTION>
1988 1987 1986 1985 1984 1983
---- ---- ---- ---- ---- ----
MONTH
<S> <C> <C> <C> <C> <C> <C>
JANUARY 2.5% 9.3% 9.3% 5.3% -1.0%
FEBRUARY -1.6% -1.3% 2.1% 0.3% -5.9%
MARCH -9.7% 10.6% 1.3% 12.9% 15.3%
JUNE -42.7% 15.8% 11.0% 12.2% -8.9%
MAY 87.7% -0.9% 2.4% 0.9% 9.0%
JUNE 28.9% -4.0% 4.2% -8.0% 1.1% -30.4%
JULY -0.8% 20.0% 2.2% 7.7% 24.6% -15.9%
AUGUST -8.0% -2.9% 3.5% 5.3% -9.6% -5.6%
SEPTEMBER -15.2% 2.8% 0.5% -5.0% 16.9%
OCTOBER -13.8% -11.2% 8.7% -0.3% 29.9%
NOVEMBER 2.3% -4.9% 0.3% -10.4% -6.1%
DECEMBER 1.5% 1.2% 7.9% 22.8% -13.9%
YEAR 15.2% 16.3% 24.4% 66.5% 26.6% -4.7%
</TABLE>
CLOSED PROGRAM:
NAME OF CTA:RICHARD J. DENNIS
NAME OF PROGRAM: RICHARD J. DENNIS & CO.
START DATE:
CLIENT ACCOUNTS - JULY 1982
THIS PROGRAM - JUNE 1983
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,CASH@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,NOMINAL@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, CASH@ OCTOBER 31, 1998:
$178,989,926
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, NOMINAL@ OCTOBER 31, 1998:
$224,439,642
WORST MONTHLY PERCENTAGE DRAWDOWN: 42.7% - 4/88
WORST PEAK TO VALLEY DRAWDOWN: 61.5% - 8/87 TO 4/88
<TABLE>
<S> <C> <C>
NO. OF ACCOUNTS: 253
CLOSED ACCOUNTS:
PROFITABLE 207
UNPROFITABLE 46
TOTAL 253
OPEN ACCOUNTS:
PROFITABLE 0
UNPROFITABLE 0
TOTAL 0
</TABLE>
LARGEST MONTHLY DRAWDOWN: REPRESENTS THE LARGEST LOSS EXPERIENCED BY THE TRADING
PROGRAM IN ANY CALENDAR MONTH EXPRESSED AS A PERCENTAGE OF BEGINNING NET ASSET
VALUE. THE TERM "DRAWDOWN" MEANS LOSSES EXPERIENCED BY THE TRADING PROGRAM OVER
A SPECIFIED PERIOD.
LARGEST PEAK-TO-VALLEY MONTHLY DRAWDOWN: REPRESENTS THE GREATEST CUMULATIVE
PERCENTAGE DECLINE IN MONTH END NET ASSET VALUE DUE TO LOSSES SUSTAINED BY THE
TRADING PROGRAM 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.
MONTHLY RATE OF RETURN WAS COMPUTED USING THE "TIME WEIGHTING" METHOD. THE
MONTHLY RATES ARE THEN COMPOUNDED TO ARRIVE AT THE ANNUAL RATE OF RETURN.
-21-
<PAGE> 24
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
RICHARD J. DENNIS & COMPANY
PERFORMANCE CAPSULE B-3
AS OF OCTOBER 31, 1998
RATE OF RETURN
<TABLE>
<CAPTION>
1988
----
MONTH
<S> <C>
JANUARY
FEBRUARY
MARCH
APRIL 0.0%
MAY 0.6%
JUNE 0.4%
JULY 0.4%
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
YEAR 1.4%
</TABLE>
CLOSED PROGRAM:
NAME OF CTA:RICHARD J. DENNIS
NAME OF PROGRAM: RICHARD J. DENNIS & CO.
START DATE:
CLIENT ACCOUNTS - JULY 1982
THIS PROGRAM - APRIL 1988
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,CASH@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT THIS PROGRAM,NOMINAL@ OCTOBER 31, 1998: $-0-
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, CASH@ OCTOBER 31, 1998:
$178,989,926
TOTAL ASSETS UNDER MANAGEMENT CURRENT PROGRAM, NOMINAL@ OCTOBER 31, 1998:
$224,439,642
WORST MONTHLY PERCENTAGE DRAWDOWN: 0.0%
WORST PEAK TO VALLEY DRAWDOWN: 0%
<TABLE>
<S> <C> <C>
NO. OF ACCOUNTS: 2
CLOSED ACCOUNTS:
PROFITABLE 2
UNPROFITABLE 0
2
OPEN ACCOUNTS:
PROFITABLE 0
UNPROFITABLE 0
TOTAL 0
</TABLE>
LARGEST MONTHLY DRAWDOWN: REPRESENTS THE LARGEST LOSS EXPERIENCED BY THE TRADING
PROGRAM IN ANY CALENDAR MONTH EXPRESSED AS A PERCENTAGE OF BEGINNING NET ASSET
VALUE. THE TERM "DRAWDOWN" MEANS LOSSES EXPERIENCED BY THE TRADING PROGRAM OVER
A SPECIFIED PERIOD.
LARGEST PEAK-TO-VALLEY MONTHLY DRAWDOWN: REPRESENTS THE GREATEST CUMULATIVE
PERCENTAGE DECLINE IN MONTH END NET ASSET VALUE DUE TO LOSSES SUSTAINED BY THE
TRADING PROGRAM 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.
MONTHLY RATE OF RETURN WAS COMPUTED USING THE "TIME WEIGHTING" METHOD. THE
MONTHLY RATES ARE THEN COMPOUNDED TO ARRIVE AT THE ANNUAL RATE OF RETURN.
-22-
<PAGE> 25
RICHARD J. DENNIS AND RICHARD J. DENNIS & COMPANY
NOTES TO CAPSULES B-1, B-2 AND B-3 PERFORMANCE INFORMATION
The accompanying capsule information presents certain results of customer
accounts managed by Richard J. Dennis and Richard J. Dennis & Co., which are
collectively referred to as the "advisors". A summary of the significant account
policies which have been followed in preparing the accompanying capsule
performance is set forth below. All performance has been prepared on an accrual
basis in accordance with generally accepted accounting principles.
NO. OF ACCOUNTS: Represents total accounts as of the date shown in this program
and in all programs traded by the Advisor.
TOTAL ASSETS UNDER MANAGEMENT, CASH: Represents the Net Assets in this program
and all programs traded by the Advisor as of the date shown, computed on an
accrual basis in accordance with generally accepted accounting principles, and
includes the sum of all cash, securities, options, and open commodity futures
positions, US Treasury securities, and accrued interest income less accrued
expenses and fees.
TOTAL ASSETS UNDER MANAGEMENT, NOMINAL: Represents the dollar amount that the
Advisor and its customers have agreed in writing will determine the level of
trading regardless of the amount of Actual Funds.
LARGEST MONTHLY DRAWDOWN: Represents the largest loss experienced by an account
in the Trading Program in any calendar month expressed as a percentage of the
beginning net asset value. The term "drawdown" means losses experienced by an
account over a specified period.
LARGEST PEAK-TO-VALLEY DRAWDOWN: Represents the greatest cumulative percentage
decline in month end net asset value due to losses sustained by an account in
the Trading Program 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.
CLOSED ACCOUNTS: Shows the accounts which were traded by the Advisor pursuant to
this program but are now closed, broken down by profitable and unprofitable.
MONTHLY RATE OF RETURN: Monthly Rate of Return is based upon the Time-Weighted
method.
ANNUAL RATE OF RETURN: Represents the cumulative compounded rate of return for
each year or portion thereof. It is computed by applying successively the
respective monthly rate of return for each month beginning with the first month
presented in each period and represents the net percentage change since the
beginning of the period presented.
-22(a)-
<PAGE> 26
RICHARD J. DENNIS AND RICHARD J. DENNIS & COMPANY
NOTES TO CAPSULES B-1, B-2 AND B-3 PERFORMANCE INFORMATION
(CONTINUED)
TRADING ADVISOR'S FEES: Trading Advisor's Fees include asset-based management
fees and performance based incentive fees which ranged from approximately 0% to
4% per annum and 15% to 25% of net new trading profits, respectively.
-22(b)-
<PAGE> 27
DETAILED PERFORMANCE RECORDS
<PAGE> 28
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE A-1
DENNIS TRADING GROUP INC.
PERFORMANCE RECORD - CURRENT PROGRAM
ACTUAL PERFORMANCE WITH PRO FORMA BROKERAGE COMMISSIONS AND TRADING ADVISOR FEES
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
BEGINNING BEGINNING GROSS BROKERAGE
EQUITY EQUITY PRO FORMA REALIZED COMMISSIONS,
ACTUAL NOMINAL EQUITY PROFIT INTEREST & MISC.
