As Filed with the Securities Exchange Commission on April 25, 2006
Registration No. 333-119612
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------
WORLD MONITOR TRUST III
WMT III SERIES G/J TRADING VEHICLE LLC
(Rule 140 Co-Registrant No. 1)
WMT III SERIES H/J TRADING VEHICLE LLC
(Rule 140 Co-Registrant No. 2)
WMT III SERIES I/J TRADING VEHICLE LLC
(Rule 140 Co-Registrant No. 3)
(Exact name of registrant as specified in its charter)
Delaware 6799 20-1697966 (Registrant)
(State of Organization) (Primary Standard 20-2469369 (Co-Registrant No. 1)
Industrial 20-2469281 (Co-Registrant No. 2)
Classification 20-2469479 (Co-Registrant No. 3)
Number) (I.R.S. Employer
Identification Number)
c/o Preferred Investment Lawrence S. Block, Esq.
Solutions Corp. c/o Preferred Investment
900 King Street, Suite 100 Solutions Corp.
Rye Brook, New York 10573 900 King Street, Suite 100
(914) 307-7000 Rye Brook, New York 10573
(914) 307-7020
(Address, including zip code, (Name, address, including zip
and telephone number including code, and telephone number,
area code, of registrant's including area code, of agent
principal executive offices) for service)
---------------------------------
Copies to:
Michael J. Schmidtberger
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
---------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |X|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Pursuant to the provisions of Rule 429 of the rules and regulations
of the Securities and Exchange Commission under the Securities Act of 1933,
the form of prospectus set forth herein also relates to the Registration
Statement on Form S-1 (Registration Statement Number 333-119612 declared
effective March 31, 2005) and constitutes Post-Effective Amendment Number 3 to
such Registration Statement.
==============================================================================
WORLD MONITOR TRUST III
$37,500,000 Series G Units of $37,500,000 Series H Units of $18,750,000 Series I Units of $281,250,000 Series J Units of
Beneficial Interest, Class I Beneficial Interest, Class I Beneficial Interest, Class I Beneficial Interest, Class I
$12,500,000 Series G Units of $12,500,000 Series H Units of $6,250,000 Series I Units of $93,750,000 Series J Units of
Beneficial Interest, Class II Beneficial Interest, Class II Beneficial Interest, Class II Beneficial Interest, Class II
Each Series of Units of World Monitor Trust III trades speculatively in U.S.
and international futures and forward contracts, as more fully discussed in
the Prospectus. Each Series is separately offered, and the assets of each
Series are segregated from the assets of each other Series and separately
valued. Trading on behalf of each Series commenced on or about December 1,
2005.
Units of each Series are issued as of the beginning of each month and such
Units may be redeemed or exchanged for Units of another Series as of the last
business day of each month, beginning with the first month-end following their
sale. Exchanges are available between Units within the same Class. A
Unitholder may not purchase Units in a closed Series or exchange Units for
Units in a closed Series. Exchanges will not be allowed from Class I to Class
II or vice-versa. Class I Units redeemed prior to the first anniversary of
their purchase will be subject to a redemption charge equal to the product of
(i) the Net Asset Value per Unit on the redemption date of the Units being
redeemed, multiplied by (ii) the number of months remaining before the first
anniversary of the date such Units were purchased, multiplied by (iii) 1/12th
of 2.00%. There is no redemption charge for Class I Units on or after the
first anniversary of their purchase. Exchanges of Class I Units will not
result in any redemption charge. There is no redemption charge for any Class
II Units.
Units in each Series are offered as of the beginning of each month and will be
offered continuously until all of each Series' Units which are registered are
sold. The Managing Owner may terminate the offering of Units of any Series at
any time. Kenmar Securities Inc., the Selling Agent, and the Correspondent
Selling Agents will use their best efforts to sell the Units offered, which
means that they are not required to purchase any Units or sell any specific
number or dollar amount of Units.
Designation: Number of Units: Advisor(s): Program:
- --------------------- --------------------- --------------------------------------------------------------------------------
Series G, Class I 375,000 Graham Capital Management, L.P. Global Diversified Program at 150%
Leverage
Series G, Class II 125,000 Graham Capital Management, L.P. Global Diversified Program at 150%
Leverage
Series H, Class I 375,000 Bridgewater Associates, Inc. Aggressive Pure Alpha Futures Only
- A, No Benchmark
Series H, Class II 125,000 Bridgewater Associates, Inc. Aggressive Pure Alpha Futures Only
- A, No Benchmark
Series I, Class I 187,500 Eagle Trading Systems Inc. Eagle Momentum Program
Series I, Class II 62,500 Eagle Trading Systems Inc. Eagle Momentum Program
Series J, Class I 2,812,500 Graham Capital Management, L.P. Global Diversified Program at 150%
Leverage
Bridgewater Associates, Inc. Aggressive Pure Alpha Futures Only
- A, No Benchmark
Eagle Trading Systems Inc. Eagle Momentum Program
Series J, Class II 937,500 Graham Capital Management, L.P. Global Diversified Program at 150%
Bridgewater Associates, Inc. Leverage
Aggressive Pure Alpha Futures Only
- A, No Benchmark
Eagle Trading Systems Inc. Eagle Momentum Program
- ----------------------------------------------------------------------------------------------------------------------------
These are speculative securities. Before you decide whether to invest in any
Series of the Trust, read this entire Prospectus carefully.
o Futures, forward and options trading is volatile and highly leveraged and,
as a result, even a small movement in market prices could cause large
losses.
o Each Series will rely on its Advisor or Advisors for success.
o You could lose all or substantially all of your investment.
o No secondary market exists for the Units of any Series and Units may be
redeemed monthly and may result in redemption charges as described above.
o Many of the instruments to be traded by each Series are not regulated by
the Commodity Futures Trading Commission and no Series will receive the
protections which are provided by such regulation with respect to such
instruments.
o Investors will pay substantial fees in connection with their investment in
any Series including asset-based fees of up to 6.50% per annum for Class I
Unitholders and up to 4.50% per annum for Class II Unitholders as well as
incentive fees payable to each Advisor equal to 20% of net profits
generated by such Advisor on a cumulative high water mark basis.
Minimum Regular Accounts of the Trust: $5,000 aggregate amount
Investment ($500 per Series);
IRAs, other tax-exempt accounts, and existing investors of
the Trust: $2,000 aggregate amount ($500 per Series)
- ------------------------------------------------------------------------------
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is
a criminal offense. THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED
UPON THE MERITS OF PARTICIPATING IN THESE POOLS NOR HAS THE COMMISSION PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
April __, 2006 (Not for use after January __, 2007)
-ii-
Investor Suitability
Purchaser understands that the purchase of Units may be made only by
persons who, at a minimum, have (i) a net worth of at least $150,000
(exclusive of home, furnishings and automobiles) or (ii) an annual gross
income of at least $45,000 and a net worth of at least $45,000 (exclusive of
home, furnishings and automobiles). Residents of the following states must
meet the requirements set forth below ("net worth" for such purposes is in all
cases is exclusive of home, furnishings and automobiles). In addition,
Purchaser may not invest more than 10% of his or her net worth (in all cases
exclusive of home, furnishings and automobiles) in the Trust.
1. Alaska -- Eligible investors must have (i) a net worth of at least
$225,000 (exclusive of home, furnishings and automobiles) or (ii) an annual
gross income of at least $60,000 and a net worth of at least $60,000
(exclusive of home, furnishings and automobiles).
2. Arizona -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
3. California -- Net worth of at least $250,000 and an annual income
of at least $65,000 or, in the alternative, a net worth of at least $500,000.
4. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
5. Kansas -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
6. Maine -- Minimum subscription per investment, both initial and
subsequent, of $5,000; net worth of at least $200,000 or a net worth of at
least $50,000 and an annual income of at least $50,000.
7. Massachusetts -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
8. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and annual income of at least $60,000.
9. Minnesota -- "Accredited investors," as defined in Rule 501(a)
under the Securities Act of 1933.
10. Mississippi -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
11. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
12. New Hampshire -- Net worth of at least $250,000 or a net worth of
at least $125,000 and an annual income of at least $50,000.
13. New Jersey -- Net worth of at least $250,000 and a taxable income
of at least $65,000 or, in the alternative, a net worth of at least $500,000.
14. North Carolina -- Net worth of at least $225,000 or a net worth
of at least $60,000 and an annual income of at least $60,000.
15. Oklahoma -- Net worth of at least $225,000 or a net worth of
$60,000 and an annual income of at least $60,000.
16. Oregon -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
17. Pennsylvania -- Net worth of a least $175,000 or a net worth of
at least $100,000 and an annual taxable income of at least $50,000.
18. South Carolina -- Net worth of at least $100,000 or a net income
in 1998 some portion of which was subject to maximum federal and state income
tax.
19. Tennessee -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
20. Texas -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
-ii-
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION
PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE
AWARE THAT FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS
WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF
THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION,
RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR
PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO
AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT
CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL AT
PAGE 77 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 12.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN ANY OF THESE COMMODITY POOLS.
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN ANY OF THESE COMMODITY POOLS,
YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION
OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 18 THROUGH 25.
YOU SHOULD ALSO BE AWARE THAT THESE COMMODITY POOLS MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE
UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET,
MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION
TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY
AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY
AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS
FOR THE POOL MAY BE EFFECTED.
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS
IN THE TRUST'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE
REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE
SEC IN WASHINGTON, D.C.
---------------------------
THE TRUST FILES QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN
READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN
WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER
INFORMATION.
THE TRUSTS FILINGS ARE POSTED AT THE SEC WEBSITE AT
http://www.sec.gov.
---------------------------
-iii-
Notes to Cover Page (cont'd)
- ----------------------------
REGULATORY NOTICES
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, PREFERRED
INVESTMENT SOLUTIONS CORP., THE SELLING AGENTS, THE ADVISORS OR ANY OTHER
PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT
LAWFULLY BE MADE.
--------------------
THE BOOKS AND RECORDS OF THE TRUST WILL BE MAINTAINED AT ITS
PRINCIPAL OFFICE, 900 KING STREET, SUITE 100, RYE BROOK, NEW YORK 10573,
TELEPHONE NUMBER (914) 307-7000. UNITHOLDERS WILL HAVE THE RIGHT, DURING
NORMAL BUSINESS HOURS, TO HAVE ACCESS TO AND COPY (UPON PAYMENT OF REASONABLE
REPRODUCTION COSTS) SUCH BOOKS AND RECORDS IN PERSON OR BY THEIR AUTHORIZED
ATTORNEY OR AGENT. EACH MONTH, PREFERRED INVESTMENT SOLUTIONS CORP. WILL
DISTRIBUTE REPORTS TO ALL UNITHOLDERS OF EACH SERIES SETTING FORTH SUCH
INFORMATION RELATING TO SUCH SERIES AS THE COMMODITY FUTURES TRADING
COMMISSION (THE "CFTC") AND THE NATIONAL FUTURES ASSOCIATION (THE "NFA") MAY
REQUIRE TO BE GIVEN TO THE PARTICIPANTS IN COMMODITY POOLS WITH RESPECT TO
EACH SERIES OF THE TRUST AND ANY SUCH OTHER INFORMATION AS PREFERRED
INVESTMENT SOLUTIONS CORP. MAY DEEM APPROPRIATE. THERE WILL SIMILARLY BE
DISTRIBUTED TO UNITHOLDERS OF EACH SERIES, NOT MORE THAN 90 DAYS AFTER THE
CLOSE OF THE TRUST'S FISCAL YEAR, CERTIFIED AUDITED FINANCIAL
STATEMENTS AND (IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY FOLLOWING
YEAR) THE TAX INFORMATION RELATING TO EACH SERIES OF THE TRUST NECESSARY FOR
THE PREPARATION OF UNITHOLDERS' ANNUAL FEDERAL INCOME TAX RETURNS.
--------------------
THE DIVISION OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE
COMMISSION REQUIRES THAT THE FOLLOWING STATEMENT BE PROMINENTLY SET FORTH
HEREIN: "WORLD MONITOR TRUST III IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF
INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED, AND IS NOT SUBJECT TO REGULATION THEREUNDER."
--------------------
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WORLD MONITOR TRUST III
Table of Contents
Prospectus Section Page
- ------------------ ----
PART ONE
DISCLOSURE DOCUMENT
SUMMARY.......................................................................1
The Trust................................................................1
The Series...............................................................1
Class I Units and Class II Units.........................................1
Series G.................................................................2
Series H.................................................................2
Series I.................................................................2
Series J.................................................................2
The Two-Tier Structure of the Series.....................................2
Risk Factors.............................................................2
The Trustee..............................................................3
The Trust and Its Objectives.............................................4
Preferred Investment Solutions Corp......................................4
The Advisors.............................................................5
The Clearing Broker......................................................5
The Selling Agent; The Correspondent Selling Agents......................5
The Administrator........................................................5
Liabilities You Assume...................................................6
Limitation of Liabilities................................................6
Who May Subscribe........................................................6
What You Must Understand Before You Subscribe............................6
How to Subscribe.........................................................7
Your Minimum Subscription and Unit Pricing...............................7
The Offering.............................................................7
Subscription Effective Dates; Transfer of Units..........................7
Redemptions..............................................................8
Segregated Accounts/Interest Income......................................8
Fees and Expenses........................................................9
Break-Even Amounts for Each Series......................................12
Exchange Privilege......................................................12
Distributions...........................................................12
Fiscal Year.............................................................12
Financial Information...................................................12
Index of Defined Terms..................................................12
Tax Status of each Series...............................................12
"Breakeven Table".......................................................13
Reports to Unitholders..................................................16
Cautionary Note Regarding Forward-Looking Statements....................16
THE RISKS YOU FACE...........................................................19
Prospectus Section Page
- ------------------ ----
(1) You Should Not Rely on Past Performance in Deciding Whether
to Buy Units.......................................................19
(2) Price Volatility May Possibly Cause the Total Loss of Your
Investment.........................................................19
(3) Speculative and Volatile Markets Combined With Highly Leveraged
Trading May Cause the Trust to Incur Substantial
Losses.............................................................19
(4) Fees and Commissions are Charged Regardless of Profitability
and May Result in Depletion of Trust Assets........................19
(5) Market Conditions May Impair
Profitability......................................................20
(6) Discretionary Trading Strategies May Incur Substantial
Losses.............................................................20
(7) Systematic Trading Strategies May Incur Substantial
Losses.............................................................20
(8) Decisions Based Upon Fundamental Analysis May Not Result in
Profitable Trading.................................................21
(9) Increase in Assets Under Management May Affect Trading
Decisions..........................................................21
(10) You Cannot be Assured of the Advisors' Continued
Services Which May Be Detrimental to Trust.........................21
(11) Limited Ability to Liquidate Your
Investment.........................................................21
(12) Possible Illiquid Markets May Exacerbate
Losses.............................................................21
(13) Because No Series of the Trust Acquires Any Asset with Intrinsic
Value, the Positive Performance of Your Investment Is Wholly
Dependent Upon an Equal and Offsetting
Loss...............................................................22
(14) Failure of Futures Trading to be Non-Correlated to
General Financial Markets Will Eliminate Benefits of
Diversification....................................................22
(15) Broad Indices May Perform Quite Differently From Individual
Investments........................................................22
(16) Advisors Trading Independently of Each Other May Reduce Profit
Potential and Insurance Risks Through Offsetting
Positions..........................................................23
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Prospectus Section Page
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(17) Trading on Commodity Exchanges Outside the United States is Not
Subject to U.S. Regulation.........................................23
(18) Various Actual and Potential Conflicts of Interest
May Be Detrimental to Unitholders..................................23
(19) Unitholders Taxed
Currently..........................................................24
(20) Limitation on Deductibility of "Investment Advisory
Fees"..............................................................24
(21) Taxation of Interest Income Irrespective of Trading
Losses.............................................................24
(22) Possibility of a Tax Audit of Both the Series and the
Unitholders........................................................25
(23) Failure or Lack of Segregation of Assets May Increase
Losses.............................................................25
(24) Default by Counterparty and Credit Risk Could
Cause Substantial Losses...........................................25
(25) Regulatory Changes or Actions May Alter the Nature
of an Investment in the Trust......................................25
(26) Trust Trading is Not Transparent...................................26
(27) Lack of Independent Experts Representing
Investors..........................................................26
(28) Forwards, Swaps, Hybrids and Other Derivatives
are Not Subject to CFTC Regulation.................................26
(29) Possibility of Termination of the Trust or any
Series Before Expiration of its Stated Term........................26
THE SERIES AND THEIR OBJECTIVES..............................................26
Objectives..............................................................26
Investment Philosophy...................................................27
Diversification.........................................................27
THE TWO-TIER STRUCTURE OF THE SERIES.........................................27
PERFORMANCE OF SERIES J, CLASS I.............................................30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................31
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS...................32
THE ADVISORS.................................................................33
NOTES TO PERFORMANCE INFORMATION.............................................36
GRAHAM CAPITAL MANAGEMENT, L.P...............................................39
BRIDGEWATER ASSOCIATES, INC..................................................52
EAGLE TRADING SYSTEMS INC....................................................67
TRADING APPROACH.............................................................67
Systematic Trading Approach.............................................67
Trading Programs........................................................68
USE OF PROCEEDS..............................................................75
CHARGES......................................................................78
Management Fee..........................................................78
Advisors' Fees..........................................................78
Sales Commission........................................................79
Brokerage Commissions and Fees..........................................79
Extraordinary Fees and Expenses.........................................79
Routine Operational, Administrative and Other Ordinary Expenses.........79
Organization and Offering Expenses......................................79
Service Fees - General..................................................80
Class I - Service Fee...................................................81
Class II................................................................81
Redemption Charge.......................................................81
WHO MAY SUBSCRIBE............................................................82
THE CLEARING BROKER AND FUTURES BROKER.......................................82
CONFLICTS OF INTEREST........................................................83
General.................................................................83
The Managing Owner......................................................83
The Advisors............................................................83
The Clearing Broker, the Futures Broker and Executing Brokers...........83
Selling Agents..........................................................84
Proprietary Trading/Other Clients.......................................84
Ancillary Business Arrangements Between the Managing
Owner and Certain Advisors...........................................84
No Distributions........................................................84
Receipt of Soft Dollars.................................................84
Incentive Fees..........................................................85
Unified Counsel.........................................................85
REDEMPTIONS AND DISTRIBUTIONS................................................85
THE TRUST, THE SERIES, THE TRUSTEE AND THE MANAGING OWNER; CERTAIN
MATERIAL TERMS OF THE TRUST DECLARATION......................................86
Principal Office; Location of Records...................................86
Certain Aspects of the Trust and the Series.............................87
The Trustee.............................................................87
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Prospectus Section Page
- ------------------ ----
The Managing Owner......................................................88
Fiduciary and Regulatory Duties of the Managing Owner...................92
Investment of the Managing Owner in the Trust...........................93
Management; Voting by Unitholders.......................................93
Recognition of the Trust and the Series in Certain States...............94
Possible Repayment of Distributions Received by
Unitholders; Indemnification by Unitholders.........................94
Transfers of Units Restricted...........................................94
Exchange Privilege......................................................95
Reports to Unitholders..................................................95
General.................................................................95
Organizational Chart....................................................96
MATERIAL CONTRACTS...........................................................97
Advisory Agreements.....................................................97
Brokerage Agreement.....................................................98
Selling Agreement.......................................................99
FEDERAL INCOME TAX CONSEQUENCES.............................................101
Partnership Tax Status of Each Series..................................101
Taxation of Unitholders on Profits or Losses...........................101
Limited Deductibility of Trust Losses and Deductions...................101
Limited Deductibility for Certain Expenses.............................102
Year-End Mark-to-Market of Open Section 1256 Contract Positions........102
Tax on Capital Gains and Losses; Interest Income.......................102
Syndication Expenses...................................................103
Unrelated Business Taxable Income......................................103
IRS Audits of the Series and Their Respective Unitholders..............103
State and Other Taxes..................................................103
Tax Elections..........................................................103
PURCHASES BY EMPLOYEE BENEFIT PLANS.........................................103
General................................................................103
"Plan Assets"..........................................................104
Ineligible Purchasers..................................................106
PLAN OF DISTRIBUTION........................................................106
The Offering...........................................................106
Subscription Procedure.................................................107
Subscribers' Representations and Warranties............................107
LEGAL MATTERS...............................................................107
Prospectus Section Page
- ------------------ ----
EXPERTS.....................................................................108
ADDITIONAL INFORMATION......................................................109
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS.............................109
PRIVACY POLICY OF THE MANAGING OWNER........................................109
PERFORMANCE OF COMMODITY POOLS OPERATED BY THE MANAGING OWNER AND ITS
AFFILIATES..................................................................110
INDEX OF DEFINED TERMS......................................................115
INDEX TO FINANCIAL STATEMENTS...............................................116
World Monitor Trust III- Series G - Report of Independent Registered
Public Accounting Firm (Deloitte & Touche LLP) ............................117
World Monitor Trust III- Series G - Report of Independent Registered
Public Accounting Firm (Arthur F. Bell, Jr. & Associates,
L.L.C.)....................................................................118
World Monitor Trust III- Series G - Statements of Financial Condition
as of December 31, 2005 and 2004 ..........................................119
World Monitor Trust III - Series G - Statement of Operations for the
period December 1, 2005 (commencement of operations) to December 31,
2005.......................................................................120
World Monitor Trust III - Series G - Statement of Changes in
Unitholders' Capital for the year ended December 31, 2005..................121
World Monitor Trust III - Series G - Notes to Financial Statements..........122
WMT III Series G/J Trading Vehicle LLC- Independent Auditors'
Report.....................................................................121
WMT III Series G/J Trading Vehicle LLC-Statement of Financial
Condition as of December 31, 2005..........................................122
WMT III Series G/J Trading Vehicle LLC--Condensed Schedule of
Investments as of December 31, 2005 .......................................130
WMT III Series G/J Trading Vehicle LLC Statement of Operations for the
period December 1, 2005 (commencement of operations) to December 31,
2005.......................................................................131
WMT III Series G/J Trading Vehicle LLC--Statement of Changes in
Members' Capital (Net Asset Value) for the period December 1, 2005
(commencement of operations) to December 31, 2005..........................132
WMT III Series G/J Trading Vehicle LLC--Notes to Financial Statements.......133
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Prospectus Section Page
- ------------------ ----
World Monitor Trust III - Series H - Report of Independent Registered
Public Accounting Firm (Deloitte & Touche LLP).............................141
World Monitor Trust III - Series H - Report of Independent Registered
Public Accounting Firm (Arthur F. Bell, Jr. & Associates,
L.L.C.)....................................................................142
World Monitor Trust III - Series H - Statements of Financial Condition
as of December 31, 2005 and 2004...........................................143
World Monitor Trust III - Series H - Statement of Operations for the
period December 1, 2005 (commencement of operations) to December 31,
2005)......................................................................144
World Monitor Trust III - Series H - Statement of Changes in
Unitholders' Capital for the year ended December 31, 2005..................145
World Monitor Trust III - Series H - Notes to Financial
Statements.................................................................146
WMT III Series H/J Trading Vehicle LLC- Independent Auditors'
Report.....................................................................153
WMT III Series H/J Trading Vehicle LLC-Statement of Financial
Condition as of December 31, 2005 .........................................154
WMT III Series H/J Trading Vehicle LLC--Condensed Schedule of
Investments as of December 31, 2005 .......................................155
WMT III Series H/J Trading Vehicle LLC--Statement of Operations for
the period December 1, 2005 (commencement of operations) to December
31, 2005...................................................................156
WMT III Series H/J Trading Vehicle LLC--Statement of Changes in
Members' Capital (Net Asset Value) for the period December 1, 2005
(commencement of operations) to December 31, 2005..........................157
WMT III Series H/J Trading Vehicle LLC--Notes to Financial Statements.......158
World Monitor Trust III - Series I - Report of Independent Registered
Public Accounting Firm (Deloitte & Touche LLP).............................164
World Monitor Trust III - Series I - Report of Independent Registered
Public Accounting Firm (Arthur F. Bell, Jr. & Associates,
L.L.C.)....................................................................165
World Monitor Trust III - Series I - Statements of Financial Condition
as of December 31, 2005....................................................166
World Monitor Trust III - Series I - Statement of Operations for the
period December 1, 2005 (Commencement of Operations) to December 31,
2005.......................................................................167
World Monitor Trust III - Series I - Statement of Changes in
Unitholders' Capital for the year ended December 31, 2005..................168
World Monitor Trust III - Series I - Notes to Financial Statements..........169
Prospectus Section Page
- ------------------ ----
WMT III Series I/J Trading Vehicle LLC- Independent Auditors'
Report.....................................................................176
WMT III Series I/J Trading Vehicle LLC-Statement of Financial
Condition as of December 31, 2005..........................................177
WMT III Series I/J Trading Vehicle LLC--Condensed Schedule of
Investments as of December 31, 2005 .......................................178
WMT III Series I/J Trading Vehicle LLC--Statement of Operations for
the period December 1, 2005 (commencement of operations) to December
31, 2005...................................................................179
WMT III Series I/J Trading Vehicle LLC--Statement of Changes in
Members' Capital (Net Asset Value) for the period December 1, 2005
(commencement of operations) to December 31, 2005..........................180
WMT III Series I/J Trading Vehicle LLC--Notes to Financial Statements.......181
World Monitor Trust III - Series J - Report of Independent Registered
Public Accounting Firm (Deloitte & Touche LLP).............................187
World Monitor Trust III - Series J - Statement of Financial Condition
as of December 31, 2005)...................................................188
World Monitor Trust III - Series J - Statement of Operations for the
period December 1, 2005 (Commencement of Operations) to December 31,
2005.......................................................................189
World Monitor Trust III - Series J - Statement of Changes in Trust
Capital for the period March 10, 2005 (inception) to December 31,
2005.......................................................................190
World Monitor Trust III - Series J - Notes to Financial Statements..........191
WMT III Series G/J Trading Vehicle LLC- Independent Auditors'
Report.....................................................................198
WMT III Series G/J Trading Vehicle LLC-Statement of Financial
Condition as of December 31, 2005..........................................199
WMT III Series G/J Trading Vehicle LLC--Condensed Schedule of
Investments as of December 31, 2005 .......................................200
WMT III Series G/J Trading Vehicle LLC Statement of Operations for the
period December 1, 2005 (commencement of operations) to December 31,
2005.......................................................................201
WMT III Series G/J Trading Vehicle LLC--Statement of Changes in
Members' Capital (Net Asset Value) for the period December 1, 2005
(commencement of operations) to December 31, 2005..........................202
WMT III Series G/J Trading Vehicle LLC--Notes to Financial Statements.......203
WMT III Series H/J Trading Vehicle LLC- Independent Auditors'
Report.....................................................................209
-viii-
Prospectus Section Page
- ------------------ ----
WMT III Series H/J Trading Vehicle LLC-Statement of Financial
Condition as of December 31, 2005 .........................................210
WMT III Series H/J Trading Vehicle LLC--Condensed Schedule of
Investments as of December 31, 2005 .......................................211
WMT III Series H/J Trading Vehicle LLC--Statement of Operations for
the period December 1, 2005 (commencement of operations) to December
31, 2005...................................................................212
WMT III Series H/J Trading Vehicle LLC--Statement of Changes in
Members' Capital (Net Asset Value) for the period December 1, 2005
(commencement of operations) to December 31, 2005..........................213
WMT III Series H/J Trading Vehicle LLC--Notes to Financial Statements.......214
WMT III Series I/J Trading Vehicle LLC- Independent Auditors'
Report.....................................................................220
WMT III Series I/J Trading Vehicle LLC-Statement of Financial
Condition as of December 31, 2005..........................................221
WMT III Series I/J Trading Vehicle LLC--Condensed Schedule of
Investments as of December 31, 2005 .......................................222
WMT III Series I/J Trading Vehicle LLC--Statement of Operations for
the period December 1, 2005 (commencement of operations) to December
31, 2005...................................................................223
WMT III Series I/J Trading Vehicle LLC--Statement of Changes in
Members' Capital (Net Asset Value) for the period December 1, 2005
(commencement of operations) to December 31, 2005..........................224
WMT III Series I/J Trading Vehicle LLC--Notes to Financial Statements.......225
Preferred Investment Solutions Corp. Independent Auditor's Report...........231
Preferred Investment Solutions Corp. Statement of Financial Condition
as of December 31, 2005 (Audited)..........................................232
Preferred Investment Solutions Corp. Notes to Statement of Financial
Condition (Audited)........................................................233
Prospectus Section Page
- ------------------ ----
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
The Futures and Forward Markets.............................................248
Futures and Forward Contracts..........................................248
Hedgers and Speculators................................................248
Commodity Exchanges....................................................248
Speculative Position and Daily Price
Fluctuation Limits.................................................248
Margins................................................................249
Investment Factors .........................................................250
Trading Programs for the Trust and Pro-Forma Performance....................258
Proprietary Trading of Advisors with Respect
to Offered Programs......................................................261
Exhibit A--Form of Amended and Restated Declaration of Trust
and Trust Agreement.....................................................TA-1
Annex--Request for Redemption
Annex--Exchange Request for Class I Units of Beneficial Ownership
Annex--Exchange Request for Class II Units of Beneficial Interest
Exhibit B--Subscription Requirements.......................................SR-1
Exhibit C--Subscription Instructions,
Subscription Agreement and
Power of Attorney.......................................................SA-1
Exhibit D--Privacy Notice...................................................P-1
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SUMMARY
This summary of all material information provided in
this Prospectus is intended for quick reference only.
The remainder of this Prospectus contains more
detailed information; you should read the entire
Prospectus, including the Statement of
Additional Information and all exhibits
to the Prospectus, before deciding to
invest in any Series of Units.
This Prospectus is intended
to be used beginning
April [__], 2006
--------------------
The Trust
o World Monitor Trust III, or the Trust, was formed as a Delaware Statutory
Trust on September 28, 2004, with separate series, or each, a Series, of
units of beneficial interest, or the Units. Its term will expire on
December 31, 2054 (unless terminated earlier in certain circumstances).
The principal offices of the Trust and Preferred Investment Solutions
Corp., or the Managing Owner, are located at 900 King Street, Suite 100,
Rye Brook, New York 10573, and their telephone number is (914) 307-7000.
The Series
The Trust's Units will initially be offered in four (4) separate and
distinct Series: Series G; Series H; Series I; and Series J. The Trust may
issue additional Series of Units in the future. The Units of each Series are
separated into two classes, or each, a Class, of Units. Each Series:
o engages in the speculative trading of a diversified portfolio of futures,
forward (including interbank foreign currencies) and options contracts
and other derivative instruments and may, from time to time, engage in
cash and spot transactions;
o invests in a trading vehicle which, in turn, has entered into a managed
account agreement with its own independent commodity trading advisor, or
each, an Advisor, that manages such Series' assets and makes the trading
decisions in respect of the assets of such Series, except that Series J
invests in each of the three trading vehicles in which Series G, Series H
and Series I invests, each of which, in turn, has entered into a managed
account agreement with its own Advisor that manages the portion of the
assets of Series J allocated to such trading vehicle and make the trading
decisions in respect of the assets of Series J allocated to such trading
vehicle;
o segregates its assets from the assets of any other Series and maintains
separate, distinct records from each other Series, and accounts for its
assets separately from each other Series;
o calculates its net assets and the Net Asset Value of its Units separately
from each other Series;
o has an investment objective of increasing the value of its Units over the
long term (capital appreciation), while controlling risk and volatility;
and
o offers Units in two Classes--Class I and Class II.
