SIDLEY AUSTIN BROWN & WOOD LLP
BEIJING 787 SEVENTH AVENUE LOS ANGELES
NEW YORK, NEW YORK 10019
BRUSSELS TELEPHONE 212 839 5300 NEW YORK
FACSIMILE 212 839 5599
CHICAGO www.sidley.com SAN FRANCISCO
DALLAS FOUNDED 1866 SHANGHAI
GENEVA SINGAPORE
HONG KONG TOKYO
LONDON WASHINGTON, D.C.
WRITER'S DIRECT NUMBER WRITER'S E-MAIL ADDRESS
(212) 839-5458 mschmidtberger@sidley.com
December 30, 2004
Owen Pinkerton, Esq., Senior Attorney
United States Securities and Exchange
Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: World Monitor Trust III
Pre-Effective Amendment No. 1 to Registration Statement,
filed on December 30, 2005, File No.333-119612
--------------------------------------------------------
Dear Mr. Pinkerton:
Thank you for your comment letter of November 10, 2004 to Marc
Goodman at Preferred Investment Solutions Corp. regarding the captioned
registration statement for World Monitor Trust III (the "Company") This letter
is to respond on behalf of Preferred Investment Solutions Corp. to the
questions and comments you raised. Each of your numbered questions and
comments is set forth below in italics, with our response immediately
following.
General
1. Please revise your document significantly to bring it within the
guidelines of Plain English. We note, for example, that your cover
page is greater than one page in length, that you have defined terms
throughout your document, and that you have embedded lists in
various places. Please see Items 421(b) and (d) of Regulation C, as
well as Staff Legal Bulletin 7A.
Response:
We have made substantial revisions in response to the foregoing
comment.
SIDLEY AUSTIN BROwN & WOOD LLP IS A DELAWARE LIMITED LIABILITY PARTNERSHIP
PRACTICING IN AFFILIATION WITH OTHER SIDLEY AUSTIN BROWN & WOOD PARTNERSHIPS
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 2
2. In connection with the above comment, it is not clear why you refer
to World Monitor Trust III as the "Fund" since such term is not part
of the pool's name, nor is the pool a mutual fund registered under
the Investment Company Act of 1940. Please revise to refer to the
pool by its name or a variation of its name.
Response:
We have made revisions in response to the foregoing comment.
3. Please revise throughout the prospectus to provide disclosure
substantially similar to the disclosures that would be required by
Industry Guide 5 if real estate limited partnership units were being
registered. For example, your revisions should include disclosure of
the fees and expenses payable to the managing owner and its
affiliates in the tabular format contemplated by Item 4 of Guide 5,
together with estimates of the total amount of each fee and expense
to the extent reasonably practicable, a narrative discussion under
an appropriate major heading of the managing owner and its
affiliates' experience over the past ten years similar to that
required by Item 8.A of Guide 5, which includes such information as
a description of any major adverse business developments and
conditions that were experienced.
Response:
Applicable rules and regulations of the Commodity Futures Trading
Commission (the "CFTC"), the National Futures Association (the "NFA") and the
National Association of Securities Administrators Association (the "NASAA")
address disclosure issues and practices similar to those set forth in Industry
Guide 5 generally and in Items 4 and 8.A of Industry Guide 5 in particular
(although without perfect congruity) and set forth the appropriate standards
and practices applicable to publicly offered managed pools of futures and
options on futures. We believe we are in substantial compliance with such
rules and regulations and with common and accepted best practices in the
managed futures industry, although we have received comments from the NFA and
various state securities administrators to which we have responded or are in
the process of responding. In certain instances, the rules and regulations of
the CFTC, the NFA and the NASAA conflict with the requirements of Industry
Guide 5. We respectfully submit that in the event of such a conflict, the
rules and regulations of the CFTC, NFA and NASAA should control, as they were
written specifically for the managed futures industry and publicly offered
commodity pools, each of which are substantially regulated by such
authorities. In our experience, the staff of the division of corporate finance
historically has afforded substantial deference to the rules and
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 3
regulations of the CFTC, the NFA and the NASAA in respect of the standards of
disclosure applicable to public commodity pools.
4. Please provide us with a complete copy of any sales material which
includes all illustrations and other inserts in the form you expect
to distribute to investors in accordance with Release No. 33-6900
and by analogy to Item 19D of Guide 5. We may have further comment
after we receive your materials.
Response:
We will provide such materials under separate cover as they become
available.
5. Please provide a Management's Discussion and Analysis (MD&A) section
within the registration statement prepared in accordance with Item
303 of Regulations S-K and specifically include the disclosures
related to the following: 1) liquidity and capital resources, 2)
off-balance sheet arrangements, and 3) a tabular disclosure of
contractual obligations. Refer to FR-72 for the Commission's
guidance regarding management discussion and analysis of financial
condition and results of operations.