MO. CASH ACCOUNT SIZE ADDITIONS WITHDRAWALS ADJUSTMENTS (LOSS) INCOME EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
(1) (1a) (2) (3) (3a) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
May $ $ $428,438 $ 2,809 $4,173 $203 $450
June 439,357 439,357 165,767 25,212 76,447 554 10,803
July 706,496 706,496 50,000 10,570 (54,532) 572 8,970
Aug. 737,984 787,984 127,251 4,168 (33,901) 496 18,642
Sept. 717,859 767,859 100,000 15,927 (64,433) 623 30,017
Oct. 835,062 885,062 10,542 (1,678) 643 16,588
Nov. 724,457 774,457 6,856 (65,893) 796 11,128
Dec. 706,125 756,125 5,159 122,512 761 8,346
1995
Jan. $884,453 $934,453 $250,000 $ $923 $(5,643) $781 $8,429
Feb. 1,069,296 1,119,296 91,516 6,873 (100,289) 702 13,820
Mar. 880,240 930,240 4,792 228,922 799 18,194
Apr. 1,059,135 1,109,135 4,941 82,443 773 5,845
May 1,151,715 1,201,715 150,000 39,060 212,919 800 15,230
June 1,523,090 1,573,090 37,594 135,306 776 12,407
July 1,707,558 1,757,558 4,661 (102,228) 802 8,712
Aug. 1,463,970 1,463,970 348,748 (4,697) 785 11,010
Sept. 1,435,294 1,435,294 256,974 740 10,189
Oct. 1,489,955 1,489,955 20,644 765 12,010
Nov. 1,515,304 1,515,304 79,177 186,751 395 18,599
Dec. 1,795,185 1,795,185 428,479 16,420
<CAPTION>
NET INC.(DEC.)IN PRO FORMA
REALIZED UNREALIZED TRADING MONTHLY
PROFIT PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) (LOSS) FEES PERFORMANCE EQUITY RETURN
- -----------------------------------------------------------------------------------------------
(7) (8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C> <C>
1994
May $3,926 $8,893 $2,709 $8,110 $439,357 1.9%
June 66,198 30,033 20,071 76,160 706,496 12.6%
July (62,930) 90,241 6,393 20,918 787,984 4.1%
Aug. (52,047) (103,317) (3,820) (151,544) 767,859 -15.6%
Sept. (93,827) 96,554 1,451 1,276 885,062 1.3%
Oct. (17,623) (102,249) 1,275 (121,147) 774,457 -12.4%
Nov. (76,225) 52,288 1,251 (25,188) 756,125 -1.5%
Dec. 114,927 59,793 1,551 173,169 934,453 22.7%
-------
1994 Compounded Rate of Return (8 Month) (13) 8.1%
-------
1995
Jan. $(13,311) $(50,902) $1,867 $(66,080) $1,119,296 -5.3%
Feb. (113,407) 10,688 1,694 (104,413) 930,240 -8.6%
Mar. 211,527 (32,757) 4,667 174,103 1,109,135 17.1%
Apr. 77,371 17,916 7,648 87,639 1,201,715 7.6%
May 198,489 26,477 42,651 182,315 1,573,090 12.6%
June 123,675 67,009 43,810 146,874 1,757,558 8.6%
July (110,138) (185,675) 2,436 (298,249) 1,483,970 -15.1%
Aug. (14,922) 343,128 8,134 320,072 1,435,294 21.5%
Sept. 247,525 (181,970) 10,894 54,661 1,489,955 2.4%
Oct. 9,399 21,741 5,791 25,349 1,515,304 1.3%
Nov. 168,547 289,909 99,398 359,058 1,795,185 24.5%
Dec. 412,059 (6,833) 89,127 316,099 2,111,284 17.6%
-------
1995 Compounded Rate of Return (12 Month) (13) 109.0%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-23-
<PAGE> 29
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE A-1
DENNIS TRADING GROUP INC.
PERFORMANCE RECORD - CURRENT PROGRAM
ACTUAL PERFORMANCE WITH PRO FORMA BROKERAGE COMMISSIONS AND TRADING ADVISOR FEES
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
BEGINNING BEGINNING GROSS BROKERAGE
EQUITY EQUITY PRO FORMA REALIZED COMMISSIONS,
ACTUAL NOMINAL EQUITY PROFIT INTEREST & MISC.
MO. CASH ACCOUNT SIZE ADDITIONS WITHDRAWALS ADJUSTMENTS (LOSS) INCOME EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
(1) (1a) (2) (3) (3a) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Jan. $2,111,284 $2,111,284 $600,000 $139,863 $ $407,025 $729 $24,823
Feb. 2,747,486 2,747,486 174,365 2,629 14,911
Mar. 2,847,041 2,847,041 350,000 42,817 5,441 25,117
Apr. 3,424,156 3,424,164 16,594,000 541,503 1,688,489 26,275 172,932
May 14,500,898 21,787,708 850,000 134,479 393,544 46,312 302,541
June 14,719,304 21,907,673 5,850,000 8,043 (656,884) 58,855 237,591
July 17,217,917 26,661,286 10,112,500 100,013 (1,276,284) 58,634 346,461
Aug. 17,892,849 35,336,218 143,468 190,237 566,113 74,147 883,858
Sept. 24,333,580 37,985,347 2,825,000 84,496 5,166,224 85,708 628,465
Oct. 32,627,638 48,150,848 6,709,468 354,601 13,467,289 106,671 821,004
Nov. 46,284,290 64,209,967 3,544,177 2,000,050 5,917,205 216,382 343,366
Dec. 52,170,011 66,488,009 13,340,418 4,783,834 1,243,147 205,700 539,339
1997
Jan. $53,299,261 $73,059,577 $12,706,066 $1,285,062 $ $6,724,843 $142,923 $1,134,734
Feb. 62,235,376 89,706,693 2,654,083 64,039 4,828,968 231,290 1,088,898
Mar. 64,038,735 92,320,445 10,050,970 745,781 (7,863,843) 237,897 1,401,292
Apr. 64,898,992 95,928,204 4,615,670 2,588,503 (2,810,600) 244,014 1,647,116
May 60,392,869 92,521,649 4,065,530 2,023,948 (5,686,394) 221,718 1,427,670
June 58,806,593 91,435,374 6,601,421 565,012 (2,938,571) 226,657 1,491,608
July 54,279,102 91,798,893 2,470,785 1,013,908 (5,801,645) 307,457 882,041
Aug. 52,938,003 91,090,101 80,000 5,444,082 (1,161,975) 171,535 1,164,427
Sept. 38,530,180 75,434,555 4,042,436 4,775,195 12,656,828 222,578 1,435,413
Oct. 70,497,725 108,303,710 79,361 3,885,114 17,511,530 237,211 859,966
Nov. 64,948,453 101,488,184 15,631,837 2,179,252 (468,335) 257,203 991,975
Dec. 74,596,438 123,648,916 1,051,375 4,173,970 6,642,144 303,936 1,929,999
<CAPTION>
NET INC.(DEC.)IN PRO FORMA
REALIZED UNREALIZED TRADING MONTHLY
PROFIT PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) (LOSS) FEES PERFORMANCE EQUITY RETURN
- ------------------------------------------------------------------------------------------------
(7) (8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C> <C>
1996
Jan. $382,931 ($145,487) $61,379 $176,065 $2,747,486 5.8%
Feb. 162,083 (27,603) 34,925 99,555 2,847,041 3.6%
Mar. 23,141 281,873 77,891 227,123 3,424,164 7.1%
Apr. 1,541,832 1,538,368 769,154 2,311,047 21,787,708 33.8%
May 137,315 (884,775) (151,904) (595,556) 21,907,673 -3.2%
June (835,620) (510,366) (257,642) (1,088,344) 26,661,286 -4.2%
July 1,564,111) 263,276 36,720 (1,337,555) 35,336,218 -4.0%
Aug. (243,598) 3,344,537 405,041 2,695,898 37,985,347 9.5%
Sept. 4,623,467 5,206,992 2,405,462 7,424,997 48,150,848 19.4%
Oct. 12,752,956 115,754 3,164,458 9,704,252 64,209,967 18.9%
Nov. 5,790,221 (4,794,653) 261,653 733,915 66,488,009 1.1%
Dec. 909,508 (3,414,883) (520,360) (1,985,016) 73,059,577 -3.2%
-------
1996 Compounded Rate of Return (12 Month) (13) 112.9%
-------
1997
Jan. $5,733,032 $1,108,627 $1,615,547 $5,226,112 $89,706,693 7.0%
Feb. 3,971,360 (3,908,980) 38,672 23,708 92,320,445 -0.1%
Mar. (9,027,238) 2,247,456 (1,082,352) (5,697,430) 95,928,204 -5.3%
Apr. (4,213,703) (1,095,299) 124,720 (5,433,722) 92,521,649 -5.3%
May (6,892,347) 3,890,023 125,533 (3,127,857) 91,435,374 -2.5%
June (4,203,522) (1,349,791) 119,577 (5,672,890) 91,798,893 -5.4%
July (6,376,229) 4,334,601 124,041 (2,165,669) 91,090,101 -1.5%
Aug. (2,154,867) (8,029,194) 107,403 (10,291,464) 75,434,555 -11.0%
Sept. 11,443,993 23,943,569 1,785,648 33,601,914 108,303,710 45.9%
Oct. 16,888,775 (19,760,544) 138,004 (3,009,773) 101,488,184 -2.7%
Nov. (1,203,106) 11,389,434 1,478,180 8,708,147 123,648,916 8.2%
Dec. 5,016,081 (10,675,373) (835,115) (4,824,177) 115,702,144 -3.5%
-------
1997 Compounded Rate of Return (13) 15.0%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-24-
<PAGE> 30
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE A-1
DENNIS TRADING GROUP INC.