Class I Units and Class II Units
o The Trust pays a Service Fee in respect of the Class I Units, monthly in
arrears, equal to 1/12th of 2.00% (2.00% per annum) of the Net Asset
Value per Unit of the outstanding Class I Units as of the beginning of
the month. The Service Fee is paid directly by the Trust to the Selling
Agent. The Selling Agent is responsible for paying all service fees owing
to the Correspondent Selling Agents. The Correspondent Selling Agents are
entitled to receive from the Selling Agent an initial service fee equal
to 2.00% of the initial Net Asset Value per Unit of each Class I Unit
sold by them, payable on the date such Class I Units are purchased and,
commencing with the thirteenth month after the purchase of a Class I
Unit, an ongoing monthly service fee equal to 1/12th of 2.00% (2.00% per
annum) of the Net Asset Value per Unit as of the beginning of the month
of the Class I Units sold by them. In addition to the above Service Fee,
the Trust pays to the Selling Agent a Sales Commission, monthly in
arrears, equal to 1/12th of 1.00% (1.00% per annum) of the Net Asset
Value per Unit of the outstanding Class I Units as of the beginning of
the month.
o Class II Units may only be offered to investors who are represented by
approved Correspondent Selling Agents who are directly compensated by
-1-
SUMMARY (cont'd)
the investor for services rendered in connection with an investment in
the Trust (such arrangements commonly referred to as "wrap-accounts").
Investors who purchase Class II Units of any Series are not charged any
Service Fee. However, the Trust pays to the Selling Agent a Sales
Commission, monthly in arrears, equal to 1/12th of 1.00% (1.00% per
annum) of the Net Asset Value per Unit of the outstanding Class II Units
as of the beginning of the month.
Series G
o Trading for Series G is directed by Graham Capital Management, L.P., or
Graham. Graham trades 100% of the assets of Series G pursuant to Graham's
Global Diversified at 150% Leverage program, which is a technical,
systematic, global macro program. We sometimes refer to Series G as the
Graham Series.
Series H
o Trading for Series H is directed by Bridgewater Associates, Inc., or
Bridgewater. Bridgewater trades 100% of the assets of Series H pursuant
to Bridgewater's Aggressive Pure Alpha Futures Only--A, No Benchmark
program, which is a fundamental, systematic, global macro program. We
sometimes refer to Series H as the Bridgewater Series.
Series I
o Trading for Series I is directed by Eagle Trading Systems Inc., or Eagle.
Eagle trades 100% of the assets of Series I pursuant to Eagle's Momentum
Program, which is a technical, systematic global macro program. We
sometimes refer to Series I as the Eagle Series.
Series J
o Trading for Series J is directed by Graham, Bridgewater and Eagle. The
assets of Series J are allocated equally among each of Graham,
Bridgewater and Eagle and Series J rebalances its exposure quarterly to
maintain an equal exposure to each of them. One-third of the assets of
Series J are traded by Graham pursuant to Graham's Global Diversified at
150% leverage program, which is a technical, systematic, global macro
program. One-third of the assets of Series J are traded by Bridgewater
pursuant to Bridgewater's Aggressive Pure Alpha Futures Only - A, No
Benchmark program, which is a fundamental, systematic, global macro
program. One-third of the assets of Series J are traded by Eagle pursuant
to Eagle's Momentum Program, which is a technical, systematic, global
macro program. We sometimes refer to Series J as the Balanced Series.
The Two-Tier Structure of the Series
Each Series invests in one or more subsidiary trading vehicles, each a
Trading Vehicle. Each Trading Vehicle has entered into a managed account
agreement with a single Advisor. Each of Series G and Series J invests in WMT
III Series G/J Trading Vehicle LLC, a Delaware limited liability company, of
which Series G and Series J are the only members. Each of Series H and Series
J invests in WMT III Series H/J Trading Vehicle LLC, a Delaware limited
liability company, of which Series H and Series J are the only members. Each
of Series I and Series J invests in WMT III Series I/J Trading Vehicle LLC, a
Delaware limited liability company, of which Series I and Series J are the
only members. The Trading Vehicles achieve certain efficiencies and assure
that Series J's liability for trading losses by any one Advisor is limited to
Series J's investment in the Trading Vehicle corresponding to such Advisor.
The incremental additional costs associated with forming and maintaining the
Trading Vehicles is negligible.
Risk Factors
An investment in Units of all Series of the Trust is
speculative and involves a high degree of risk.
o The Trust has a limited operating history. Therefore, a potential
investor has only a limited performance history to serve as a factor for
evaluating an investment in the Trust.
o The Managing Owner may select and allocate the Trust's assets to new
trading advisors or different programs of the Advisors at any time. It is
expected that Series J will at all times maintain an equal exposure
(rebalanced quarterly) to each of the trading advisors who from time to
time are responsible for managing the assets of and making the trading
decisions in respect of the assets of each of the other Series of the
Trust pursuant to the same programs being used for such Series by such
trading advisors, including any Series which may be formed in the future
and, if more than one trading advisor
-2-
SUMMARY (cont'd)
manages the assets and makes the trading decisions for a single Series or
uses more than one program, that portion of the assets of Series J
corresponding to such other Series will be allocated among such trading
advisors and programs in the same proportion as the assets of such other
Series. However, the Managing Owner is under no obligation to cause
Series J to maintain such proportional exposures or quarterly rebalancing
or may select trading advisors to manage assets of Series J that do not
manage any assets of any other Series or programs that are not used by
any other Series. Unitholders of the Trust are fully dependent upon the
Managing Owner's ability to select such trading advisors or programs.
o Past performance is not necessarily indicative of future results; all or
substantially all of an investment in any Series could be lost.
o The trading of each Series of the Trust is highly leveraged and takes
place in very volatile markets.
o Each Series of the Trust is subject to the fees and expenses described
herein and will be successful only if significant profits are achieved.
To break even, and prior to any applicable redemption charge, the
following Series and Classes must generate the below trading profits:
o Series G, Class I: 5.41%
o Series G, Class II: 3.01%
o Series H, Class I: 5.50%
o Series H, Class II: 3.10%
o Series I, Class I: 4.84%
o Series I, Class II: 2.44%
o Series J, Class I 4.65%
o Series J, Class II 2.25%
o There can be no assurance that any Series will achieve profits,
significant or otherwise. Class I Units redeemed before the first
anniversary of their sale will be subject to a redemption charge equal to
the product of (i) the Net Asset Value per Unit on the redemption date of
the Units being redeemed, multiplied by (ii) the number of months
remaining before the first anniversary of the date such Units were
purchased, multiplied by 1/12th of 2.00%.
o Certain general types of market conditions -- in particular, trendless
periods without major price movements -- significantly reduce the
potential for certain Advisors to trade successfully.
o The incentive fee to be paid to the Advisors may encourage the Advisors
to take riskier or more speculative positions than they might otherwise.
o Because Series J pays incentive fees to each of the Advisors who manage
assets of Series J based upon the profitability of the trading of such
Advisors individually, and not based upon the profitability of Series J
as a whole, Series J could pay incentive fees to Advisors in respect of
periods during which Series J, as a whole, was not profitable.
o Certain conflicts of interest exist between the Managing Owner, the
Advisor, the Clearing Broker, the Futures Broker and Executing Brokers,
the Selling Agent, the Correspondent Selling Agents, and others and the
Unitholders. These conflicts include allocation of the Managing Owner's
resources, other business activities of the Advisors, selection of
executing brokers, execution of trades, the incentive fees,
recommendations as to the purchase or sale of Units, proprietary trading
and other clients of the Managing Owner and the Advisors and other
conflicts. The Managing Owner has not established any formal procedure to
resolve conflicts of interest. Consequently, investors will be dependent
on the good faith of the respective parties subject to such conflicts to
resolve them equitably. Although the Managing Owner attempts to monitor
these conflicts, it is extremely difficult, if not impossible, for the
Managing Owner to ensure that these conflicts do not, in fact, result in
adverse consequences to the various Series of the Trust.
The Trustee
Wilmington Trust Company, or the Trustee, a Delaware banking corporation,
is the Trust's sole trustee. The Trustee delegated to the Managing Owner all
of the power and authority to manage the business and affairs of the Trust and
has only nominal duties and liabilities to the Trust.
-3-
SUMMARY (cont'd)
The Trust and Its Objectives
References to trading by a Series throughout the Prospectus actually
refers to trading by the applicable trading vehicle with respect to such
applicable Series.
Each Series of the Trust is a separate managed futures investment
portfolio. Each Series of the Trust trades under the management of a single
Advisor selected from time to time by the Managing Owner, except that Series J
will trade under the management of each of the three Advisors responsible for
managing the trading of Series G, Series H and Series I and will allocate its
assets to such Advisors in equal proportions, rebalanced quarterly.
The Managing Owner has substantial experience in selecting and monitoring
trading advisors, asset allocation and overall portfolio design using
quantitative and qualitative methods. The Advisors trade entirely
independently of each other, implementing proprietary strategies in the
markets of their choice. Each Series of the Trust has access to global
futures, forward and options trading with the ability rapidly to deploy and
redeploy its capital across different sectors of the global economy.
In addition to selecting Advisors, the Managing Owner monitors the
trading activity and performance of each Advisor and adjust the overall
leverage at which each Series of the Trust trades. The commitment of each
Series of the Trust to its Advisor may exceed 100% of such Series' total
equity if the Managing Owner decides to strategically allocate notional equity
to its Advisor. This may result in increased profits or larger losses than
would otherwise result. There likely will be periods in the markets during
which it is unlikely that any Advisor will be profitable. By having the
ability to leverage each Series' market commitment to below its actual equity
during such periods, the Managing Owner could help preserve capital while
awaiting more favorable market cycles.
Under the Trust's Declaration of Trust, Wilmington Trust Company, the
Trust's Trustee, has delegated to the Managing Owner the exclusive management
and control of all aspects of the business of each Series of the Trust. The
Trustee has no duty or liability to supervise or monitor the performance of
the Managing Owner, nor does the Trustee have any liability for the acts or
omissions of the Managing Owner.
In addition to monitoring the trading and performance of the Advisors,
the Managing Owner also performs ongoing due diligence with respect to the
Advisors. If the Managing Owner determines that an Advisor has departed from
its program or stated trading methodology or has exceeded its stated risk
parameters, the Managing Owner, on behalf of the Trust, will take such actions
as it deems appropriate which may include terminating such Advisor. Similarly,
if the Managing Owner's ongoing due diligence leads the Managing Owner to
determine that it is in the best interests of the Trust to terminate an
Advisor, it will do so. If the Managing Owner concludes, based upon its
perception of market or economic conditions, that it is appropriate to
allocate assets of a Series to a different trading program run by such Series'
Advisor, it will do so. The Managing Owner will select a replacement Advisor
if any Advisor resigns or is terminated.
There can be no assurance that any Series of the Trust will achieve its
rate of return or diversification objective or avoid substantial losses. These
pools have not commenced trading and do not have any performance history.
Preferred Investment Solutions Corp.
Preferred Investment Solutions Corp., a Delaware corporation, serves as
Managing Owner of the Trust and each Series. The Managing Owner originally was
formed in 1983 as a New York corporation and was formerly known as Kenmar
Advisory Corp. Its predecessor and affiliates have been sponsoring and
managing single- and multi-advisor funds for over two decades. As of February
28, 2006, the Managing Owner and its affiliates were acting as trading manager
for commodity pools, funds of hedge funds and accounts with total capital
(excluding "notional" funds) of approximately $2.2 billion of discretionary
and non-discretionary assets, of which approximately $186.9 million was
invested in commodity pools operated by the Managing Owner. Effective October
1, 2004, the Managing Owner assumed responsibility as the commodity pool
operator and managing owner of eight public commodity pools. Effective as of
February 28, 2006, the Managing Owner serves as the commodity pool operator
and managing owner of thirteen (13) public commodity pools (including each of
Series G, H, I and J) and one open-ended investment company which is an
exempted commodity pool in Ireland.
The principal office of the Trust is c/o Preferred Investment Solutions
Corp., 900 King Street, Suite 100, Rye Brook, New York 10573. The telephone
number of the Trust and the Managing Owner is (914) 307-7000.
-4-
SUMMARY (cont'd)
See "Performance of Commodity Pools Operated by the Managing Owner and its
Affiliates" for the performance of other commodity pools managed by the
Managing Owner and its affiliates.
The Advisors
The Advisors are all well-established in the managed futures industry and
have, in the past, demonstrated the ability to make substantial profits in a
wide range of different market conditions. These Advisors, collectively,
represent a range of technical, systematic, fundamental and discretionary
methodologies, with extensive experience trading both proprietary and client
capital. The Advisors were selected based upon the Managing Owner's evaluation
of each Advisor's trading strategies, risk management, portfolio composition
and past performance, as well as how each Advisor's strategies, portfolio and
performance complement and differ from those of the other Advisors. The
Managing Owner is authorized to utilize the services of additional trading
advisors for any Series or to employ additional trading programs of the
Advisors, although the Managing Owner has no current intention to do so. The
Managing Owner is authorized to allocate the assets of Series J unequally
among the Advisors or to other trading advisors or other programs of the
Advisors, although the Managing Owner has no current intention to do so. The
Managing Owner invests 100% of the proceeds from the offering of each Series'
Units in a single Trading Vehicle, except that the Managing Owner invests the
proceeds from the offering of the Series J Units equally in three Trading
Vehicles, and the Advisor or Advisors corresponding to each Trading Vehicle
apply all such proceeds for commodities trading purposes. It is currently
contemplated that 100% of additional capital raised on behalf of each Series
will continue to be invested in the same Trading Vehicle, except that
additional capital raised on behalf of Series J will continue to be invested
equally in the same three Trading Vehicles. The Advisors are not affiliated
with the Trust, the Trustee or the Managing Owner. If an Advisor's trading
reaches a level where certain position limits restrict its trading, that
Advisor will modify its trading instructions for the Trading Vehicle and its
other accounts in a good faith effort to achieve an equitable treatment of all
accounts. As of the date of this Prospectus, none of the Advisors nor any of
their principals currently have any beneficial interest in the Trust, but some
or all of such persons may acquire such an interest in the future.
The Clearing Broker
UBS Securities LLC, or UBS Securities, serves as clearing broker to the
Trust on behalf of each Series. In its capacity as clearing broker, UBS
Securities executes and clears each Series' futures and options transactions
and performs certain administrative services for the Trust on behalf of each
Series.
The Selling Agent; The Correspondent Selling Agents
Kenmar Securities Inc., or the Selling Agent, a Delaware corporation, and
an affiliate of the Managing Owner acts as a selling agent for the Trust. The
Managing Owner and the Selling Agent intend to appoint certain other
broker-dealers registered under the Securities Exchange Act of 1934, as
amended, and members of the National Association of Securities Dealers, Inc.,
or the NASD, as additional selling agents, or Correspondent Selling Agents.
The Selling Agent and the Correspondent Selling Agents use their "best
efforts" to sell Units. This means that the Selling Agent and the
Correspondent Selling Agents are not required to purchase any Units or sell
any specific number or dollar amount of Units but will use their best efforts
to sell the Units offered.
The Administrator
DPM Mellon, LLC, or DPM, a Delaware limited liability company located at
400 Atrium Drive, Somerset, New Jersey, USA, 08873, is the administrator of
the Trust and provides certain administrative services pursuant to the terms
of an Administration Agreement with the Trust effective January 20, 2005. DPM
is registered with the CFTC as a commodity pool operator and is a member of
the NFA in such capacity.
DPM is a fund administrator serving the growing hedge fund market with a
suite of services that include daily investment accounting, financial
reporting, multiple broker and trader reconciliation, systems generated Net
Asset Value calculations, risk transparency and other fund administrative
services. The Managing Owner has many years of experience with DPM which
functions as the administrator for a number of its funds.
Pursuant to the Administration Agreement, DPM performs or supervises the
performance of services necessary for the operation and administration of the
Trust (other than making investment decisions), including administrative and
-5-
SUMMARY (cont'd)
accounting services. DPM also calculates Net Asset Value and the Net Asset
Value per Unit.
The Administration Agreement shall continue in force from launch until
January 30, 2007 unless terminated on 90 days' prior written notice by either
party to the other party. If not terminated, the Administration Agreement will
renew itself for successive one-year terms subject to re-negotiation of the
terms of compensation and services.
The Administration Agreement provides for indemnification of DPM and its
directors, officers and employees from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments suits, costs,
expenses or disbursements of any kind or nature whatsoever (other than those
resulting from fraud, negligence or willful misconduct on its part or on the
part of its directors, officers, servants or agents) which may be imposed on,
incurred by or asserted against DPM in performing its obligations or duties
under the Administration Agreement.
The fees payable to DPM are referred to in Fees and Expenses below.
Liabilities You Assume
Although the Managing Owner has unlimited liability for any obligations
of a Series that exceed that Series' Net Assets, your investment in a Series
is part of the assets of that Series, and it will therefore be subject to the
risks of that Series' trading. You cannot lose more than your investment in
any Series, and you will not be subject to the losses or liabilities of any
Series in which you have not invested. We have received an opinion of counsel
that each Series will be entitled to the benefits of the limitation on
interseries liability under the Delaware Statutory Trust Act. Each Unit, when
purchased in accordance with the Trust Declaration, shall, except as otherwise
provided by law, be fully-paid and nonassessable.
Limitation of Liabilities
The debts, liabilities, obligations, claims and expenses of a particular
Series will be enforceable against the assets of that Series only, and not
against the assets of the Trust generally or the assets of any other Series,
and, unless otherwise provided in the Trust Declaration, none of the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to the Trust generally or any other Series thereof will
be enforceable against the assets of such Series.
Who May Subscribe
An investment in the Trust is speculative and involves a high degree of
risk. The Trust is not suitable for all investors. The Managing Owner offers
the Trust as an opportunity to diversify an investor's entire investment
portfolio. The Trust also offers the potential for profit subject to
commensurate risk and volatility. An investment in the Trust should only
represent a limited portion of your overall portfolio. There can be no
assurance that any Series of the Trust will achieve its objective. To
subscribe for the Units of any Series:
You must have at a minimum (1) a net worth (exclusive of your home, home
furnishings and automobiles) of at least $150,000 or (2) a net worth,
similarly calculated, of at least $45,000 and an annual gross income of at
least $45,000. A significant number of states impose on their residents
substantially higher suitability standards than the minimums described above.
Before investing, you should review the minimum suitability requirements for
your state of residence which are described in "State Suitability
Requirements" in "Subscription Requirements" attached as Exhibit B to the
Statement of Additional Information. These suitability requirements are, in
each case, regulatory minimums only, and just because you meet such
requirements does not mean that an investment in the Units is suitable for
you;
You may not invest more than 10% of your net worth, exclusive of your
home, furnishings and automobiles, in any Series or combination of Series;
Individual retirement accounts, or IRAs, Keogh and other employee benefit
plans are subject to special suitability requirements and should not invest
more than 10% of their assets in any Series or combination of Series.
What You Must Understand Before You Subscribe
You should not subscribe for Units unless you understand:
o the fundamental risks and possible financial losses of the investment;
o the trading strategies to be followed in the Series in which you will
invest;
o the tax consequences of this investment;
-6-
SUMMARY (cont'd)
o the tax consequences of any decision to sell securities to subscribe for
Units;
o the fees and expenses to which you will be subject;
o your rights and obligations as a Unitholder.
How to Subscribe
To subscribe for any Series' Units:
You will be required to complete and submit to the Trust a Subscription
Agreement and Power of Attorney in the form of Exhibit C hereto. The Managing
Owner in its sole discretion may, for good cause, waive notice deadlines for
subscriptions.
Any subscription may be rejected in whole or in part by the Managing
Owner for any reason or for no reason.
Your Minimum Subscription and Unit Pricing
Minimum required subscriptions and Unit prices are as follows:
Your minimum initial subscription is $5,000, or, if you are a Benefit
Plan Investor (including an IRA), your minimum initial subscription is $2,000;
The minimum initial purchase in any one Series is $500;
Each Series' Units are offered and sold at their month-end Net Asset
Value, and existing Unitholders are able to purchase additional Units. The
minimum price for an additional purchase is $2,000; and
If you are a resident of Texas and you are a Benefit Plan Investor, your
minimum initial subscription is $5,000.
Organizational and initial offering expenses have been paid by the
Managing Owner, subject to reimbursement by the Trust, without interest, in 36
monthly payments during each of the first 36 months of the Trust's operations;
provided, however, that
o in no event shall the Managing Owner be entitled to reimbursement
for such expenses in an aggregate amount in excess of 2.5% of the
aggregate amount of all subscriptions accepted by the Trust during
the initial offering period and the first 36 months of the Trust's
operations; and
o in no event shall the amount of any payment in any month for
reimbursement of such expenses, together with any similar payment in
such month for reimbursement of offering expenses subsequently
incurred, in the aggregate, exceed 0.50% per annum of the Net Asset
Value of any Series as of the beginning of such month.
If any Series terminates prior to completion of the foregoing
reimbursement, or the full amount of such expenses has not been fully
reimbursed by the end of such 36 month period, the Managing Owner will not be
entitled to receive any further reimbursement in respect of such expenses and
such Series will have no further obligation to make reimbursement payments in
respect of such expenses.
The Offering
Units are offered as of the beginning of each month and will continue to
be offered Units in each Series until the maximum amount of each Series' Units
which are registered are sold. The Managing Owner may suspend or terminate the
offering of Units of any Series at any time or extend the offering by
registering additional Units.
Subscription Effective Dates; Transfer of Units
The effective date of all accepted subscriptions, whether you are a new
subscriber to a Series or an existing Unitholder in a Series who is purchasing
additional Units in that Series or exchanging Units in one Series for Units in
a different Series, is the first business day of the next month commencing
five (5) Business Days after the day in which your Subscription Agreement or
Exchange Request is received by the Managing Owner on a timely basis by 10:00
AM New York City Time, or NYT. For example, for a subscription or exchange to
be effective on Tuesday, August 1, 2006, your Subscription Agreement or
Exchange Request would have to be received by the Managing Owner on Tuesday,
July 25, 2006 by 10:00 AM NYT. The Managing Owner in its sole discretion and
for good cause, may change such notice requirement upon written notice to you.
The Trust Declaration restricts the transferability and assignability of
the Units of each
-7-
SUMMARY (cont'd)
Series. There is not now, nor is there expected to be, a primary or secondary
trading market for the Units of any Series.
Redemptions
To redeem Units, Unitholders may contact their Correspondent Selling
Agent (in writing if required by such Correspondent Selling Agent).
Correspondent Selling Agents must notify the Managing Owner in writing in
order to effectuate redemptions of the Units. A signature guarantee may be
required by your Correspondent Selling Agent or the Managing Owner. However, a
Unitholder who no longer has a Correspondent Selling Agent account must
request redemption in writing (signature guaranteed unless waived by the
Managing Owner) by corresponding with the Managing Owner.
A Unitholder may redeem any or all of his or her Units as of the close of
business on the last Business Day of any calendar month -- beginning with the
end of the first month following such Unitholder's purchase of such Units --
at Net Asset Value, provided that the Request for Redemption is received by
the Managing Owner by 10:00 AM New York time at 900 King Street, Suite 100,
Rye Brook, New York 10573, at least five (5) Business Days prior to the end of
such month excluding the last Business Day of the month. A redemption will be
effective as of the close of business on the last Business Day of any calendar
month. For example, if the last Business Day of the month is a Friday, notice
must be received by the Managing Owner by 10:00 AM New York time on Friday of
the immediately preceding week. The Managing Owner may, in its sole discretion
and for good cause, waive notice deadlines for redemptions. Your minimum
redemption request may be the lesser of either $1,000 or ten (10) Units;
provided that, if you are redeeming less than all your Units, your remaining
Units in any Series must have an aggregate Net Asset Value of at least $500.
If you only redeem some of your Units and as a result, your account balances
fall below the minimum investment amount (i.e., $500) you may be compulsorily
redeemed at the Managing Owner's sole discretion.
Segregated Accounts/Interest Income
Except for that portion of each Series' assets used as margin to maintain
that Series' forward currency contract positions, the proceeds of the offering
for each Series are deposited in cash in segregated accounts in the name of
the Trust on behalf of each Series at the Clearing Broker or another eligible
financial institution in accordance with CFTC segregation requirements. The
Trust on behalf of each Series is credited with 100% of the interest earned on
its average net assets on deposit with the Clearing Broker or such other
financial institution each month. In an attempt to increase interest income
earned, the Managing Owner also may invest non-margin assets in U.S.
government securities (which include any security issued or guaranteed as to
principal or interest by the United States), or any certificate of deposit for
any of the foregoing, including U.S. treasury bonds, U.S. treasury bills and
issues of agencies of the United States government, and certain cash items
such as money market funds, certificates of deposit (under nine months) and
time deposits or other instruments permitted by applicable rules and
regulations. Currently, the rate of interest expected to be earned is
estimated to be 4.37% per annum.
[Remainder of page left blank intentionally.]
-8-
SUMMARY (cont'd)
Fees and Expenses
- -------------------------------------------------------------------------------
Management Fee Each Series of Units pays to the Managing
Owner in arrears a monthly management fee equal
to 1/12th of 0.50% (0.50% per annum) of the Net
Asset Value of such Series as of the beginning of
the month.
- -------------------------------------------------------------------------------
Advisors' Fees Series G pays to its Advisor in arrears a monthly
base fee equal to 1/12th of 2.50% (2.50% per
annum) of such Series' Net Asset Value as of the
end of the month. Series H pays to its Advisor in
arrears a monthly base fee equal to 1/12th of
3.00% (3.00% per annum) of such Series' Net Asset
Value as of the end of the month. Series I pays
to its Advisor in arrears a monthly base fee
equal to 1/12th of 2.00% (2.00% per annum) of
such Series' Net Asset Value as of the end of the
month. Series J pays to each of its Advisors in
arrears a monthly base fee equal to the base fee
paid by each of Series G, Series H and Series I
to their respective Advisors on that portion of
the assets of Series J under the management of
such Advisor. Each Series pays an incentive fee
of 20% of "New High Net Trading Profits"
generated by such Series, including realized and
unrealized gains and losses thereon, as of the
close of business on the last day of each
calendar quarter, except that Series J pays such
incentive fee separately with respect to each of
its Advisors based on "New High Net Trading
Profits" generated by such Advisor, regardless of
the profitability of Series J as a whole. The
incentive fees are paid quarterly in arrears.
- -------------------------------------------------------------------------------
Sales Commission The Trust pays the Selling Agent a Sales
Commission, monthly in arrears, equal to 1/12th
of 1.00% (1.00% per annum) of the Net Asset Value
per Unit of the outstanding Units as of the
beginning of each month.
- -------------------------------------------------------------------------------
Brokerage Commissions and Each Series pays to the Clearing Broker all
Fees brokerage commissions, including applicable
exchange fees, NFA fees, give-up fees, pit
brokerage fees and other transaction related fees
and expenses charged in connection with such
Series trading activities. On average, total
charges paid to the Clearing Broker are expected
to be less than $10.00 per round-turn trade,
although the Clearing Broker's brokerage
commissions and trading fees will be determined
on a contract-by-contract basis. The Managing
Owner does not expect brokerage commissions and
fees to exceed 1.50% of the Net Asset Value of
any Series in any year.
- -------------------------------------------------------------------------------
Extraordinary Fees and Each Series pays all its extraordinary fees and
Expenses expenses, if any, and its allocable portion of
all extraordinary fees and expenses of the Trust
generally, if any, as determined by the Managing
Owner. Such extraordinary fees and expenses, by
their nature, are unpredictable in terms of
timing and amount. Any Series could conceivably
be liable for such fees and expenses up to the
entire amount of its net assets.
- -------------------------------------------------------------------------------
Routine Operational, Each Series pays all of its routine operational,
Administrative and Other administrative and other ordinary expenses and
Ordinary Expenses its allocable share of all routine operational,
administrative and other ordinary expenses of the
Trust generally, as determined by the Managing
Owner including, but not limited to, accounting
and computer services, the fees and expenses of
the Trustee, legal and accounting fees and
expenses, tax preparation expenses, filing fees,
printing, mailing and duplication costs. For
Series J, such routine expenses are currently
estimated to be 1.00%; for Series G, H and I,
such routine expenses are currently estimated to
be 11%, 5% and 11%, respectively. The Managing
Owner has voluntarily agreed to pay and/or
reimburse each of Series G, H and/or I to the
extent that actual expenses for any such Series
in any month are in excess of 1/12 of 1.50% of
any such Series' Net Asset Value, although the
Managing Owner may discontinue such practice at
any time in its sole discretion. Actual expenses
may be higher or lower. The Managing Owner expects
that as the Net Asset Value of a Series
increases, the routine operational, administrative
and other ordinary expenses of such Series
will decline as a percentage of such Series' Net
Asset Value.
-9-
- -------------------------------------------------------------------------------
Organization and Offering Expenses incurred in connection with organizing
Expenses of the Trust and the initial offering of Units
were approximately $1,436,000, of which $68,461
has been reimbursed to the Managing Owner by the
Trust as of March 31, 2006. Such organizational
and initial offering expenses were paid by the
Managing Owner, subject to reimbursement by the
Trust, without interest, in 36 monthly payments
during each of the first 36 months of the Trust's
operations; provided, however, that in no event
shall the Managing Owner be entitled to
reimbursement for such expenses in an aggregate
amount in excess of 2.5% of the aggregate amount
of all subscriptions accepted by the Trust during
the initial offering period and the first 36
months of the Trust's operations. If any Series
terminates prior to completion of the foregoing
reimbursement, or the full amount of such
expenses has not been fully reimbursed by the end
of such 36 month period, the Managing Owner will
not be entitled to receive any further
reimbursement in respect of such expenses from
such Series.
The Managing Owner also is responsible for the
payment of all offering expenses of each Series
incurred after the Initial Offering Period;
provided, however, that the amount of such
offering expenses paid by the Managing Owner
shall be subject to reimbursement by such Series,
without interest, in up to 36 monthly payments
during each of the first 36 months following the
month in which such expenses were paid by the
Managing Owner. If such Series terminates prior
to the completion of any such reimbursement, or
the full amount of such expenses has not been
fully reimbursed by the end of such 36 month
period, the Managing Owner will not be entitled
to receive any unreimbursed portion of such
expenses outstanding as of the date of such
termination.
In no event will the aggregate amount of payments
by any Series in any month in respect of
reimbursement of organizational and offering
expenses exceed 0.50% per annum of the Net Asset
Value of such Series as of the beginning of such
month.
- -------------------------------------------------------------------------------
Service Fees Class I
-------
The Trust pays to the Selling Agent a Service Fee
in respect of the Class I Units of each Series,
monthly in arrears, equal to 1/12th of 2.00%
(2.00% per annum) of the Net Asset Value per Unit
of the outstanding Class I Units at the beginning
of the month, for services provided to the Trust
and its Unitholders. The Service Fee is
compensation which remains payable with respect
to the Class I Units for as long as such Units
are outstanding.
Class II
--------
Investors who purchase Class II Units are not
charged any Service Fee in respect of such Class
II Units. Class II Units may only be offered to
investors who are represented by approved
Correspondent Selling Agents who are directly
compensated by the investor for services rendered
in connection with an investment in the Trust
(such arrangements commonly referred to as
"wrap-accounts").
-10-
- -------------------------------------------------------------------------------
Redemption Charge There is no redemption charge in respect of Class
II Units.
A Class I Unitholder who redeems a Class I Unit
prior to the first anniversary of the purchase of
such Unit will be subject to a redemption charge
in an amount equal to the product of (i) the Net
Asset Value per Unit on the redemption date of
the Units being redeemed, multiplied by (ii) the
number of months remaining before the first
anniversary of the date such Units were
purchased, multiplied by (iii) 1/12th of 2.00%.
Redemption charges do not reduce Net Asset Value
or New High Net Trading Profit for any purpose,
only the amount which Unitholders receive upon
redemption.