Response:
We have made revisions in response to the foregoing comment. See
page 26.
6. In addition; please provide a discussion of what you expect to be
your most critical accounting policies, which should include what
you believe to be your most difficult and judgmental estimates, the
most important and pervasive accounting policies used, and the areas
most sensitive to material change from external factors. Refer to
FR-60.
Response:
We have made revisions in response to the foregoing comment. See
page 26.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 4
7. Please supplementally confirm to us, if true, that all units
redeemed or otherwise re-acquired by the trust will not be re-issued
to other investors. If you do intend to re-issue redeemed or
re-acquired units, please tell us supplementally how you intend to
register those re-issuances under the Securities Act.
Response:
We confirm that all units redeemed or otherwise re-acquired by the
trust will not be re-issued to other investors.
8. We note that investors will be entitled to exchange their units in
one series for units in a different series, so long as the exchange
is for the same class of units. In addition, we refer to your
statement that such an exchange will be treated as a redemption of
one unit and the subsequent sale of a separate unit, except that no
redemption fees would be charged. Please supplementally confirm to
us what exemption from registration you will rely upon in connection
with the exchanges.
Response:
Units to be issued in connection with an exchange will have been
registered pursuant to this Registration Statement.
9. Please summarize, immediately following the cover page, the
suitability standards that investors must meet in order to invest in
this offering. In addition, if suitability standards in individual
states in which you intend to offer your units differ from these
standards, please summarize the suitability standards of such
states.
Response:
We have made revisions in response to the foregoing comment.
10. Please advise us supplementally whether the managing owner or its
affiliates can purchase units in the offering so as to reach the
minimum subscription. If so, please also disclose this fact on the
cover page of the prospectus and in the prospectus summary.
Response:
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 5
The Managing Owner or its affiliates may subscribe to purchase
units during the Initial Offering Period. Any units subscribed for by the
Managing Owner or its affiliates will be counted towards the minimum
subscription amount. We have added disclosure regarding the foregoing to the
prospectus summary.
11. Please revise to indicate the factors considered in determining the
offering price. Refer to Item 505 of Regulation S-K.
Response:
We have made revisions in response to the foregoing comment. See
the second footnote on the cover page.
12. We note that you propose to offer units in three series - G, H and I
- as well as two classes within each series (Class I and II units).
Please revise the facing page to indicate each security that you are
registering and revise the facing page and cover page of the
prospectus to allocate the number of shares being registered for
each series as well as each class within each series. Please be
aware that all shares being registered must be allocated to a
specific series and class.
Response:
We have made revisions in response to the foregoing comment.
13. Please revise your outside cover page to reflect the respective
series in the fee table. When you revise, please indicate which
paragraph of Rule 457 you relied upon for calculation of the
registration fee.
Response:
We have made revisions in response to the foregoing comment.
14. Refer to the disclosure concerning your share redemption program on
pages 71-72. Supplementally, please provide a detailed analysis
regarding the applicability of the tender offer rules to the share
redemption program. Specifically, in your
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 6
analysis please address your intention to redeem shares without any
limit on the percentage of shares you may redeem and the fact that
the redemptions will not be conducted pro rata. Refer to Rule 13e-4
and Regulation 14E of the Exchange Act.
Response:
The trust does not have a share redemption program. Units of each
series are redeemable at the option of the holder (in a manner analogous to
shares in an open-end investment company) as of the close of business on the
last business day of each month on five business days' prior written notice.
The absence of any limit on the number of units that may be redeemed and the
absence of pro rata treatment reflects the simple fact that the decision to
redeem or not to redeem as of the end of any month rests entirely with each
unitholder, not the Trust. Except under extraordinary circumstances
(generally, those in which honoring a redemption request would be prejudicial
to non-redeeming unitholders) the trust is required to honor a unitholder's
redemption request. This redemption feature is readily distinguishable from an
issuer self-tender offer in which the issuer offers to repurchase a number of
its shares on particular terms and conditions, an offer which a shareholder
may accept or reject in the shareholder's discretion. Unitholders' redemption
rights are a key feature of the securities being offered, are typical of
public commodity pools and do not constitute a tender offer subject to Rule
13e-4 or Regulation 14E any more than the redemption rights of holders of
shares in an open-end investment company.
Prospectus Cover Page
15. Please confirm that your cover page will be one page only. We refer
to Item 501(b)(3) of Regulation S-K. Please revise to remove
information not required by Item 501, Guide 5 or the Part 4 Rules
promulgated by the CFTC.
Response:
Our cover page will be one page only. We have made revisions in
response to the foregoing comment. Please refer to out response to your
comment no. 3 above regarding Industry Guide 5.