PERFORMANCE RECORD - CURRENT PROGRAM
ACTUAL PERFORMANCE WITH PRO FORMA BROKERAGE COMMISSIONS AND TRADING ADVISOR FEES
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
BEGINNING BEGINNING GROSS BROKERAGE
EQUITY EQUITY PRO FORMA REALIZED COMMISSIONS,
ACTUAL NOMINAL EQUITY PROFIT INTEREST & MISC.
MO. CASH ACCOUNT SIZE ADDITIONS WITHDRAWALS ADJUSTMENTS (LOSS) INCOME EXPENSES
- ------------------------------------------------------------------------------------------------------------------------
(1) (1a) (2) (3) (3a) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Jan. $71,234,764 $115,702,144 $4,316,485 $3,641,724 $ $23,770,384 $402,640 $683,130
Feb. 84,723,129 135,655,523 2,502,174 2,982,072 10,458,108 338,264 1,446,683
Mar. 89,295,137 138,781,725 6,205,818 3,250,124 3,032,531 315,156 1,596,828
Apr. 104,533,930 150,849,208 4,551,542 4,578,662 (782,390) 401,117 1,619,475
May 93,658,736 137,169,018 16,478,201 865,487 (5,640,207) 348,736 2,197,028
June 122,779,834 165,923,669 4,498,882 5,128,604 30,343,658 435,645 1,927,372
July 139,321,252 179,313,659 7,594,021 2,108,785 (4,668,928) 499,812 1,866,028
Aug. 128,832,313 171,871,759 38,968,210 3,574,812 16,440,360 814,702 1,719,285
Sept. 184,298,199 233,648,977 13,002,198 1,506,339 28,894,902 1,173,682 561,902
Oct. 200,036,008 260,166,165 3,395,571 19,617,714 (8,187,826) 815,930 790,042
<CAPTION>
NET INC.(DEC.)IN PRO FORMA
REALIZED UNREALIZED TRADING MONTHLY
PROFIT PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) (LOSS) FEES PERFORMANCE EQUITY RETURN
- -----------------------------------------------------------------------------------------
(7) (8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C> <C>
1998
Jan. 23,489,894 $793,197 $5,004,472 $19,278,619 $135,655,523 16.9%
Feb. 9,349,689 (4,798,882) 944,707 3,606,100 138,781,725 3.0%
Mar. 1,750,859 10,074,445 2,713,515 9,111,789 150,849,208 7.2%
Apr. (2,000,748) (11,460,883) 191,439 (13,653,070) 137,169,018 -9.0%
May (7,488,498) 21,136,561 506,126 13,141,937 165,923,669 9.5%
June 28,851,932 (11,553,819) 3,278,400 14,019,713 179,313,659 9.0%
July (6,035,144) (6,663,258) 228,734 (12,927,136) 171,871,759 -6.6%
Aug. 15,535,776 14,748,368 3,900,324 26,383,820 233,648,977 14.3%
Sept. 29,506,682 (10,997,892) 3,487,461 15,021,329 260,166,165 6.9%
Oct. (8,161,938) (11,073,226) 269,216 (19,504,380) 224,439,642 -7.2%
-------
1998 Compounded Rate of Return (13) 48.2%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-25-
<PAGE> 31
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE A-2
DENNIS TRADING GROUP INC.
PERFORMANCE RECORD - FORMER PROGRAM
ACTUAL PERFORMANCE WITH PRO FORMA BROKERAGE COMMISSIONS
(UNAUDITED)
<TABLE>
<CAPTION>
BEGINNING BEGINNING GROSS BROKERAGE
EQUITY EQUITY PRO FORMA REALIZED COMMISSIONS,
ACTUAL NOMINAL EQUITY PROFIT INTEREST & MISC.
MO. CASH ACCOUNT SIZE ADDITIONS WITHDRAWALS ADJUSTMENTS (LOSS) INCOME EXPENSES
- -----------------------------------------------------------------------------------------------------------------------
(1) (1a) (2) (3) (3a) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991
Aug. $ $ $11,757,508 $ $7,760 $945,931 $957 $70,200
Sept. 13,379,781 13,379,781 19,583 19,484 20,036 432,729 1,936 101,230
Oct. 13,330,171 13,330,171 5,119,982 23,529 3,923 686,189 25,649 121,545
Nov. 18,811,692 18,811,692 12,258,823 21,501 9,987 2,719,513 45,029 253,415
Dec. 33,373,552 33,373,552 14,437,866 224,693 25,329 3,812,725 90,505 593,346
1992
Jan. $53,795,319 $53,795,319 $14,110,926 $308,448 $68,026 $3,007,012 $122,734 $1,423,690
Feb. 67,577,960 67,577,960 20,342,677 1,928,277 65,243 (16,289,496) 142,330 1,603,243
Mar. 79,129,316 79,129,316 11,024,512 542,986 66,465 8,261,888 168,911 2,255,137
Apr. 86,489,544 86,489,544 8,671,255 4,659,798 36,557 (12,586,594) 161,067 1,558,305
May 76,624,234 75,624,234 68,787 2,341,890 15,580 (6,085,953) 131,513 649,296
June 64,203,179 64,203,179 1,031,112 11,143,299 52,355 (8,594,433) 102,271 1,299,685
July 43,898,210 43,898,210 17,075 97,292 45,404 (2,177,173) 74,083 1,531,342
Aug. 48,743,847 48,743,847 14,604 82,656 120,695 (4,028,550) 67,644 992,592
Sept. 40,486,894 40,486,894 38,052,995 29,244 4,008,038 1,942 39,192
Oct. 2,038,218 2,038,218 219,252 8,735 (4,641) 1,937 13,930
Nov. 1,644,731 1,644,731 2,002,600 10,084 8,017 1,624 21,093
Dec. 3,645,652 3,645,652 2,439 6,187 (53,931) 1,669 21,080
<CAPTION>
NET INC.(DEC.)IN
REALIZED UNREALIZED TRADING MONTHLY
PROFIT PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) (LOSS) FEES PERFORMANCE EQUITY RETURN
- ----------------------------------------------------------------------------------------
(7) (8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C> <C>
1991
Aug. $ $876,688 $1,292,725 $554,900 $1,614,513 $13,379,781 14.4%
Sept. 333,435 (409,794) (6,614) (69,745) 13,330,171 -0.5%
Oct. 590,293 (72,640) 136,508 381,145 18,811,692 2.1%
Nov. 2,511,127 587,494 784,070 2,314,551 33,373,552 7.6%
Dec. 3,309,884 5,373,020 2,499,639 6,183,265 53,795,319 13.6%
-------
1991 Compounded Rate of Return (5 Months) (13) 42.2%
-------
1992
Jan. $ $1,706,056 $(1,746,787) $47,132 $(87,863) $67,577,960 -0.1%
Feb. (17,750,409) 9,144,059 (1,678,063) (6,928,287) 79,129,316 -7.9%
Mar. 6,175,662 (9,591,343) (227,918) (3,187,763) 86,489,544 -3.5%
Apr. (13,983,832) (1,942,225) (1,012,733) (14,913,324) 75,624,234 -16.0%
May (6,603,736) (2,952,541) (392,745) (9,163,532) 64,203,179 -12.4%
June (9,791,847) (387,669) 65,621 (10,245,137) 43,898,210 -16.0%
July (3,634,432) 8,572,471 57,589 4,880,450 48,743,847 11.1%
Aug. (4,953,498) (3,308,116) 47,882 (8,309,496) 40,486,894 -17.0%
Sept. 3,970,788 (4,394,608) 1,105 (424,925) 2,038,218 -11.5%
Oct. (16,634) (166,336) (182,970) 1,644,731 -9.8%
Nov. (11,452) 2,289 2,500 (11,663) 3,645,652 -0.3%
Dec. (73,342) (912) 2,439 (76,693) 3,577,585 -2.1%
-------
Compounded Rate of Return (12 Months) (13) -60.5%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-26-
<PAGE> 32
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE A-2
DENNIS TRADING GROUP INC.
PERFORMANCE RECORD - FORMER PROGRAM
ACTUAL PERFORMANCE WITH PRO FORMA BROKERAGE COMMISSIONS
(UNAUDITED)
<TABLE>
<CAPTION>
BEGINNING BEGINNING GROSS BROKERAGE
EQUITY EQUITY PRO FORMA REALIZED COMMISSIONS,
ACTUAL NOMINAL EQUITY PROFIT INTEREST & MISC.