A Class I Unitholder who exchanges a Class I Unit
prior to the first anniversary of the purchase of
such Unit will not be subject to a redemption
charge in respect of the Unit being redeemed in
connection with the exchange. A Unit acquired in
an exchange that is subsequently redeemed will be
subject to the redemption charge as if the Unit
acquired in connection with the exchange had been
acquired on the purchase date of the Unit
redeemed in connection with the exchange. For
example, if Class I Units of Series G are
purchased effective on May 1, 2006 and
subsequently exchanged for Class I Units of
Series H effective August 1, 2006, no redemption
charge would apply. The original purchase date of
those Class I Units of Series H would be deemed
to remain May 1,
- -------------------------------------------------------------------------------
-11-
SUMMARY (cont'd)
- -------------------------------------------------------------------------------
2006. Therefore, if those Class I Units of Series
H are redeemed at any month-end before April 30,
2007, a redemption charge would apply at such
time. Redemption charges do not reduce Net Asset
Value or New High Net Trading Profit for any
purpose, only the amount which Unitholders
receive upon redemption.
In the event that an investor acquires Units at
more than one closing date, the redemption charge
will be calculated on a "first-in, first-out"
basis for redemption purposes (including
determining the amount of any applicable
redemption charge).
- -------------------------------------------------------------------------------
-12-
Break-Even Amounts for Each Series
The following summary displays the estimated amount of all fees and
expenses which are anticipated to be incurred by a new investor in each Class
of each Series during the first twelve months. In each case, the total
estimated cost and expense load is expressed as a percentage of $5,000, the
amount of minimum investment in the Trust (other than IRAs or Benefit Plan
Investors).
Series G, Class I: 5.41% (or $270.45 for each $5,000 invested);
Series G, Class II: 3.01% (or $150.45 for each $5,000 invested);
Series H, Class I: 5.50% (or $274.99 for each $5,000 invested);
Series H, Class II: 3.10% (or $154.99 for each $5,000 invested);
Series I, Class I: 4.84% (or $242.05 for each $5,000 invested);
Series I, Class II: 2.44% (or $122.05 for each $5,000 invested);
Series J, Class I: 4.65% (or $232.50 for each $5,000 invested); and
Series J, Class II: 2.25% (or $112.50 for each $5,000 invested).
Exchange Privilege
You may exchange your Units in one Series for Units in another Series.
Exchanges are available between the various Class I of the Series and
exchanges are available between the various Class II of the Series. A
Unitholder may not receive Units in a closed Series whether by purchase or by
exchange. Exchanges will not be allowed from Class I to Class II or
vice-versa. Units submitted for exchange must have an aggregate Net Asset
Value not less than $2,000. The exchange of Units will be treated as a
redemption of Units in one Series (with the related tax consequences) and the
immediate purchase of Units in the Series into which you exchange into.
Exchanges are made at the applicable Series' Net Asset Value per Unit as of
the close of business on the last Business Day of each month (which includes,
among other things, accrued but unpaid incentive fees due to that Series'
Advisor or Advisors) at the close of business on the last Business Day of each
month, the day immediately preceding the day on which your exchange will
become effective. The Managing Owner, in its sole and absolute discretion, may
reject any exchange request. No "exchange" charges will be imposed. A Class I
Unitholder who exchanges a Class I Unit prior to the first anniversary of the
purchase of such Unit will not be subject to a redemption charge in respect of
the Unit being redeemed in connection with the exchange. Units acquired in an
exchange that are subsequently redeemed will be subject to the redemption
charge as if the Units acquired in connection with the exchange had been
acquired on the purchase date of the Units redeemed in connection with the
exchange.
Distributions
The Managing Owner will make distributions to you at its discretion.
Because the Managing Owner does not presently intend to make ongoing
distributions, your income tax liability for the profits of Units in any
Series in which you have invested will, in all likelihood, exceed any
distributions you receive from that Series.
Fiscal Year
The Trust's fiscal year ends on December 31 on each year.
Financial Information
The Trust has only recently been organized and has no material financial
history.
Index of Defined Terms
See the "Index of Defined Terms" on page 114 for page references to
certain key terms used in this Prospectus.
Tax Status of each Series
In the opinion of counsel, each Series of the Trust will be classified as
a partnership for federal income tax purposes and, based on the type of income
expected to be earned by each Series, will not be treated as a "publicly
traded partnership" taxable as a corporation. Unitholders of any Series will
pay tax each year on their allocable share of such Series' taxable income, if
any, whether or not they receive any distributions from such Series or redeem
any Units. Substantially all of the trading gains and losses of each Series
will be treated as capital gains
-12-
or losses for tax purposes; interest income received by any Series will be
treated as ordinary income.
"Breakeven Table"
The "Breakeven Table" on the following page indicates the approximate
percentage and dollar returns required for the redemption value of an initial
$5,000 investment in the Units of each Series to equal the amount originally
invested twelve months after issuance.
The "Breakeven Table," as presented, is an approximation only. The
capitalization of each Series of the Trust does not directly affect the level
of its charges as a percentage of Net Asset Value, other than (i)
Administrative Expenses, (ii) Organizational and Offering Expenses (which are
assumed for purposes of the "Breakeven Table" to equal the maximum permissible
percentage of such Series' average beginning of month Net Asset Value), and
(iii) Brokerage Commissions.
[Remainder of page left blank intentionally.]
-13-
SUMMARY (cont'd)
"Breakeven Table"
- ---------------------------------------------------------------------------------------------------------------------------------
Amount of Expenses
- ---------------------------------------------------------------------------------------------------------------------------------
Series G Series G Series H Series H Series I Series I
Class I Class II(2) Class I Class II(2) Class I Class II(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Expense(1) $ % $ % $ % $ % $ % $ %
- ---------------------------------------------------------------------------------------------------------------------------------
Managing Owner $25 0.50% $25 0.50% $25 0.50% $25 0.50% $25 0.50% $25 0.50%
Management Fee
- ---------------------------------------------------------------------------------------------------------------------------------
Advisor's Base Fee $125 2.50% $125 2.50% $150 3.00% $150 3.00% $100 2.00% $100 2.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Advisor's
Incentive Fee(3) $46.51 0.93% $26.51 0.53% $51.63 1.03% $31.63 0.63% $47.36 0.95% $27.36 0.55%
- ---------------------------------------------------------------------------------------------------------------------------------
Service Fee
Reimbursement(4) $100 2.00% N/A N/A $100 2.00% N/A N/A $100 2.00% N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Sales
Commission(5) $50 1.00% $50 1.00% $50 1.00% $50 1.00% $50 1.00% $50 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Administrative
Expense(6) $75 1.50% $75 1.50% $75 1.50% $75 1.50% $75 1.50% $75 1.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Organization and
Offering
Expense
Reimbursement(7) $25 0.50% $25 0.50% $25 0.50% $25 0.50% $25 0.50% $25 0.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Brokerage
Commissions(8) $42.44 0.85% $42.44 0.85% $16.87 0.34% $16.87 0.34% $38.19 0.76% $38.19 0.76%
- ---------------------------------------------------------------------------------------------------------------------------------
Interest
Income(9) $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)%
- ---------------------------------------------------------------------------------------------------------------------------------
12-Month Break
Even $270.45 5.41% $150.45 3.01% $274.99 5.50% $154.99 3.10% $242.05 4.84% $122.05 2.44%
- ---------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------
Amount of Expenses
- ----------------------------------------------------------
Series J(10) Series J(10)
Class I Class II
- ----------------------------------------------------------
Expense(1) $ % $ %
- ----------------------------------------------------------
Managing Owner $25 0.50% $25 0.50%
Management Fee
- ----------------------------------------------------------
Advisor's Base Fee $125 2.50% $125 2.50%
- ----------------------------------------------------------
Advisor's
Incentive Fee(3) $43.50 0.87% $23.50 0.47%
- ----------------------------------------------------------
Service Fee
Reimbursement(4) $100.00 2.00% N/A N/A
- ----------------------------------------------------------
Sales
Commission(5) $50 1.00% $50 1.00%
- ----------------------------------------------------------
Administrative
Expense(6) $50 1.00% $50 1.00%
- ----------------------------------------------------------
Organization and
Offering
Expense
Reimbursement(7) $25 0.50% $25 0.50%
- ----------------------------------------------------------
Brokerage
Commissions(8) $32.50 0.65 $32.50 0.65
- ----------------------------------------------------------
Interest
Income(9) $(218.50) (4.37)% $(218.50) (4.37)%
- ----------------------------------------------------------
12-Month Break
Even $232.50 4.65% $112.50 2.25%
- ----------------------------------------------------------
1. The foregoing breakeven analysis assumes that the Units have a constant
month-end Net Asset Value. Calculations are based on $5,000 as the Net
Asset Value per Unit. See "Charges" on page 77 for an explanation of the
expenses included in the "Breakeven Table."
2. Class II Units may be offered and sold only to investors who are
represented by approved Correspondent Selling Agents who are directly
compensated by the investor for services rendered in connection with an
investment in the Trust (such arrangements commonly referred to as
"wrap-accounts"). Class II Unitholders are not charged any Service Fee.
3. Based on assumptions herein, the Advisor's Incentive Fee is between 0.87%
and 1.03% for Class I and 0.47% and 0.63% for Class II.
4. Investors who redeem all or a portion of their Class I Units of any
Series before the first anniversary of the purchase of such Units will be
subject to a redemption charge (which amount is reflected in this Service
Fee item) in an amount equal to the product of (i) the Net Asset Value
per Unit on the redemption date of the Units being redeemed, multiplied
by (ii) the number of months remaining before the first anniversary of
the date such Units were purchased, multiplied by (iii) 1/12th of 2.00%.
5. Each Unit purchased pays to Kenmar Securities Inc. in arrears a monthly
Sales Commission equal to 1/12th of 1.00% (1.00% per annum) of the Net
Asset Value of the outstanding Units as of the beginning of the month.
6. For Series G, H and I, administrative expenses are currently estimated to
be 11%, 5% and 11%, respectively, although the Managing Owner has
voluntarily agreed to pay and/or reimburse each such Series to the extent
that actual expenses for any such Series in any month are in excess of
1/12 of 1.50% of any such Series' Net Asset Value. The Managing Owner may
discontinue such practice at any time in its sole discretion. For Series J,
administrative expenses are currently estimated to be 1.00%. Actual
expenses may be higher or lower. The Managing Owner expects that as the
Net Asset Value of a Series increases, the administrative expenses of such
Series will decline as a percentage of such Series' Net Asset Value.
7. Expense levels are assumed to be at maximum amount. Actual expenses may
be lower.
-14-
SUMMARY (cont'd)
8. Although the actual rates of brokerage commissions and transaction
related fees and expenses are the same for all Advisors, the total amount
of brokerage commissions and trading fees varies from Series to Series
based upon the trading frequency of such Series' Advisor and the specific
futures contracts traded. The estimates presented in the table above are
prepared using historical data about the Advisors' trading activities for
December 2005 through February 2006.
9. Interest income is currently estimated to be earned at a rate of 4.37%.
10. For purposes of this breakeven analysis, we have assumed (i) that the
Advisors will have identical performance and identical incentive fees,
(ii) that the Advisors will generate a weighted average rate of brokerage
commissions and other expenses equal to 0.65%, and (iii) a weighted
average Advisor's base fee of 2.50%. In actuality, the Advisors'
performance and incentive fees will be divergent among the Advisors, the
Advisors will generate a weighted average rate of brokerage commissions
and other expenses which could be higher or lower than 0.65% and, because
Advisors' base fees are assessed monthly while Series J will rebalance
quarterly, weighted average Advisors' base fees could be higher or lower
than 2.50%.
-15-
Reports to Unitholders
As of the end of each month and as of the end of each Fiscal Year, the
Managing Owner will furnish you with those reports required by the CFTC and
the National Futures Association, or the NFA, including, but not limited to,
an annual audited financial statement certified by independent public
accountants and any other reports required by any other governmental
authority, such as the SEC, that has jurisdiction over the activities of the
Trust. You also will be provided with appropriate information to permit you
(on a timely basis) to file your Federal and state income tax returns with
respect to your Units.
Cautionary Note Regarding Forward-Looking Statements
This Prospectus includes forward-looking statements that reflect the
Managing Owner's current expectations about the future results, performance,
prospects and opportunities of the Trust. The Managing Owner has tried to
identify these forward-looking statements by using words such as "may,"
"will," "expect," "anticipate," "believe," "intend," "should," "estimate" or
the negative of those terms or similar expressions. These forward-looking
statements are based on information currently available to the Managing Owner
and are subject to a number of risks, uncertainties and other factors, both
known, such as those described in "Risk Factors" and elsewhere in this
Prospectus, and unknown, that could cause the Trust's actual results,
performance, prospects or opportunities to differ materially from those
expressed in, or implied by, these forward-looking statements.
You should not place undue reliance on any forward-looking statements.
Except as expressly required by the federal securities laws, the Managing
Owner undertakes no obligation to publicly update or revise any
forward-looking statements or the risks, uncertainties or other factors
described in this Prospectus, as a result of new information, future events or
changed circumstances or for any other reason after the date of this
Prospectus.
THE UNITS ARE SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK.
[Remainder of page left blank intentionally.]
-16-
WORLD MONITOR TRUST III
Organization Chart
|------------------|
| |
| Investor |
| (Buys Units) |
| |
| |
| |
|------------------|
|
|
V
|------------------| |------------------|
| | | |
| Correspondent | | Wilmington |
| Selling | | Trust |
| Agent | | Company |
| (Sells Units) | | (Trustee) |
| | | |
|------------------| |------------------|
| | |
| | | Delegation of
| | | Duties
| | |
| | |
V | V
|------------------| | |------------------|
| | | | |
| Kenmar | | | Preferred |
| Securities Inc. | | | Investment |
| (Selling | | | Solutions Corp. |
| Agent) | | | (Managing |
| | | | Owner) |
|------------------| | |------------------|
| | |
| | |
| | |
| | |
| | |
V V V
| --------------------------------------------------------|
| |
| |
| World Monitor Trust III |
| |
| |
| |
|---------------------------------------------------------|
|
|
|
|
|
V
--------------------------------------------------------------------------------------------------------
| | |
| | |
V V V
|------------------------| |--------------------------| |------------------------| |------------------------|
| | | | | | | |
| Series G | | Series H | | Series I | | Series J |
|(Class I and Class II) | | Class I and Class II | |(Class I and Class II) | |(Class I and Class II) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|------------------------| |--------------------------| |------------------------| |------------------------|
| | | | |
| | | | |
| | | | |
| | | | |
| ---------------------------|----------------------------------|---------------------------------------------
| | | | | |
| | | | | |
V V V V V V
|------------------------| |------------------------| |------------------------|
| | | | | |
| WMT III Series G/J | | WMT III Series H/J | | WMT III Series I/J |
| Trading | | Trading | | Trading |
| Vehicle LLC | | Vehicle LLC | | Vehicle LLC |
| | | | | |
| | | | | |
|------------------------| |------------------------| |------------------------|
| | | | |
C | | Advisory C | | Advisory C |
u | | Agreement u | | Agreement u |
s | | s | | s |
t | V t | V t |
o | |---------------------| o | |------------------------| o | |------------------------|
m | | | m | | | m | | |
e | | Graham Capital | e | | Bridgewater Associates,| e | | Eagle Trading Systems |
r | | Management, L.P. | r | | Inc. | r | | Inc. |
| | (Advisor) | | | (Advisor) | | | (Advisor) |
A | | | A | | | A | | |
g | | | g | | | g | | |
r | |---------------------| r | |------------------------| r | |------------------------|
e | e | | e | |
e | e | | e | |
m | m | | m | |
e | e | | Trading e | | Trading
n | n | | Authority n | | Authority
t | t | | t | |
V V V V V
|--------------------| |--------------------| |--------------------|
| | | | | |
| UBS Securities LLC | | UBS Securities LLC | | UBS Securities LLC |
| (Commodities and | |(Commodities Broker)| |(Commodities Broker)|
| Foreign Exchange | | | | |
| Broker) | | | | |
| | | | | |
|--------------------| |--------------------| |--------------------|
|--------------------| |--------------------| |--------------------|
|Futures and Forward | |Futures and Forward | |Futures and Forward |
| Markets | | Markets | | Markets |
|--------------------| |--------------------| |--------------------|
-17-
THE RISKS YOU FACE
(1) You Should Not Rely on Past Performance in Deciding Whether to Buy Units
Each Advisor selected by the Managing Owner to manage the assets of each
Series has a performance history through the date of its selection. You must
consider, however, the uncertain significance of past performance, and you
should not rely on the Advisors' or the Managing Owner's records to date for
predictive purposes. You should not assume that any Advisor's future trading
decisions will create profit, avoid substantial losses or result in
performance for the Series that is comparable to that Advisor's or to the
Managing Owner's past performance. In fact, as a significant amount of
academic study has shown, futures funds more frequently than not underperform
the past performance records included in their prospectuses.
Because you and other investors will acquire, exchange and redeem Units
at different times, you may experience a loss on your Units even though the
Series in which you have invested as a whole is profitable and even though
other investors in that Series experience a profit. The past performance of
any Series may not be representative of your investment experience in it.
Likewise, you and other investors will invest in different Series managed
by different Advisors. The assets of each Series are
o segregated from the other Series' assets; and
o valued and accounted for separately from every other Series.
Consequently, the past performance of one Series has no bearing on the
past performance of another Series.
The Trust has a limited operating history upon which to evaluate your
investment in any Series. Although past performance is not necessarily
indicative of future results, if the Trust had a material amount of
performance history, such performance history might provide you with more
information on which to evaluate an investment in the Trust. Because the Trust
has no material performance history, you will have to make your decision to
invest in a Series without such information.
(2) Price Volatility May Possibly Cause the Total Loss of Your
Investment
Futures and forward contracts have a high degree of price variability and
are subject to occasional rapid and substantial changes. Consequently, you
could lose all or substantially all of your investment in any Series of the
Trust.
(3) Speculative and Volatile Markets Combined With Highly Leveraged
Trading May Cause the Trust to Incur Substantial Losses
The markets in which each Series of the Trust trades are speculative,
highly leveraged and involve a high degree of risk. Each Advisor's trading
considered individually involves a significant risk of incurring large losses,
and there can be no assurance that any Series of the Trust will not incur such
losses.
Futures and forward prices are volatile. Volatility increases risk,
particularly when trading with leverage. Trading on a highly leveraged basis,
as does each Series of the Trust, even in stable markets involves risk; doing
so in volatile markets necessarily involves a substantial risk of sudden,
significant losses. Due to such leverage, even a small movement in price could
cause large losses for the Trust. Market volatility will increase the
potential for large losses. Market volatility and leverage mean that any
Series of the Trust could incur substantial losses, potentially impairing its
equity base and ability to achieve its long-term profit objectives even if
favorable market conditions subsequently develop.
In addition to the leveraged trading described above, the Managing Owner
has the ability to further increase the leverage of any Series of the Trust by
allocating notional equity to its Advisor or Advisors (in a maximum amount of
up to 20% of the Series Net Asset Value), which would then permit such Advisor
to trade the account of such Series as if more equity were committed to such
accounts than is, in fact, the case. Although the Managing Owner has the
option to allocate additional notional equity to an Advisor, the Managing
Owner has no current plans to do so.
(4) Fees and Commissions are Charged Regardless of Profitability and
May Result in Depletion of Trust Assets
Each Series of the Trust is subject to the fees and expenses described
herein which are payable irrespective of profitability in addition to
performance fees which are payable based on the
-18-
profitability of such Series, except that with respect to Series J such
performance fees are payable to each Advisor based on such Advisor's
profitability and not on the profitability of Series J as a whole. Such fees
and expenses include asset-based fees of up to 6.50% per annum for Class I
Unitholders and up to 4.50% per annum for Class II Unitholders as well as
incentive fees equal to 20% of net profits on a cumulative high water mark
basis. Included in these charges are brokerage fees and operating expenses. On
the Trust's forward trading of each Series, "bid-ask" spreads are incorporated
into the pricing of such Series forward contracts by its counterparties in
addition to the brokerage fees paid by such Series. It is not possible to
quantify the "bid-ask" spreads paid by each Series because such Series cannot
determine the profit its counterparty is making on the forward trades into
which it enters. Consequently, the expenses of each Series could, over time,
result in significant losses to your investment therein. You may never achieve
profits, significant or otherwise.
(5) Market Conditions May Impair Profitability
The trading systems used by certain Advisors are technical,
trend-following methods. The profitability of trading under these systems
depends on, among other things, the occurrence of significant price trends
which are sustained movements, up or down, in futures and forward prices. Such
trends may not develop; there have been periods in the past without price
trends. The likelihood of the Units of any Series being profitable could be
materially diminished during periods when events external to the markets
themselves have an important impact on prices. During such periods, Advisors'
historic price analysis could establish positions on the wrong side of the
price movements caused by such events.
Graham and Eagle employ technical programs and Bridgewater trades
pursuant to systems that incorporate fundamental data.
(6) Discretionary Trading Strategies May Incur Substantial Losses
Discretionary traders, while they may utilize market charts, computer
programs and compilations of quantifiable fundamental information to assist
them in making trading decisions, make such decisions on the basis of their
own judgment and "trading instinct," not on the basis of trading signals
generated by any program or model. Such traders may be more prone to
subjective judgments which may have greater potentially adverse effects on
their performance than systematic traders, which emphasize eliminating the
effects of "emotionalism" on their trading. Reliance on trading judgment may,
over time, produce less consistent trading results than implementing a
systematic approach. Discretionary traders, like trend-following traders, are
unlikely to be profitable unless major price movements occur. Discretionary
traders are highly unpredictable, and can incur substantial losses even in
apparently favorable markets.
As of the date of this Prospectus, none of the Advisors are employing
discretionary strategies on behalf of the Trust although each reserves the
right to make discretionary decisions.
(7) Systematic Trading Strategies May Incur Substantial Losses
A systematic trader will generally rely to some degree on judgmental
decisions concerning, for example, what markets to follow and commodities to
trade, when to liquidate a position in a contract which is about to expire and
how large a position to take in a particular commodity. Although these
judgmental decisions may have a substantial effect on a systematic trader's
performance, such trader's primary reliance is on trading programs or models
that generate trading signals. The systems utilized to generate trading
signals are changed from time to time (although generally infrequently), but
the trading instructions generated by the systems being used are followed
without significant additional analysis or interpretation. Therefore,
systematic trading may incur substantial losses by failing to capitalize on
market trends that their systems would otherwise have exploited by applying
their generally mechanical trading systems by judgmental decisions of
employees. Furthermore, any trading system or trader may suffer substantial
losses by misjudging the market. Systematic traders tend to rely on
computerized programs, and some consider the prospect of disciplined trading,
which largely removes the emotion of the individual trader from the trading
process, advantageous. Due to their reliance upon computers, systematic
traders are generally able to incorporate a significant amount of data into a
particular trading decision. However, when fundamental factors dominate the
market, trading systems may suffer rapid and severe losses due to their
inability to respond to such factors until such factors have had a sufficient
effect on the market to create a trend of enough magnitude to generate a
reversal of trading signals, by which time a precipitous price change may
already be in progress,
-19-
preventing liquidation at anything but substantial losses.
The programs utilized by Graham, Bridgewater and Eagle are systematic
trading strategies.
(8) Decisions Based Upon Fundamental Analysis May Not Result in
Profitable Trading
Traders that utilize fundamental trading strategies attempt to examine
factors external to the trading market that affect the supply and demand for a
particular futures and forward contracts in order to predict future prices.
Such analysis may not result in profitable trading because the analyst may not
have knowledge of all factors affecting supply and demand, prices may often be
affected by unrelated factors, and purely fundamental analysis may not enable
the trader to determine quickly that previous trading decisions were
incorrect. In addition, because of the breadth of fundamental data that
exists, a fundamental trader may not be able to follow developments in all
such data, but instead may specialize in analyzing a narrow set of data,
requiring trading in fewer markets. Consequently, a fundamental trader may
have less flexibility in adverse markets to trade other futures and forward
markets than traders that do not limit the number of markets traded as a
result of a specialized focus.
Bridgewater utilizes fundamental trading strategies on behalf of its
program.
(9) Increase in Assets Under Management May Affect Trading Decisions
Many of the Advisors' current futures equity under management is at or
near its all-time high. As of February 28, 2006 (except with respect to
Bridgewater, which is as of December 31, 2005), Graham, Bridgewater and Eagle
each managed approximately $5.1 billion, $79.8 billion and $1.0 billion,
respectively Both Bridgewater and Graham are near their all time high with
respect to assets under management. The more equity an Advisor manages, the
more difficult it may be for that Advisor to trade profitably because of the
difficulty of trading larger positions without adversely affecting prices and
performance. Accordingly, such increases in equity under management may
require one or more of the Advisors to modify trading decisions for the
relevant Series of the Trust which could have a detrimental effect on your
investment in such Series.
(10) You Cannot be Assured of the Advisors' Continued Services Which
May Be Detrimental to Trust
You cannot be assured that any Advisor will be willing or able to
continue to provide advisory services to any Series of the Trust for any
length of time. There is severe competition for the services of qualified
trading advisors, and a Series of the Trust may not be able to retain
satisfactory replacement or additional trading advisors on acceptable terms or
a current Advisor may require the Trust to pay higher fees in order to be able
to retain such Advisor. The Managing Owner may either terminate an Advisor
upon 30 days' prior written notice, or upon shorter notice, if for cause. Each
Advisor has the right to terminate the Advisory Agreement in its discretion at
any time for cause.
(11) Limited Ability to Liquidate Your Investment
There is no secondary market for the Units. While the Units have
redemption and exchange rights, there are restrictions, and possible fees
assessed. For example, Units may be redeemed only as of the close of business
on the last Business Day of a calendar month provided a Request for Redemption
is received at least five (5) Business Days prior to the end of such month
excluding the last Business Day of the month. In addition, Units of Class I
may be subject to redemption charges if redeemed prior to the first
anniversary of their issuance in an amount equal to the product of (i) the Net
Asset Value per Unit on the redemption date of the Units being redeemed,
multiplied by (ii) the number of months remaining before the first anniversary
of the date such Units were purchased, multiplied by (iii) 1/12th of 2.00%.
Transfers of Units are subject to limitations, such as thirty (30) days'
advance notice of any intent to transfer. Also, the Managing Owner may deny a
request to transfer if it determines that the transfer may result in adverse
legal or tax consequences for the Trust or any Series.
(12) Possible Illiquid Markets May Exacerbate Losses
Futures and forward positions cannot always be liquidated at the desired
price. It is difficult to execute a trade at a specific price when there is a
relatively small volume of buy and sell orders in a market. A market
disruption, such as when foreign governments may take or be subject to
political actions which disrupt the markets in their currency or
-20-
major exports, can also make it difficult to liquidate a position. Periods of
illiquidity have accrued from time-to-time in the past, such as in connection
with Russia's default on its sovereign debt in 1998. Such periods of
illiquidity and the events that trigger them are difficult to predict and
there can be no assurance that any Advisor will be able to do so.
There can be no assurance that market illiquidity will not cause losses
for one or more Series of the Trust. The large size of the positions which an
Advisor is expected to acquire for a Series of the Trust increases the risk of
illiquidity by both making its positions more difficult to liquidate and
increasing the losses incurred while trying to do so.
Generally, none of the Advisors selected to manage the assets of the
various Series historically has allocated more than 10% of the assets under
such Advisor's management pursuant to the programs selected for the various
Series to over-the-counter instruments. The risk of loss due to potentially
illiquid markets is more acute in respect of over-the-counter instruments than
in respect of exchange-traded instruments because the performance of those
contracts is not guaranteed by an exchange or clearinghouse and the Series
will be at risk to the ability of the counterparty to the instrument to
perform its obligations thereunder. Because these markets are not regulated,
there are no specific standards or regulatory supervision of trade pricing and
other trading activities that occur in those markets.
(13) Because No Series of the Trust Acquires Any Asset with
Intrinsic Value, the Positive Performance of Your Investment Is
Wholly Dependent Upon an Equal and Offsetting Loss
Futures trading is a risk transfer economic activity. For every gain
there is an equal and offsetting loss rather than an opportunity to
participate over time in general economic growth. Unlike most alternative
investments, an investment in a Series of the Trust does not involve acquiring
any asset with intrinsic value. Overall stock and bond prices could rise
significantly and the economy as a whole prosper while any one or more Series
of the Trust trades unprofitably.
(14) Failure of Futures Trading to be Non-Correlated to General
Financial Markets Will Eliminate Benefits of Diversification
Historically, managed futures generally have been non-correlated to the
performance of other asset classes such as stocks and bonds. Non-correlation
means that there is no statistically valid relationship between the past
performance of futures and forward contracts on the one hand and stocks or
bonds on the other hand. Non-correlation should not be confused with negative
correlation, where the performance would be exactly opposite between two asset
classes. Because of this non-correlation, no Series of the Trust can be
expected to be automatically profitable during unfavorable periods for the
stock market, or vice-versa. The futures and forward markets are fundamentally
different from the securities markets in that for every gain in futures and
forward trading, there is an equal and offsetting loss. If a Series of the
Trust does not perform in a manner non-correlated with the general financial
markets or does not perform successfully, you will obtain no diversification
benefits by investing in the Units of such Series and such Series may have no
gains to offset your losses from other investments.
(15) Broad Indices May Perform Quite Differently From Individual
Investments
In the discussion under "Investment Factors," the concepts of overall
portfolio diversification and non-correlation of asset classes are discussed
and illustrated by the use of a generally accepted index that represents each
asset category. Stocks are represented by the S&P 500 Index and MSCI EAFE
Index, bonds by the Lehman Long-Term Government Bond Index, and futures funds
by the Barclay CTA Index. Because each index is a dollar-weighted average of
the returns of multiple underlying investments, the overall index return and
risk may be quite different from the return of any individual investment. For
example, the "Barclay CTA Index" is an unweighted index which attempts to
measure the performance of the CTA industry. The Index measures the combined
performance of all CTAs who have more than four years of past performance. For
purposes of calculating the Index, the first four years of a CTA's performance
history is ignored. Accordingly, such index reflects the volatility and risk
of loss characteristics of a very broadly diversified universe of advisors and
not of a single fund or advisor. Therefore, the performance of each Series of
the Trust will be different than that of the Barclay CTA Index.
-21-
(16) Advisors Trading Independently of Each Other May Reduce Profit
Potential and Insurance Risks Through Offsetting Positions
The Advisors trade entirely independently of each other. Two Advisors
may, from time to time, take opposite positions, eliminating any possibility
of an investor who holds Units in each of the relevant single-Advisor Series
or who holds Units in Series J profiting from these positions considered as a
whole but incurring the usual expenses associated with taking such positions.
The Advisors' programs may at times be similar to one another thereby negating
the benefits of investing in more than one Advisor by purchasing Units of more
than one of Series G, Series H and Series I or by purchasing Units of Series J
which may, in fact, increase risk. Two or more Advisors may compete with each
other to acquire the same position, thereby increasing the costs incurred by
each of them to take such position. It is also possible that two or more
Advisors, although trading independently, could experience drawdowns at the
same time, thereby negating the potential benefit associated with exposure to
more than one Advisor and more than one program. Series J's multi-advisor
structure will not necessarily control the risk of speculative futures
trading. Multi-Advisor funds may have significant volatility and risk despite
being relatively diversified among trading advisors.
(17) Trading on Commodity Exchanges Outside the United States is Not
Subject to U.S. Regulation
Each of the Advisors is expected to engage in some or all of its trading
on behalf of the applicable Series on commodity exchanges outside the United
States. Trading on such exchanges is not regulated by any United States
governmental agency and may involve certain risks not applicable to trading on
United States exchanges. In trading contracts denominated in currencies other
than U.S. dollars, each Series of the Trust will be subject to the risk of
adverse exchange-rate movements between the dollar and the functional
currencies of such contracts. Investors could incur substantial losses from
trading on foreign exchanges by any Series of the Trust to which such
Investors would not have been subject had the Advisors limited their trading
to U.S. markets.
On an annual basis, each of the below programs traded approximately the
following percentage of assets on foreign exchanges:
- ---------------------------------------------------------
Program Range
- ---------------------------------------------------------
Graham's Global Diversified at 150% Leverage 35-40%*
- ---------------------------------------------------------
Bridgewater's Aggressive Pure Alpha, 30-60%
Futures Only - A, No Benchmark
- ---------------------------------------------------------
Eagle's Momentum Program 30-40%
- ---------------------------------------------------------
The above ranges are only approximations with respect to each offered
program. Actual percentages may be either lesser or greater than above-listed.