16. Please disclose, in the header, the minimum and maximum number of
units being offered for each series and each class within each
series. In connection with this, please briefly describe what Class
I and Class II units are.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 7
Response:
Please note that the minimum and maximum number of units of each
series to be sold during the initial offering period is calculated on a series
by series basis and is aggregated betweer the class I and the class II of each
series.
17. Please revise to briefly define what constitutes a "best efforts"
offering.
Response:
We have made revisions in response to the foregoing comment.
18. Please disclose the termination date of the registered offering.
Refer to Item 501(b)(8)(iii).
Response:
We have made revisions in response to the foregoing comment.
19. We note your statement in the first footnote to the table on the
bottom of the cover page stating that should you not reach the
minimum offering for any of the series, money tendered by
subscribers will be returned without penalty together with interest
"within 10 days or as soon thereafter as practicable." Please be
aware that pursuant to Rule 10b-9(a)(1) any funds should be returned
promptly. We do not agree that 10 days is consistent with Rule
10b-9, and the qualification included in this footnote casts doubt
about whether funds would even be returned within this time period.
Please revise accordingly.
Response:
We have made revisions in response to the foregoing comment.
20. Please revise the first cover page risk factor to clarify whether
there is a limitation on the amount to which each fund may be
leveraged.
Response:
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 8
While the Company will not borrow money, there is a type of
leverage embedded in the instruments in which the Company will invest which
varies widely from instrument to instrument. Consequently, we respectfully
take the view that it is not practicable to express this risk adequately on
the cover page in a manner consistent with your comment No. 15 above due to
the limited available space. There is extensive and prominent disclosure
regarding this risk elsewhere in the prospectus. See, for example, page 16. We
are aware of other recent newly-offered commodity pools which do not include
such disclosure on their cover pages.
21. Please revise the cover page risk factors to include the risk
resulting from conflicts of interest, including a brief description
of the nature of the conflicts and the identity of the parties to
the conflicts. Please also revise your summary risk factors to
address risks associated with conflicts of interest. When you
revise, please clarify that you have no formal procedure to resolve
conflicts. We note your disclosure on page 73.
Response:
We respectfully take the view that it is not practicable to
express this risk adequately on the cover page in a manner consistent with
your comment No. 15 above due to the limited available space. There is
extensive and prominent disclosure regarding this risk elsewhere in the
prospectus. See, for example, page 20 and pages 84-86. We are aware of other
recent newly-offered commodity pools which do not include such disclosure on
their cover pages. We have made revisions to our summary risk factors in
response to the foregoing comment. See page 2.
22. Please revise the cover page risk factors to include the risk
related to forwards, swaps, hybrids, and other derivatives not
subject to CFTC regulation.
Response:
We respectfully take the view that it is not practicable to
express this risk adequately on the cover page in a manner consistent with
your comment No. 15 above due to the limited available space. There is
extensive and prominent disclosure regarding this risk elsewhere in the
prospectus. See, for example, page 22. We are aware of other recent
newly-offered commodity pools which do not include such disclosure on their
cover pages.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 9
23. As one of your cover page risk factors, please briefly quantify the
fees that you will be required to pay. Please also disclose, if
true, that the managing owner has the authority to substantially
increase the amount of those fees without the approval of the
limited partners.
Response:
We respectfully take the view that it is not practicable to
express this risk adequately on the cover page in a manner consistent with
your comment No. 15 above due to the limited available space. There is
extensive and prominent disclosure regarding this risk elsewhere in the
prospectus. See, for example, pages 9 and 10 and pages 80-83. We are aware of
other recent newly-offered commodity pools which do not include such
disclosure on their cover pages.
24. Please advise us supplementally under what circumstances the
managing owner may extend the offering period up to ninety days.
Response:
The Managing Owner may extend the initial offering period up to
ninety days for any reason under any circumstances.
25. Since this is not a firm commitment underwritten offering, it is not
appropriate to highlight the Managing Owner at the bottom of the
cover page. Please revise. We note that the Managing Owner is
referenced in the second paragraph of the cover page.
Response:
We have made revisions in response to the foregoing comment.
Commodity Futures Trading Commission Risk Disclosure Statement - page iii
26. Please revise to delete the references to public reference
facilities in Chicago and New York, because they are no longer in
operation.
Response:
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 10
We have made revisions in response to the foregoing comment.
Summary
27. Your summary contains detailed information about the pool and the
advisors you intend to utilize that is more appropriate for the body
of the prospectus. Please limit your summary to the most significant
aspects of the pool and your offering. In connection with this,
please revise to remove repetitive disclosure found within the
summary section.
Response:
We have made revisions in response to the foregoing comment.
28. We note that you have included a significant number of
cross-references in the forepart of the prospectus. This indicates
that the presentation could be better organized. Please reduce your
reliance on cross-references, especially in the summary and risk
factors sections of the prospectus and on the prospectus cover page.