CASH ACCOUNT SIZE ADDITIONS WITHDRAWALS ADJUSTMENTS (LOSS) INCOME EXPENSES
- -----------------------------------------------------------------------------------------------------------------------
MO. (1) (1a) (2) (3) (3a) (4) (5) (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993
Jan. $3,577,585 $3,577,585 $61,141 $846,441 $4,624 $(554,821) $1,232 $40,036
Feb. 2,511,759 2,511,759 100,696 1,697,456 6,627 48,136 638 26,333
Mar. 740,884 740,884 75,000 7,282 (117,647) 600 17,100
Apr. 530,948 530,948 3,000 8,226 11,489 390 23,726
May 466,231 466,231 146,213 14,021 (186,076) 385 24,709
June 86,349 86,349 10,470 228,040 382 22,595
July 367,724 367,724 1,000,000 2,347 242,661 395 7,779
Aug. 1,650,471 1,650,471 4,868 109,623 413 16,903
Sept. 1,654,246 1,654,246 8,636 (52,481) 412 30,562
Oct. 1,659,268 1,659,268 5,054 32,506 426 20,598
Nov. 1,764,933 1,764,933 17,198 (663,262) 414 69,769
Dec. 1,336,766 1,336,766 875,065 9,187 213,784 5,169 57,605
1994
Jan. $261,186 $261,186 $ $ $1,327 $67,100 $429 $3,380
Feb. 225,041 225,041 3,469 72,298 416 11,746
Mar. 339,164 339,164 100,000 5,834 (10,546) 455 18,365
Apr. 508,699 508,699 102,613 50,000 7,814 (29,135) 440 20,100
May 523,370 623,370 453,816 3,018 78,208 219 10,429
<CAPTION>
NET INC.(DEC.)IN
REALIZED UNREALIZED TRADING MONTHLY
PROFIT PROFIT ADVISOR'S NET ENDING RATE OF
(LOSS) (LOSS) FEES PERFORMANCE EQUITY RETURN
- ----------------------------------------------------------------------------------------
MO. (7) (8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C> <C>
1993
Jan. $(593,625) $310,697 $2,222 $(285,150) $2,511,759 -9.9%
Feb. 22,441 (202,487) 696 (180,742) 740,884 4.3%
Mar. (134,147) (8,071) (142,218) 530,948 -19.2%
Apr. (11,847) (64,096) (75,943) 466,231 -14.2%
May (210,400) (37,290) (247,690) 86,349 -66.4%
June 205,827 65,078 270,905 367,724 313.7%
July 235,277 47,099 1,976 280,400 1,650,471 71.9%
Aug. 93,133 (93,917) 309 (1,093) 1,654,246 -0.1%
Sept. (82,631) 78,721 (296) (3,614) 1,659,268 -0.2%
Oct. 12,334 93,869 5,592 100,611 1,764,933 6.1%
Nov. (732,617) 279,671 (7,581) (445,365) 1,336,766 -25.2%
Dec. 161,348 (371,050) (209,702) 261,186 -15.7%
-------
1993 Compounded Rate of Return (12 Month) (13) 3.8%
-------
1994
Jan. $64,149 $(101,621) $ $(37,472) $225,041 -14.3%
Feb. 60,968 49,686 110,654 339,164 49.2%
Mar. (28,456) 92,157 63,701 508,699 18.8%
Apr. (48,795) 105,653 2,613 54,245 623,370 3.0%
May 67,998 (243,183) (2,613) (172,572) -25.8%
-------
1994 Compounded Rate of Return (5 Month) (13) 16.0%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-27-
<PAGE> 33
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE B-1
RICHARD J. DENNIS
PERFORMANCE RECORD
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Gross Brokerage Net
Realized Commissions, Realized
Beginning Profit Interest & Misc. Profit
Mo. Equity Additions Withdrawals (Loss) Income Expenses (Loss)
- ---------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7)
<S> <C> <C> <C> <C> <C> <C> <C>
1982
Jul. $ $1,500,000 $ $(71,470) $ $853 $(72,323)
Aug. 1,492,911 1,236,221 5,000 800,977 860 12,393 789,444
Sep. 3,529,890 521,308 7,384 622,355 578 19,849 603,084
Oct. 4,233,823 1,298,603 20,000 609,005 12,741 30,336 591,410
Nov. 6,296,596 657,800 130,000 (230,453) 11,554 41,744 (260,643)
Dec. 6,979,783 680,923 146,300 1,357,184 9,437 35,999 1,330,622
1983
Jan. $8,561,780 $3,641,990 $335,678 $3,422,558 $20,267 $43,744 $3,399,081
Feb. 16,429,182 5,132,104 210,759 (2,332,087) 42,085 231,814 (2,521,816)
Mar. 20,451,334 4,025,210 100,198 (872,234) 7,414 365,880 (1,230,700)
Apr. 18,684,771 998,652 1,264,342 1,197,119 82,372 193,391 1,086,100
May 23,834,779 3,110,000 1,300,376 3,164,695 67,440 324,773 2,907,362
<CAPTION>
INC.(DEC.)IN
UNREALIZED TRADING MONTHLY
PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) FEES PERFORMANCE EQUITY RETURN
- -------------------------------------------------------------------------
(8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C>
1982
Jul. $65,323 $89 $(7,089) $1,492,911 0.0%
Aug. 278,469 262,155 805,758 3,529,890 54.0%
Sep. (343,791) 69,284 190,009 4,233,823 5.4%
Oct. 452,274 259,514 784,170 6,296,596 18.5%
Nov. 452,006 35,976 155,387 6,979,783 2.5%
Dec. 149,647 432,895 1,047,374 8,561,780 15.0%
-------
1982 Compounded Rate of Return (6 Months) (13) 126.7%
-------
1983
Jan. $3,089,386 $1,927,377 $4,561,090 $16,429,182 53.3%
Feb. 1,300,183 (322,440) (899,193) 20,451,334 -5.5%
Mar. (4,460,875) (5,691,575) 18,684,771 -27.8%
Apr. 4,717,104 387,506 5,415,698 23,834,779 29.0%
May (1,532,010) 398,473 976,879 26,621,282 4.1%
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-28-
<PAGE> 34
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE B-2
RICHARD J. DENNIS & COMPANY
PERFORMANCE RECORD
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
GROSS BROKERAGE NET
REALIZED COMMISSIONS, REALIZED
BEGINNING PROFIT INTEREST & MISC. PROFIT
MO. EQUITY ADDITIONS WITHDRAWALS (LOSS) INCOME EXPENSES (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7)
<S> <C> <C> <C> <C> <C> <C> <C>
1983
Jun. $26,621,282 $1,732,764 $1,229,655 $(3,285,861) $63,964 $488,362 $(3,710,259)
Jul. 19,029,040 488,215 650,949 (2,892,787) 66,690 411,466 (3,237,563)
Aug. 15,837,807 577,318 2,779,508 (852,763) 70,344 111,046 (893,465)
Sep. 12,748,238 309,030 562,429 1,218,409 24,474 99,496 1,143,387
Oct. 14,644,288 225,511 740,549 1,948,983 17,215 156,648 1,809,550
Nov. 18,505,137 302,500 979,432 1,605,858 40,166 175,674 1,470,350
Dec. 16,706,184 186,000 1,020,972 (1,043,890) 35,840 77,160 (1,085,210)
1984
Jan. $13,546,613 $76,775 $1,601,943 $(210,293) $13,850 $95,672 $(292,115)
Feb. 11,889,739 122,102 724,836 (1,486,437) 48,998 157,558 (1,594,997)
Mar. 10,589,816 2,148,498 905,844 3,085,521 21,117 161,436 2,945,202
Apr. 13,448,532 347,352 426,175 (1,550,478) 11,337 96,475 (1,635,616)
May 12,171,859 226,238 1,442,301 1,098,258 41,040 32,801 1,106,497
Jun. 12,046,838 40,253 7,108,564 (260,733) 22,025 10,474 (249,182)
Jul. 5,113,017 41,722 518,124 627,766 13,161 5,760 635,167
Aug. 5,895,348 50,586 660,884 579,751 16,269 10,337 585,683
Sep. 4,717,390 22,499 (229,732) 13,388 5,361 (221,705)
Oct. 4,457,947 1,343,403 (3,820) 7,769 (5,855) 9,804