Past performance is not necessarily indicative of future results.
*Currently, in its allocation of maximum exposures to different markets
and sectors, the exposure of Graham's Global Diversified at 150% Leverage
allocated to trades on foreign exchanges is set by its system at approximately
35-40%, meaning that if identifiable trends existed in all the markets
Graham's Global Diversified at 150% Leverage trades over an entire year, the
approximate percentage range of assets of Graham's Global Diversified at 150%
Leverage allocated for trading on foreign exchanges would be approximately
35-40%. The actual percentage of Graham's Global Diversified at 150% Leverage
assets traded on foreign exchanges over any period of time, however, depends
greatly on trading conditions and can therefore vary widely. For example, to
the extent there are no trends on domestic exchanges, Graham's Global
Diversified at 150% Leverage would minimize its trading on them, thereby
increasing the actual percentage of Graham's Global Diversified at 150%
Leverage assets traded on foreign exchanges. It is therefore quite possible
that though the theoretical allocation to foreign markets is set at
approximately 35-40% of its assets, Graham's Global Diversified at 150%
Leverage's actual percentage trading on foreign exchanges for a given period
may be much higher, in consequence of domestic markets offering fewer trading
opportunities.
(18) Various Actual and Potential Conflicts of Interest May Be
Detrimental to Unitholders
The Trust is subject to actual and potential conflicts of interests
involving the Managing Owner, the Advisors, various brokers and selling
agents. The
-22-
Managing Owner, the Advisors, and their respective principals, all of which
are engaged in other investment activities, are not required to devote
substantially all of their time to the Trust's business, which also presents
the potential for numerous conflicts of interest with the Trust. As a result
of these and other relationships, parties involved with the Trust have a
financial incentive to act in a manner other than in the best interests of the
Trust and its Unitholders. The Managing Owner has not established any formal
procedure to resolve conflicts of interest. Consequently, investors will be
dependent on the good faith of the respective parties subject to such
conflicts to resolve them equitably. Although the Managing Owner attempts to
monitor these conflicts, it is extremely difficult, if not impossible, for the
Managing Owner to ensure that these conflicts do not, in fact, result in
adverse consequences to the various Series of the Trust.
The Trust may be subject to certain conflicts with respect to its
Clearing Broker, its Futures Broker, and any executing broker including, but
not limited to, conflicts that result from receiving greater amounts of
compensation from other clients, purchasing opposite or competing positions on
behalf of third party accounts traded through the Clearing Broker, the Futures
Broker and executing brokers.
The Selling Agent and the Correspondent Selling Agents will be entitled
to ongoing compensation as a result of their clients remaining in any Series
of the Trust, so a conflict exists between their interest in maximizing
compensation and in advising their clients to make investment decisions in
such clients' best interests.
The Managing Owner and the Selling Agent are both owned by Kenmar
Holdings Inc., which could give rise to conflicts of interest because their
compensation in each role is based on the Net Asset Value of Units
outstanding. Like the employees of the Correspondent Selling Agents, the
employees of the Selling Agent may have a conflict of interest between acting
in the best interest of their clients and assuring continued compensation to
their employer.
(19) Unitholders Taxed Currently
Unitholders of a Series are subject to tax each year on their allocable
share of the income or gains (if any) of such Series, whether or not they
receive distributions. Moreover, the Managing Owner does not intend to make
any distributions to Unitholders in respect of any Series. Consequently,
Unitholders of a Series will be required either to redeem Units or to make use
of other sources of funds to discharge their tax liabilities in respect of any
profits earned by such Series.
In comparing the profit objectives of each Series of the Trust with the
performance of more familiar securities in which one might invest, prospective
investors must recognize that if they purchased equity or debt, there probably
would be no tax due on the appreciation in the value of such holdings until
disposition. In the case of each Series of the Trust, on the other hand, a
significant portion of any appreciation in the Net Asset Value per Unit must
be paid in taxes by the Unitholders of such Series every year, resulting in a
substantial cumulative reduction in their net after-tax returns. Because
Unitholders of a Series will be taxed currently on their allocable share of
the income or gains of such Series, if any, the Trust may trade successfully
but investors nevertheless would have recognized significantly greater gains
on an after-tax basis had they invested in conventional stocks with comparable
performance.
The performance information included in this Prospectus is presented
exclusively on a pre-tax basis.
(20) Limitation on Deductibility of "Investment Advisory Fees"
Non-corporate Unitholders of a Series may be required to treat the amount
of Incentive Fees and other expenses of such Series as "investment advisory
fees" which may be subject to substantial restrictions on deductibility for
federal income tax purposes. In the absence of further regulatory or statutory
clarification, the Managing Owner is not classifying these expenses as
"investment advisory fees," but this is a position to which the Internal
Revenue Service, the IRS, may object. If a substantial portion of the fees and
other expenses of a Series were characterized as "investment advisory fees,"
an investment in such Series might no longer be economically viable.
(21) Taxation of Interest Income Irrespective of Trading Losses
With respect to each Series, the Net Asset Value per Unit reflects the
trading profits and losses as well as the interest income earned and expenses
incurred by such Series. However, losses on such Series' trading will be
almost exclusively capital losses, and capital losses are deductible against
ordinary income only to the extent of $3,000 per year in the case of
-23-
non-corporate taxpayers. Consequently, if a non-corporate Unitholder had, for
example, an allocable trading (i.e., capital) loss of $10,000 in a given
fiscal year and allocable interest (i.e., ordinary) income (after reduction
for expenses) of $5,000, the Unitholder would have incurred a net loss in the
Net Asset Value of such Unitholder's Units equal to $5,000 but would recognize
taxable income of $2,000 (assuming a 40% tax rate). The limited deductibility
of capital losses for non-corporate Unitholders could result in such
Unitholders having a tax liability in respect of their investment in a Series
of the Trust despite incurring a financial loss on their Units of such Series.
(22) Possibility of a Tax Audit of Both the Series and the
Unitholders
There can be no assurance that the tax returns of each Series of the
Trust will not be audited by the IRS. If such an audit results in an
adjustment, Unitholders of such Series could themselves be audited as well as
being required to pay additional taxes, interest and possibly penalties.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISERS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF
AN INVESTMENT IN ANY SERIES OF THE TRUST; SUCH TAX CONSEQUENCES MAY DIFFER IN
RESPECT OF DIFFERENT INVESTORS.
(23) Failure or Lack of Segregation of Assets May Increase Losses
The Commodity Exchange Act requires a clearing broker to segregate all
funds received from customers from such broker's proprietary assets. If the
Clearing Broker fails to do so, the assets of any Series of the Trust might
not be fully protected in the event of their bankruptcy. Furthermore, in the
event of the Clearing Broker's bankruptcy, any Series of the Trust could be
limited to recovering only a pro rata share of all available funds segregated
on behalf of the Clearing Broker's combined customer accounts, even though
certain property specifically traceable to such Series of the Trust (for
example, Treasury bills deposited by such Series of the Trust with the
Clearing Broker as margin) was held by the Clearing Broker. The Clearing
Broker has been the subject of certain regulatory and private causes of
action. The material actions are described under "The Clearing Broker and
Futures Broker."
(24) Default by Counterparty and Credit Risk Could Cause Substantial
Losses
Dealers in forward contracts are not regulated by the Commodity Exchange
Act and are not obligated to segregate customer assets. As a result,
Unitholders do not have such basic protections with respect to the trading in
forward contracts by any Series of the Trust. This lack of regulation in these
markets could expose a Series in certain circumstances to significant losses
in the event of trading abuses or financial failure by the counterparties.
Each Series also faces the risk of non-performance by the counterparties
to the over-the-counter contracts. Unlike in futures contracts, the
counterparty to these contracts is generally a single bank or other financial
institution, rather than a clearing organization backed by a group of
financial institutions. As a result, there will be greater counterparty credit
risk in these transactions. The clearing member, clearing organization or
other counterparty may not be able to meet its obligations, in which case the
applicable Series could suffer significant losses on these contracts.
(25) Regulatory Changes or Actions May Alter the Nature of an
Investment in the Trust
Considerable regulatory attention has been focused on non-traditional
investment pools, in particular commodity pools such as each Series of the
Trust, publicly distributed in the United States. There has been significant
international governmental concern expressed regarding, for example, (i) the
disruptive effects of speculative trading on the central banks' attempts to
influence exchange rates and (ii) the need to regulate the derivatives markets
in general. There is a possibility of future regulatory changes altering,
perhaps to a material extent, the nature of an investment in any Series of the
Trust.
The futures markets are subject to comprehensive statutes, regulations,
and margin requirements. In addition, the CFTC and the exchanges are
authorized to take extraordinary actions in the event of a market emergency,
including, for example, the retroactive implementation of speculative position
limits or higher margin requirements, the establishment of daily price limits
and the suspension of trading. The regulation of futures and forward
transactions in the United States is a rapidly changing area of law and is
subject to modification by government and judicial
-24-
action. The effect of any future regulatory change on the Trust is impossible
to predict, but could be substantial and adverse.
(26) Trust Trading is Not Transparent
The trading decisions in respect of each Series are made by an Advisor or
Advisors. While the Managing Owner receives daily trade confirmations from the
Clearing Broker and foreign exchange dealers, such information is not provided
to Unitholders and each Series' trading results are reported to the
Unitholders monthly. Accordingly, an investment in a Series does not offer you
the same transparency, i.e., an ability to review all investment positions
daily, that a personal trading account offers. The Managing Owner may (but is
under no obligation to) provide estimated daily or weekly values to
Unitholders.
(27) Lack of Independent Experts Representing Investors
The Managing Owner has consulted with counsel, accountants and other
experts regarding the formation and operation of the Trust and each Series. No
counsel has been appointed to represent you in connection with the offering of
the Units of any Series. Accordingly, you should consult your own legal, tax
and financial advisers regarding the desirability of an investment in any
Series of the Trust.
(28) Forwards, Swaps, Hybrids and Other Derivatives are Not Subject
to CFTC Regulation
Each Series of the Trust trades foreign exchange contracts in the
interbank market. Since forward contracts are traded in unregulated markets
between principals, the commodity pools also assume the risk of loss from
counterparty nonperformance. In the future, any Series of the Trust may also
trade swap agreements, hybrid instruments and other off-exchange contracts.
Swap agreements involve trading income streams such as fixed rate or floating
rate interest. Hybrids are instruments which combine features of a security
with those of a futures contract. The dealer market for off-exchange
instruments is becoming more liquid. Because there is no exchange or clearing
house for these contracts, the Trust will be subject to the credit risk and
nonperformance of the counterparty. Additionally, because these off-exchange
contracts are not regulated by the CFTC, no Series of the Trust will receive
the protections which are provided by the CFTC's regulatory scheme.
(29) Possibility of Termination of the Trust or any Series Before
Expiration of its Stated Term
As managing owner, the Managing Owner may withdraw from the Trust upon
120 days' notice, which would cause the Trust and each Series to terminate
unless a substitute managing owner were obtained. Other events, such as a
long-term substantial loss suffered by any Series, could also cause such
Series to terminate before the expiration of its stated term. This could cause
you to liquidate your investments and upset the overall maturity and timing of
your investment portfolio. If the registrations with the CFTC or memberships
in the NFA of the Managing Owner or the Clearing Broker were revoked or
suspended, such entity would no longer be able to provide services to the
Trust.
THE SERIES AND THEIR OBJECTIVES
Objectives
o Significant profits over time
o Performance volatility commensurate with profit potential
o Controlled risk of loss
o Diversification within a traditional portfolio, typically consisting
entirely of "long" equity and debt positions and reduced dependence on a
single nation's economy, by accessing global financial, commodity and
other non-financial futures markets.
Each Series' potential for aggressive capital growth arises from the
profit possibilities offered by the global futures, forward and options
markets and the skills of the professional trading organization(s) selected to
manage the assets of such Series. The fact that a Series can profit from both
rising and falling markets adds an element of profit potential that is not
present in long-only strategies. However, a Series can also incur losses from
both rising and falling markets that adds to the risk of loss. In addition to
its profit potential and risk of loss, each Series also could help reduce the
overall volatility, or risk, of a portfolio. By investing in markets that
operate independently from U.S. stock and bond markets (and therefore, may be
considered as non-correlated), a Series may provide positive returns even when
U.S. stock and bond markets are experiencing flat to negative performance and
may provide negative
-25-
returns even when U.S. stock and bond markets are experiencing flat to
positive performance. Non-correlation should not be confused with negative
correlation, where the performance would be exactly opposite between a Series
and U.S. stock and bond markets.
The Series are structured to substantially eliminate the administrative
burden that would otherwise be involved if you engaged directly in futures
transactions. Among other things, you will receive directly from the Managing
Owner monthly unaudited financial reports and annual audited financial
statements (setting forth, in addition to certain other information, the Net
Asset Value per Unit of each Series in which you invest, such Series' trading
profits or losses and the expenses of such Series for the period) as well as
all tax information relating to such Series necessary for you to complete your
federal income tax returns. The approximate Net Asset Value per Unit will be
available at times other than month-end from the Managing Owner upon request.
Investment Philosophy
Each Series of the Trust is managed by Preferred Investment Solutions
Corp., or the Managing Owner. The Managing Owner:
o selects Clearing Brokers and, in conjunction with the Selling Agent,
selects Correspondent Selling Agents for each Series and selects the
Advisor or Advisors for each Series;
o monitors the trading activity and performance of each Advisor for
compliance with such Advisor's own trading policies and risk control
strategies;
o selects the Trust's administrator and the Trust's auditor;
o determines if an Advisor should be removed or replaced;
o negotiates advisory fees and brokerage commissions; and
o performs such other services as the Managing Owner believes that such
Series may from time to time require.
The Managing Owner believes that an effective means of controlling the
risks of futures, forward and options trading is by using a portfolio of
Advisors. The Trust affords you an opportunity to construct a customized
portfolio of Advisors consistent with your individual appetite and tolerance
for risk by investing in Units of some or all of the Series or, by investing
in Series J only, to maintain an equal exposure to each of the three Advisors,
rebalanced quarterly. However, no assurance can be given that you will
successfully diversify your exposure to these risks by purchasing Units of
more than one Series or by purchasing Units of Series J.
Diversification
Market Diversification
As global markets and investing become more complex, the inclusion of
professionally managed futures may continue to increase in traditional
portfolios of stocks and bonds managed by advisors seeking improved balance
and diversification. The globalization of the world's economy has the
potential to offer significant investment opportunities, as major political
and economic events continue to have an influence, in some cases a dramatic
influence, on the world's markets, creating risk but also providing the
potential for profitable trading opportunities. By allocating a portion of the
risk segment of their portfolios to selected advisors specializing in futures,
forward and options trading, investors have the potential, if their futures
investments are successful, to enhance their prospects for improved
performance as well as to reduce the volatility of their portfolios over time
and the dependence of such portfolios on any single nation's economy.
Additionally, by utilizing three Advisors simultaneously, Series J will
provide multiple timing parameters and different sector focuses, producing a
portfolio that may be quite different from that of a single-advisor fund.
THE TWO-TIER STRUCTURE OF THE SERIES
The Series do not trade directly through managed accounts with their
respective Advisor or Advisors, but rather through investing in one Trading
Vehicle for each Advisor to such Series. Each Trading Vehicle, in turn,
allocates its capital to a single Advisor. Each of Series G, Series H and
Series I share a single Trading Vehicle with Series J. Series J trades through
investing in three Trading Vehicles, sharing one Trading Vehicle with each of
Series G, Series H and Series I. No Advisor can cause any Series to lose more
than the amount which
-26-
such Series has invested in the Trading Vehicle. Each of the Trading Vehicles
is organized as a Delaware limited liability company managed by its members.
The sole purpose of each Trading Vehicle is to open an account to be traded by
an Advisor.
100% of the assets invested in any Trading Vehicle are allocated to
trading. Each of Series G, Series H and Series I invest 100% of its assets in
a single Trading Vehicle; Series J initially will invest 33.33% of its assets
in each of the three Trading Vehicles and the Managing Owner will rebalance
the investments of Series J in each Trading Vehicle quarterly so that the
allocation of the assets of Series J among the three Trading Vehicles (and, by
extension, the three Advisors) will be proportional at the beginning of each
quarter. All trading profits and losses are shared pro rata among the two
Series which invest in the same Trading Vehicle based on the amount of their
respective investments in such Trading Vehicle from time to time.
The use of the Trading Vehicles by each Series has no effect on the
leverage at which the different Series trade. Each Series trades through one
or more Trading Vehicles, rather than directly, in order to achieve
efficiencies and assure that Series J's liability for trading losses by any
one Advisor is limited to Series J's investment in the Trading Vehicle
corresponding to such Advisor. This risk to Series J arises because it would
be theoretically possible, in the absence of the Trading Vehicles, that
catastrophic losses by a single Advisor could deplete all the assets of Series
J, even those assets that were allocated for management to other Advisors.
Catastrophic losses by an Advisor in excess of the amount of the assets
allocated to such Advisor could occur as a result of the high degree of
embedded leverage in the instruments being traded and the trading strategies
being employed by each of the Advisors. If such losses were to occur, they
would, in the absence of the Trading Vehicles, be liabilities of Series J
generally and all of the assets of Series J could be available to the Trust's
creditors to satisfy claims attributable to the Advisor whose strategies
resulted in such catastrophic losses. The Trading Vehicles assure that a
creditor of a Trading Vehicle whose corresponding Advisor has generated
catastrophic losses will not be able to look to other assets of Series J to
satisfy obligations owing to such creditor as a result of such Advisor's
trading losses. In addition, the Trading Vehicles achieve certain efficiencies
by permitting the Advisors to trade a single account for the benefit of more
than one Series.
There is no benefit to investors from the two-tier Series/Trading Vehicle
structure other than liability protection afforded to Series J and efficiency
which benefits all Series. There is no detriment to investors from the
two-tier Series/Trading Vehicle structure other than the negligible
incremental additional costs associated with organizing and maintaining the
Trading Vehicles, which the Managing Owner believes are more than offset by
the efficiencies obtained by using the Trading Vehicles.
[Remainder of page left blank intentionally.]
-27-
By investing in Units of one or more Series, you will access world
markets, including but not limited to:
Currencies
- -------------------------------------------------------------------------------
Australian Dollar Indian Rupee Polish Zloty
British Pound Japanese Yen Singapore Dollar
Canadian Dollar Malaysian Ringgit Swedish Krona
Danish Krone Mexican Peso Swiss Franc
Euro Currency New Zealand Dollar S. African Rand
Hungarian Forint Norwegian Krone Thai Bhat
Financial Instruments
- -------------------------------------------------------------------------------
Australian All Ordinaries LIBOR - 1 mo.
Australian Bank Bills Major Market Stock Index (U.S.)
Australian Treasury Bonds MEFF&S Stock Index (Spain)
CAC 40 Stock Index (France) MIB-30 (Italy)
Canadian Bankers Acceptance MSCI Taiwan Stock Index
Canadian Government Bonds Nasdaq 100 (U.S.)
DAX Stock Index (Germany) Nikkei Stock Average (Japan)
Dow Jones Industrial Average (U.S.) OMX Stockholm Stock Index
ECU Notional Bonds Russell 2000 (U.S.)
Euribor S&P 500 Stock Index (U.S.)
Eurodollars Singapore MSCI
Euroswiss Spanish Notional Bonds
Eurotop 100 Index (Europe) Swedish Government Bond
Euroyen Swiss Bonds
Financial Times 100 Stock Index (U.K.) Swiss Market Index
German Boble Tokyo Stock Price Index (Japan)
German Bunds U.K. Gilts
Hang Seng Index U.K. Short Sterling
IBEX Plus 35 Index (Spain) U.S. Treasury Bonds
Japanese Bonds U.S. Treasury Notes
Value Line Stock Index (U.S.)
Metals
- --------------------------------------------------------------------------------
Aluminum Lead Platinum Tin
Copper Nickel Silver Zinc
Gold Palladium
Energy Products
- --------------------------------------------------------------------------------
Crude Oil Kerosene Natural Gas Propane
Electricity London Brent No. 2 Heating Oil Unleaded Gasoline
Gas Oil
Agricultural Products
- --------------------------------------------------------------------------------
Canola Feeder Cattle Orange Juice Soybean Oil
Cocoa Flaxseed Pork Bellies Sugar
Coffee Live Cattle Rapeseed Wheat
Corn Live Hogs Soybeans Lumber
Cotton Oats Soymeal
In the aggregate, the Series will trade in many, but not all, of the
foregoing markets as well as additional markets. There can be no assurance as
to which markets any Series will, in fact, trade over time or at any given
time. No Advisor trades in all of the foregoing markets. The portfolio
exposure of each Series may, from time to time, be concentrated in a limited
number of markets.
-28-
WORLD MONITOR TRUST III
PERFORMANCE OF SERIES J, CLASS I
Name of Pool: World Monitor Trust III
Name of Series: Series J
Type of Pool: Multi Advisor Pool; Multi Advisor Series
Inception of Trading: December 2005
Aggregate Subscriptions: $42,352,331
Current Net Asset Value: $ 40,808,266
Worst Monthly Percentage Drawdown: (2.62)% (12/05)
Worst Peak-to-Valley Drawdown: (4.43)% (12/05 to 02/06)
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ---------------------------------------------------------------------------------------------------------------------------
January (1.33)%
- ---------------------------------------------------------------------------------------------------------------------------
February (0.53)%
- ---------------------------------------------------------------------------------------------------------------------------
March
- ---------------------------------------------------------------------------------------------------------------------------
April
- ---------------------------------------------------------------------------------------------------------------------------
May
- ---------------------------------------------------------------------------------------------------------------------------
June
- ---------------------------------------------------------------------------------------------------------------------------
July
- ---------------------------------------------------------------------------------------------------------------------------
August
- ---------------------------------------------------------------------------------------------------------------------------
September
- ---------------------------------------------------------------------------------------------------------------------------
October
- ---------------------------------------------------------------------------------------------------------------------------
November
- ---------------------------------------------------------------------------------------------------------------------------
December (2.62)%
- ---------------------------------------------------------------------------------------------------------------------------
Compound Rate of (2.62)% (1.85)%
Return (1 month) (2 months)
- ---------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Notes to Performance Information
In reviewing the descriptions of Series J's performance, prospective
investors should understand that such performance is "net" of all fees and
charges, and includes interest income.
1. Worst Monthly Percentage Drawdown is the largest monthly percentage
loss experienced by Series J in any calendar month covered by the
performance summary. "Loss" for these purposes is calculated on the
basis of the loss experienced by Series J, expressed as a
percentage of the total equity (including "notional" equity) of
Series J. Worst Monthly Percentage Drawdown information includes the
month and year of such drawdown, and is as of February 28, 2006.
2. Worst Peak-to-Valley Drawdown is the largest percentage decline
(after eliminating the effect of subscriptions and redemptions)
experienced by Series J during the period covered by the
performance summary from any month-end Net Asset Value, without such
month-end Net Asset Value being equaled or exceeded as of a
subsequent month-end. Worst Peak-to-Valley Drawdown is calculated on
the basis of the loss experienced by Series J, expressed as a
percentage of the total equity (including "notional" equity) in Series
J, and is as of February 28, 2006.
-29-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
Preparation of the financial statements and related disclosures in
compliance with accounting principles generally accepted in the United States
of America requires the application of appropriate accounting rules and
guidance, as well as the use of estimates. The Trust's application of these
policies involves judgments and actual results may differ from the estimates
used.
The Managing Owner has evaluated the nature and types of estimates that
it will make in preparing the Trust's financial statements and related
disclosures and has determined that the valuation of its investments which are
not traded on a United States or internationally recognized futures exchange
involves a critical accounting policy. The values which will be used by the
Trust for its open forward positions will be provided by its commodity broker
who will use market prices when available, while over-the-counter derivative
financial instruments, principally forwards, options and swaps will be valued
based on the present value of estimated future cash flows that would be
received from or paid to a third party in settlement of these derivative
contracts prior to their delivery date.
Liquidity and Capital Resources
As of the date of this Prospectus, all of the Trust's total net assets
have been allocated to commodities trading. A significant portion of the Net
Asset Value is likely to be held in U.S. Treasury bills and cash, which will
be used as margin for the Trust's trading in commodities. The percentage that
U.S. Treasury bills will bear to the total net assets will vary from period to
period as the market values of commodity interests change. The balance of the
net assets will be held in the Trust's commodity trading accounts. Interest
earned on the Trust's interest-bearing funds will be paid to the Trust.
The Trust's commodity contracts will be subject to periods of illiquidity
because of market conditions, regulatory considerations and other reasons. For
example, commodity exchanges limit fluctuations in certain commodity futures
contract prices during a single day by regulations referred to as "daily
limits." During a single day, no trades may be executed at prices beyond the
daily limit. Once the price of a futures contract for a particular commodity
has increased or decreased by an amount equal to the daily limit, positions in
the commodity can neither be taken nor liquidated unless the traders are
willing to effect trades at or within the limit. Commodity futures prices have
occasionally moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Trust from promptly
liquidating its commodity futures positions.
Because the Trust trades futures and forward contracts, its capital is at
risk due to changes in the value of these contracts (market risk) or the
inability of counterparties to perform under the terms of the contracts
(credit risk).
Market risk
Trading in futures and forward contracts (including foreign exchange)
involves the Trust entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or face amount
of the contracts, which will typically be many times that of the Trust's Net
Assets being traded, will significantly exceed the Trust's future cash
requirements since the Trust intends to close out its open positions prior to
settlement. As a result, the Trust is generally subject only to the risk of
loss arising from the change in the value of the contracts. As such, the Trust
considers the "fair value" of its derivative instruments to be the net
unrealized gain or loss on the contracts. The market risk that is associated
with the Trust's commitments to purchase commodities is limited to the gross
or face amount of the contracts held. However, should the Trust enter into a
contractual commitment to sell commodities, it would be required to make
delivery of the underlying commodity at the contract price and then repurchase
the contract at prevailing market prices or settle in cash. Because the
repurchase price to which a commodity can rise is unlimited, entering into
commitments to sell commodities will expose the Trust to unlimited risk.
The Trust's exposure to market risk is influenced by a number of factors
including the volatility of interest rates and foreign currency exchange
rates, the liquidity of the markets in which the contracts are traded and the
relationships among the contracts held. The inherent uncertainty of the
Trust's speculative trading as well as the development of drastic market
occurrences could ultimately lead to a loss of all or substantially all of
investors' capital.
-30-
Credit risk
By entering into futures or forward contracts, the Trust is exposed to
credit risk that the counterparty to the contract will not meet its
obligations. The counterparty for futures contracts traded on United States
and on most foreign futures exchanges is the clearinghouse associated with the
particular exchange. In general, clearinghouses are backed by their corporate
members who are required to share any financial burden resulting from the
nonperformance by one of their members and, as such, should significantly
reduce this credit risk. In cases where the clearinghouse is not backed by the
clearing members (i.e., some foreign exchanges), it is normally backed by a
consortium of banks or other financial institutions. There is concentration
risk on forward transactions entered into by the Trust as the Trust will
utilize only one commodity broker. The Trust has entered into a master netting
agreement with the commodity broker and, as a result, will present unrealized
gains and losses on open forward positions as a net amount in the statement of
financial position. The amount of risk associated with counterparty
nonperformance of all of the Trust's contracts will be the net unrealized gain
included in the statement of financial condition; however, counterparty
nonperformance on only certain of the Trust's contracts may result in greater
loss than nonperformance on all of the Trust's contracts. There can be no
assurance that any counterparty, clearing member or clearinghouse will meet
its obligations to the Trust.
The Managing Owner attempts to minimize these market and credit risks by
requiring the Trust and its Advisors to abide by various trading limitations
and policies, which include limiting margin accounts, trading only in liquid
markets and permitting the use of stop-loss provisions. The Managing Owner
monitors compliance with these trading limitations and policies which include,
but are not limited to:
o executing and clearing trades with creditworthy counterparties;
o limiting the amount of margin or premium required for any one commodity
or all commodities combined;
o generally limiting transactions to contracts which will be traded in
sufficient volume to permit the taking and liquidating of positions.
The Trust's commodity broker, when acting as the Trust's futures
commission merchant in accepting orders for the purchase or sale of domestic
futures and options on contracts, is required by Commodity Futures Trading
Commission, or CFTC regulations to separately account for and segregate as
belonging to the Trust, all assets of the Trust relating to domestic futures
and options trading and the commodity broker is not allowed to commingle such
assets with other assets of the commodity broker. In addition, the CFTC
regulations also require the commodity broker to secure assets of the Trust
related to foreign futures and options trading. There are no segregation
requirements for assets related to forward trading.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
As of the date of this Prospectus, the Trust has not utilized, nor does
it expect to utilize in the future, special purpose entities to facilitate
off-balance sheet financing arrangements and has no loan guarantee
arrangements or off-balance sheet arrangements of any kind other than
agreements entered into in the normal course of business, which may include
indemnification provisions related to certain risks service providers
undertake in performing services which are in the best interests of the Trust.
While the Trust's exposure under such indemnification provisions cannot be
estimated, these general business indemnifications are not expected to have a
material impact on the Trust's financial position.
The Trust's contractual obligations are with the Advisors and the
commodity brokers. Payments made under the Trust's agreement with the Advisors
are a fixed rate, calculated as a percentage of each Series' "New High Net
Trading Profits." Management Fee payments made to the Managing Owner are
calculated as a fixed percentage of each Series' Net Asset Value. Commission
payments to the commodity broker are on a contract-by-contract, or round-turn,
basis. As such, the Managing Owner cannot anticipate the amount of payments
that will be required under these arrangements for future periods as Net Asset
Values are not known until a future date. These agreements are effective for
one year terms, renewable automatically for additional one year terms unless
terminated. Additionally, these agreements may be terminated by either party
for various reasons.
-31-
THE ADVISORS
General
All direct investment decisions for each of Series G, Series H and Series
I are made by a single commodity trading advisor selected and monitored by the
Managing Owner. The assets of Series J are allocated equally among the same
three Advisors and rebalanced quarterly. Each current Advisor is, and it is
anticipated that any subsequent Advisor, if any, will be, registered with and
regulated by the CFTC. The registration of the Advisors with the CFTC and
their membership in the NFA must not be construed to mean that any regulatory
body has recommended or approved the Advisors or any Series of the Trust.
Although the following descriptions of each of the Advisors and their
trading methods and strategies are general and are not intended to be
exhaustive, such descriptions address the material aspects of each Advisor's
program that is offered by the Trust. Trading methods are proprietary and
complex, so only the most general descriptions are possible. Furthermore,
certain Advisors may have chosen to refer to specific aspects of their trading
systems, methods and strategies, which aspects may also be applicable to other
Advisors which did not choose to make explicit reference to these aspects of
their own strategies. As a result, contrasts in the descriptions set forth
herein may not, in fact, indicate a substantive difference between the trading
methods and strategies involved. While the Managing Owner believes that the
description of the Advisors' methods and strategies included herein may be of
interest to prospective investors, such persons must be aware of the inherent
limitations of such description.
This section contains brief biographical outlines and performance
summaries of the Trust's Advisors. The success of the Trust is dependent upon
the success of the Advisors retained by or on behalf of the Trust from time to
time to trade for its account. In terms of attempting to reach an investment
decision regarding the Series, however, it is difficult to know how to assess
Advisor descriptions and performance summaries, as trading methods are
proprietary and confidential and past performance is not necessarily
indicative of future results. Furthermore, the performance summaries provide
only a brief overview of the Advisors' performance histories and have not been
audited.