Response:
We have made revisions in response to the foregoing comment to the
extent not inconsistent with applicable Part 4 rules of the CFTC.
29. It is inappropriate to qualify in entirety one section of your
prospectus to the remaining body of the prospectus. Please revise.
Response:
We have made revisions in response to the foregoing comment.
30. Please revise to include an organization diagram of World Monitor
Trust III which includes the ownership percentages and material
relationships among the entities pictured.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 11
Response:
We have added such a diagram. See page 15.
31. Please revise to include summary disclosure addressing reports to
unit holders. Please refer to Guide 3, Item 15.
Response:
We have made revisions in response to the foregoing comment. See
pages 14.
Overview - page 2
32. It is not clear what the purpose of this section is since it
contains only cross-references to other portions of the prospectus.
A reliance on cross-references indicates that the prospectus could
be better organized. Please revise to remove the cross-references
and, if necessary, revise the summary to briefly include the
information referenced under this heading.
Response:
We have made revisions in response to the foregoing comment.
Risk Factors - page 2
33. Please expand the initial summary risk factor to clarify that your
lack of operating history is a risk to investors because investors
have no performance history to serve as the basis for evaluating an
investment in the fund.
Response:
We have made revisions in response to the foregoing comment.
34. Please revise to include summary risk factor disclosure addressing
the fact that the managing owner may at any time and in its sole
discretion select and allocate
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 12
the fund's assets to commodity trading advisors other than those
named within the prospectus, and investors will have to rely on the
ability of the managing owner to select such additional advisors.
Response:
We have made revisions in response to the foregoing comment. See
pages 2 and 3.
35. Please revise Risk Factor Four to succinctly quantify the
"substantial charges" and "significant profits" you reference.
Please clarify, if true, that you may never achieve profits,
significant or otherwise.
Response:
We have made revisions in response to the foregoing comment. See
pages 16 and 17.
The fund and its objective - page 3
36. Please disclose the number of public pools run by the managing
owner.
Response:
We have made revisions in response to the foregoing comment. See
pages 110-113.
The Advisors - page 3
37. Please revise your disclosure to specifically indicate which
programs conduct technical, systematic, fundamental and
discretionary trading programs.
Response:
We have made revisions in response to the foregoing comment. See
pages 17 and 18.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 13
Who may subscribe - page 5
38. Please revise to convey that some states may require a greater
investment, naming each state and quantify the minimum amount that
exceeds your stated minimum initial investment of $5,000.
Response:
We have made revisions in response to the foregoing comment. See
page 5.
How to Subscribe - page 6
39. This disclosure appears to be redundant of disclosure included under
"How to Subscribe" on page 5. Please revise to combine the
disclosures.
Response:
We have made revisions in response to the foregoing comment.
Escrow of Funds - page 6
40. Please revise to indicate the time frame within which escrowed funds
will be returned to investors in the event you do not meet your
minimum subscription. Please also disclose any fees or other amounts
that will be deducted from the amounts returned.
Response:
We have made revisions in response to the foregoing comment. See
pages 6 and 7.
Fees and Expenses - page 7
41. Please revise your fee disclosure to provide disclosure in tabular
format in addition to the narrative disclosure you have included.
The table should include a full explanation of each fee category,
the nature of such fee, who specifically receives each fee and how
the fee is calculated.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 14
Response:
We have made revisions in response to the foregoing comment. See
pages 9 and 10.
Tax status of each series - page 9
42. We note your statement that counsel has opined that each of the
series "will be" properly classified as a partnership and that they
"will not be" treated as publicly traded partnerships. It is not
clear why these statements are made in the future tense since the
partnerships have been formed and counsel has provided such an
opinion to the pool. Please revise or advise.
Response:
The disclosure has been revised to state that each series "is"
properly classified as a partnership.
The status of each series as a "publicly traded partnership" (or
not) could vary from year to year depending upon whether, for example, such
series is excluded from such status by reason of an available "safe harbor."
It is expected that each series will qualify for the "qualifying income" safe
harbor from "publicly traded partnership" status in each year. Consequently,
we take the view that this statement properly is made in the future tense.
Breakeven Table - page 10
43. Please revise to include redemption fees that certain investors may
incur if they redeem their units during the first year. If you do
not believe that this information is required or is impracticable to
disclose, please tell us why in your response letter. In addition,
please tell us why you have not included any incentive fees.
Response:
We have revised the Breakeven Table to include redemption fees in
a manner consistent with applicable rules of the NFA. See footnote 4 to the
Breakeven Table.
We have revised the Breakeven Table to include Incentive Fees. See
pages 13 and 79
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 15
44. We note that, for purposes of the break-even table, you are assuming
that 100 percent of the cash will earn interest income. However, on
page 68 you indicate that each series will receive 80%-100% of
interest income on its assets. Please revise why you are assuming
100% here.