Nov. 3,100,672 1,677 270,536 (565,729) 4,407 15,548 (576,870)
Dec. 2,510,135 29,065 101,294 47,947 2,589 2,594 47,942
<CAPTION>
INC.(DEC.)IN
UNREALIZED TRADING MONTHLY
PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) FEES PERFORMANCE EQUITY RETURN
- -----------------------------------------------------------------------------------------
(8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C>
1983
Jun. $(4,384,140) $952 $(8,095,351) $19,029,040 -30.4%
Jul. 209,841 777 (3,028,499) 15,837,807 -15.9%
Aug. 6,584 498 (887,379) 12,748,238 -5.6%
Sep. 1,011,756 5,694 2,149,449 14,644,288 16.9%
Oct. 2,724,341 158,004 4,375,887 18,505,137 29.9%
Nov. (2,659,578) (67,207) (1,122,021) 16,706,184 -6.1%
Dec. (1,235,895) 3,494 (2,324,599) 13,546,613 -13.9%
-------
1983 Compounded Rate of Return (13) -4.7%
-------
1984
Jan. $159,375 $(1,034) $(131,706) $11,889,739 -1.0%
Feb. 898,290 482 (697,189) 10,589,816 -5.9%
Mar. (1,323,173) 5,967 1,616,062 13,448,532 15.3%
Apr. 435,232 (2,534) (1,197,850) 12,171,859 -8.9%
May (10,350) 5,105 1,091,042 12,046,838 9.0%
Jun. 395,227 11,555 134,490 5,113,017 1.1%
Jul. 986,297 362,731 1,258,733 5,895,348 24.6%
Aug. (1,365,456) (212,113) (567,660) 4,717,390 -9.6%
Sep. (16,069) (830) (236,944) 4,457,947 -5.0%
Oct. (23,676) (13,872) 3,100,672 -0.3%
Nov. 255,192 (321,678) 2,510,135 -10.4%
Dec. 537,410 13,080 572,272 3,010,178 22.8%
-------
1984 Compounded Rate of Return (13) 26.6%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-29-
<PAGE> 35
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE B-2
RICHARD J. DENNIS & COMPANY
PERFORMANCE RECORD
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
GROSS BROKERAGE NET
REALIZED COMMISSIONS, REALIZED
BEGINNING PROFIT INTEREST & MISC. PROFIT
MO. EQUITY ADDITIONS WITHDRAWALS (LOSS) INCOME EXPENSES (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7)
<S> <C> <C> <C> <C> <C> <C> <C>
1985
Jan. $3,010,178 $75,529 $717,872 $956,123 $2,282 $5,689 $952,716
Feb. 2,527,097 9,580 307,387 (40,021) 2,203 3,374 (41,192)
Mar. 2,237,815 215,018 203,835 1,667 7,733 197,769
Apr. 2,310,868 88,125 358,413 1,102 2,177 357,338
May 2,504,977 71,369 32,500 296,663 1,509 4,981 293,191
Jun. 2,565,358 16,250 (188,238) 1,280 17,508 (204,466)
Jul. 2,342,839 77,500 (160,130) 1,577 12,038 (170,591)
Aug. 2,445,493 74,258 8,500 267,056 1,464 5,732 262,788
Sep. 2,639,930 26,021 261,730 1,494 1,695 261,529
Oct. 2,627,374 37,014 46,575 1,429 20,633 27,371
Nov. 2,817,630 615,000 32,000 295,312 1,305 1,469 295,148
Dec. 3,409,063 144,000 403,871 1,717 22,712 382,876
1986
Jan. $3,533,980 $125,000 $91,448 $418,460 $1,643 $14,687 $405,416
Feb. 3,895,092 1,200,000 14,000 204,007 2,223 33,603 172,627
Mar. 5,163,491 183,591 81,937 3,006 551 84,392
Apr. 5,047,661 1,350,000 111,737 857,053 1,376 77,811 780,618
May 6,842,404 950,000 1,024,712 223,617 4,762 19,453 208,926
Jun. 6,935,116 500,000 24,000 382,682 5,990 17,020 371,652
Jul. 7,703,170 2,550,000 71,933 217,225 7,954 17,866 207,313
Aug. 10,347,367 4,250,000 337,000 222,233 6,921 4,547 224,607
Sep. 14,617,702 738,183 24,383 1,486,150 12,373 34,401 1,464,122
Oct. 15,739,153 1,865,000 496,608 (3,146,756) 14,528 50,165 (3,182,393)
Nov. 15,352,257 2,415,899 1,135,963 193,962 14,065 27,950 180,077
Dec. 15,883,595 549,498 425,800 (91,422) 11,067 52,126 (132,481)
<CAPTION>
INC.(DEC.)IN
UNREALIZED TRADING MONTHLY
PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) FEES PERFORMANCE EQUITY RETURN
- --------------------------------------------------------------------------------------
(8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C>
1985
Jan. ($768,925) $24,529 $159,262 $2,527,097 5.3%
Feb. 53,555 3,838 8,525 2,237,815 0.3%
Mar. 200,351 110,049 288,071 2,310,868 12.9%
Apr. 18,319 93,423 282,234 2,504,977 12.2%
May (270,422) 1,257 21,512 2,565,358 0.9%
Jun. (1,803) (206,269) 2,342,839 -8.0%
Jul. 352,589 1,844 180,154 2,445,493 7.7%
Aug. (108,059) 26,050 128,679 2,639,930 5.3%
Sep. (244,530) 3,534 13,465 2,627,374 0.5%
Oct. 285,938 86,039 227,270 2,817,630 8.7%
Nov. (285,937) 778 8,433 3,409,063 0.3%
Dec. 113,959 268,917 3,533,980 7.9%
-------
1985 Compounded Rate of Return (13) 66.5%
-------
1986
Jan. $56,985 $134,841 $327,560 $3,895,092 9.3%
Feb. (56,611) 33,617 82,399 5,163,491 2.1%
Mar. (375) 16,256 67,761 5,047,661 1.3%
Apr. 224,138 556,480 6,842,404 11.0%
May 41,502 167,424 6,935,116 2.4%
Jun. 79,598 292,054 7,703,170 4.2%
Jul. 41,183 166,130 10,347,367 2.2%
Aug. 230,110 97,382 357,335 14,617,702 3.5%
Sep. (962,935) 93,536 407,651 15,739,153 2.8%
Oct. 1,331,131 (95,974) (1,755,288) 15,352,257 -11.2%
Nov. (925,467) 3,208 (748,598) 15,883,595 -4.9%
Dec. 327,161 4,085 190,595 16,197,888 1.2%
-------
1986 Compounded Rate of Return (13) 24.4%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-30-
<PAGE> 36
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE B-2
RICHARD J. DENNIS & COMPANY
PERFORMANCE RECORD
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
GROSS BROKERAGE NET
REALIZED COMMISSIONS, REALIZED
BEGINNING PROFIT INTEREST & MISC. PROFIT
MO. EQUITY ADDITIONS WITHDRAWALS (LOSS) INCOME EXPENSES (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7)
<S> <C> <C> <C> <C> <C> <C> <C>
1987
Jan. $16,197,888 $51,511,719 $2,009,660 $3,610,980 $211,490 $2,955,131 $867,339
Feb. 71,592,759 2,528,339 1,250,448 7,105,379 271,492 655,156 6,721,715
Mar. 71,960,018 1,489,471 441,518 (5,078,437) 272,550 459,585 (5,265,472)
Apr. 80,736,614 2,267,011 271,132 34,162,473 298,258 864,417 33,596,314
May 95,721,912 1,210,640 1,562,479 (1,777,451) 334,289 590,414 (2,033,576)
Jun. 94,499,481 4,723,425 907,321 (6,202,648) 306,512 704,532 (6,600,668)
Jul. 94,521,263 1,549,424 1,613,826 13,298,650 329,057 975,016 12,652,691
Aug. 113,505,534 12,643,699 3,867,499 8,264,490 385,012 819,018 7,830,484
Sep.* 112,250,915 77,018,082 1,527,849 (23,539,928) 705,320 3,917,467 (26,752,075)
Oct. 159,235,010 3,728,371 4,351,125 (22,070,672) 696,396 1,422,553 (22,796,829)
Nov. 136,275,413 1,847,479 5,246,220 (8,646,814) 527,344 1,499,399 (9,618,869)
Dec. 136,027,163 585,636 2,785,026 15,479,681 519,562 1,574,176 14,425,067
* - includes adjustment for "notional funds" pursuant to CFTC Division of Trading and Markets Advisory 87-2.