Certain Advisors trade "notional" equity for clients -- i.e., trading
such clients' accounts as if more equity were committed to such accounts than
is, in fact, the case. The Trust's accounts may, at the Managing Owner's
discretion, permit the Advisors to trade the accounts on a basis which
includes notional equity.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FURTHERMORE, THE RATES OF RETURN EARNED WHEN AN ADVISOR IS MANAGING A LIMITED
AMOUNT OF EQUITY MAY HAVE LITTLE RELATIONSHIP TO THE RATES OF RETURN THAT SUCH
ADVISOR MAY BE ABLE TO ACHIEVE MANAGING LARGER AMOUNTS OF EQUITY.
THE ADVISORS' PERFORMANCE SUMMARIES APPEARING IN THIS PROSPECTUS HAVE IN
NO RESPECT BEEN ADJUSTED TO REFLECT THE CHARGES TO THE TRUST. CERTAIN OF THE
ACCOUNTS INCLUDED IN SUCH PERFORMANCE SUMMARIES PAID FEES MATERIALLY DIFFERENT
FROM, AND IN SOME CASES MATERIALLY LOWER THAN, THOSE CHARGED TO THE TRUST.
TRADING OF FUTURES AND FORWARD CONTRACTS AND RELATED INSTRUMENTS IS
SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. THERE CAN BE NO ASSURANCE THAT
THE ADVISORS WILL TRADE PROFITABLY OR AVOID INCURRING SUBSTANTIAL LOSSES.
Futures Trading Methods in General
Systematic and Discretionary Trading Approaches
Futures traders may generally be classified as either systematic or
discretionary.
A systematic trader will generally rely to some degree on judgmental
decisions concerning, for example, what markets to follow and commodities to
trade, when to liquidate a position in a contract which is about to expire and
how large a position to take in a particular commodity. However, although
these judgmental decisions may have a substantial effect on a systematic
trader's performance, his primary reliance is on trading programs or models
that generate trading signals. The systems utilized to generate trading
signals are continuously evolving, but the trading instructions generated by
the systems being used are followed without significant additional analysis or
interpretation. Discretionary traders, while they may utilize market charts,
-32-
computer programs and compilations of quantifiable fundamental information to
assist them in making trading decisions, make such decisions on the basis of
their own judgment and "trading instinct," not on the basis of trading signals
generated by any program or model.
Each approach involves certain inherent risks. Systematic traders may
fail to capitalize on market trends that their systems would otherwise have
exploited due to judgmental decisions made by them in the context of applying
their generally mechanical trading systems. Discretionary traders may decide
to make trades which would not have been signaled by a trading system and
which result in substantial losses. Furthermore, any trading system or trader
may suffer substantial losses by misjudging the market. Systematic traders
tend to rely more on computerized programs than do discretionary traders. In
addition, due to their use of computers, systematic traders are generally able
to incorporate more data into a particular trading decision than are
discretionary traders. However, when fundamental factors dominate the market,
trading systems may suffer rapid and severe losses due to their inability to
respond to such factors until such factors have had a sufficient effect on the
market to create a trend of enough magnitude to generate a reversal of trading
signals, by which time a precipitous price change may already be in progress,
preventing liquidation at anything but substantial losses.
Technical and Fundamental Analysis
In addition to being distinguished from one another by the criterion of
whether they trade systematically or on the basis of their discretionary
evaluations of the markets, commodity trading advisors are also distinguished
as relying on either "technical" or "fundamental" analysis, or on a
combination of the two. Systematic traders tend to rely on technical analysis,
because the data relevant to such analysis is more susceptible to being
isolated and quantified to the extent necessary to be successfully
incorporated into a program or mathematical model than is most "fundamental"
information, but there is no inconsistency in attempting to trade
systematically on the basis of fundamental analysis. The fundamental
information which can be evaluated by a formalized trading system is, however,
limited to some extent in that it generally must be quantifiable in order to
be processed by such a system.
Technical analysis is not based on anticipated supply and demand factors;
instead, it is based on the theory that the study of the commodities markets
themselves will provide a means of anticipating future prices. Technical
analysis operates on the theory that market prices at any given point in time
reflect all known factors affecting the supply and demand for a particular
commodity. Consequently, technical analysis focuses not on evaluating those
factors directly but on an analysis of market prices themselves, theorizing
that a detailed analysis of, among other things, actual daily, weekly and
monthly price fluctuations, volume variations and changes in open interest is
the most effective means of attempting to predict the future course of price
movements.
Fundamental analysis, in contrast, is based on the study of factors
external to the trading markets that affect the supply and demand of a
particular commodity in an attempt to predict future price levels. Such
factors might include weather, the economy of a particular country, government
policies, domestic and foreign political and economic events, and changing
trade prospects. Fundamental analysis theorizes that by monitoring relevant
supply and demand factors for a particular commodity, a state of current or
potential disequilibrium of market conditions may be identified that has yet
to be reflected in the price level of that commodity. Fundamental analysis
assumes that markets are imperfect, that information is not instantaneously
assimilated or disseminated and that econometric models can be constructed
that generate equilibrium prices that may indicate that current prices are
inconsistent with underlying economic conditions and will, accordingly, change
in the future.
Trend-Following
"Trend-following" traders gear their trading approaches towards
positioning themselves to take advantage of major price movements, as opposed
to traders who seek to achieve overall profitability by making numerous small
profits on short-term trades, or through arbitrage techniques.
"Trend-following" traders assume that most of their trades will be
unprofitable. Their objective is to make a few large profits, more than
offsetting their more numerous but smaller losses, from capitalizing on major
trends. Consequently, during periods when no major price trends develop in a
market, a "trend-following" trader is likely to incur substantial losses.
Risk Control Techniques
An important aspect of any speculative futures strategy relates to the
control of losses, not only the
-33-
ability to identify profitable trades. Unless it is possible to avoid major
drawdowns, it is very difficult to achieve long-term profitability.
Traders often adopt fairly rigid "risk management" or "money management"
principles. Such principles typically restrict the size of positions which
will be taken as well as establish "stop-loss" points at which losing
positions must be liquidated. It is important for prospective investors to
recognize in reading the descriptions of the Advisors' various risk control
techniques that none is "fail safe," and none can, in fact, assure that major
drawdowns will be avoided. Not only do estimates of market volatility
themselves require judgmental input, but also market illiquidity can make it
impossible for an account to liquidate a position against which the market is
moving strongly, whatever risk management principles are utilized. Similarly,
irrespective of how small the initial "probing" positions taken by an Advisor
are, unless it trades profitably, innumerable small losses incurred in the
course of such "probing" can quickly accumulate into a major drawdown. The
Advisors' risk management principles should, accordingly, be seen more as a
discipline applied to their trading in highly speculative markets than as an
effective protection against loss.
Not only are trading methods proprietary, but they often are also
continually evolving. Prospective investors and Unitholders will generally not
be informed of a change in an Advisor's trading approach, unless Managing
Owner is informed of such change and considers such change to be material.
In addition to the continually changing character of trading methods, the
commodity markets themselves are continually changing. Each Advisor may, in
its sole discretion, elect to trade any available futures or forward contract,
option or related instrument -- both on United States markets and abroad --
even if such Advisor has never previously traded in that particular contract
or market.
Assets Under
Worst/Best Monthly Management In
Rate of Return(1)/ Worst Peak-to-Valley Trust General Strategy
Advisors Month Drawdown(2)/Time Period Program(3) Classification
-------- ----- ----------------------- ---------- --------------
Graham Capital Management, L.P. (15.77)% 11/01 (24.27)% 11/01-4/02 $478,064,000 Technical,
Global Diversified at 11.99% 9/01 Systematic Global
150% Leverage Macro
Bridgewater Associates, Inc. (7.44)% 5/01 (28.35)% 6/00-5/01 $32,000,000 Fundamental and
Aggressive Pure Alpha 9.07% 10/01 Systematic Global
Futures Only - A, No Macro
Benchmark
Eagle Trading Systems Inc. (9.96)% 1/05 (20.40)% 12/04-4/05 $43,560,551 Technical,
Eagle Momentum Program 11.37% 11/04 Systematic Global
Macro
- ----------------------
(1) The Worst/Best Monthly Rate of Return represents the lowest and the
highest monthly rate of return of an account for the program traded for
the Trust. Performance information is presented for the period from
January 1, 2001 (or inception, if later) through February 28, 2006, except
with respect to Bridgewater Associates, Inc., which is through December
31, 2005.
(2) The greatest cumulative percentage decline in month-end net asset value
due to losses sustained by any account or 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.
(3) Assets under management in the program traded for the Trust reflects
nominal account or program size, which includes notional funds.
-34-
Leveraging
Futures trading is highly leveraged, as is each Advisor's trading program.
The following table reflects the average range of assets as margin with
respect to each Series:
- --------------------------|-------------------------------
Series | Range
- --------------------------|-------------------------------
Series G: | 20-30%
- --------------------------|-------------------------------
Series H: | 5-20%
- --------------------------|-------------------------------
Series I: | 0-30%
- --------------------------|-------------------------------
Series J | 8-27%
- --------------------------|-------------------------------
The above numbers are historical in nature and, with respect to Series J,
represent a composite of the average range of assets as margin with respect to
Series G, Series H and Series I. Such numbers may deviate either below or
above the disclosed ranges.
Any change by Managing Owner in the leverage of the Trust is noted in the
Trust's monthly reports.
NOTES TO PERFORMANCE INFORMATION
In reviewing the descriptions of the Advisors' performance, prospective
investors should understand that such performance is "net" of all fees and
charges, and includes interest income applicable to the accounts comprising
each composite performance summary. Such composite performance is not
necessarily indicative of any individual account. In addition, particular
conventions adopted by certain Advisors with respect to the calculation of the
performance information set forth herein are described under the "Past
Performance Information" section with respect to each Advisor.
1. Name of CTA is the name of the Advisor which directed the accounts
included in the performance summary.
2. Name of program is the name of the trading program used by the Advisor
in directing the accounts included in the performance summary.
3. Inception of client account trading by CTA is the date on which the
relevant Advisor began directing client accounts.
4. Inception of client account trading in program is the date on which the
relevant Advisor began directing client accounts pursuant to the
program shown in the performance summary.
5. Number of open accounts is the number of accounts directed by the
relevant Advisor pursuant to the program shown in the performance
summary through February 28, 2006 except for Bridgewater Associates,
Inc., whose numbers are presented through December 31, 2005 with
respect to all of its other programs (not offered by the Trust).
6. Aggregate assets (excluding "notional" equity) overall is the aggregate
amount of actual assets under the management of the relevant Advisor in
all programs operated by such Advisor through February 28, 2006, except
for Bridgewater Associates, Inc., whose numbers are presented through
December 31, 2005 with respect to all of its other programs (not
offered by the Trust).
7. Aggregate assets (including "notional" equity) overall is the aggregate
amount of total equity, including "notional" equity, under the
management of the relevant Advisor in all programs operated by such
Advisor through February 28, 2006, except for Bridgewater Associates,
Inc., whose numbers are presented through December 31, 2005 with
respect to all of its other programs (not offered by the Trust).
8. Aggregate assets (excluding "notional" equity) in program is the
aggregate amount of actual assets under the management of the relevant
Advisor in the program shown in the performance summary through
February 28, 2006, except for Bridgewater Associates, Inc., whose
numbers are presented through December 31, 2005 with respect to all of
its other programs (not offered by the Trust).
9. Aggregate assets (including "notional" equity) in program is the
aggregate amount of total equity, including "notional" equity, under
the management of the relevant Advisor in the program shown in the
performance summary through February 28, 2006, except for Bridgewater
Associates, Inc., whose numbers are presented through December 31, 2005
with respect to all of its other programs (not offered by the Trust).
-35-
10. Largest monthly drawdown is the largest monthly percentage loss
experienced by any account of the Advisor in the relevant program in
any calendar month covered by the performance summary. "Loss" for these
purposes is calculated on the basis of the loss experienced by each
such account or program, expressed as a percentage of the total equity
(including "notional" equity) of such account or program. Largest
monthly drawdown information includes the month and year of such
drawdown, and is February 28, 2006, except for Bridgewater Associates,
Inc., whose numbers are presented through December 31, 2005 with
respect to all of its other programs (not offered by the Trust).
11. Largest peak-to-valley drawdown is the largest percentage decline
(after eliminating the effect of additions and withdrawals) experienced
by any account of the Advisor in the relevant program during the period
covered by the performance summary from any month-end net asset value,
without such month-end net asset value being equaled or exceeded as of
a subsequent month-end. Largest peak-to-valley drawdown is calculated
on the basis of the loss experienced by each such account in the
relevant program, expressed as a percentage of the total equity
(including "notional" equity) in such account, and is through February
28, 2006, except for Bridgewater Associates, Inc., whose numbers are
presented through December 31, 2005 with respect to all of its other
programs (not offered by the Trust).
12. Monthly rate of return for any month in the Advisors' performance
summaries is, in general, the net performance of the relevant program
divided by the beginning of the month net assets in such program.
Monthly rates of return, in accordance with CFTC regulations and NFA
rules, are shown only for the specific programs to be traded by the
Advisors for the Trust. In the accompanying performance descriptions,
and with respect to performance information calculated prior to May 1,
2004, certain Advisors adopted a method of computing rate of return and
performance disclosure, referred to as the "Fully-Funded Subset"
method, pursuant to an Advisory (the "Fully-Funded Subset Advisory")
published in February 1993 by the CFTC. To qualify for the use of the
Fully-Funded Subset method, the Fully-Funded Subset Advisory required
that certain computations be made in order to arrive at the
Fully-Funded Subset and that the accounts for which performance was so
reported meet two tests which were designed to provide assurance that
the Fully-Funded Subset and the resultant rates of return were
representative of the particular trading program.
Effective May 1, 2004, monthly rate of return is calculated by certain
Advisors by dividing net performance by the program's or account's
aggregate nominal account size.
The monthly rates of return for each Advisor, in certain cases, are
calculated on the basis of assets under management including
proprietary capital. However, the Advisors believe that the inclusion
of such capital has had no material effect on their monthly rates of
return.
13. Compound rate of return is calculated by multiplying on a compound
basis each of the monthly rates of return and not by adding or
averaging such monthly rates of return. For periods of less than one
year, the results are for the period indicated.
14. Number of profitable accounts that have opened and closed means the
number of accounts traded pursuant to the disclosed trading program
that were opened and closed during the period from January 1, 2001
through February 28, 2006, except for Bridgewater Associates, Inc.,
whose numbers are presented through December 31, 2005 with respect to
all of its other programs (not offered by the Trust) with positive net
performance as of the date the accounts were closed.
15. Range of returns experienced by profitable accounts with respect to the
period from January 1, 2001 through February 28, 2006, except for
Bridgewater Associates, Inc., whose numbers are presented through
December 31, 2005 with respect to all of its other programs (not
offered by the Trust).
16. Number of unprofitable accounts that have opened and closed means the
number of accounts traded pursuant to the disclosed
-36-
trading program that were opened and closed during the period from
January 1, 2001 through February 28, 2006, except for Bridgewater
Associates, Inc., whose numbers are presented through December 31, 2005
with respect to all of its other programs (not offered by the Trust)
with negative net performance as of the date the accounts were closed.
17. Range of returns experienced by unprofitable accounts with respect to
the period from January 1, 2001 through February 28, 2006, except for
Bridgewater Associates, Inc., whose numbers are presented through
December 31, 2005 with respect to all of its other programs (not
offered by the Trust).
All of Bridgewater Associates, Inc.'s performance information is as of
December 31, 2005 because February 28, 2006 performance information is
unavailable as of the date of the prospectus (except with respect to the
monthly rate of return of the program offered of the Trust, which is as of
February 28, 2006). Graham Capital Management, L.P., or GCM advises exempt
commodity futures accounts for qualified eligible clients the performance of
which is not included in GCM's performance information herein.
THE FOLLOWING FIGURES HAVE IN NO RESPECT BEEN ADJUSTED TO REFLECT THE
CHARGES TO THE TRUST. CERTAIN OF THE ACCOUNTS INCLUDED IN THE FOLLOWING
PERFORMANCE SUMMARIES PAID FEES MATERIALLY DIFFERENT FROM, AND IN SOME CASES
MATERIALLY LOWER THAN, THOSE CHARGED TO THE TRUST.
-37-
GRAHAM CAPITAL MANAGEMENT, L.P.
Graham Capital Management, L.P., or GCM was organized as a Delaware
limited partnership in May 1994. The general partner of GCM is KGT, Inc., a
Delaware corporation of which Kenneth G. Tropin is the President and sole
shareholder. The limited partner of GCM is KGT Investment Partners, L.P., a
Delaware limited partnership of which KGT, Inc. is also a general partner and
in which Mr. Tropin is the principal investor. GCM became registered as a
commodity pool operator and commodity trading advisor under the Commodity
Exchange Act and a member of the National Futures Association on July 27,
1994.
GCM trades its Global Diversified Program at 150% Leverage for WMT III
Series G/J Trading Vehicle LLC as described below. For past performance of
GCM, see pages 44-50.
Overview
GCM is an investment manager that actively trades worldwide on a 24-hour
basis in the equity, fixed income, currency and commodity markets utilizing
securities, futures, forwards and other financial instruments. On behalf of
the Trust, GCM offers a systematic global macro trading program that trades in
one or more of those markets. GCM's systematic trading programs or models
produce trading signals on a largely automated basis when applied to market
data. GCM's investment objective is to provide clients with significant
potential for capital appreciation in both rising and falling markets during
expanding and recessionary economic cycles.
Management
Kenneth G. Tropin, born in 1953, is the Chairman and founder of GCM. He
has been registered as a Principal and an Associated Person and a NFA
associate member of GCM since July 27, 2004. Mr. Tropin has developed the
majority of the firm's core trading programs and he is additionally
responsible for the overall management of the organization, including the
investment of its proprietary trading capital. Prior to founding GCM in May
1994, from October 1993 until April 1994, Mr. Tropin worked on the development
and design of trading programs to be employed by GCM. Prior to that, Mr.
Tropin served as President, Chief Executive Officer, and a Director of John W.
Henry & Company, Inc. from March 1989 until September 1993, during which the
assets under management grew from approximately $200 million to approximately
$1.2 billion. Previously, Mr. Tropin was Senior Vice President at Dean Witter
Reynolds, where he served as Director of Managed Futures and as President of
Demeter Management Corporation and Dean Witter Futures and Currency Management
Inc. Mr. Tropin has also served as Chairman of the Managed Funds Association
and its predecessor organization, which he was instrumental in founding during
the 1980's.
Paul Sedlack, born in 1961, is the Chief Executive Officer and General
Counsel of GCM. He has been registered as a Principal, Associated Person and a
NFA associate member of GCM since August 21, 1998, November 20, 1998 and
November 10, 1998, respectively. Mr. Sedlack began his career at the law firm
of Coudert Brothers in New York in October 1986 where he remained until June
1993. During that time, Mr. Sedlack was resident in Coudert's Singapore office
from June 1988 to August 1989. Prior to joining GCM in June 1998, Mr. Sedlack
was in the employ of Sutherland Asbill and Brennan from June 1993 until June
1995 and then was a Partner at the law firm of McDermott, Will & Emery in New
York from June 1995 until May 1998, focusing on securities and commodities
laws pertaining to the investment management and related industries. Mr.
Sedlack received a J.D. from Cornell Law School in June 1986 and an M.B.A. in
Finance in July 1983 and B.S. in Engineering in 1982 from State University of
New York at Buffalo.
Michael S. Rulle Jr., born in 1950, is the President of GCM. He has been
registered as a Principal, Associated Person and a NFA associate member of GCM
since March 8, 2002, March 8, 2002 and February 14, 2002, respectively. As
President of GCM, Mr. Rulle is responsible for the management of GCM in its
day-to-day course of business. Prior to joining GCM in February 2002, Mr.
Rulle was President of Hamilton Partners Limited November 1999 until February
2002, a private investment company that deployed its capital in a variety of
internally managed equity and fixed income alternative investment strategies
on behalf of its sole shareholder, Stockton Reinsurance Limited, a Bermuda
based insurance company. From June 1994 to September 1999, Mr. Rulle was
Chairman and CEO of CIBC World Markets Corp., the US broker-dealer formerly
known as CIBC Oppenheimer Corp. and then orientated himself on the labor
market for the month of October 1999. Mr. Rulle served as a member of its
Management Committee, Executive Board and Credit Committee and was Co-Chair of
its Risk Committee. Business responsibilities included Global Financial
Products, Asset Management,
-38-
Structured Credit and Loan Portfolio Management. Prior to joining CIBC World
Markets Corp., Mr. Rulle was a Managing Director of Lehman Brothers and a
member of its Executive Committee and held positions of increasing
responsibility from June 1979 until June 1994. At Lehman, Mr. Rulle founded
and headed the firm's Derivative Division, which grew to a $600 million
enterprise by 1994. Mr. Rulle received his M.B.A. from Columbia University in
1979, where he graduated first in his class, and he received his bachelor's
degree from Hobart College in 1972 with a concentration in political science.
Robert E. Murray, born in 1961, is the Chief Operating Officer of GCM. He
has been registered as a Principal, Associated Person and a NFA associate
member of GCM since June 27, 2003, June 27, 2003 and June 25, 2003,
respectively. Mr. Murray is responsible for the management and oversight of
client services, systematic trading, and technology efforts. Prior to joining
GCM in July 2003, from January 1985 until June 2003, Mr. Murray held positions
of increasing responsibility at various Morgan Stanley entities (and
predecessors), including Managing Director of the Strategic Products Group,
Chairman of Demeter Management Corporation (a commodity pool operator that
grew to $2.3 billion in assets under management during Mr. Murray's tenure)
and Chairman of Morgan Stanley Futures & Currency Management Inc. (a commodity
trading advisor). From September 1983 until December 1984, Mr. Murray was an
intermediate accountant at Merrill Lynch. Mr. Murray is currently a member of
the Board of Directors of the National Futures Association and serves on its
Membership and Finance Committees. Mr. Murray has served as Vice Chairman and
a Director of the Board of the Managed Funds Association. Mr. Murray received
a Bachelor's Degree in Finance from Geneseo State University in 1983.
Thomas P. Schneider, born in 1961, is an Executive Vice President and the
Chief Trader of GCM. He has been registered as a Principal, Associated Person
and a NFA associate member of GCM since November 30, 1995, September 12, 1994
and July 27, 1994, respectively. Since joining GCM in June 1994, he has been
responsible for managing GCM's systematic futures trading operations,
including order execution, formulating policies and procedures, and developing
and maintaining relationships with independent executing brokers and futures
commission merchants, or FCMs. Mr. Schneider was also a compliance auditor for
NFA from June 1983 until January 1985 and has served on the MFA's Trading and
Markets Committee. Mr. Schneider graduated from the University of Notre Dame
in May 1983 with a B.B.A. in Finance and received his Executive M.B.A. from
the University of Texas at Austin in 1994. Mr. Schneider served as a commodity
broker for Stotler and Company from January 1985 until June 1985. From June
1985 through September 1993, Mr. Schneider held positions of increasing
responsibility at ELM Financial, Inc., a commodity trading advisor in Dallas,
Texas, where he was ultimately Chief Trader, Vice President and Principal
responsible for 24-hour trading execution, compliance and accounting. From
October 1993 until December 1993, Mr. Schneider worked towards obtaining his
M.B.A. Subsequently, from January 1994 until June 1994, Mr. Schneider worked
as Chief Trader for Chang Crowell Management Corporation, a commodity trading
advisor in Norwalk, Connecticut, where he was responsible for streamlining
operations for more efficient order execution, and for maintaining and
developing relationships with over 15 FCMs on a global basis.
Robert G. Griffith, born in 1953, is an Executive Vice President, the
Director of Research and the Chief Technology Officer of GCM. He has been
registered as a Principal, Associated Person and NFA associate member of GCM
since March 8, 1996, March 8, 1996 and February 23, 1996, respectively. Mr.
Griffith is responsible for the management of all research activities and
technology resources of GCM, including portfolio management, asset allocation
and trading system development. Mr. Griffith is in charge of the day-to-day
administration of GCM's trading systems and the management of GCM's database
of price information on more than 100 markets. From August 1987 until he
joined GCM in June 1994 Mr. Griffith's company, Veridical Methods, Inc.,
provided computer programming and consulting services to such firms as GE
Capital, Lehman Brothers and Morgan Guaranty Trust. From December 1979 until
June 1983, Mr. Griffith worked at Continental Illinois National Bank in
Chicago as a programmer/analyst and then as a consultant to Information
Builders in Los Angeles from June 1983 until August 1987. He received his
B.B.A. in Management Information systems from the University of Iowa in
December 1979.
Fred J. Levin, born in 1942, is the Chief Economist and a Senior
Discretionary Trader of GCM. He has been registered as a Principal, Associated
Person and NFA associate member of GCM since March 11, 2000, December 8, 1999
and October 29, 1999, respectively. Mr. Levin specializes in fixed income
markets with particular
-39-
emphasis on short-term interest rates. Prior to joining GCM in March 1999, Mr.
Levin was employed as director of research at Aubrey G. Lanston & Co. Inc.
from August 1998 after orientating himself to the labor market during the
month of July 1998. From March 1991 to June 1998, Mr. Levin was the chief
economist and a trader at Eastbridge Capital. From March 1988 to March 1991,
Mr. Levin was the chief economist and a trader at Transworld Oil. From July
1982 to March 1988, Mr. Levin was the chief economist, North American
Investment Bank at Citibank. From September 1970 to July 1982, Mr. Levin
headed the domestic research department and helped manage the open market desk
at the Federal Reserve Bank of New York. Mr. Levin received an M.A. in
economics from the University of Chicago in 1968 and a B.S. from the
University of Pennsylvania, Wharton School in June 1964.
Savvas Savvinidis, C.P.A., born in 1962, is the Chief Financial Officer
of GCM. He has been registered as a Principal, Associated Person and NFA
associate member of GCM since July 2, 2003, July 2, 2003 and June 5, 2003,
respectively. Before he joined GCM in June 2003, he was Chief Operating
Officer of Agnos Group, L.L.C. from January 2001 to February 2003 and spent
the period from March 2003 until May 2003 orientating himself to the labor
market. Mr. Savvinidis previously served as Director of Operations, from
October 1994 to June 2000, of Moore Capital Management, Inc. and subsequently
took off the period from July 2000 to December 2000 for personal time with his
family. From July 1993 to September 1994, Mr. Savvinidis served as director of
Argonaut Capital Management, Inc. From May 1988 to June 1993, he worked at
Lehman Brothers and from July 1986 to April 1988, at the North American
Investment Bank of Citibank. Upon graduating from St. John's University with a
B.S. in Accounting, Mr. Savvinidis started his career with Grant Thornton in
September 1984, where he received his CPA designation in 1986. He is a member
of the New York Society of C.P.A.'s.
Robert C. Hill, born in 1969, is a discretionary trader of GCM
specializing in the energy commodity markets. He has been registered as a
Principal, Associated Person and NFA associate member of GCM since August 11,
2003, August 5, 2003 and August 5, 2003, respectively. Prior to joining GCM in
April 2003, Mr. Hill worked as a consultant at Gerson Lehrman Group. from
November 2002 until March 2003. From November 1999 to October 2002, he was
employed as Director of Trading at Duke Energy. From March 1997 to October
1999, Mr. Hill was an energy trader at Louis Dreyfus Energy Corp. and from May
1994 to March 1997, he worked for Enterprise Products Company as a
distribution coordinator for energy products. Mr. Hill received an MBA in July
1998 from the University of St. Thomas in Houston, TX and a B.A. in August
1992 from Stephen F. Austin State University.
Steven T. Aibel, born in 1964, is a discretionary trader of GCM. He has
been registered as a Principal, Associated Person and NFA associate member of
GCM since February 9, 2004, January 13, 2004 and January 13, 2004,
respectively. Mr. Aibel specializes in global macro markets with a primary
focus on foreign exchange. Prior to joining GCM in July 2003, Mr. Aibel worked
as a proprietary trader at J.P. Morgan Chase from April 2002 to March 2003
trading foreign exchange and then orientated himself to the labor market from
April 2003 until June 2003. He began his career at Goldman Sachs and Co. in
the precious metals area where he worked from June 1988 until April 1993,
moving over to the foreign exchange area of Goldman Sachs and Co. until
November 1994. Following work in the foreign exchange area of Lehman Bothers
from then until June 1995, Mr. Aibel worked at Credit Suisse First Boston as a
Deutsche Mark market maker from July 1995 until July 1997 and a proprietary
foreign exchange trader from July 1997 until April 2000. From May 2000 to
February 2001, Mr. Aibel worked in a partnership for Monroe Capital and then
was in the employ of Bank of America (proprietary trading) from February 2001
until March 2002. Mr. Aibel received an MBA in 1988 with a double major in
Finance and International Business and a B.A. in 1987 in Finance, all from
George Washington University.
Xin-yun Zhang, born in 1960, is a discretionary trader of GCM. He has
been registered as a Principal, Associated Person and NFA associate member of
GCM since March 2, 2004, February 18, 2004 and January 27, 2004, respectively.
Mr. Zhang specializes in fixed income. Prior to joining GCM in September 2003,
Mr. Zhang worked at Tudor Investment Corp. from January 2000 to August 2003,
where his trading focused on US and Japanese government bonds. From October
1995 to January 2000, he was a fixed- income trader for Greenwich Capital. He
worked in fixed-income research for Long-Term Capital Management from October
1993 to October 1995. He received a B.S. from Beijing University in 1983 and a
Ph.D. in theoretical physics from University of California, San Diego in 1989,
and was a post-doctoral research fellow at Rutgers University from 1989 till
1993.
-40-
Britton Holland, born in 1975, is a discretionary trader and a Principal
of GCM, specializing in the energy commodity markets. Prior to joining GCM in
March 2004, Mr. Holland worked as Manager, Financial Trading at Duke Energy
Corporation. From August 1998 to April 2002, he was employed in various groups
at Duke Energy ranging from Risk Management to Term Deal Origination before
moving to Financial Trading. Mr. Holland received a B.A. in Economics in 1997
from the University of Texas in Austin, Texas.
Eric C. Fill, born in 1966, is a discretionary trader and a Principal of
GCM, specializing in foreign currency. Prior to joining GCM in March 2005, Mr.
Fill was employed at Commerzbank Securities as a Senior Proprietary Trader
from April 2004 through November 2004. From October 1988 to April 2004, Mr.
Fill was employed at Commerzbank New York. While at Commerzbank, he worked as
a Global Macro Proprietary Trader (1996 to 2004) and a foreign exchange sales
trader (1994 to 1996). Between 1991 and 1994, Mr. Fill ran the money market
funding desk for Commerzbank Atlanta. From 1989 to 1991 he was a money market
trader at Commerzbank New York. Mr. Fill graduated from the University of
Rochester with a B.A. in Economics in 1988.
Sean D. Duffy, born in 1967, is a discretionary trader and a Principal of
GCM, specializing in global macro markets. Prior to joining GCM in January
2005, Mr. Duffy was a Principal of Briggs Capital Management, LLC, or Briggs,
from March 2003 to December 2004. Before founding Briggs, Mr. Duffy traded his
own strategy from February 2002 through February 2003. He was employed as a
Director in the Global Markets division of Deutsche Bank in New York from
April 1997 to January 2002. From January 1995 until April 1997, Mr. Duffy
served as a consultant to the CTA industry developing proprietary futures
trading programs. While working as a consultant, Mr. Duffy was associated with
GLT Direct LLP from February 1996 through April 1997. From June 1992 to
December 1994, Mr. Duffy was a spot risk arbitrageur in the precious metals
markets at the J. Aron division of Goldman Sachs & Co. From June 1990 to June
1992, Mr. Duffy was employed as a financial analyst in the investment banking
division of Paine Webber in New York. Mr. Duffy received a B.A. from Harvard
University in 1990.
David L. Ciocca, born in 1969, is a discretionary trader of GCM
specializing in equity futures. He has been registered as an Associated Person
and NFA associate member of GCM since June 11, 2002 and May 18, 2002,
respectively. He became listed as a Principal of GCM as of January 6, 2005.