Response:
We have revised the disclosure to reflect the fact that the
Company will earn interest on 100% of its cash holdings, consistent with our
assumption for the breakeven table.
The risks you face - page 12
45. Please revise your risk factor subheadings so that each one conveys
the specific risk to you. Currently, some of your subheadings merely
state a general risk or a fact about your business. We note the
following examples:
o Possible total loss of an investment.
o Speculative and volatile Markets; Highly leveraged trading.
o Fees and commissions are charged regardless of profitability
and are subject to change.
o Importance of market conditions to profitability.
o No assurance of advisors' continued services.
o Possible illiquid markets.
o No series of the Fund acquires any asset with intrinsic value.
o Non-correlated, not negatively correlated, performance
objective.
o Conflicts of interest.
o Failure of brokerage firms; default by clearing broker.
Response:
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 16
We have made revisions in response to the foregoing comment.
Speculative and Volatile Markets; Highly Leveraged Trading - page 12
46. Please revise to clarify, if true, that even a small movement in
price could cause large losses for the Fund.
Response:
We have made revisions in response to the foregoing comment. See
Page 16.
47. Please quantify the maximum amount of leverage that each series may
incur. In addition, please quantify the maximum amount of notional
funds that the Managing Owner may allocate to the advisors.
Response:
We have made revisions in response to the foregoing comment. See
page 16.
Fees and commissions are charged regardless of profitability and are subject
to change - page 12
48. Please revise to briefly quantify the significant charges you
reference in the first sentence.
Response:
We have made revisions in response to the foregoing comment. See
Pages 16 and 17.
Importance of market conditions to profitability - page 12
49. Please revise to specify the advisors who will use technical,
trend-following methods.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 17
Response:
We have made revisions in response to the foregoing comment. See
Page 17.
Discretionary trading strategies may incur substantial losses - page 12
50. Please revise to specify which traders may implement discretionary
trading strategies. When you revise, please explain fully the
meaning of discretionary trading.
Response:
We have made revisions in response to the foregoing comment. See
Page 17.
Decisions based upon fundamental analysis may not result in profitable
trading - page 13
51. Please revise to specify which traders may implement fundamental
analysis.
Response:
We have made revisions in response to the foregoing comment. See
Page 18.
Increase in assets under management may affect trading decisions - page 13
52. Please revise to specify which advisors are managing equity that is
at an all time high. When you revise, please quantify the amount of
equity under management.
Response:
We have made revisions in response to the foregoing comment. See
Page 18.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 18
No assurance of advisors' continued services - page 13
53. To more fully address the risk you have identified, please revise to
briefly indicate the nature of the agreements you have with your
advisors, identifying the conditions under which they could be
terminated.
Response:
We have made revisions in response to the foregoing comment. See
Page 18.
Limited ability to liquidate your investment - page l3
54. Please revise to quantify the redemption charges to which Class I
Units would be subject if redeemed prior to the first anniversary.
Response:
We have made revisions in response to the foregoing comment. See
Page 18.
Possible Illiquid Markets - page 13
55. Indicate, as applicable, the extent to which trading advisors have
encountered illiquid situations in the past and whether they
specifically experienced illiquidity in the emerging markets or
mortgage-backed securities markets.
Response:
We have removed references to illiquidity in emerging markets and
mortgage-backed securities markets.
Conflicts of Interest - page 14
56. Please revise this risk factor to identify and discuss all conflicts
of interest and the risks proceeding from the identified conflicts.
In addition, please disclose that the Managing Owner has not
established any formal procedures on how to resolve conflicts of
interest.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 19
Response:
We have made revisions in response to the foregoing comment. See
Page 18.
Trading on commodity exchanges outside the United States is not subject to
U.S. regulation, page 14
57. Please revise this risk factor to tailor it to the programs in which
you intend to allocate investor funds. In connection with this,
please quantify the portion or range of assets traded on exchanges
outside the United States.
Response:
We have made revisions in response to the foregoing comment. See
Pages 19 and 20.
Failure of brokerage firms; default by clearing broker - page l5
58. The disclosure in paragraph 2 appears sufficiently material to
warrant a separate risk factor heading to identify the risk. Please
revise. As part of this risk factor, please discuss the fact that
the advisors must rely on the creditworthiness of the counterparty
in forwards trading since there is no clearing broker.
Response:
We have made revisions in response to the foregoing comment. See
Pages 20 and 21.
The Series and Their Objectives, page 16
59. Where you discuss the ability, through leverage, to increase trading
profits, please also disclose that leverage can lead to greater
losses as well. Similarly, where you indicate that the fact that the
funds are non-correlated to other assets means that it can generate
profits during rising and falling markets, please also disclose
that, for the same reason, it can generate losses in both rising and
falling markets.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 20
Response:
We have made revisions in response to the foregoing comment. See
Page 23.