1988
Jan. $135,885,293 $2,835,380 $7,048,748 ($11,182,301) $455,275 $1,743,728 ($12,470,754)
Feb. 134,975,359 895,038 3,125,104 (1,454,007) 465,949 1,624,387 (2,612,445)
Mar. 130,530,579 729,464 7,789,606 (24,959,113) 414,785 1,887,943 (26,432,271)
Apr. 110,930,357 1,083,690 58,048,277 (16,582,530) 331,322 891,499 (17,142,707)
May 6,865,382 490,720 363,582 (2,368,913) 60,567 198,021 (2,506,367)
Jun. 13,361,308 64,357 2,332,713 12,471,572 13,069 57,673 12,426,968
Jul. 14,512,739 25,888,442 1,113,986 (340,905) 27,990 40,404 (353,319)
Aug. 39,171,726 799,729 37,792,241 (1,863,801) 175,735 253,298 (1,941,364)
<CAPTION>
INC.(DEC.)IN
UNREALIZED TRADING MONTHLY
PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) FEES PERFORMANCE EQUITY RETURN
- ----------------------------------------------------------------------------------------
(8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C>
1987
Jan. $7,102,751 $2,077,278 $5,892,812 $71,592,759 9.3%
Feb. (7,666,412) (34,065) (910,632) 71,960,018 -1.3%
Mar. 14,965,730 1,971,614 7,728,643 80,736,614 10.6%
Apr. (15,834,542) 4,772,353 12,989,419 95,721,912 15.8%
May 1,103,006 (59,978) (870,592) 94,499,481 -0.9%
Jun. 2,366,959 (439,387) (3,794,322) 94,521,263 -4.0%
Jul. 11,553,393 5,157,411 19,048,673 113,505,534 20.0%
Aug. (11,539,348) (358,045) (3,350,819) 118,930,915 -2.9%
Sep.* (3,087,694) (1,333,631) (28,506,138) 159,235,010 -15.2%
Oct. 470,968 10,982 (22,336,843) 136,275,413 -13.8%
Nov. 12,782,599 13,239 3,150,491 136,027,163 2.3%
Dec. (12,347,392) 20,155 2,057,520 135,885,293 1.5%
-------
1987 Compounded Rate of Return (13) 16.3%
-------
1988
Jan. $15,820,749 $46,561 $3,303,434 $134,975,359 2.5%
Feb. 407,639 9,908 (2,214,714) 130,530,579 -1.6%
Mar. 13,882,797 (9,394) (12,540,080) 110,930,357 -9.7%
Apr. (29,952,343) 5,338 (47,100,388) 6,865,382 -42.7%
May 8,888,448 13,293 6,368,788 13,361,308 87.7%
Jun. (8,891,848) 115,333 3,419,787 14,512,739 28.9%
Jul. 239,383 1,533 (115,469) 39,171,726 -0.8%
Aug. (239,383) (1,533) (2,179,214) 0 -8.0%
-------
1988 Compounded Rate of Return (13) 15.2%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-31-
<PAGE> 37
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TABLE B-3
RICHARD J. DENNIS & COMPANY
PERFORMANCE RECORD - ACCOUNTS NOT ACTIVELY TRADED
(UNAUDITED)
<TABLE>
<CAPTION>
GROSS BROKERAGE NET
REALIZED COMMISSIONS, REALIZED
BEGINNING PROFIT INTEREST & MISC. PROFIT
MO. EQUITY ADDITIONS WITHDRAWALS (LOSS) INCOME EXPENSES (LOSS)
- ---------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7)
<S> <C> <C> <C> <C> <C> <C> <C>
1988
APR. $54,615,240 $ $ $ $ $ $
MAY 54,615,240 60,000 21,354,902 254,024 (46,000) 300,024
JUN. 33,620,362 50,000 8,321,313 178,131 50,000 128,131
JUL. 25,477,180 25,573,475 140,295 44,000 96,295
<CAPTION>
INC.(DEC.)IN
UNREALIZED TRADING MONTHLY
PROFIT ADVISOR'S NET ENDING RATE OF
MO. (LOSS) FEES PERFORMANCE EQUITY RETURN
- -----------------------------------------------------------------------------------------
(8) (9) (10) (11) (12)
<S> <C> <C> <C> <C> <C>
1988
APR. $ $ $ $54,615,240 0.0%
MAY 300,024 33,620,362 0.6%
JUN. 128,131 25,477,180 0.4%
JUL. 96,295 0 0.4%
-------
1988 COMPOUNDED RATE OF RETURN (13) 1.4%
-------
</TABLE>
The accompanying Notes are an integral part of this Performance Record.
-32-
<PAGE> 38
NOTES TO DETAILED PERFORMANCE RECORDS A-1, A-2, B-1 THROUGH B-3
The Tables present the results of all trading of the managed accounts
of Dennis Trading Group, Inc. (Tables A-1 through A-2), Richard J. Dennis (Table
B-1) and Richard J. Dennis & Company (Tables B-2 through B-3). The Tables are
prepared on a composite basis and are not intended to reflect the actual
performance of any individual account.
(1) Beginning Equity equals the Ending Equity from the previous month
and includes the sum of all cash, committed funds, U.S. Treasury bills and other
obligations and the current market value of all open commodity positions
(without reduction for Brokerage Commissions and Miscellaneous Expenses which
would be incurred in liquidation) For Tables A-1 through A-2, Beginning Equity
equals the amount of margin qualifying assets on deposit in commodity interest
accounts, including committed funds.
(1a) For Tables A-1 through A-2, Column 1(a) represents the amounts of
assets included in Column (1) plus notional funds which in aggregate represent
the Nominal Account Size.
Prior to September 1987, notional funds were included in Beginning
Equity in Table B-1, B-2 and B-3. The Trading Advisor believes that the
inclusion of such funds reflects Monthly Rate of Return and Adjusted Monthly
Rate of Return in a more fair and accurate manner. However, beginning in
September 1987, Beginning Equity was reduced by $6,680,000 to reflect the
exclusion of notional funds pursuant to CFTC Advisory 87-2 which was effective
as of that date.
Due to a series of trading losses from April 1988 through July 1988,
Richard J. Dennis & Company suspended trading for two accounts which were
limited partnerships for which was also the general partner. These accounts
represented a substantial portion of the Beginning Equity and had no trading
activity during those months. During this dormant period, the accounts have been
removed from Table B-2 and appear separately in Table B-3.
(2) Additions are the amounts, other than through sources of income,
added to or committed to the accounts during the period, including new accounts.
Additions are net of sales charges which were charged by certain brokers on (a)
the opening of an account and (b) additions thereto other than through sources
of income.
In January 1987 and September 1987, Additions in Table B-2 include
approximately $10,000,000 and $758,000, respectively, in deposits by Richard J.
Dennis & Company as general partner in certain limited partnerships. These
partnerships represented a substantial portion of the equity under the
management of Richard J. Dennis & Company.. The partnerships were administered
by Richard J. Dennis & Company which also directed its trading. (See Notes (1)
above and (6) and (9) below). In Table B-2, additions for August 1988 include
these re-activated accounts (See Note (1) above).
(3) Withdrawals are the amounts, other than through sources of expense,
withdrawn from the accounts or released from committed funds, during the period.
In Table B-2, Withdrawals include reductions for inactive accounts in April 1988
(See Note (1) above).
(3a) Pro Forma Equity Adjustment is included in Tables A-1 and A-2 and
represents amounts added (subtracted) from equity to offset pro forma
adjustments to Brokerage Commissions and Miscellaneous Expenses (Note 6), and
Trading Advisor's Fees (Note 9).
(4) Gross Realized Profit (Loss) is the gross realized gain (loss) on
closed futures contracts and, except as noted below, the net premiums paid or
received on options on futures contracts for the month. It is not reduced by
Brokerage Commissions and Miscellaneous Expenses.
For limited partnerships for which Richard J. Dennis & Company was the
general partner (see Note (2) above), Gross Realized Profit (Loss) in Table B-2
is the gross realized gain (loss) on closed futures contracts and the net
closing transaction price on options less the initial premium paid plus the
initial premium received for such options.
(5) Interest Income represents amounts earned on: securities used for
margin, investments in U.S. Treasury bills and cash balances on deposit in
certain trading accounts with futures commission merchants ("FCMs"). Some
accounts earned no Interest Income.
-33-
<PAGE> 39
(6) Brokerage Commissions represent the commissions charged by FCMs,
including an affiliate of the Trading Advisor, and charges by certain exchanges
and self regulatory organizations on futures and options transactions. The
accounts included in the Tables paid commissions which vary substantially among
the accounts and ranged from approximately $10 to $25 per round-turn trade plus
fees. Certain accounts, at the discretion of the FCM, paid reduced or no
Brokerage Commissions or Miscellaneous Expenses. However, such accounts earned
no Interest Income.
For Tables A-1 and A-2, pro forma Brokerage Commissions and
Miscellaneous Expenses are provided at a rate of $13 per actual round-turn trade
for accounts which were not actually charged with such expenses.
In Table B-2, Miscellaneous Expenses include operating expenses charged
to limited partnerships for which the Richard J. Dennis & Company was the
general partner (see Note (1) above). In January 1987 and September 1987,
Miscellaneous Expenses include an estimate of offering and organizational
expenses charged to the limited partnerships of approximately $2,271,000 and
$2,436,000, respectively. In March 1987, Miscellaneous Expenses were reduced by
approximately $231,000 to reflect a refinement in the estimate for one of the
limited partnerships. In April 1988, Miscellaneous Expenses were reduced by
approximately $439,000 due to certain cost concessions received by one of the
limited partnerships. (See Notes (2) and (9).)
(7) Net Realized Profit (Loss) represents the sum of Gross Realized
Profit (Loss) plus Interest Income less Brokerage Commissions and Miscellaneous
Expenses. (See Notes (4), (5) and (6).)