Prior to joining GCM in March, 2002, Mr. Ciocca was employed as a portfolio
manager at Niederhoffer Investments from April 2001 to February 2002, where he
concentrated on the short-term modeling and trading of futures and options.
From December 1998 to April 2001, Mr. Ciocca was a principal of DLC Capital
Management, Inc., a registered investment advisor that focused on investment
portfolio management, and trading strategy development. Mr. Ciocca has a
Bachelor of Science in Engineering (1993) and a Master of Science in Finance
(1998) from Rochester Institute of Technology, Rochester, NY.
Sri Viswanath, born in December 1966, is a discretionary trader and a
Principal of GCM, specializing in options and equity indices. Prior to joining
GCM in December 2004, Mr. Viswanath worked as a portfolio manager at Welton
Investment Corporation from December 2003 to November 2004. From July 1999 to
November 2003, he worked for Niederhoffer Investments as an investment
manager; and from November 1998 to June 1999 Mr. Viswanath traded his own
strategy. Prior to that, Mr. Viswanath worked as a portfolio manager at Core
Capital Management from September 1997 through November 1998. From March 1996
to October 1997, he was the director of research at Logical Information
Machines. Mr. Viswanath attended the University of Texas at Austin from August
1995 through October 1996 to pursue a PhD in Finance. From June 1993 to July
1995, he worked for Chemical Bank as an interest rate swap trader. Mr.
Viswanath received his B.S. in Finance from Central Michigan University in
1989, and his M.B.A. from The University of Texas at Austin in 1993.
Investment Program
Global Diversified Program
The Global Diversified Program, or GDP, utilizes multiple computerized
trading models and offers broad diversification in both financial and
non-financial markets, trading in approximately 65 global markets.
GDP's trend system is primarily long-term in nature and is intended to
generate significant returns over time with an acceptable degree of risk and
volatility. The computer models on a daily basis analyze the recent price
action, the relative strength and the risk characteristics of each market and
-41-
compare statistically the quantitative results of this data to years of
historical data on each market.
Trading
Trading Policies
GCM trades actively in both U.S. and foreign markets, primarily in
futures contracts, forward contracts, spot contracts and associated derivative
instruments such as options and swaps. GCM engages in exchange for physical
(EFP) transactions, which involve the exchange of a futures position for the
underlying physical commodity without making an open, competitive trade on an
exchange. GCM also may take long and short positions in equity securities,
fixed income securities, hybrid instruments, options, warrants, customized
contractual agreements and other financial instruments as it endeavors to
achieve superior results for investors and enhanced portfolio diversification.
GCM at times will trade certain instruments as a substitute for futures or
options traded on futures exchanges. Instruments and contracts not traded on
any organized exchange may be entered into with banks, brokerage firms or
other financial institutions or commodity firms as counterparties. GCM has
complete flexibility in the instruments and markets in which it may invest.
In connection with its programs' systematic trading, GCM may employ
discretion in determining the leverage and timing of trades for new accounts
and the market weighting and participation. In unusual or emergency market
conditions, GCM may also utilize discretion in establishing positions or
liquidating positions or otherwise reducing portfolio risk where GCM believes,
in its sole discretion, that it is in the potential best interest of its
clients to do so. While such actions are anticipated to occur very
infrequently, no assurance can be given that GCM's discretionary actions in
these programs will enhance performance.
At standard leverage, and given competitive market terms by clearing
brokers and counterparties for major institutional customers, GCM's investment
programs normally require between 10% and 30% of an account's equity to meet
initial margin requirements, with initial margin requirements over time
expected to average 13% to 20%.
GCM reserves the right in extraordinary market conditions to reduce
leverage and portfolio risk if it feels in its sole discretion that it is in
the potential best interest of its clients to do so. While such actions are
anticipated to occur very infrequently, no assurance can be given that GCM's
actions will enhance performance.
Markets Traded
GCM trades actively on a 24-hour basis on most global exchanges as well
as the 24-hour interbank market for foreign exchange both in the U.S. and
abroad. From time to time, GCM adds to or deletes markets from its trading
programs as ongoing research and future market conditions warrant. GCM may
decide to trade certain markets and contracts to the exclusion of others in
its trading programs, depending on GCM's views from time to time. The decision
to add or subtract markets from any investment program shall be at the sole
discretion of GCM. Clients will not be informed of these changes as they
occur.
GCM uses both quantitative and qualitative analysis in evaluating its
investment programs in terms of both absolute performance and risk-adjusted
return. It reviews the Sharpe ratio, Sterling ratio, average drawdown, and
many other measures of risk in determining which trading technique offers the
best risk and volatility characteristics. GCM has also developed extremely
sophisticated proprietary software to study optimal portfolio weighting
strategies, and the effect of specific markets on the performance, risk,
correlation, and volatility characteristics of its investment programs. The
actual weighting and leverage used in each market will change over time due to
liquidity, price action and risk considerations. GCM also devotes considerable
attention to risk management at the portfolio level to ensure balance between
markets and that the overall leverage used by GCM is consistent with GCM's
conservative views on risk.
Performance Record
Investors should note that the composite performance records include
individual accounts that may have materially different rates of return on
amounts actually invested, even though they are traded according to the same
investment program. This is caused by material differences among accounts,
such as: (1) procedures governing timing for the commencement of trading and
means of moving toward full funding of new accounts; (2) the period during
which accounts are active; (3) client trading restrictions; (4) ratio of
trading size to level of actual funds deposited with the futures commission
merchant, or FCM, (i.e., the extent of notional equity); (5) the degree of
leverage employed; (6) the
-42-
size of the account, which can influence the size of positions taken and
restrict the account from participating in all markets available to an
investment program; (7) the amount of interest income earned by an account,
which will depend on the rates paid by the FCM on equity deposits and the
amount of equity invested in interest-bearing obligations; (8) the amount of
management and incentive fees paid and the amount of brokerage commissions
paid; (9) the timing of orders to open or close positions; (10) market
conditions, which influence the quality of trade executions; (11) variations
in fill prices; and (12) the timing of additions and withdrawals.
Notwithstanding these material differences, each composite performance record
is a valid representation of the accounts included therein.
References to total assets managed by GCM in a particular program or
overall, or rate of return on net assets, include any notional equity and may
include client and proprietary funds. Notional equity represents the
additional amount of equity that exceeds the amount of equity actually
committed to GCM for management. Because notionally funded accounts are more
highly leveraged than fully-funded accounts, they incur magnified gains and
losses on their actual investment (which does not include notional equity)
compared to fully-funded accounts.
The Rate of Return percentage for each month is obtained by dividing the
net income for the month by the net asset value as of the beginning of the
month (including contributions made at the start of the month). In months
where asset changes are made mid-month, rates of return are calculated for
each segment of the month and compounded. For this purpose, "net income"
represents the gross income for the month in question, net of all expenses and
performance allocations. The Rate of Return percentage for each year is
determined by calculating the percentage return on an investment made as of
the beginning of each year. Specifically, a running index is calculated
monthly, compounded by the rate of return, the annual percentage being the
change in this index for the year divided by the year's initial index.
GCM advises exempt accounts for qualified eligible clients the
performance of which is not included in the composite performance record.
[Remainder of page left blank intentionally.]
-43-
Global Diversified Program at 150% Leverage
GCM trades this program on behalf of the Trust. The following summary
performance information and chart present the composite results (unless
otherwise noted) of the Global Diversified Program at 150% Leverage for the
period from January 2001 through February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: Global Diversified Program at 150% Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: May 1, 1997
Number of open accounts: 15
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $478,064,000
Largest monthly drawdown (of an account): (15.77)% (11/01)
Largest peak-to-valley drawdown (of an account): (24.27)% (11/01 to 4/02)
Number of profitable accounts that have opened and closed: 0
Range of returns experienced by profitable accounts: N/A
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ---------------------------------------------------------------------------------------------------------------------------
January (1.93)% 2.44% 9.64% 1.88% (8.56)% 2.15%
- ---------------------------------------------------------------------------------------------------------------------------
February 2.91% (3.32)% 8.10% 9.48% (1.80)% (0.28)%
- ---------------------------------------------------------------------------------------------------------------------------
March 11.12% (3.84)% (8.85)% (0.01)% 1.02%
- ---------------------------------------------------------------------------------------------------------------------------
April (11.73)% (5.27)% (0.89)% (9.48)% (7.97)%
- ---------------------------------------------------------------------------------------------------------------------------
May 1.42% 5.67% 9.58% (4.64)% 1.01%
- ---------------------------------------------------------------------------------------------------------------------------
June 0.03% 11.30% (5.70)% (3.69)% 3.57%
- ---------------------------------------------------------------------------------------------------------------------------
July (1.60)% 11.25% (0.38)% (4.98)% (2.13)%
- ---------------------------------------------------------------------------------------------------------------------------
August 6.87% 6.81% 1.19% 0.69% 3.18%
- ---------------------------------------------------------------------------------------------------------------------------
September 11.99% 5.67% (8.35)% 5.72% 2.98%
- ---------------------------------------------------------------------------------------------------------------------------
October 9.26% (6.75)% 8.62% 7.55% 0.72%
- ---------------------------------------------------------------------------------------------------------------------------
November (13.45)% (3.55)% 1.19% 6.24% 0.82%
- ---------------------------------------------------------------------------------------------------------------------------
December 0.28% 10.39% 4.87% 5.15% (1.47)%
- ---------------------------------------------------------------------------------------------------------------------------
Compound Rate of 12.16% 32.25% 17.82% 12.67% (9.13)% 1.86%
Return (2 months)
- ---------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See Notes to Performance Information on page 35-37.
-44-
Global Diversified Program at Standard Leverage
The following summary performance information presents the composite
results of the Global Diversified Program at Standard Leverage for the period
from January 2001 through February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: Global Diversified Program at Standard Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: February 2, 1995
Number of open accounts: 10
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $620,364,000
Largest monthly drawdown (of an account): (10.12)% (11/01)
Largest peak-to-valley drawdown (of an account): (16.40)% (11/01 to 4/02)
Number of profitable accounts that have opened and closed: 2
Range of returns experienced by profitable accounts: 0.03% to 0.30%
Number of unprofitable accounts that have opened and closed: 1
Range of returns experienced by unprofitable accounts: (1.58)%
2006 compound rate of return: 1.45% (2 months)
2005 compound rate of return: (5.15)%
2004 compound rate of return: 8.92%
2003 compound rate of return: 10.80%
2002 compound rate of return: 18.41%
2001 compound rate of return: 7.02%
The Fed Policy Program
The following summary performance information presents the composite
results of The Fed Policy Program for the period from January 2001 through
February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: The Fed Policy Program
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: August 1, 2000
Number of open accounts: 1
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $1,599,622,000
Largest monthly drawdown (of an account): (3.41)% (1/02)
Largest peak-to-valley drawdown (of an account): (3.89)% (7/03 to 8/03)
Number of profitable accounts that have opened and closed: 6
Range of returns experienced by profitable accounts: 6.89% to 34.32%
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
2006 compound rate of return: 0.83% (2 months)
2005 compound rate of return: 14.38%
2004 compound rate of return: 7.71%
2003 compound rate of return: 3.40%
2002 compound rate of return: 17.90%
2001 compound rate of return: 16.88%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS ON THIS
PAGE.
-45-
K4 Program at Standard Leverage
The following summary performance information and chart present the
composite results of the K4 Program at Standard Leverage for the period from
January 2001 through February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: K4 Program at Standard Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: January 4, 1999
Number of open accounts: 4
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $267,374,000
Largest monthly drawdown (of an account): (9.07)% (09/03)
Largest peak-to-valley drawdown (of an account): (16.76)% (01/05 to 04/05)
Number of profitable accounts that have opened and closed: 5
Range of returns experienced by profitable accounts: 11.39 to 83.46%
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
2006 compound rate of return: (0.10%) (2 months)
2005 compound rate of return: (12.04)%
2004 compound rate of return: 0.46%
2003 compound rate of return: 17.05%
2002 compound rate of return: 29.83%
2001 compound rate of return: 29.56%
K4 Program at 150% Leverage
The following summary performance information and chart present the
composite results of the K4 Program at 150% Leverage for the period from
January 2001 through February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: K4 Program at 150% Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: June 1, 1999
Number of open accounts: 9
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $718,535,000
Largest monthly drawdown (of an account): (13.62)% (9/03)
Largest peak-to-valley drawdown (of an account): (24.37)% (01/05 to 04/05)
Number of profitable accounts that have opened and closed:6
Range of returns experienced by profitable accounts: 11.52% to 45.54%
Number of unprofitable accounts that have opened and closed: 2
Range of returns experienced by unprofitable accounts: (1.66)% to (13.02)%
2006 compound rate of return: 0.91% (2 months)
2005 compound rate of return: (15.79)%
2004 compound rate of return: 0.53%
2003 compound rate of return: 24.13%
2002 compound rate of return: 48.10%
2001 compound rate of return: 43.14%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS
ON THIS PAGE.
-46-
Graham Selective Trading Program at Standard Leverage
The following summary performance information presents the composite
results of the Graham Selective Trading Program at Standard Leverage for the
period from January 2001 through February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: Graham Selective Trading Program at Standard Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: January 7, 1998
Number of open accounts: 6
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $252,143,000
Largest monthly drawdown (of an account): (15.60)% (11/01)
Largest peak-to-valley drawdown (of an account): (23.64)% (3/04 to 8/04)
Number of profitable accounts that have opened and closed: 1
Range of returns experienced by profitable accounts: 6.29%
Number of unprofitable accounts that have opened and closed: 5
Range of returns experienced by unprofitable accounts: (10.91)% to (23.61)%
2006 compound rate of return: 0.42% (2 months)
2005 compound rate of return: (9.90)%
2004 compound rate of return: (6.73)%
2003 compound rate of return: 21.82%
2002 compound rate of return: 30.11%
2001 compound rate of return: 0.55%
Graham Selective Trading Program at 150% Leverage
The following summary performance information presents the composite
results of the Graham Selective Trading Program (150% Leverage) for the period
from January 2004 through February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: Graham Selective Trading Program at 150% Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: January 2, 2004
Number of open accounts: 1
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $34,902,000
Largest monthly drawdown (of an account): (13.93)% (04/04)
Largest peak-to-valley drawdown (of an account): (33.37)% (03/04 to 08/04)
Number of profitable accounts that have opened and closed: 0
Range of returns experienced by profitable accounts: N/A
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
2006 compound rate of return: 1.80% (2 months)
2005 compound rate of return: (14.05)%
2004 compound rate of return: (11.09)%
2003 compound rate of return: N/A
2002 compound rate of return: N/A
2001 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS
ON THIS PAGE.
-47-
K5 Program at Standard Leverage
The following summary performance information presents the composite
results of the K5 Program at Standard Leverage for the period from June 2003
through February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: K5 Program at Standard Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: October 28, 2002
Number of open accounts: 2
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $218,146,000
Largest monthly drawdown(of an account): (9.14)% (4/04)
Largest peak-to-valley drawdown(of an account): (18.25)% (4/04 to 8/04)
Number of profitable accounts that have opened and closed: 0
Range of returns experienced by profitable accounts: N/A
Number of unprofitable accounts that have opened and closed: 3
Range of returns experienced by unprofitable accounts: (7.50)% to (15.42)%
2006 compound rate of return: (0.26%)(2 months)
2005 compound rate of return: (8.60)%
2004 compound rate of return: (3.67)%
2003 compound rate of return: (2.13)% (7 months)
2002 compound rate of return: N/A
2001 compound rate of return: N/A
Multi-Trend Program
The following summary performance information presents the composite
results of the Multi-Trend Program for the period from September 2003 through
February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: Multi-Trend Program
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: September 2, 2003
Number of open accounts: 1
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $46,050,000
Largest monthly drawdown(of an account): (8.05)% (4/04)
Largest peak-to-valley drawdown(of an account): (18.41)% (03/04 to 08/04)
Number of profitable accounts that have opened and closed: 0
Range of returns experienced by profitable accounts: N/A
Number of unprofitable accounts that have opened and closed: 1
Range of returns experienced by unprofitable accounts: (1.28)%
2006 compound rate of return: 0.66%(2 months)
2005 compound rate of return: (9.38)%
2004 compound rate of return: (3.14)%
2003 compound rate of return: 3.83% (4 months)
2002 compound rate of return: N/A
2001 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS
ON THIS PAGE.
-48-
The New Frontier Program
The following summary performance information presents the composite
results of The New Frontier Program for the period from December 2003 through
February 2006.
Name of CTA: Graham Capital Management, L.P.
Name of program: The New Frontier Program
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: December 1, 2003
Number of open accounts: 1
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $4,037,000
Largest monthly drawdown(of an account): (4.52)% (4/04)
Largest peak-to-valley drawdown(of an account): (7.20)% (03/04 to 07/04)
Number of profitable accounts that have opened and closed: 2
Range of returns experienced by profitable accounts: 0.62% to 0.62%
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
2006 compound rate of return: 0.92% (2 months)
2005 compound rate of return: (2.84)%
2004 compound rate of return: 3.56%
2003 compound rate of return: 2.71% (1 month)
2002 compound rate of return: N/A
2001 compound rate of return: N/A
Non-Trend Based Program at Standard Leverage
The following summary performance information presents the composite
results of the Non-Trend Based Program at Standard Leverage for the period
from January 2001 through June 2001.
Name of CTA: Graham Capital Management, L.P.
Name of program: Non-Trend Based Program at Standard Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: January 4, 1999
Number of open accounts: 0
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $0
Largest monthly drawdown(of an account): (3.11)% (03/01)
Largest peak-to-valley drawdown(of an account): (9.52)% (1/01 to 6/01)
Number of profitable accounts that have opened and closed: 1
Range of returns experienced by profitable accounts: 2.18%
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
2006 compound rate of return: N/A
2005 compound rate of return: N/A
2004 compound rate of return: N/A
2003 compound rate of return: N/A
2002 compound rate of return: N/A
2001 compound rate of return: (9.54)% (6 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS
ON THIS PAGE.
-49-
Non-Trend Based Program at 150% Leverage
The following summary performance information presents the composite
results of the Non-Trend Based Program (150% Leverage) for the period from
January 2001 through June 2001.
Name of CTA: Graham Capital Management, L.P.
Name of program: Non-Trend Based Program at 150% Leverage
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: June 1, 1999
Number of open accounts: 0
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $0
Largest monthly drawdown (of an account): (4.29)% (03/01)
Largest peak-to-valley drawdown (of an account): (12.95)% (01/01)
Number of profitable accounts that have opened and closed: 2
Range of returns experienced by profitable accounts: 2.89% to 5.14%
Number of unprofitable accounts that have opened and closed: 2
Range of returns experienced by unprofitable accounts: (9.19)% to (14.08)%
2006 compound rate of return: N/A
2005 compound rate of return: N/A
2004 compound rate of return: N/A
2003 compound rate of return: N/A
2002 compound rate of return: N/A
2001 compound rate of return: (12.95)% (6 months)
Global FX Program
The following summary performance information presents the composite
results of the Global FX Program for the period from January 2001 through
December 2001.
Name of CTA: Graham Capital Management, L.P.
Name of program: Global FX Program
Inception of client account trading by CTA: February 2, 1995
Inception of client account trading in program: May 21, 1997
Number of open accounts: 0
Aggregate assets overall including "notional" equity: $5,087,628,000
Aggregate assets in program including "notional" equity: $0
Largest monthly drawdown (of an account): (5.84)% (07/01)
Largest peak-to-valley drawdown (of an account): (13.62)% (01/01 to 10/01)
Number of profitable accounts that have opened and closed: 0
Range of returns experienced by profitable accounts: N/A
Number of unprofitable accounts that have opened and closed: 4
Range of returns experienced by unprofitable accounts: (0.67)% to (14.62)%
2006 compound rate of return: N/A
2005 compound rate of return: N/A
2004 compound rate of return: N/A
2003 compound rate of return: N/A
2002 compound rate of return: N/A
2001 compound rate of return: (8.47)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS
ON THIS PAGE.
-50-
BRIDGEWATER ASSOCIATES, INC.
Background and Management
Bridgewater Associates, Inc., or Bridgewater, manages institutional
investors funds on a discretionary basis pursuant to its trading systems and
methodologies as described in this document. Bridgewater has been registered
as a Registered Investment Advisor with the Securities Exchange Commission
since November 1989 and a Commodity Trading Advisor registered with the
Commodity Futures Trading commission since May 1992, and is a member of
National Futures Association. Executive offices are located at 1 Glendinning
Place, Westport, Connecticut 06880. Phone: (203) 226-3030 Fax: (203) 291-7300.
All books and records are kept at this address.
As originally formed, Bridgewater was named Bridgewater Management Inc.,
a Connecticut (formerly New York) corporation, formed in April 1973. The name
was subsequently changed to Bridgewater Associates, Inc.
Bridgewater's principal investment management clients are institutional
investors, including large U.S. pension funds. Bridgewater employs
approximately 300 people and manages approximately $145 billion in total and
$79.8 billion (including notional equity) for accounts that use futures) as of
December 31, 2005.
Bridgewater trades its Aggressive Pure Alpha Futures Only-A, No Benchmark
for WMT III Series H/J Trading Vehicle LLC as described below. For past
performance of Bridgewater, see pages 54-65.
The background of each of the principals of Bridgewater is set forth
below:
Raymond T. Dalio born 1949. Since receiving his M.B.A. in finance from
Harvard Business School in 1973, Mr. Dalio has been involved in analyzing the
world's major markets by identifying the economic conditions that affect the
directions of markets. From May 1973 until January 1974 he was Director of
Commodities at Dominick and Dominick, a Wall Street-based brokerage house. Mr.
Dalio then joined Shearson-Hayden Stone (now Salomon Smith Barney, Inc.) where
he was in charge of institutional futures business. In 1975 he left
Shearson-Hayden Stone to devote his full time and efforts to trading his own
account and operating Bridgewater. Mr. Dalio has been the President of
Bridgewater since its founding and has been a Principal, associated person and
NFA associate member of the firm since May 18, 1992.
Ellen J. Gerstein born 1958. Ms. Gerstein received a B.S. in Economics,
Major in Accounting, from the Wharton School of Business at the University of
Pennsylvania in 1980. She passed the CPA exam in 1980 and became a CPA in
1982, after completing the required public accounting experience. After
graduating in 1980, she joined Eisner LLP, a CPA firm, as a staff accountant
in their audit department and worked there through 1984. While at Eisner many
of her clients were in the financial services industry. In 1984, she went to
work for a client, Gintel & Co. and Gintel Asset Management, Inc., a
broker/dealer and registered investment advisor. She stayed there twenty years
serving as Controller and, later, as Chief Financial Officer. She joined
Bridgewater Associates, Inc. in April 2004 and is the Chief Financial Officer.
Ms. Gerstein's registration as a Principal of Bridgewater is pending with the
National Futures Association.
Robert P. Prince born 1958. Mr. Prince became a CPA in 1984 and received
his M.B.A. from the University of Tulsa in 1985. Prior to joining Bridgewater
in August of 1986, he spent three years as the Vice President and Manager of
the Treasury Division of the First National Bank of Tulsa. He gained
experience using interest rate futures, swaps, and options in hedging and risk
management. At Bridgewater Mr. Prince, a Co-Chief Investment Officer, shares
responsibility for the development and implementation of Bridgewater's
fundamental, systematic investment process. Mr. Prince has been a principal,
associated person and NFA associate member of the firm since January 5, 1996,
October 30, 1995 and October 30, 1995, respectively.
Giselle F. Wagner, born 1955. Ms. Wagner received her B.A. in Economics
from Smith College in 1976, her M.B.A. in Finance from Columbia University in
1978, and her CFA in 1992. From 1978 to 1984, she worked for Chemical Bank
(now JP Morgan Chase Bank) as Vice President in the Treasury Division. From
1984 to 1988, she worked for Morgan Stanley as a fixed income salesperson. In
1988, Ms. Wagner joined Bridgewater and is now a Managing Director. Ms. Wagner
has been a principal, associated person and NFA associate member of the firm
since July 9, 1997, July 1, 1997 and July 1, 1997, respectively.
Peter R. La Tronica born 1957. After graduating from Northeastern
University in 1979, Mr. La Tronica joined Merrill Lynch & Co. During
-51-
his tenure at Merrill Lynch & Co. and certain of its affiliates, he served in
various capacities including Assistant Director Commodity Compliance and
Operations Manager. From May of 1984 to August 1985 Mr. La Tronica was
Assistant Vice President and Assistant Manager of the New York Institutional
Futures Office for Dean Witter Reynolds, Inc. (now Morgan Stanley). From
August 1985 to June 1987 he served as Assistant Vice President of Rudolf Wolff
Futures Inc. (acquired 1986 by Elders Finance Inc.) in charge of Operations
and Compliance. In June of 1987 Mr. La Tronica joined Donaldson, Lufken and
Jenrette (now Credit Suisse First Boston) as Vice President of Option and
Arbitrage Operations in the Equities Division. In March of 1988, Mr. La
Tronica joined Benefit Concepts N.Y. Inc., an insurance marketing firm, as
Associate in charge of product development. Mr. La Tronica joined Bridgewater
in April of 1989 and is now Vice President & Director, Legal & Compliance
Department of Bridgewater. Mr. La Tronica has been a principal, associated
person and NFA associate member of the firm since May 18, 1992.
Gregory S. Jensen, born 1974. Mr. Jensen received a B.A. in Math and
Economics from Dartmouth College in 1996. In 1996, Mr. Jensen joined
Bridgewater. At Bridgewater he is integrally involved in the development of
Bridgewater's investment and execution processes and is responsible for
designing investment strategies. Mr. Jensen serves on Bridgewater's Management
Committee with particular oversight of the research and trading departments.
Mr. Jensen is a Co-Chief Investment Officer and has been registered as a
Principal and listed as an Associated Person of the firm since December 16,
2005 and February 18, 1997, respectively.
Hope B. Woodhouse, born 1956. Ms. Woodhouse received her B.A. in
Economics from Georgetown University in 1978 and her M.B.A. from Harvard
Business School in 1983. From 1983 to 1998, she worked for Salomon Brothers,
Inc. (now Citigroup Global Markets Inc.) as Managing Director. From 1998 to
2000, she worked for Tiger Management L.L.C. as Treasurer. From 2000 to 2003,
she worked for Soros Funds Management LLC as the Chief Operating Officer. From
2003 to 2005, she worked for Auspex Group LP, as President and Chief Operating
Officer. In 2005, Ms. Woodhouse joined Bridgewater and is the Chief Operating
Officer. Ms. Woodhouse is registered as a Principal and listed as an
Associated Person of the firm as of August 2, 2005.
Bridgewater and its principals and employees may trade securities,
futures and related contracts for proprietary accounts. The records of trading
in such accounts will not be made available to clients for inspection.
Bridgewater's Trading Philosophy
The following description of Bridgewater, its trading systems, methods,
models, and strategies are general and not intended to be exhaustive.
Bridgewater's investment philosophy is based on the following tenets:
The price structure of all investment assets and the economic outlook are
inextricably linked; as economic expectations change, so does the price
structure. For example, knowing that bond yields have normally run about 3%
over the inflation rate, one could say that 20-year T-bond yields of 8% are
discounting roughly a 5% average inflation rate over the next twenty years.
One could also look at the relationship between bond yields and stock yields
to see the rate of economic growth that is implied. Since earnings and
dividends grow at a rate that is equal to the rate of nominal economic growth
over the long run, one could calculate that rate of growth that would have to
occur in order for the risk-adjusted returns of stocks and bonds to be the
same. By looking at the price structure of stocks, bonds and currencies
globally, one can see a very vivid picture of the economic environment as it
is being discounted in the marketplace. For example, suppose it began to
appear that inflation will be lower than 5%, let's say 2%; then interest rates
would fall and bond prices would rise. The extent of their rise would
primarily depend on their duration (e.g., a 10-year duration bond would rise
by roughly 30% while a 20-year duration bond would rise by twice as much,
without considering convexity). Similarly, this lower inflation rate would
cause earnings and dividends growth projections to be revised downward which
would have a negative effect on stocks that would be roughly offset by the
lower interest rates that would be used to capitalize these returns.
Therefore, this shift downward in inflation expectations would impact bond and
stock prices differently and in logical and readily measurable ways.
While it is difficult, if not impossible, to make reliable economic
forecasts, it is possible to use economic statistics as leading indicators of
markets movements. Markets respond to economic shifts; this implies that
economic shifts precede market movements.
-52-
Market reactions to economic statistics are generally imprecise and
inefficient. As a result, Bridgewater feels there is an opportunity to exploit
these inefficiencies by having a deeper understanding of the relationships
between economic statistics and market movements than the competition.
The investment decision making process should be systematic. Large
numbers of influences interact in very complex ways to cause price changes. It
is difficult to spontaneously weigh the large number of economic influences on
price changes. For example, changes in bond prices are caused by changes in 1)
money and credit growth, 2) economic growth, 3) inflation and 4) central bank
policy. Each one of these four influences can be measured via numerous
economic statistics. Unless one has a very systematic method of gauging the
relative importance and interrelationships existing between these statistics,
it is virtually impossible to respond optimally to changing economic
conditions.
The Use of Systems in Bridgewater's Trading Policies
The Fundamental Systems: Fundamental analysis uses the theory that prices
are primarily determined by macro-economic, supply/demand influences.
Bridgewater has developed precise rules for identifying shifts in the
economic/market environment as they effect the price structure of investment
assets. They express quantitatively the net strength of the pressures of
fundamental influences on prices based on the leading relationships between
economic statistics and market movement. They are programmed into computerized
trading systems that are used interactively to identify the relative
attractiveness of alternative markets.
Bridgewater will follow the policies outlined above as the basis for
trading a client's account as closely as possible. However, Bridgewater has
the discretion to, at any time, completely alter, abandon, reject, or
override, or otherwise modify the tactics as outlined above if doing so in
Bridgewater's opinion will reduce the risks to the clients' managed accounts.
Pursuant to its trading methodologies, Bridgewater typically uses its
trading systems in a manner which is tailored to the clients' unique
circumstances. Therefore, while Bridgewater's market views (based on its
systems) are the same for all clients, its positions will vary greatly,
according to each client's mandate. Generally speaking, Bridgewater will use
futures, options and or forwards in conjunction with cash securities, to hedge
or change the nature of the client's net exposure to markets. Therefore,
futures trading activities are typically a part, rather than the whole means
of implementing an investment strategy.
As of February 28, 2006, the program offered through Series H traded in
various sectors as follows: 50% Fixed Income, 8% Commodities, 7% Equities, 35%
Currencies.
As a general matter, some of the items which Bridgewater trades include
without limitation: futures, forwards and options on a) debt instruments
issued or guaranteed by the Governments of, the United States, the United
Kingdom, Australia, France, Japan, Italy and Germany; b) short term debt
instruments (euros) denominated in U.S. dollars and foreign currencies such
eurodollars and short sterling; c) currencies, such as Australian dollars,
British pounds, Canadian dollars, Euros, Japanese yen, and Swiss francs; d)
stock market indices, such as the Standard & Poor's 500 Stock Index, the New
York Stock Exchange Composite, the Nikkei Stock Average (255), the S&P Canada
60; commodities, and crude oil; and metals, such as copper, gold and silver.
Bridgewater follows numerous markets worldwide and may take a position for a
client in all, some, or none of these markets at any point in time. As
applicable regulatory authorities approve instruments or additional items,
such as other stock market indices and sovereign debt instruments, Bridgewater
expects to trade such instruments for its client accounts. The
commission-to-equity ratio and margin-to-equity ratio of trading conducted by
Bridgewater will vary and are dependent upon the size and mandate of the
account.
-53-
Aggressive Pure Alpha Futures Only-A, No Benchmark
Bridgewater trades this program on behalf of the Trust. The following
summary performance information and chart present the composite results
(unless otherwise noted) of the Aggressive Pure Alpha Futures Only-A, No
Benchmark for the period from January 2001 through December 2005 (except with
respect to (i) Aggregate assets in program excluding "notional" equity, (ii)
Aggregate assets in program including "notional" equity, and (iii) the Monthly
Rate of Return which is as of January 2006).