The Advisors - page 19
60. We note your statement that the description of the Advisors and
their trading methods and strategies is "general and is not intended
to be exhaustive." Please revise to confirm that your description
addresses all material aspects of the advisors and their trading
methods and strategies.
Response:
We have made revisions in response to the foregoing comment. See
Page 28.
Graham Capital Management LP
61. Please limit your discussion of the trading methods to the program
that Graham Capital will trade on behalf of the Fund. Discussions of
the other programs run by Graham Capital do not appear to be
material to an investment in World Monitor Trust III.
Response:
We have made revisions in response to the foregoing comment. See
Pages 33-46.
Risk Control Techniques - page 21
62. Please revise paragraph 4 to indicate why trading methods typically
are "black boxes."
Response:
We have made revisions in response to the foregoing comment. See
Page 30.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 21
Graham Capital Management - page 25
63. Please revise to indicate the ages for each of the identified
principals of Graham Capital Management LP.
Response:
We have made revisions in response to the foregoing comment. See
Page3 33-36.
Bridgewater Associates, Inc. - page 38
64. Please revise to specifically provide disclosure with respect to the
program you will trade on behalf of the fund, Aggressive Pure Alpha,
Futures Only. In connection with this, please remove your discussion
of technical trading systems since, per your disclosure on page 21,
this program is a fundamental trading program.
Response:
We have made revisions in response to the foregoing comment. See
Pages 46-69.
65. Please revise to include an approximate breakdown of the allocation
of assets among the sectors you have included.
Response:
We have made revisions in response to the foregoing comment. See
Page 49.
Eagle Momentum Program - page 61
66. Please revise to include an approximate breakdown of the allocation
of assets among the sectors you have included.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 22
Response:
We have made revisions in response to the foregoing comment. See
Pages 71 and 72.
Use of Proceeds - page 68
67. Please revise to present your use of proceeds disclosures in a
tabular format substantially similar to that required by Item 3.B
and Appendix I to Guide 5. Your use of proceeds table should
include, among other things, organization and offering expenses and
fees or commissions to be paid in connection with the trading
program.
Response:
This section currently complies with applicable requirements of
the Part 4 rules of the CFTC. We respectfully take the view that to repeat in
this section the tabular disclosure already prominently made on pages 9 and
10.
Charges - page 69
68. Please revise to include a chart comparing the percentages and
dollar amounts of all fees and expenses that will payable with
respect to each sub-class of each series so that investors will be
able to compare the fees and expenses to be incurred in connection
with one sub-class of units with those to be incurred with all other
sub-classes of units.
Response:
We have made revisions in response to the foregoing comment. See
Page 79.
69. Please revise this section to remove embedded lists which hinder an
investor's ability to read and understand the disclosure. Consider
using bullet points instead. Please note that this comment also
applies to your Material Contracts section beginning on page 84.
Response:
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 23
We have made revisions in response to the foregoing comment. See
Pages 80-83 and 97-101.
Selling Agents - page 74
70. Please revise to quantify the substantial initial, ongoing, and
trailing commissions the selling agents will receive. When you
revise, please define "trailing commissions."
Response:
We have made revisions in response to the foregoing comment. See
Pages 85 and 86.
World Monitor Trust III - Notes to Consolidated Financial Statements, page 105
General
71. In amended filings, please include a detailed revenue recognition
policy including how you will record the purchase and sale of
futures contracts, forward contracts and other derivative
transactions. Refer to Rule 4-08(n) of Regulation S-X.
Response:
The disclosures requested in the foregoing comment were not
included in the notes to the October 5, 2004 seed money balance sheet of the
Company as the Company's only assets at that time were cash deposits at a
bank. As such, the requested disclosures were not deemed relevant at the date
of the seed money balance sheet of the Company.
The requested disclosures have been added to the Company's seed
money balance sheet. See page 116-122.
72. Please confirm that you have disclosed all transactions with related
parties in accordance with Rule 408(k) of Regulation S-X.
Response:
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 24
We confirm that the Company's seed money balance sheet included in
the amended filing discloses all transactions with related parties in
accordance with Rule 408(k) of Regulation S-X.
73. Please disclose any current or projected concentrations of credit
risk as required by paragraphs 20 through 24 of SOP 94-6 including
the risk of any counterparty non-performance on futures or other
derivative contracts.
Response:
The disclosures requested in the foregoing comment were not
included in the notes to the October 5, 2004 seed money balance sheet of the
Company as the Company's only assets at that time were cash deposits at a
bank. As such, the requested disclosures were not deemed relevant at the date
of the seed money balance sheet of the Company.