(8) Change in Unrealized Profit (Loss) represents the total increase
(decrease) from the preceding month in open commodity positions. Unrealized
gains (losses) are calculated at the end of each month based on contract sizes
and the differences between the commodity futures contract closing price and the
price at which the contract was initially purchased or sold. Except as noted
below, unrealized gains (losses) on options on futures contracts are calculated
at the end of each month based on the net increase (decrease) in the market
value of open option positions from the preceding month. Brokerage Commissions
are not included.
For limited partnerships for which Richard J. Dennis & Company was the
general partner (see Note (1) above), unrealized gains (losses) on options on
futures contracts in Table B-2 are calculated based on the market value of the
options less premiums paid for such options plus premiums received for such
options.
(9) Trading Advisor's Fees are reflected on the accrual basis. These
amounts are not reflected in Net Realized Profit (Loss) but are reflected in Net
Performance.
For Table A-1, during the period from May 1994 to July 1995, no Trading
Advisor's Fees were actually charged to certain accounts. However, management
fees and incentive fees have been provided on a pro forma basis. Pro forma
management fees are being provided at a rate of .167% monthly (2% annual) and
pro forma incentive fees have been provided on a quarterly basis at 20% of net
profits after pro forma management fees.
Pursuant to the respective agreements, Trading Advisor's Fees are
accrued under various periods which differ among the accounts. Fees are payable
in the month following the end of each respective period. Negative fees will
occur in those months when losses in the accounts offset fees which were
previously accrued but not yet payable.
The fees charged for acting as trading advisor vary substantially from
account to account. Certain employees and agents of the Trading Advisor and
other persons at the discretion of the Trading Advisor paid reduced fees or were
not be required to pay any fees to the Trading Advisor. However, since such
accounts comprised a very small portion of the accounts under management, the
Trading Advisor believes that the effect of such arrangements with these
accounts is immaterial relative to the composite performance records included in
Tables B-1 through B-2.
In Table B-2, Trading Advisor's Fees include profit allocations which
represent amounts allocated to Richard J. Dennis & Company as general partner
for a limited partnership which was also a managed account (See Notes (2) and
(6).) This amount represents the general partner's profit allocation as defined
in the related limited partnership agreement.
(10) Net Performance equals Net Realized Profit (Loss) plus Change in
Unrealized Profit (Loss) less Trading Advisor's Fees.
-34-
<PAGE> 40
(11) Ending Equity equals the sum of Beginning Equity, plus Additions
minus Withdrawals plus Net Performance.
(12) For Tables A-1 and A-2, the Monthly Rate of Return was computed
using the Fully Funded Subset Method for months which included accounts whose
equity is based upon a nominal account size.
For Tables B-1, B-2, and B-3, Monthly Rate of Return is determined by
utilizing the "Time-Weighting" method. It is determined by dividing Net
Performance for a month by the weighted average of Beginning Equity plus
Additions less Withdrawals. The weighted average is computed by dividing the sum
of each respective Beginning Equity plus Additions less Withdrawals balance,
before reinvested profits or losses occurring during the month, by the number of
days in the month.
Monthly Rate of Return may not be an accurate indicator of performance
since it assumes that Net Performance is realized on a pro rata basis over the
daily weighted average of Beginning Equity plus Additions less Withdrawals
during the month. In addition, Monthly Rate of Return is computed in the
aggregate and does not measure the variances in actual rates of return
experienced by each individual account, if any, during the period.
For Table A-2 during the month of February 1993 and July 1993 the
Monthly Rate of Return represents Rate of Return that was computed using the
Daily Compounded Method. It is determined by dividing Net Performance for an
"accounting period" by the Beginning Equity for such accounting period. An
"accounting period" represents a full month if there has not been an Addition or
Withdrawal within the month, or a portion of a month for each day where an
Addition or Withdrawal has occurred within the month. Monthly Rate of Return is
calculated by applying successively the rate of return for each accounting
period within a month.
(13) Rate of Return for each year is listed below the final Monthly
Rate of Return for each calendar year and represents the compounded Rate of
Return for each year or portion thereof. In some cases, the Rate of Return for a
year is calculated for a period of less than twelve months when trading was not
directed for an entire calendar year. For calendar year 1983, the Rate of Return
is presented for that entire year and includes performance for accounts managed
both by Mr. Dennis and Richard J. Dennis & Company during that year. The Rate of
Return for each year represents an accumulated return for that calendar year (or
portion of a calendar year). For the period from July 1, 1982, through December
31, 1986, it is , calculated by applying successively the Monthly Rate of Return
for each month beginning with the first month of that year (or portion of a
year). For example, in Table D-1, the 126.7% rate of return, for the portion of
1982 during which Mr. Dennis directed trading, was calculated by multiplying 100
by the quantity [(1 + 0.540) times (1 + 0.054) times (1 + 0.185) times (1 +
0.025) times (1 + 0.15) minus 1]. Beginning January 1, 1987, in Table D-2, it is
calculated by applying successively the Adjusted Monthly Rate of Return rather
than the Monthly Rate of Return. (See Notes (12) and (13).)
-35-
<PAGE> 41
APPENDICES
-36-
<PAGE> 42
LETTER OF COMMITMENT
The undersigned,_____________________________________________________,
having an address at ___________________________________________________ hereby
acknowledges that he/she/it has committed and/or will commit money, securities
or other tangible property ("funds") in the total amount of $___________ to a
managed account trading program directed by _________________________________, a
registered commodity trading advisor ("CTA"). Of this total amount, $___________
shall be and/or has been placed in a regulated commodity account (#____________)
with the registered Futures Commission Merchant ("FCM") firm of _______________.
The difference between 1) the total funds committed and/or to be
committed and 2) all amounts deposited and/or to be deposited by the undersigned
in such regulated commodity account shall be known as "balance of funds". The
balance of funds is being/will be held in the following account(s) held by the
FCM (committed only for the managed account program directed by the CTA).
Account Amount ($)
Money Market Account
--------------- --------------
T. Bill Account
--------------- --------------
Other
--------------- --------------
The undersigned further acknowledges that this balance of funds will be
available at all times for transfer to the regulated commodity account directed
by this CTA until further notice by the undersigned.
The undersigned also authorizes the CTA to cause the FCM to transfer
funds from the other Account(s) to the regulated commodity account in amounts
not to exceed the total amount of the balance of funds. This authorization shall
not serve to limit in any way any separate agreement between the undersigned and
the FCM in which the undersigned authorizes the FCM to transfer from another
account to his/her/its regulated commodity account.
Date: CLIENT:
--------------------------- ---------------------------
Signature
----------------------------------
(Name: printed or typed)
By:
-----------------------------------
Its:
----------------------------------
Acknowledged:
--------------------------- --------------------------------
FCM's Authorized Signature CTA's Authorized Signature
By: By:
------------------------ -----------------------------
(print/type name) (print/type name)
Title: Title:
--------------------- --------------------------
<PAGE> 43
AGREEMENT
This agreement, entered into this ________ day of _____________, 19___,
by and between Dennis Trading Group, Inc. ("Trading Advisor"), located at 250
South Wacker Drive, Suite #650, Chicago, Illinois 60606, and
___________________________, hereinafter referred to as "CLIENT", located
at________________
WITNESSETH:
WHEREAS, Trading Advisor is engaged in the business of rendering
commodity trading advice;
WHEREAS, CLIENT desires to engage Trading Advisor for the purpose of
obtaining commodity trading advice; and
WHEREAS, CLIENT desires to invest certain monies in trading commodity
interests:
NOW, in consideration of the mutual covenants contained herein, it is
agreed as follows:
1. CLIENT shall deposit with ___________________________________
hereinafter called the "Broker," who is mutually acceptable to both the CLIENT
and the Trading Advisor, funds and/or securities in the amount of
$______________ or more, for an account whose level of trading, risk, and
advisory fees shall be based on the Account Size. As of the date of this
Agreement, the Account Size shall be $__________. Unless otherwise notified in
writing by the CLIENT, the Trading Advisor may choose to increase the indicated
Account Size as profits are earned and/or may choose to decrease the Account
Size should losses occur.
2. CLIENT hereby agrees to give Trading Advisor complete investment and
trading discretion with respect to trading in commodity interests (including
futures contracts and options thereon) in said account, and hereby authorizes
Trading Advisor to supervise and manage said account on his/its behalf. The
Trading Advisor will have discretionary authority to make all trading decisions
for the account, without prior consultation with CLIENT and without prior notice
to or approval from CLIENT. CLIENT shall make no trading decisions for the
account. The Trading Advisor is hereby appointed as CLIENT'S attorney in fact,
and is given full power and authority to trade commodity interests in CLIENT'S
account on CLIENT'S behalf, and to arrange, on behalf of CLIENT'S account,
borrowing from third parties on a short-term basis in the event that it is
necessary for the account to borrow money in connection with the delivery of any
commodity interests for CLIENT'S account.
3. Trading Advisor shall have full discretion with respect to making
decisions relative to all purchases and sales (including short sales) of
commodity futures and/or options or other futures instruments, traded on margin
or otherwise for CLIENT'S account and risk.