Name of CTA: Bridgewater Associates, Inc.
Name of program: Aggressive Pure Alpha Futures Only-A, No Benchmark
Inception of client account trading by CTA: June 1985
Inception of client account trading in program: August 1998
Number of open accounts: 3
Aggregate assets overall excluding "notional" equity: $60,400,000,000
Aggregate assets overall including "notional" equity: $79,800,000,000
Aggregate assets in program excluding "notional" equity: $31,000,000
Aggregate assets in program including "notional" equity: $32,000,000
Largest monthly drawdown(of an account): (7.44)% (5/01)
Largest peak-to-valley drawdown(of an account): (28.35)% (6/00 to 5/01)
Number of profitable accounts that have opened and closed: 0
Range of returns experienced by profitable accounts: N/A
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ---------------------------------------------------------------------------------------------------------------------------
January (2.47) (6.97) 5.05 (1.33) 2.12% 4.10
- ---------------------------------------------------------------------------------------------------------------------------
February (3.43) 2.28 2.21 (3.06) 3.33%
- ---------------------------------------------------------------------------------------------------------------------------
March (5.47) 5.57 (1.22) 4.11 (1.19)%
- ---------------------------------------------------------------------------------------------------------------------------
April 3.98 2.99 2.75 (3.01) 0.54%
- ---------------------------------------------------------------------------------------------------------------------------
May (7.44) 7.12 5.80 1.66 (3.92)%
- ---------------------------------------------------------------------------------------------------------------------------
June 4.42 8.70 0.81 0.73 1.19%
- ---------------------------------------------------------------------------------------------------------------------------
July 2.26 (6.05) (1.24) (1.40) (2.38)%
- ---------------------------------------------------------------------------------------------------------------------------
August 4.32 3.75 3.35 1.25 (2.30)%
- ---------------------------------------------------------------------------------------------------------------------------
September (2.40) (5.95) 3.49 0.86 3.66%
- ---------------------------------------------------------------------------------------------------------------------------
October 9.07 6.38 4.79 3.13 (0.96)%
- ---------------------------------------------------------------------------------------------------------------------------
November (0.57) 1.01 1.39 6.17 (2.71)%
- ---------------------------------------------------------------------------------------------------------------------------
December (2.76) 0.91 1.31 (2.44) (0.29)%
- ---------------------------------------------------------------------------------------------------------------------------
Compound Rate of (1.76)% 19.76% 32.17% 6.37% (3.20)% 4.10%
Return (1 month)
- ---------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See Notes to Performance Information on page 35-37.
-54-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Pure Alpha + Jun-85 Dec-91 1
- ----------------------------------------------------------------------------------------------------
Pure Alpha Accounts, Aggressive Jun-85 May-05 1
- ----------------------------------------------------------------------------------------------------
Pure Alpha Accounts, AUD Based Jun-85 May-05 1
- ----------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Intermediate June 85 July 05 1
Treasury Index
- ----------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Russell 1000 Index June 85 Dec 05 1
- ----------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Treasury June 85 Dec 05 1
Index
- ----------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, SWGBI Benchmark, NZD June 85 Nov 05 1
Based
- ----------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with No Benchmark Jun-85 Apr-04 2
- ----------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash Benchmark Jun-85 Feb-03 7
- ----------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with GBP Cash Benchmark Jun-85 Nov-03 1
- ----------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash Jun-85 Oct-04 1
Benchmark, Conservative
- ----------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-A Jun-85 Dec-99 1
- ----------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-B Jun-85 Jul-97 0
- ----------------------------------------------------------------------------------------------------
Constrained Pure Alpha Jun-85 Aug-00 0
- ----------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A Jun-85 Jan-98 0
- ----------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-B Jun-85 May-99 0
- ----------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-C Jun-85 Jan-99 11
- ----------------------------------------------------------------------------------------------------
Pure Alpha, Prime Broker Jun-85 Apr-05 6
- ----------------------------------------------------------------------------------------------------
Pure Alpha Futures Only - No Short Rates Jun-85 Jun-04 1
- ----------------------------------------------------------------------------------------------------
Pure Alpha Futures Only- D Jun-85 Oct-03 6
- ----------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-A, No Jun-85 Aug-98 3
Benchmark
- ----------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-B, No Jun-85 Sep-99 1
Benchmark
- ----------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Pure Alpha + $60,400,000 $79,800,000 5,147,000 5,147,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Accounts, Aggressive $60,400,000 $79,800,000 1,733,000 1,733,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Accounts, AUD Based $60,400,000 $79,800,000 49,000 49,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Intermediate $60,400,000 $79,800,000 101,000 101,000
Treasury Index
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Russell 1000 Index $60,400,000 $79,800,000 99,000 99,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Treasury $60,400,000 $79,800,000 75,000 75,000
Index
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, SWGBI Benchmark, NZD $60,400,000 $79,800,000 114,000 114,000
Based
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with No Benchmark $60,400,000 $79,800,000 148,000 148,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash Benchmark $60,400,000 $79,800,000 394,000 419,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with GBP Cash Benchmark $60,400,000 $79,800,000 54,000 54,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash $60,400,000 $79,800,000 96,000 321,000
Benchmark, Conservative
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-A $60,400,000 $79,800,000 108,000 167,000
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-B $60,400,000 $79,800,000 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Constrained Pure Alpha $60,400,000 $79,800,000 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A $60,400,000 $79,800,000 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-B $60,400,000 $79,800,000 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-C $60,400,000 $79,800,000 151,000 382,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Prime Broker $60,400,000 $79,800,000 504,000 574,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only - No Short Rates $60,400,000 $79,800,000 3,000 18,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only- D $60,400,000 $79,800,000 6,000 158,000
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-A, No $60,400,000 $79,800,000 31,000 32,000
Benchmark
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-B, No $60,400,000 $79,800,000 286,000 286,000
Benchmark
- ---------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-----------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ --------------------- ----------------------------- ---------------- ------------
% %
Pure Alpha + (4.43) 1/02 (6.06) 2/01-5/01 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Accounts, Aggressive (2.64) 8/05 (4.40) 7/05 - 8/05 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Accounts, AUD Based (1.13) 8/05 (1.90) 7/05 - 8/05 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Intermediate (1.15) 10/05 (1.15) 10/05 0 0
Treasury Index
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Russell 1000 Index (1.07) 12/05 (1.07) 12/05 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Treasury (0.10) 12/05 (0.10) 12/05 0 0
Index
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, SWGBI Benchmark, NZD None None 0 0
Based
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with No Benchmark (4.62) 4/04 (4.62) 4/04 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash Benchmark (3.02) 4/04 (3.02) 4/04 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with GBP Cash Benchmark (3.20) 11/03 (3.20) 11/03 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash (0.76) 5/05 (1.40) 5/05 - 8/05 0 0
Benchmark, Conservative
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-A (5.25) 1/02 (19.28) 7/00-5/01 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-B (7.71) 5/01 (29.86) 7/00-5/01 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Constrained Pure Alpha (4.37) 3/01 (6.63) 1/01-3/01 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A (5.73) 3/01 (24.23) 6/00-6/01 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-B (2.61) 2/01 (4.00) 1/01-2/01 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-C (4.79) 1/02 (16.46) 6/00-5/01 6, 0
2.99% -
15.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Prime Broker (1.43) 5/05 (2.08) 5/05 - 12/05 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only - No Short Rates (2.92) 5/05 (5.07) 3/05 - 8/05 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only- D (2.09) 5//05 (3.87) 3/05-8/05 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-A, No (7.44) 5/01 (28.35) 06/00-5/01 0 0
Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-B, No (6.03) 1/02 (19.47) 6/00-5/01 0 0
Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ ------------- ---------------- ------------- ---------------- -----------------
% % % % %
Pure Alpha + 5.79 14.36 22.03 14.47 3.62
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Accounts, Aggressive - - - - (2.32)
(8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Accounts, AUD Based - - - - 1.22
(8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Intermediate - - - - 0.72
Treasury Index (6 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Russell 1000 Index - - - - (1.07)
(1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, Lehman US Treasury - - - - (0.10)
Index (1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Through Fund, SWGBI Benchmark, NZD - - - - 1.45
Based (2 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with No Benchmark - - - 13.81 6.21
(9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash Benchmark - - 19.21 14.44 4.65
(11 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with GBP Cash Benchmark - - (0.74) 18.11 7.34
(2 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Unconstrained with US Cash - - - 4.90 2.00
Benchmark, Conservative (3 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-A 5.55 20.20 31.30 17.46 4.67
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha-B (2.42) - - - -
(8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Constrained Pure Alpha (4.69) - - - -
(4 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A (3.72) 13.30 - - -
(8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-B (4.00) - - - -
(2 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-C 0.50 17.19 26.15 6.89 2.18
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Prime Broker - - - - 0.90
(9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only - No Short Rates - - - 6.12 (1.22)
(7 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only- D - - 3.19 6.05 0.09
(3 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-A, No (1.76) 19.76 32.17 6.37 (3.20)
Benchmark
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-B, No 2.67 19.85 29.28 11.20 2.52
Benchmark
- ---------------------------------------------------------------------------------------------------------------------------------
-55-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
- --------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-C, No Jun-85 Dec-99 0
Benchmark +
- --------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-D, No Jun-85 Jun-00 0
Benchmark
- --------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-E, No Jun-85 Apr-01 1
Benchmark+
- --------------------------------------------------------------------------------------------------
Pure Alpha at 24% Tracking Error Jun-85 Feb-04 2
- --------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A Conservative + Jun-85 Jan-89 1
- --------------------------------------------------------------------------------------------------
Pure Alpha Futures Only, No Emerging Market Jun-85 Jan-89 0
Debt, No Benchmark, Constrained
- --------------------------------------------------------------------------------------------------
Pure Alpha Futures Only with Limited Security Jun-85 Jun-04 1
List
- --------------------------------------------------------------------------------------------------
Pure Alpha Bond and Currency Only + Jun-85 Jul-97 0
- --------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No Jun-85 Feb-00 4
Benchmark
- --------------------------------------------------------------------------------------------------
Aggressive Pure Alpha, No Emerging Market Debt, Jun-85 Mar-03 0
No Benchmark, Cash Instruments and Derivatives
- --------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No Jun-85 Jun-04 1
Benchmark, Futures Only FX
- --------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, Jun-85 Jul-01 0
with Lehman G-4 ex-collateral Benchmark
- --------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark Jun-85 Mar-03 1
- --------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with Jun-85 Nov-99 1
a Canadian Bond Benchmark
- --------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, Jun-85 Feb-00 0
with a Passive U.S. Bond Benchmark
- --------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, Jun-85 May-00 0
with Customized UK Bond Benchmark
- --------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond with BPATC Jun-85 Sep-03 1
Investments
- --------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, Jun-85 Mar-94 1
Institutional Account with Global Bond and
Equity Benchmark, Aggressive
- --------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-C, No $60,400,000 $79,800,000 0 0
Benchmark +
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-D, No $60,400,000 $79,800,000 0 0
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-E, No $60,400,000 $79,800,000 35,000 38,000
Benchmark+
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha at 24% Tracking Error $60,400,000 $79,800,000 42,000 42,000
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A Conservative + $60,400,000 $79,800,000 20,000 60,000
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only, No Emerging Market $60,400,000 $79,800,000 0 0
Debt, No Benchmark, Constrained
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only with Limited Security $60,400,000 $79,800,000 (10,000) 4,954,000
List
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Bond and Currency Only + $60,400,000 $79,800,000 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No $60,400,000 $79,800,000 665,000 931,000
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha, No Emerging Market Debt, $60,400,000 $79,800,000 0 0
No Benchmark, Cash Instruments and Derivatives
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No $60,400,000 $79,800,000 133,000 133,000
Benchmark, Futures Only FX
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, $60,400,000 $79,800,000 0 0
with Lehman G-4 ex-collateral Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark $60,400,000 $79,800,000 188,000 188,000
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with $60,400,000 $79,800,000 121,000 121,000
a Canadian Bond Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, $60,400,000 $79,800,000 0 0
with a Passive U.S. Bond Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, $60,400,000 $79,800,000 0 0
with Customized UK Bond Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond with BPATC $60,400,000 $79,800,000 22,000 22,000
Investments
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, $60,400,000 $79,800,000 560,000 560,000
Institutional Account with Global Bond and
Equity Benchmark, Aggressive
- --------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
---------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ----------------------- ----------------------------- ---------------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-C, No (6.48) 3/01 (28.49) 6/00-3/01 0 0
Benchmark +
- ----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-D, No (4.23) 2/01 (23.00) 6/00-2/01 0 0
Benchmark
- ----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-E, No (7.07) 1/02 (10.39) 11/01-1/02 2, 0
Benchmark+ 60.44%-60.60%
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha at 24% Tracking Error (6.75) 4/04 (6.75) 4/04 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A Conservative + (1.69) 1/02 (6.09) 6/00-5/01 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only, No Emerging Market (4.18) 5/01 (10.46) 6/00-5/01 0 0
Debt, No Benchmark, Constrained
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only with Limited Security (0.31) 5/05 (0.40) 4/05-5/05 0 0
List
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Bond and Currency Only + (0.51) 3/01 (1.43) 1/01-3/01 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No (4.27) 1/02 (12.39) 7/00-5/01 0 0
Benchmark
- ----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha, No Emerging Market Debt, (8.62) 4/04 (8.62) 4/04 1, 59.20% 0
No Benchmark, Cash Instruments and Derivatives
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No (2.06) 8/05 (4.08) 5/05 - 8/05 0 0
Benchmark, Futures Only FX
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, (4.74) 7/03 (8.01) 11/01-1/02 1, 60.85% 0
with Lehman G-4 ex-collateral Benchmark
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark (6.00) 4/04 (6.00) 4/04 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with (4.06) 4/04 (9.03) 8/00-5/01 0 0
a Canadian Bond Benchmark
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, (11.49) 11/01 (18.77) 11/01-3/02 0 0
with a Passive U.S. Bond Benchmark
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, (11.47) 12//01 (19.91) 7/00-5/01 0 0
with Customized UK Bond Benchmark
- ----------------------------------------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond with BPATC (13.29) 04/04 (13.29) 4/04 0 0
Investments
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, (10.40) 9/02 (37.38) 7/00-9/02 0 0
Institutional Account with Global Bond and
Equity Benchmark, Aggressive
- ----------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ --------------- ---------------- ------------- ---------------- -----------------
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-C, No (10.92) - - - -
Benchmark + (4 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-D, No (6.84) - - - -
Benchmark (2 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha Futures Only-E, No 11.77 20.33 32.07 3.42 (5.07)
Benchmark+ (9 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha at 24% Tracking Error - - - 28.85 7.33
(11 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only-A Conservative + 2.53 4.64 7.33 2.95 0.54
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only, No Emerging Market 7.61 9.86 10.93 2.97 3.75
Debt, No Benchmark, Constrained (4 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Futures Only with Limited Security - - - 0.74 0.17
List (7 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Bond and Currency Only + (1.43) - - - -
(4 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No 7.00 18.61 27.39 13.90 3.64
Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Pure Alpha, No Emerging Market Debt, - - 48.85 5.31 1.58 (4
No Benchmark, Cash Instruments and Derivatives (10 mos) mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Long Emerging Market Debt Only, No - - - 13.54 5.35
Benchmark, Futures Only FX (7 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, 10.90 27.89 13.40 (9 - -
with Lehman G-4 ex-collateral Benchmark (6 mos) mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark - - 23.43 18.01 3.69
(10 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with 8.16 24.58 28.66 20.80 5.52
a Canadian Bond Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, 2.80 12.60 - - -
with a Passive U.S. Bond Benchmark (5 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, (7.58) 53.56 6.89 - -
with Customized UK Bond Benchmark (10 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond with BPATC - - 15.44 30.50 8.73
Investments (4 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only, (14.00) 9.85 64.66 17.33 3.37
Institutional Account with Global Bond and
Equity Benchmark, Aggressive
- -----------------------------------------------------------------------------------------------------------------------------------
-56-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Pure Alpha, Long Emerging Market Debt Only with Jun-85 Apr-01 1
No Benchmark-A, Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with Jun-85 Apr-01 3
No Benchmark-B, Very Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with Jun-85 Feb-01 1
Lehman Aggregate Benchmark, Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Equity and Jun-85 Jan-03 0
Commodity Restricted
- ---------------------------------------------------------------------------------------------------
Pure Alpha over Short Duration TIPS Jun-85 Oct-03 1
- ---------------------------------------------------------------------------------------------------
Pure Alpha Over GSCI Jun-85 Apr-04 1
- ---------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt with LIBOR Jun-85 Oct-03 1
Benchmark Conservative
- ---------------------------------------------------------------------------------------------------
GTAA, No Emerging Market Debt Commodity Jun-85 Jul-03 1
Restricted
- ---------------------------------------------------------------------------------------------------
Passive Cash Benchmark with BPATC Investment Jun-85 Sep-03 0
- ---------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, Jun-85 Aug-02 1
Very Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, Jun-85 Jun-05 1
Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha, Limited Long and Short Emerging Jun-85 Dec-02 1
Market Debt, Equity and Commodity Constrained
- ---------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, Very Jun-85 Apr-04 1
Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, Jun 85 July 05 1
Conservative
- ---------------------------------------------------------------------------------------------------
Conservative Pure Alpha over Commodity Benchmark Jun-85 Feb-05 1
- ---------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, No Jun-85 Apr-01 0
Benchmark
- ---------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Customized Jun-85 Dec-01 1
Equity Benchmark Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha Conservative with Equity Benchmark Jun-85 Aug-04 1
- ---------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative with Equity Jun 85 Aug 05 1
Benchmark
- ---------------------------------------------------------------------------------------------------
Pure Alpha with Equity Benchmark Jun 85 Oct 05 1
- ---------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Pure Alpha, Long Emerging Market Debt Only with $60,400,000 $79,800,000 147,000 147,000
No Benchmark-A, Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with $60,400,000 $79,800,000 740,000 740,000
No Benchmark-B, Very Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with $60,400,000 $79,800,000 390,000 390,000
Lehman Aggregate Benchmark, Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Equity and $60,400,000 $79,800,000 0 0
Commodity Restricted
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha over Short Duration TIPS $60,400,000 $79,800,000 481,000 481,000
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Over GSCI $60,400,000 $79,800,000 579,000 579,000
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt with LIBOR $60,400,000 $79,800,000 99,000 1,499,000
Benchmark Conservative
- --------------------------------------------------------------------------------------------------------------------------------
GTAA, No Emerging Market Debt Commodity $60,400,000 $79,800,000 143,000 2,243,000
Restricted
- --------------------------------------------------------------------------------------------------------------------------------
Passive Cash Benchmark with BPATC Investment $60,400,000 $79,800,000 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, $60,400,000 $79,800,000 261,000 261,000
Very Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, $60,400,000 $79,800,000 77,000 77,000
Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Limited Long and Short Emerging $60,400,000 $79,800,000 35,000 215,000
Market Debt, Equity and Commodity Constrained
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, Very $60,400,000 $79,800,000 370,000 370,000
Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, $60,400,000 $79,800,000 148,000 148,000
Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Conservative Pure Alpha over Commodity Benchmark $60,400,000 $79,800,000 50,000 127,000
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, No $60,400,000 $79,800,000 0 0
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Customized $60,400,000 $79,800,000 312,000 312,000
Equity Benchmark Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Conservative with Equity Benchmark $60,400,000 $79,800,000 41,000 41,000
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative with Equity $60,400,000 $79,800,000 54,000 154,000
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Equity Benchmark $60,400,000 $79,800,000 (64,000) 36,000
- --------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ------------------------ ----------------------------- ---------------- ---------
Pure Alpha, Long Emerging Market Debt Only with (3.72) 5/01 (3.72) 5/01 0 0
No Benchmark-A, Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with (1.34) 1/02 (1.69) 12/01-1/02 0 0
No Benchmark-B, Very Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with (3.41) 4/04 (3.41) 4/04 0 0
Lehman Aggregate Benchmark, Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Equity and (0.47) 2/04 (0.54) 1/04-2/04 1, 0
Commodity Restricted 9.10%
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha over Short Duration TIPS (3.30) 4/04 (3.30) 4/04 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Over GSCI (10.99) 10/05 (14.78) 10/05-11/05 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt with LIBOR (0.57) 8/05 (1.15) 3/05-8/05 0 0
Benchmark Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
GTAA, No Emerging Market Debt Commodity (0.68) 4/04 (1.61) 3/05-8/05 0 0
Restricted
- ------------------------------------------------------------------------------------------------------------------------------------
Passive Cash Benchmark with BPATC Investment (6.70) 4/04 (6.96), 4/04-5/04 1, 0
14.70%
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, (3.59) 7/03 (3.71) 6/03-7/03 0 0
Very Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, (1.37) 7/05 (1.89) 7/05-10/05 0 0
Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Limited Long and Short Emerging (1.03) 5/05 (2.20) 2/05-11/05 0 0
Market Debt, Equity and Commodity Constrained
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, Very (1.66) 4/04 (1.66) 4/04 0 0
Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, (1.49) 10/05 (1.56) 10/05-11/05 0 0
Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Conservative Pure Alpha over Commodity Benchmark (5.07) 4/05 (6.13) 4/05-5/05 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, No (5.18) 1/02 (7.73) 11/01-1/02 1, 0
Benchmark 1.88%
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Customized (11.58) 9/02 (27.61) 4/02-9/02 0 0
Equity Benchmark Conservative
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Conservative with Equity Benchmark (2.17) 10/05 (3.64) 3/05-4/05 1, 0
16.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative with Equity (2.24) 10/05 (2.24) 10/05 0 0
Benchmark
- ------------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Equity Benchmark (0.30) 10/05 (0.30) 10/05 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ ---------------- ---------------- ------------- ---------------- ----------------
Pure Alpha, Long Emerging Market Debt Only with 8.09 11.12 15.50 8.78 4.61
No Benchmark-A, Conservative (9 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with 6.31 7.55 8.93 6.19 3.99
No Benchmark-B, Very Conservative (9 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Long Emerging Market Debt Only with 7.51 17.92 15.15 8.75 2.62
Lehman Aggregate Benchmark, Conservative (11 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Equity and - - 7.84 1.21 -
Commodity Restricted (4 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha over Short Duration TIPS - - 1.44 9.58 2.35
(3 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Over GSCI - - - 10.65 27.76
(9 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt with LIBOR - - 1.01 2.07 0.10
Benchmark Conservative (3 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
GTAA, No Emerging Market Debt Commodity - - 3.12 1.55 (0.16)
Restricted (6 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Passive Cash Benchmark with BPATC Investment - - 1.67% (4 mos) 10.84 1.78
(10 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, - 8.85 7.61 4.86 1.70
Very Conservative (5 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Lehman Aggregate Benchmark, - - - - 0.05
Conservative (7 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Limited Long and Short Emerging - 0.95 7.36 4.62 (1.66)
Market Debt, Equity and Commodity Constrained (1 mo)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, Very - - - 9.02 6.90
Conservative (9 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Global IL Benchmark, - - - - 3.09
Conservative (6 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Conservative Pure Alpha over Commodity Benchmark - - - - 19.93
(11 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, No 6.90 (4.70) - - -
Benchmark (9 mos) (2 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, No Emerging Market Debt, Customized 2.05 (19.86) 21.55 14.39 3.69
Equity Benchmark Conservative (1 mo)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Conservative with Equity Benchmark - - - 14.15 5.53
(5 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative with Equity - - - - 2.26
Benchmark (5 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Equity Benchmark - - - - 2,87
(3 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
-57-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Pure Alpha, No Emerging Market Debt, No Jun-85 Dec-03 1
Commodity, with Custom Global Equity and
Domestic Core Bond Benchmark, Conservative
- ---------------------------------------------------------------------------------------------------
Pure Alpha with Custom Global Equity and Global Jun-85 Jun-04 1
Bond Benchmark
- ---------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative, AUD Based with Jun-85 May-05 2
Leverage Neutralizing
- ---------------------------------------------------------------------------------------------------
GTAA with TIPS Jun-85 Apr-04 2
- ---------------------------------------------------------------------------------------------------
GTAA Mixed Asset Class Benchmark Jun-85 May-05 1
- ---------------------------------------------------------------------------------------------------
Futures and Forwards Only, Pure Alpha, Very Jun 85 Dec 05 1
Conservative, AUD Based
- ---------------------------------------------------------------------------------------------------
Pure Alpha Overlay with Inflation Linked Bond Jun-85 Feb-02 0
Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency-A (Unhedged) + Jun-85 Feb-90 2
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency- (SWGBI Hedged) Jun-85 Mar-05 1
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (SWGBI Unhedged) Jun 85 Sept 05 1
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency-B, No Emerging Market Jun-85 Apr-01 0
Debt (Unhedged)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged) Jun-85 Mar-93 0
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency over an IL Gilt Jun-85 Aug-03 1
Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt Jun 85 July 05 1
Benchmark, Aggressive
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt and Jun 85 July 2005 1
Nominal Gilt Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (25% Hedged) Jun-85 May-00 1
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency with US Gov/Credit Jun-85 Apr-03 1
Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, No FX Jun-85 Apr-01 0
(Non US Hedged)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. Hedged) Jun-85 Jul-94 2
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency, No SR (Non-U.S. Jun-85 Apr-01 0
Hedged)
- ---------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Pure Alpha, No Emerging Market Debt, No $60,400,000 $79,800,000 1,252,000 1,252,000
Commodity, with Custom Global Equity and
Domestic Core Bond Benchmark, Conservative
- -------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Custom Global Equity and Global $60,400,000 $79,800,000 149,000 149,000
Bond Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative, AUD Based with $60,400,000 $79,800,000 124,000 1,884,000
Leverage Neutralizing
- -------------------------------------------------------------------------------------------------------------------------------
GTAA with TIPS $60,400,000 $79,800,000 1,000 5,001,000
- -------------------------------------------------------------------------------------------------------------------------------
GTAA Mixed Asset Class Benchmark $60,400,000 $79,800,000 224,000 224,000
- -------------------------------------------------------------------------------------------------------------------------------
Futures and Forwards Only, Pure Alpha, Very $60,400,000 $79,800,000 3,000 48,000
Conservative, AUD Based
- -------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Overlay with Inflation Linked Bond $60,400,000 $79,800,000 0 0
Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency-A (Unhedged) + $60,400,000 $79,800,000 55,000 55,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency- (SWGBI Hedged) $60,400,000 $79,800,000 168,000 168,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (SWGBI Unhedged) $60,400,000 $79,800,000 82,000 82,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency-B, No Emerging Market $60,400,000 $79,800,000 0 0
Debt (Unhedged)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged) $60,400,000 $79,800,000 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency over an IL Gilt $60,400,000 $79,800,000 170,000 170,000
Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt $60,400,000 $79,800,000 89,000 89,000
Benchmark, Aggressive
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt and $60,400,000 $79,800,000 180,000 180,000
Nominal Gilt Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (25% Hedged) $60,400,000 $79,800,000 102,000 102,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency with US Gov/Credit $60,400,000 $79,800,000 118,000 118,000
Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, No FX $60,400,000 $79,800,000 0 0
(Non US Hedged)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. Hedged) $60,400,000 $79,800,000 375,000 375,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, No SR (Non-U.S. $60,400,000 $79,800,000 0 0
Hedged)
- -------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ---------------------- ----------------------------- ---------------- ---------
Pure Alpha, No Emerging Market Debt, No (3.16) 4/04 (3.39) 4/04-7/04 0 0
Commodity, with Custom Global Equity and
Domestic Core Bond Benchmark, Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Custom Global Equity and Global (2.35) 10/05 (2.35) 10/05 0 0
Bond Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative, AUD Based with (0.23) 8/05 (0.40) 10/05-11/05 0 0
Leverage Neutralizing
- --------------------------------------------------------------------------------------------------------------------------------
GTAA with TIPS (0.17) 4/04 (0.17) 4/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
GTAA Mixed Asset Class Benchmark (1.78) 10/05 (1.78) 10/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Futures and Forwards Only, Pure Alpha, Very (0.06) 12/05 (0.06) 12/05 0 0
Conservative, AUD Based
- --------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Overlay with Inflation Linked Bond (1.25) 10/02 (1.25) 10/02 1, 0
Benchmark 21.13%
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency-A (Unhedged) + (4.51) 4/04 (8.18) 5/05-11/05 2, 0
54.47%-71.75%
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency- (SWGBI Hedged) (0.87) 7/05 (0.97) 7/05-10/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (SWGBI Unhedged) (1.83) 10/05 (4.20) 9/05-11/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency-B, No Emerging Market (3.05) 7/03 (3.40) 6/03-7/03 1, 0
Debt (Unhedged) 30.71%
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged) (2.90) 7/03 (3.23) 5/03-7/03 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency over an IL Gilt (1.64) 4/04 (1.64) 4/04 0 0
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt None None 0 0
Benchmark, Aggressive
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt and None None 0 0
Nominal Gilt Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (25% Hedged) (4.59) 4/04 (7.37) 5/05-11/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency with US Gov/Credit (4.54) 7/03 (4.63) 6/03-7/03 0 0
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, No FX (1.48) 4/01 (2.99) 11/01-3/02 1 0
(Non US Hedged) 8.33%
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. Hedged) (1.40) 7/03 (2.32) 11/01-1/02 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, No SR (Non-U.S. (1.33) 7/03 (1.99) 6/03-8/03 1 0
Hedged) 20.57%
- --------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ -------------- ---------------- ------------- ---------------- -----------------
Pure Alpha, No Emerging Market Debt, No - - 2.01 11.84 5.71
Commodity, with Custom Global Equity and (1 mo)
Domestic Core Bond Benchmark, Conservative
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha with Custom Global Equity and Global - - - 21.04 8.18
Bond Benchmark (7 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha, Very Conservative, AUD Based with - - - - 0.14
Leverage Neutralizing (8 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
GTAA with TIPS - - - 0.25 (9 0.04
mos)
- ----------------------------------------------------------------------------------------------------------------------------------
GTAA Mixed Asset Class Benchmark - - - - 6.48
(8 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Futures and Forwards Only, Pure Alpha, Very - - - - (0.06)
Conservative, AUD Based (1 mo)
- ----------------------------------------------------------------------------------------------------------------------------------
Pure Alpha Overlay with Inflation Linked Bond - 21.13 - - -
Benchmark (9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency-A (Unhedged) + (0.22) 24.82 21.30 11.65 (7.29)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency- (SWGBI Hedged) - - - - 2.65
(10 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (SWGBI Unhedged) - - - - (3.27)
(4 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency-B, No Emerging Market 3.07 14.92 10.35 - -
Debt (Unhedged) (9 mos) (11 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged) 3.38 19.00 7.57 - -
(9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency over an IL Gilt - - 6.53 10.33 11.28
Benchmark (5 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt - - - - 6.03
Benchmark, Aggressive (6 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Over an IL Gilt and - - - - 6.45
Nominal Gilt Benchmark (6 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (25% Hedged) 0.7 23.91 20.12 12.05 (5.77)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency with US Gov/Credit - - 8.36 6.61 2.94
Benchmark (9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, No FX 2.73 5.45 - - -
(Non US Hedged) (9 mos) (8 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. Hedged) 6.39 12.91 9.80 6.90 4.83
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, No SR (Non-U.S. 2.48 11.36 5.63 - -
Hedged) (9 mos) (9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
-58-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Global Bond and Currency (Non-U.S. Unhedged) Jun-85 Aug-99 2
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency, Leveraged Jun-85 Apr-01 1
Constrained, No Emerging Market Debt (Non-U.S.