The requested disclosures have been added to the Company's seed
money balance sheet. See page 116-122.
74. Include disclosures related to the impact of recently issued
accounting standards and what you believe to be their impact on the
financial position and results of operations of the Company. Refer
to SAB 74. This comment also relates to the notes to the
Consolidated financial statements of Preferred Investment Solutions
Corp.
Response:
With respect to the Company's seed money balance sheet at October
5, 2004, the disclosures related to the impact of recently issued accounting
standards and the Managing Owner's assessment of their impact on the financial
position and results of operations of the Company were not deemed relevant as
the only assets of the Company at October 5, 2004 were cash deposits at banks.
In addition, the Company had no previous significant accounting policies which
would be affected by any recently issued accounting pronouncements. The
Managing Owner continues to believe that such disclosures with respect to the
Company's seed money balance sheet would not be meaningful. Such disclosures
will be added to the notes to the financial statements of the Company once the
Company begins operations and after new accounting pronouncements are issued
that might impact the accounting standards previously utilized in the
preparation of the Company's previously issued financial statements.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 25
With respect to the balance sheet of Preferred Investment
Solutions Corp., management will include the disclosures related to the impact
of recently issued accounting standards and what management believes their
impact to be on the financial position and results of operations of the
Company in the audited balance sheet of the Company as of the end of the most
recent fiscal year (September 30, 2004) once that balance sheet is available
and included in amended filings.
Preferred Investment Solutions Corp. (formerly Kenmar Advisory Corp.) -
Statement of Financial Condition, page 118
75. Please provide an audited balance sheet as of the end of the most
recent fiscal year end (June 30, 2004).
Response:
An audited balance sheet has been provided. See pages 132 and 133.
Preferred Investment Solutions Corp. (formerly Kenmar Advisory Corp.) - Notes
to Consolidated Financial Statements
Note 7-Related Party Transactions, page 116
76. In light of the significance of the related receivable balances,
please advise us why you have not include audited balance sheets, as
of the most recent fiscal year end, for Kenmar Management Ltd. and
Kenmar Holdings, Inc. (the Parent). In addition, as Kenmar
Investment Partners has been providing working capital advances to
Preferred Investment Solutions Corp, please explain to us the
consideration you gave to providing an audited balance sheet for
that entity (Kenmar Investment Partners) as of the most recent
fiscal year end.
Response:
Through September 30, 2003, Kenmar Investment Partners ("KIP") had
historically provided working capital advances to Preferred Investment
Solutions Corp. (formerly, Kenmar Advisory Corp.). In addition, Preferred
Investment Solutions Corp. ("Preferred") historically has allocated certain
inter-company expenses related to KIP related to KIP's operations. The last
working capital advance from KIP to Preferred was made in March 2003.
Effective September 30, 2003, Preferred entered into a transaction with its
parent (Kenmar Holdings, Inc.) in which Kenmar Holdings, Inc. ("KHI") assumed
all balances due from Preferred to KIP in exchange for shares of
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 26
common stock of Preferred. As such, at September 30, 2003, all working capital
related balances between Preferred and KIP were settled in full. Similarly, at
September 30, 2004 (i.e., as of the date of Preferred's most recently
completed fiscal year end), there were no balances due from Preferred to KIP.
Given the settlement of all working capital related balances
between Preferred and KIP as of September 30, 2003, management concluded that
an audited balance sheet of KIP as of September 30, 2003 was not required to
be filed as part of World Monitor Trust III's registration statement on Form
S-1. In addition, inter-company expense allocations due from KIP to Preferred
as of September 30, 2004 are estimated to be approximately $50,000. As such,
management of Preferred has concluded that no audited balance sheet of KIP as
of September 30, 2004 will be required in an amended filing to the
registration statement on Form S-1 of World Monitor Trust III upon the
inclusion of Preferred's audited balance sheet as of the end of its most
recent fiscal year (i.e., September 30, 2004).
At September 30, 2003, Preferred had a receivable of approximately
$2.2 million due from Kenmar Management Ltd. (KML), an indirect affiliated
company. The inter-company receivable from KML resulted from Preferred
providing administrative, accounting, research, marketing and other services
to KML. Preferred, in turn, charged KML the appropriate portion of such
expenses, at cost. Preferred typically makes allocates to KML and other
affiliates at fiscal quarter end and settles such inter-company balances
periodically throughout the year. As such, the amount of such inter-company
balances will likely vary from period to period. While Preferred is currently
in the process of finalizing its inter-company allocations for the fourth
quarter of its fiscal year ended September 30, 2004, Preferred currently
anticipates that the inter-company receivable from KML will approximate $1.4
million (representing a decrease of approximately 35% from the prior fiscal
year end).