4. Trading Advisor agrees to charge and CLIENT agrees to pay Trading
Advisor a quarterly incentive fee of up to 1/3 (the exact amount to be
negotiated with each client) of "New Trading Profits," which will be withdrawn
directly from his/its account. New Trading Profits are defined as that part of
quarter-end equity which exceeds the sum of the greater of the highest previous
value of quarter-end equity, or beginning equity for the first quarter of
trading, after provision for the Trading Advisor's fee. Equity, for the purpose
of computing this fee, is the sum of all cash, Treasury bills (if any) at their
cost plus accrued interest and other obligations at their cost (plus accrued
interest), interest receivable, if any, from futures commission merchants, and
the current market value of all open commodity positions, without reduction for
brokerage commissions which would be incurred upon liquidation. The Trading
Advisor also agrees to charge and CLIENT agrees to pay a monthly management fee
of up to 1/2% of Account Equity (the exact amount to be negotiated with each
client) at the end of each month (6% annually). The monthly management fee will
be calculated monthly and be payable quarterly. The management
<PAGE> 44
fee will be paid regardless of trading performance. Account Equity shall mean an
account's total assets less total liabilities, to be determined on the basis of
generally accepted accounting principles, consistently applied, unless otherwise
specified below. Account Equity will include the sum of all cash, Treasury bills
(if any) at their cost plus accrued interest, other interest-bearing obligations
at their cost (plus accrued interest), interest receivable, if any, from futures
commission merchants and the current market value of all open commodity
positions, as indicated by the settlement price as determined by the exchanges
on which such positions are maintained. If there are no trades on the date of
the calculation due to the operation of the daily price fluctuation limits or
due to closing of the exchange on which positions are maintained, the contract
will be valued at the nominal settlement price as determined by the exchange. No
reduction shall be made for brokerage commissions which would be incurred upon
liquidation. Client acknowledges that he is responsible for the payment of all
brokerage commissions incurred for his account.
To the extent that the account incurs negative New Trading Profits,
such amounts may be used to offset subsequent positive New Trading Profits as a
"Trading Loss Carryover" for purposes of computing the incentive fee. However,
any unutilized Trading Loss Carryover will be reduced on a pro rata basis, for
any equity withdrawals from the CLIENT'S account.
5. CLIENT is aware of the speculative nature and high risks associated
with trading in commodity interests, including the risk that CLIENT may incur
trading losses in an amount exceeding capital contributed to the account. CLIENT
acknowledges that trading profits or freedom from losses in trading commodity
interests cannot be guaranteed, and that the Trading Advisor cannot and does not
imply or guarantee that CLIENT will make a profit. It is agreed that Trading
Advisor will not be held responsible or liable for any trading losses in the
account. In entering this Agreement, CLIENT has relied solely on the information
contained in the Trading Advisor's Disclosure Document dated January 22, 1999.
CLIENT expressly acknowledges he/it has read and understands the "Conflicts of
Interest" described in that Disclosure Document.
6. CLIENT acknowledges that the Trading Advisor will transmit orders to
Broker, but will not execute such orders. The Trading Advisor will not be
responsible for any acts, omissions or errors of the Broker in executing such
orders. It is the sole responsibility of the Broker to furnish CLIENT with
confirmations and account statements describing activities in the account.
CLIENT will authorize the Broker to provide the Trading Advisor with copies of
all such account statements. CLIENT further acknowledges that the Broker will
have full custody of CLIENT'S funds and positions in commodity interests.
7. CLIENT UNDERSTANDS AND AGREES THAT COMMISSIONS AND ADVISORY FEES ARE
SUBJECT TO CHANGE. TRADING ADVISOR AGREES, HOWEVER, TO PROVIDE TIMELY PRIOR
NOTICE OF ANY CHANGE IN ADVISORY FEES TO CLIENT.
8. Trading Advisor will maintain and do business only through duly
licensed and registered FCM's.
9. CLIENT understands and agrees that Trading Advisor makes no
warranties or guarantees relating to profit. CLIENT further understands the
risks of loss inherent in investments, in general and in commodity trading, in
particular.
10. CLIENT agrees to indemnify and hold Trading Advisor harmless from
all losses, costs, indebtedness and liabilities arising thereunder.
11. This agreement and its enforcement shall be governed by the laws of
the State of Illinois.
12. CLIENT has received, read, and understood the Disclosure Document,
dated January 22, 1999 relating to Trading Advisor.
13. This agreement may be terminated by either party hereto at any time
without liability except for accrued charges under paragraph t hereof.
<PAGE> 45
READ, AGREED AND ACCEPTED as of the date first above written.
------------------------------------
CLIENT (Print or Type)
By:
---------------------------------
(Signature)
Title:
------------------------------
(Print or Type)
DENNIS TRADING GROUP, INC.
By:
---------------------------------
(Signature)
Title:
------------------------------
(Print or Type)
<PAGE> 46
ACKNOWLEDGMENT
I have read and understood the Disclosure Document for Dennis Trading
Group, Inc., dated January 22, 1999, and agree to all of the terms and
conditions thereof, and have carefully considered the matters outlined and
referred to therein in determining whether to open a commodity trading account
advised by Dennis Trading Group, Inc.
DATE:
-------------------- --------------------------------------------
(Signature)
----------------------------------------------------
(Name: printed or typed)
<PAGE> 47
GIVE UP ORDERS AUTHORIZATION
The undersigned Client(s) authorizes Dennis Trading Group, Inc.
("D.T.G."), to execute orders on behalf of the Client's account on a "give up"
basis. D.T.G. shall have the authority to designate the FCM or Floor Broker who
will act as Executing Broker for trades entered on behalf of the Client's
account. The Executing Broker will "give up" the orders to the Client's Clearing
Broker, which acts as the carrying broker, and which will carry these positions
for the Client's account.
The Client understands that the Executing Broker will charge fees for
give up orders to the Clearing Broker. The Client agrees to pay the Clearing
Brokers such fees from the Client's trading account held at the Clearing Broker.
The Client authorizes D.T.G. to enter into all necessary agreements on
the Client's behalf which are appropriate in the judgment of D.T.G. to carry out
the obligations of D.T.G. in setting up and executing the "give up" order
process. The Client authorizes D.T.G. to negotiate any such agreements up to,
but not in excess of, "give up" charges amounting to $2.00 per side. Any charges
in excess of this amount must be approved by the Client.
Client(s) Signature(s)
-------------------------------------
-------------------------------------
-------------------------------------
Client(s) Address(es)
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
DENNIS TRADING GROUP, INC.
By:
----------------------------------
<PAGE> 48
19
---------------------, ---
FEE PAYMENT AUTHORIZATION
- ------------------------------
- ------------------------------
- ------------------------------
(Name of Brokerage Firm)
In connection with my commodity trading account (number _____________)
carried by you, you are hereby authorized to deduct and pay to Dennis Trading
Group, Inc. such incentive and management fees ("Fees") as it may specify in
writing to you from time to time. Dennis Trading Group, Inc. shall be solely
responsible for determining the amount of such Fees, and you are hereby directed
to comply with instructions you receive from Dennis Trading Group, Inc. without
further direction or confirmation from the undersigned. This fee payment
authorization shall remain in effect until terminated in writing by the
undersigned.
DENNIS TRADING GROUP, INC. Client(s) Signature(s)
250 South Wacker Drive
Suite #650
Chicago, Illinois 60606
-------------------------------------------
-------------------------------------------
-------------------------------------------
Dated:
-------------------------------------
<PAGE> 49
ADDENDUM I
CUSTOMER INFORMATION SHEET
For the purpose of apprising the Trading Advisor more fully of the individual
client's personal, financial, business and educational background, the client
must provide the following information, to be held in strict confidence.
1. Name: Date of Birth:
--------------------------------- --------------------
Address:
--------------------------------------------
--------------------------------------------
Telephone:
------------------------------------------
2. Principal occupation or business:
-------------------------------------------
----------------------------------------------------------------------------
3. Current employment and positions:
-------------------------------------------
----------------------------------------------------------------------------
4. Current annual income (estimated):
------------------------------------------
----------------------------------------------------------------------------
5. If current employment is less than 3 years, previous position and employment
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. Present net worth (exclusive of principal residence, automobiles, and
household furnishings):
-----------------------------------------------------
7. Liquid net worth:
-----------------------------------------------------------
8. Highest level of education completed:
---------------------------------------
9. The following best describe my time frame with respect to my
discretionary account:
Check appropriate item: Short-term (6 months or less)
-----------------------
Long-term (More than 6 months)
-----------------------
Other (specify):
------------------------------------------------------------
10. Do you have, or have you had, any futures trading experience?
----------------------------------------------------------------------------
A. Managed Account (if so, please state the name of your Trading Advisor):
-------------------------------------------------------------------------
B. Self-directed (if so, please state the name of your clearing firm):
-------------------------------------------------------------------------
Dated: Signed:
------------------------- -------------------------------------
Client