As part of its quarterly accounting procedures, Preferred assesses
the collectibility of all inter-company receivables and writes-off any
receivable deemed uncollectible after consideration of the affiliates' liquid
assets and current obligations. As of September 30, 2003, Preferred's
management deemed all inter-company receivables, including the balance due
from KML, to be collectible. This is further supported by the fact that KML's
primary sources of revenues and cash flows are from management and incentive
fees from commodity pools that KML sponsors. The net assets of the commodity
pools that KML sponsors totaled $87.6 million and $100.1 million at September
30, 2003 and 2004, respectively. Management and incentive fees earned by KML
from these sponsored funds totaled $4.9 million and $5.4 million for the
twelve month periods ended September 30, 2003 and 2004, respectively. Such
assets, revenues and cash flows provide KML with sufficient liquidity to
settle its inter-company balances with Preferred. This fact is further
demonstrated by the fact that during the fiscal year ended September 30, 2004,
KML has made payments totaling approximately
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 27
$5.4 million to Preferred in settlement not only of the inter-company balance
as of September 30, 2003 but also in relation to repayment of advances by
Preferred for KML's fiscal 2004 allocated expenses. Additionally, KML has made
subsequent payments of approximately $1.1 million to Preferred in October and
November 2004 in connection with such inter-company allocations.
KML is not required by any regulator to file audited financial
statements and no such audits have been performed of KML during its most
recent 5 fiscal years. Given the fact that DML is not the Managing Owner of
World Monitor Trust III, nor is KML the part of Preferred, and the fact that
KML is not in any way deemed to be a guarantor of World Monitor Trust III,
Preferred did not include an audited balance sheet of KML as of December 31,
2003, nor does it believe an audited balance sheet as of December 31, 2004
should be included in any amended filing. The receivable from KML was
short-term in nature and was paid in the period subsequent to September 30,
2003, thus the benefit of hindsight renders the need for an audit to merely
report the receivable is fairly stated (but no guarantee of collectibility) an
unnecessary expense with no benefit that delays the effective date of the
filing.
At September 30, 2003, Preferred was due approximately $276,000
from its parent, KHI. Management concluded that an audited balance sheet of
KHI was not required to be filed as part of World Monitor Trust III's
registration statement on Form S-1 due to the immateriality of such balance
relative to Preferred's financial position. While Preferred is currently in
the process of finalizing its inter-company allocations for the fourth quarter
of its fiscal year ended September 30, 2004, Preferred currently anticipates
that the inter-company receivable from KHI will approximate $121,000 and that
such amount is too immaterial to warrant the filing of KHI's audited balance
sheet in the World Monitor Trust III's registration statement on Form S-1.
Exhibit 1.1 - Selling Agreement
77. We note that your proposed maximum aggregate offering price is
$300,000,000, but that your selling agreement relates to
$150,000,000 units of beneficial interest. Please revise to address
the apparent discrepancy, or advise us why you believe no revision
is needed.
Response:
We have revised the selling agreement to address the noted
discrepancy.
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 28
Exhibit 5.1 - Opinion of Richards, Layton & Finger
78. We note that counsel states on page 2 that it has examined the
registration statement "to be filed" with the Commission. Please
have counsel revise the opinion to indicate that it has reviewed the
registration statement that was filed, as well as any amendment
thereto.
Response:
Richards, Layton & Finger has so revised its opinion.
79. Please revise paragraph 3 on page 2 to specifically opine on the
units of beneficial interest being registered. The term "interests"
does not h appear to be a defined term in the opinion or the
registration statement.
Response:
Richards, Layton & Finger has so revised its opinion.
80. We refer to the qualification (vi) on page 3 of the draft opinion.
It is not clear why counsel must assume that the dollar amount of
the interests issued will not exceed the maximum amount of units
that may be issued pursuant to the registration statement and Trust
Agreement. This casts doubt as to the legality of the units being
offered. Please have counsel remove this assumption.
Response:
Richards, Layton & Finger has removed this assumption.
Exhibit 8.1
81. It is not clear what the opinion filed as Exhibit 8.1 refers to. It
appears to be a legal opinion, not a tax opinion. Please advise.
Response:
It appears that the opinion provided to you as a paper courtesy
copy does not conform to the opinion filed electronically via EDGAR. The
electronically filed
SIDLEY AUSTIN BROWN & WOOD LLP NEW YORK
Owen Pinkerton, Esq., Senior Attorney
November 18, 2004
Page 29
opinion is a tax opinion, not a legal opinion. We apologize for the error and
enclose a courtesy copy of the Exhibit 8.1 opinion as filed on October 8th.
* * *
If you have any further questions or comments, please do not
hesitate to call me at 212 839 5458.
Very truly yours,
Michael J. Schmidtberger
Enclosure
cc: Marc S. Goodman
Esther Goodman