Unhedged)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. 50% Hedged) Jun-85 Apr-99 0
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese Jun-85 Aug-92 1
Yen, Unhedged)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese Jun-85 Apr-00 0
Yen and U.S. Dollar, Hedged)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged to Australian Jun-85 May-98 0
Dollar)
- ---------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with Jun-85 Sep-02 0
Lehman Aggregate Benchmark, Aggressive
- ---------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with Jun-85 Jul-04 1
Lehman Global Aggressive Benchmark, ex US
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (50% Hedged to Jun-85 Mar-97 1
Canadian Dollar)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (U.S. Lehman Jun-85 Jan-99 5
Aggregate Benchmark)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (SP 500 Index Jun 85 Oct 05 1
Benchmark)
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Euro Hedged) Jun-85 Jun-02 2
- ---------------------------------------------------------------------------------------------------
Global Bond - Lehman Universal Jun-85 Nov-03 1
- ---------------------------------------------------------------------------------------------------
Global Bond and Currency (Long Duration 50% Jun-85 Oct-92 0
Hedged)
- ---------------------------------------------------------------------------------------------------
Global Bond Accounts - Diversified Jun-85 Mar-96 1
- ---------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan Jun-85 Apr-04 1
Benchmark, Hedged to EUR
- ---------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan Jun-85 Apr-04 1
Benchmark, Hedged to GBP
- ---------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond Account Jun-85 Jan-03 1
- ---------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged Jun-85 Apr-01 2
Benchmark -Bond Alpha Only
- ---------------------------------------------------------------------------------------------------
Global Bond - Bond Alpha Only Jun-85 Sep-02 1
- ---------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Global Bond and Currency (Non-U.S. Unhedged) $60,400,000 $79,800,000 820,000 820,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Leveraged $60,400,000 $79,800,000 1,217,000 1,217,000
Constrained, No Emerging Market Debt (Non-U.S.
Unhedged)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. 50% Hedged) $60,400,000 $79,800,000 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese $60,400,000 $79,800,000 236,000 236,000
Yen, Unhedged)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese $60,400,000 $79,800,000 0 0
Yen and U.S. Dollar, Hedged)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged to Australian $60,400,000 $79,800,000 0 0
Dollar)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with $60,400,000 $79,800,000 0 0
Lehman Aggregate Benchmark, Aggressive
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with $60,400,000 $79,800,000 534,000 534,000
Lehman Global Aggressive Benchmark, ex US
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (50% Hedged to $60,400,000 $79,800,000 62,000 62,000
Canadian Dollar)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (U.S. Lehman $60,400,000 $79,800,000 2,096,000 2,096,000
Aggregate Benchmark)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (SP 500 Index $60,400,000 $79,800,000 400,000 400,000
Benchmark)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Euro Hedged) $60,400,000 $79,800,000 368,000 368,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond - Lehman Universal $60,400,000 $79,800,000 1,138,000 1,138,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Long Duration 50% $60,400,000 $79,800,000 0 0
Hedged)
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts - Diversified $60,400,000 $79,800,000 214,000 214,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan $60,400,000 $79,800,000 65,000 65,000
Benchmark, Hedged to EUR
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan $60,400,000 $79,800,000 165,000 165,000
Benchmark, Hedged to GBP
- -------------------------------------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond Account $60,400,000 $79,800,000 485,000 485,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged $60,400,000 $79,800,000 1,444,000 1,444,000
Benchmark -Bond Alpha Only
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond - Bond Alpha Only $60,400,000 $79,800,000 770,000 770,000
- -------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ---------------------- ----------------------------- ---------------- ---------
Global Bond and Currency (Non-U.S. Unhedged) (4.75) 4/04 (10.25) 1/05-11/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Leveraged (4.68) 4/04 (9.29) 1/05-11/05 0 0
Constrained, No Emerging Market Debt (Non-U.S.
Unhedged)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. 50% Hedged) (2.39) 3/01 (3.03) 2/01-6/01 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese (4.29) 7/03 (8.42) 1/01-5/01 0 0
Yen, Unhedged)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese (1.60) 12/01 (2.40) 11/01-1/02 0 0
Yen and U.S. Dollar, Hedged)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged to Australian None None 0 0
Dollar)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with (2.90) 5/05 (3.70) 5/05-6/05 1 0
Lehman Aggregate Benchmark, Aggressive 18.48%
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with (0.52) 10/05 (0.52) 10/05 0 0
Lehman Global Aggressive Benchmark, ex US
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (50% Hedged to (1.97) 1/02 (7.61) 5/05-11/05 0 0
Canadian Dollar)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (U.S. Lehman (3.68) 7/03 (3.70) 6/03-7/03 0 0
Aggregate Benchmark)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (SP 500 Index (0.11) 12/05 (0.11) 12/05 0 0
Benchmark)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Euro Hedged) (1.94) 7/03 (2.27) 6/03-7/03 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond - Lehman Universal (2.69) 4/04 (3.01) 4/04-05/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Long Duration 50% (2.42) 4/01 (4.85) 2/01-5/01 0 0
Hedged)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts - Diversified (3.43) 7/03 (3.54) 6/03-7/03 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan (0.97) 10/05 (1.36) 9/05-11/05 0 0
Benchmark, Hedged to EUR
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan (0.77) 10/05 (0.96) 9/05-10/05 0 0
Benchmark, Hedged to GBP
- --------------------------------------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond Account (21.62) 7/03 (24.11) 6/03-7/03 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged (2.69) 7/03 (7.42) 11/01-3/02 2 0
Benchmark -Bond Alpha Only 2.73%-2.74%
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond - Bond Alpha Only (3.00) 12/02 (4.54) 4/04-11/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ -------------- ---------------- ------------- ---------------- ---------------
Global Bond and Currency (Non-U.S. Unhedged) (1.21) 29.57 27.03 14.15 (9.41)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency, Leveraged 0.41 25.06 19.14 12.33 (8.57)
Constrained, No Emerging Market Debt (Non-U.S. (9 mos)
Unhedged)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Non-U.S. 50% Hedged) (2.67) - - - -
(6 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese (0.84) 25.81 23.47 12.98 (4.86)
Yen, Unhedged)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Excluding Japanese 4.72 1.69 - - -
Yen and U.S. Dollar, Hedged) (4 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Hedged to Australian 3.13 - - - -
Dollar) (3 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with - 3.89 10.02 7.62 (3.69) (6
Lehman Aggregate Benchmark, Aggressive (4 mos) mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond, IG Emerging Market Debt with - - - 4.99 5.24
Lehman Global Aggressive Benchmark, ex US (6 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (50% Hedged to 6.44 18.17 4.38 5.99 (3.23)
Canadian Dollar)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (U.S. Lehman 7.22 14.42 10.29 5.76 2.03
Aggregate Benchmark)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (SP 500 Index - - - - 4.62
Benchmark) (3 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Euro Hedged) - 7.40 6.95 6.76 4.03
(7 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond - Lehman Universal - - 0.61 5.95 2.86
(2 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency (Long Duration 50% (4.21) - - - -
Hedged) 6 mos
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts - Diversified 8.22 13.35 6.72 5.34 2.43
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan - - - 5.54 4.27
Benchmark, Hedged to EUR (9 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond Accounts, Conservative, Ex-Japan - - - 7.46 6.85
Benchmark, Hedged to GBP (9 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Discrete Long Duration Global Bond Account - - 1.97 20.41 8.43
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged 4.28 22.49 18.85 13.16 (6.04)
Benchmark -Bond Alpha Only (9 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond - Bond Alpha Only - (3.40) 0.57 0.89 10.91
(4 mos)
- --------------------------------------------------------------------------------------------------------------------------------
-59-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Global Bond with Global Aggregate Unhedged Jun-85 Sep-04 1
Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged Jun-85 Mar-02 2
Benchmark-FX Alpha Only
- ---------------------------------------------------------------------------------------------------
Global Bond with 50% Hedged Benchmark Jun-85 Apr-01 1
- ---------------------------------------------------------------------------------------------------
Global Bond With 65% Hedged Benchmark Jun-85 Apr-01 1
- ---------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged Jun-85 Apr-01 1
- ---------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged, Jun-85 Mar-02 1
Conservative
- ---------------------------------------------------------------------------------------------------
Global Bond with Lehman Global Aggregate Jun-85 Apr-01 2
Benchmark, Fully Hedged
- ---------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate Jun-85 Jan-05 1
Benchmark, Unhedged
- ---------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate Jun-85 Jan-05 1
Benchmark, Economic Leveraged, Conservative
- ---------------------------------------------------------------------------------------------------
Global Bond With Lehman Aggregate Benchmark, Jun-85 Mar-04 1
Hedged to Euro
- ---------------------------------------------------------------------------------------------------
Global Bond with Lehman G-4 Index Benchmark, Jun-85 Apr-01 1
Ex-Collateralized, Issuer Constrained Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with SWGBI Jun-85 Apr-01 2
Unhedged Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic Jun-85 Apr-01 2
Leveraged with SWGBI Unhedged Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond Economic Leverage with SWGBI Jun-85 Dec-03 1
Unhedged Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic Jun-85 Jun-03 1
Leveraged with Cash Benchmark
- ---------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with Lehman Jun-85 Apr-02 2
Global Hedged Benchmark, Hedged to Australian
Dollar
- ---------------------------------------------------------------------------------------------------
Global IL, Commodity and PA Jun-85 Jun-04 1
- ---------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Global Bond with Global Aggregate Unhedged $60,400,000 $79,800,000 108,000 108,000
Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged $60,400,000 $79,800,000 961,000 961,000
Benchmark-FX Alpha Only
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond with 50% Hedged Benchmark $60,400,000 $79,800,000 235,000 235,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond With 65% Hedged Benchmark $60,400,000 $79,800,000 184,000 1,019,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged $60,400,000 $79,800,000 164,000 164,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged, $60,400,000 $79,800,000 3,810,000 3,810,000
Conservative
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond with Lehman Global Aggregate $60,400,000 $79,800,000 826,000 826,000
Benchmark, Fully Hedged
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate $60,400,000 $79,800,000 408,000 408,000
Benchmark, Unhedged
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate $60,400,000 $79,800,000 286,000 286,000
Benchmark, Economic Leveraged, Conservative
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Aggregate Benchmark, $60,400,000 $79,800,000 79,000 79,000
Hedged to Euro
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond with Lehman G-4 Index Benchmark, $60,400,000 $79,800,000 820,000 820,000
Ex-Collateralized, Issuer Constrained Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with SWGBI $60,400,000 $79,800,000 144,000 144,000
Unhedged Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic $60,400,000 $79,800,000 184,000 184,000
Leveraged with SWGBI Unhedged Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Economic Leverage with SWGBI $60,400,000 $79,800,000 367,000 367,000
Unhedged Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic $60,400,000 $79,800,000 155,000 155,000
Leveraged with Cash Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with Lehman $60,400,000 $79,800,000 259,000 259,000
Global Hedged Benchmark, Hedged to Australian
Dollar
- -------------------------------------------------------------------------------------------------------------------------------
Global IL, Commodity and PA $60,400,000 $79,800,000 495,000 495,000
- -------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ---------------------- ----------------------------- ---------------- -----------
Global Bond with Global Aggregate Unhedged (1.84) 5/05 (6.34) 5/05-11/05 0 0
Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged (5.56) 4/04 (9.32) 5/05-11/05 0 0
Benchmark-FX Alpha Only
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond with 50% Hedged Benchmark (4.11) 4/04 (4.81) 11/01-1/02 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond With 65% Hedged Benchmark (3.48) 4/04 (5.19) 11/01-3/02 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged (4.22) 4/04 (7.68) 5/05-11/05 0 1,
(0.36)%
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged, (4.49) 4/04 (8.44) 1/05-11/05 0 0
Conservative
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond with Lehman Global Aggregate (2.28) 7/03 (2.41) 4/04-5/04 0 0
Benchmark, Fully Hedged
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate (3.26) 5/05 (9.40) 3/05-11/05 0 0
Benchmark, Unhedged
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate (1.59) 5/05 (5.47) 5/05-11/05 0 0
Benchmark, Economic Leveraged, Conservative
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Aggregate Benchmark, (1.91) 4/04 (1.91) 4/04 0 0
Hedged to Euro
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond with Lehman G-4 Index Benchmark, (3.25) 4/04 (5.81) 1/05-11/05 0 0
Ex-Collateralized, Issuer Constrained Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with SWGBI (4.07) 4/04 (6.93) 1/05-11/05 0 0
Unhedged Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic (4.99) 4/04 (8.51) 1/05-11/05 1, 0
Leveraged with SWGBI Unhedged Benchmark 21.90%
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Economic Leverage with SWGBI (4.62) 4/04 (7.89) 1/05-11/05 0 0
Unhedged Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic (0.46) 6/03 (0.70) 6/03-7/03 0 0
Leveraged with Cash Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with Lehman (1.56) 7/03 (1.96) 6/03 -7/03 0 0
Global Hedged Benchmark, Hedged to Australian
Dollar
- -----------------------------------------------------------------------------------------------------------------------------------
Global IL, Commodity and PA (1.83) 10/05 (1.83) 10/05 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ -------------- ---------------- ------------- ---------------- -----------------
Global Bond with Global Aggregate Unhedged - - - 10.01 (5.19)
Benchmark (4 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond with Custom Weighted Unhedged - 29.14 26.20 13.45 (8.16)
Benchmark-FX Alpha Only (10 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond with 50% Hedged Benchmark 4.75 24.30 19.09 9.81 0.32
(9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond With 65% Hedged Benchmark 1.78 11.86 6.74 5.32 (3.98)
(9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged 2.45 27.28 20.34 12.58 (6.92)
(9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained-Unhedged, - 23.04 16.56 10.75 (7.64)
Conservative (10 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond with Lehman Global Aggregate 3.81 12.63 10.41 6.87 3.92
Benchmark, Fully Hedged (9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate - - - - (6.74)
Benchmark, Unhedged
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Global Aggregate - - - - (3.99)
Benchmark, Economic Leveraged, Conservative
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond With Lehman Aggregate Benchmark, - - - 4.94 2.70
Hedged to Euro (10 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond with Lehman G-4 Index Benchmark, 3.04 19.30 14.22 10.33 (5.13)
Ex-Collateralized, Issuer Constrained Benchmark (9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with SWGBI 1.16 22.15 19.13 12.10 (6.15)
Unhedged Benchmark (9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic 2.28 23.63 19.50 10.63 (7.73)
Leveraged with SWGBI Unhedged Benchmark (9 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond Economic Leverage with SWGBI - - 1.32 11.34 (6.93)
Unhedged Benchmark (1 mo)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond, No Emerging Market Debt, Economic - - 2.86 2.66 2.48
Leveraged with Cash Benchmark (7 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond Leveraged Constrained with Lehman - 11.19 7.27 9.79 7.53
Global Hedged Benchmark, Hedged to Australian (9 mos)
Dollar
- ----------------------------------------------------------------------------------------------------------------------------------
Global IL, Commodity and PA - - - 9.38 10.66
(7 mos)
- ----------------------------------------------------------------------------------------------------------------------------------
-60-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Global IL, Nominal and Commodity Over IL and Jun 85 Sept 05 1
Commodity Leveraged Benchmark
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bonds 2:1 Leveraged Tips Jun-85 Jan-97 0
Benchmark
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Leverage-Constrained Jun-85 Apr-01 1
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond- 2:1 Leveraged TIPS Jun-85 Jun-00 1
Benchmark, Currency Constrained
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL Jun-85 Apr-01 0
Benchmark-Currency Constrained
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL Jun-85 Mar-02 0
Benchmark-Currency Constrained, Very
Conservative
- ---------------------------------------------------------------------------------------------------
Inflation Linked Bonds-Normal 100% Hedged to Jun-85 Oct-00 0
Swiss Franc
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond (#3) with Customized Jun-85 Jun-00 0
Barclays Inflation Linked Bond Index
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Futures Jun-85 Apr-01 0
Constrained
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Currency Jun-85 Mar-01 1
Constrained
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Aggressive, 2:1 Jun-85 Sep-03 1
Leveraged Global, Benchmark Nominal Bonds for
break even Trading Only
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account- Aggressive, 2:1 Jun-85 Feb-03 1
Leveraged Global Benchmark
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Very Aggressive Jun-85 Apr-03 0
Foreign Leverage Benchmark
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account Very Jun-85 Jun-03 1
Aggressive Leverage Global Benchmark
- ---------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account , Very Jun-85 Dec-02 2
Aggressive Unleveraged Benchmark
- ---------------------------------------------------------------------------------------------------
2:1 leveraged Global Inflation Indexed Bond Jun-85 Jul-03 1
Account with IL and Nominal Alpha Benchmark,
100% Hedged at 4% Tracking Error
- ---------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Global IL, Nominal and Commodity Over IL and $60,400,000 $79,800,000 381,000 381,000
Commodity Leveraged Benchmark
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds 2:1 Leveraged Tips $60,400,000 $79,800,000 0 0
Benchmark
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Leverage-Constrained $60,400,000 $79,800,000 29,000 29,000
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond- 2:1 Leveraged TIPS $60,400,000 $79,800,000 329,000 329,000
Benchmark, Currency Constrained
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL $60,400,000 $79,800,000 0 0
Benchmark-Currency Constrained
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL $60,400,000 $79,800,000 0 0
Benchmark-Currency Constrained, Very
Conservative
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Linked Bonds-Normal 100% Hedged to $60,400,000 $79,800,000 0 0
Swiss Franc
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond (#3) with Customized $60,400,000 $79,800,000 0 0
Barclays Inflation Linked Bond Index
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Futures $60,400,000 $79,800,000 0 0
Constrained
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Currency $60,400,000 $79,800,000 62,000 62,000
Constrained
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Aggressive, 2:1 $60,400,000 $79,800,000 456,000 456,000
Leveraged Global, Benchmark Nominal Bonds for
break even Trading Only
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account- Aggressive, 2:1 $60,400,000 $79,800,000 74,000 74,000
Leveraged Global Benchmark
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Very Aggressive $60,400,000 $79,800,000 0 0
Foreign Leverage Benchmark
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account Very $60,400,000 $79,800,000 71,000 71,000
Aggressive Leverage Global Benchmark
- ------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account , Very $60,400,000 $79,800,000 228,000 228,000
Aggressive Unleveraged Benchmark
- ------------------------------------------------------------------------------------------------------------------------------
2:1 leveraged Global Inflation Indexed Bond $60,400,000 $79,800,000 1,058,000 1,058,000
Account with IL and Nominal Alpha Benchmark,
100% Hedged at 4% Tracking Error
- ------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ---------------------- ----------------------------- ---------------- ------------
Global IL, Nominal and Commodity Over IL and (7.57) 10/05 (7.61) 10/05-11/05 0 0
Commodity Leveraged Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds 2:1 Leveraged Tips (9.54) 4/04 (10.45) 6/03-7/03 2 0
Benchmark 62.74% -
85.41%
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Leverage-Constrained (2.98) 7/03 (3.73) 6/03 -7/03 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond- 2:1 Leveraged TIPS (10.10) 4/04 (11.22) 6/03-7/03 0 0
Benchmark, Currency Constrained
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL (2.58) 11/01 (3.74) 11/01-12/01 1 0
Benchmark-Currency Constrained 11.28%
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL (4.40) 7/03 (5.29) 6/03-7/03 1 0
Benchmark-Currency Constrained, Very 19.93%
Conservative
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Linked Bonds-Normal 100% Hedged to (2.36) 7/03 (3.00) 6/03-7/03 0 0
Swiss Franc
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond (#3) with Customized (0.25) 3/01 (0.25) 3/01 0 0
Barclays Inflation Linked Bond Index
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Futures (2.23) 7/03 (3.14) 11/01-1/02 1 0
Constrained 22.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Currency (8.98) 7/03 (10.35) 6/03-7/03 0 0
Constrained
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Aggressive, 2:1 (5.13) 4/04 (5.13) 4/04 0 0
Leveraged Global, Benchmark Nominal Bonds for
break even Trading Only
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account- Aggressive, 2:1 (5.82) 7/03 (7.25) 6/03-7/03 0 0
Leveraged Global Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Very Aggressive (3.56) 7/03 (5.11) 6/03-7/03 1 0
Foreign Leverage Benchmark 21.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account Very (7.29) 4/04 (8.50) 6/03-7/03 1 0
Aggressive Leverage Global Benchmark 24.90%
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account , Very (2.40) 4/04 (2.79) 6/03-7/03 0 0
Aggressive Unleveraged Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
2:1 leveraged Global Inflation Indexed Bond (7.18) 4/04 (7.18) 4/04 0 0
Account with IL and Nominal Alpha Benchmark,
100% Hedged at 4% Tracking Error
- -----------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ -------------- ---------------- ------------- ---------------- -----------------
Global IL, Nominal and Commodity Over IL and - - - - 0.11
Commodity Leveraged Benchmark (4 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds 2:1 Leveraged Tips 3.53 34.02 20.59 11.01 -
Benchmark (9 mos) (8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Leverage-Constrained 2.30 13.10 9.97 8.80 5.22
(9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond- 2:1 Leveraged TIPS 13.85 37.29 19.59 16.71 (0.94)
Benchmark, Currency Constrained
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL 2.89 8.16 - - -
Benchmark-Currency Constrained (9 mos) (7 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond-Barclays IL - 13.40 5.76 - -
Benchmark-Currency Constrained, Very (10 mos) (9 mos)
Conservative
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Linked Bonds-Normal 100% Hedged to 0.28 11.67 9.54 6.01 -
Swiss Franc (10 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond (#3) with Customized 2.33 - - - -
Barclays Inflation Linked Bond Index (3 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Futures 2.87 13.80 4.60 - -
Constrained (9 mos) (7 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds-Aggressive Currency 3.49 32.86 16.34 12.40 0.53
Constrained (10 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Aggressive, 2:1 - - 7.35 16.94 8.24
Leveraged Global, Benchmark Nominal Bonds for (4 mos)
break even Trading Only
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account- Aggressive, 2:1 - - 8.08 17.84 7.84
Leveraged Global Benchmark (11 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account, Very Aggressive - - 9.94 10.62 -
Foreign Leverage Benchmark (9 mos) (8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account Very - - 3.35 16.75 2.40
Aggressive Leverage Global Benchmark (7 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond Account , Very - 2.80 11.61 9.24 4.82
Aggressive Unleveraged Benchmark (1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
2:1 leveraged Global Inflation Indexed Bond - - 11.37 19.13 6.01
Account with IL and Nominal Alpha Benchmark, (6 mos)
100% Hedged at 4% Tracking Error
- ---------------------------------------------------------------------------------------------------------------------------------
-61-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
2:1 Leveraged Global Inflation indexed Bond Jun-85 Jun-03 1
Account with IL and Nominal Alpha at 2%
Tracking Error
- --------------------------------------------------------------------------------------------------
30% Impact Inflation Indexed Bonds and 70% Jun-85 Dec-03 1
Nominal Bonds and FX Benchmark
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond Jun-85 Jul-03 1
Accounts - Leverage Constrained, Short Only
ILs. Long Only Nominals
- --------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Limited Jun-85 Dec-03 1
Nominal Bonds
- --------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal Jun-85 Sep-04 1
Bond Alpha, Unhedged
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds Jun-85 May-03 1
Account - Leverage, Constrained with TIPS
Benchmark
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds Jun-85 Mar-04 2
Accounts - TIPS Benchmark
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds Jun-85 Mar-04 1
Accounts - TIPS Benchmark, Long Only Physicals
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds Jun-85 Dec-04 1
Accounts- TIPS Benchmark, Short Only Nominals
for Break Even
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond Jun 85 Oct 05 1
Accounts - Lehman Global IL Benchmark,
Constrained
- --------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal and Jun-85 Jun-04 3
FX Leeway, Leveraged
- --------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal Jun 85 Nov 05 1
Leeway, No FX, Euro Based
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - Jun-85 Aug-97 1
Unleveraged SWGBI Benchmark
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds Jun-85 Mar-04 2
Accounts - Unleveraged, Lehman Aggregate
Benchmark, ex-Japan Benchmark
- --------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds Jun-85 Sep-03 1
Account- Unleveraged Lehman Aggregate Benchmark
- --------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
2:1 Leveraged Global Inflation indexed Bond $60,400,000 $79,800,000 361,000 361,000
Account with IL and Nominal Alpha at 2%
Tracking Error
- --------------------------------------------------------------------------------------------------------------------------------
30% Impact Inflation Indexed Bonds and 70% $60,400,000 $79,800,000 453,000 453,000
Nominal Bonds and FX Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond $60,400,000 $79,800,000 272,000 272,000
Accounts - Leverage Constrained, Short Only
ILs. Long Only Nominals
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Limited $60,400,000 $79,800,000 1,033,000 1,033,000
Nominal Bonds
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal $60,400,000 $79,800,000 361,000 361,000
Bond Alpha, Unhedged
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds $60,400,000 $79,800,000 218,000 218,000
Account - Leverage, Constrained with TIPS
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds $60,400,000 $79,800,000 374,000 374,000
Accounts - TIPS Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds $60,400,000 $79,800,000 743,000 743,000
Accounts - TIPS Benchmark, Long Only Physicals
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds $60,400,000 $79,800,000 256,000 256,000
Accounts- TIPS Benchmark, Short Only Nominals
for Break Even
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond $60,400,000 $79,800,000 595,000 595,000
Accounts - Lehman Global IL Benchmark,
Constrained
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal and $60,400,000 $79,800,000 1,153,000 1,153,000
FX Leeway, Leveraged
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal $60,400,000 $79,800,000 186,000 186,000
Leeway, No FX, Euro Based
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - $60,400,000 $79,800,000 83,000 83,000
Unleveraged SWGBI Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds $60,400,000 $79,800,000 471,000 471,000
Accounts - Unleveraged, Lehman Aggregate
Benchmark, ex-Japan Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds $60,400,000 $79,800,000 173,000 173,000
Account- Unleveraged Lehman Aggregate Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ----------------------- ----------------------------- ---------------- -----------
2:1 Leveraged Global Inflation indexed Bond (5.97) 7/03 (8.30) 6/03-7/03 0 0
Account with IL and Nominal Alpha at 2%
Tracking Error
- -----------------------------------------------------------------------------------------------------------------------------------
30% Impact Inflation Indexed Bonds and 70% (2.50) 4/04 (2.50) 4/04 0 0
Nominal Bonds and FX Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond (2.03) 4/04 (2.03) 4/04 0 0
Accounts - Leverage Constrained, Short Only
ILs. Long Only Nominals
- -----------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Limited (2.04) 4/04 (2.04) 4/04 0 0
Nominal Bonds
- -----------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal (1.92) 5/05 (3.79) 5/05-11/05 0 0
Bond Alpha, Unhedged
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds (4.55) 7/03 (5.60) 5/03-7/03 0 0
Account - Leverage, Constrained with TIPS
Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds (4.94) 4/04 (5.20) 3/04-4/04 0 0
Accounts - TIPS Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds (3.84) 4/04 (4.20) 3/04-4/04 0 0
Accounts - TIPS Benchmark, Long Only Physicals
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds (1.41) 7/05 (1.74) 10/05-11/05 0 0
Accounts- TIPS Benchmark, Short Only Nominals
for Break Even
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond (0.73) 10/05 (0.73) 10/05 0 0
Accounts - Lehman Global IL Benchmark,
Constrained
- -----------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal and (1.30) 10/05 (1.71) 10/05-11/05 0 0
FX Leeway, Leveraged
- -----------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal None None 0 0
Leeway, No FX, Euro Based
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - (1.78) 4/04 (1.91) 11/01-2/02 0 0
Unleveraged SWGBI Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds (2.22) 4/04 (2.22) 4/04 0 0
Accounts - Unleveraged, Lehman Aggregate
Benchmark, ex-Japan Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds (1.92) 4/04 (1.92) 4/04 0 0
Account- Unleveraged Lehman Aggregate Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ ------------- ---------------- ------------- ---------------- -----------------
2:1 Leveraged Global Inflation indexed Bond - - 2.97 21.73 10.01
Account with IL and Nominal Alpha at 2% (7 mos)
Tracking Error
- --------------------------------------------------------------------------------------------------------------------------------
30% Impact Inflation Indexed Bonds and 70% - - 0.93 8.88 2.42
Nominal Bonds and FX Benchmark (1 mo)
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond - - 1.83 5.54 0.33
Accounts - Leverage Constrained, Short Only (6 mos)
ILs. Long Only Nominals
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Limited - - 0.91 9.47 8.05
Nominal Bonds (1 mo)
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal - - - 9.97 (1.79)
Bond Alpha, Unhedged (4 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - - 1.31 9.83 6.32
Account - Leverage, Constrained with TIPS (8 mos)
Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - - - 3.37 2.56
Accounts - TIPS Benchmark (10 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - - - 4.73 2.56
Accounts - TIPS Benchmark, Long Only Physicals (10 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - - - 1.09 1.01
Accounts- TIPS Benchmark, Short Only Nominals (1 mo)
for Break Even
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bond - - - - 0.62
Accounts - Lehman Global IL Benchmark, (3 mos)
Constrained
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal and - - - 6.40 3.91
FX Leeway, Leveraged (7 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Global Inflation Indexed Bonds with Nominal - - - - 0.70
Leeway, No FX, Euro Based (2 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - 5.90 15.30 12.99 11.33 6.36
Unleveraged SWGBI Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - - - 7.06 5.66
Accounts - Unleveraged, Lehman Aggregate (10 mos)
Benchmark, ex-Japan Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds - - 5.61 10.98 6.39
Account- Unleveraged Lehman Aggregate Benchmark (4 mos)
- --------------------------------------------------------------------------------------------------------------------------------
-62-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Inflation Indexed Bonds, Nominal Bond Accounts Jun-85 Mar-04 1
and Short Rates - Unleveraged, Lehman
Aggregate Benchmark
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 1
Unleveraged with Corporate Benchmark, Futures
Limited
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bond and Nominal Bonds- Jun-85 Apr-01 0
Unleveraged C
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 1
Unleveraged, Corporate Benchmark
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 1
Unleveraged Corporate and IL Benchmark
Conservative
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 1
Unleveraged EMD Constrained, Corporate Benchmark
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 1
Unleveraged, 85% Corporate Benchmark
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 1
Unleveraged, 50% Australian Corporate
Benchmark, 50% Foreign Government
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 2
Unleveraged No FX
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Apr-01 1
Unleveraged , Long Only EMD, 50% Australian
Government Benchmark, 50% Foreign Government
- ----------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- Jun-85 Oct-04 1
Accounting Leverage Allowed
- ----------------------------------------------------------------------------------------------------
Index Overlay Account Jun-85 Jul-98 1
- ----------------------------------------------------------------------------------------------------
Global Tactical Asset Allocation Jun-85 May-99 0
- ----------------------------------------------------------------------------------------------------
Passive U.S. Bond Jun-85 Feb-00 0
- ----------------------------------------------------------------------------------------------------
Passive Commodity Jun-85 Dec-04 2
- ----------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global Jun-85 May-03 5
Diversified
- ----------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Inflation Indexed Bonds, Nominal Bond Accounts $60,400,000 $79,800,000 174,000 174,000
and Short Rates - Unleveraged, Lehman
Aggregate Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 126,000 126,000
Unleveraged with Corporate Benchmark, Futures
Limited
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond and Nominal Bonds- $60,400,000 $79,800,000 0 0
Unleveraged C
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 98,000 98,000
Unleveraged, Corporate Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 169,000 169,000
Unleveraged Corporate and IL Benchmark
Conservative
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 114,000 114,000
Unleveraged EMD Constrained, Corporate Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 210,000 210,000
Unleveraged, 85% Corporate Benchmark
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 158,000 158,000
Unleveraged, 50% Australian Corporate
Benchmark, 50% Foreign Government
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 553,000 553,000
Unleveraged No FX
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 171,000 171,000
Unleveraged , Long Only EMD, 50% Australian
Government Benchmark, 50% Foreign Government
- -------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- $60,400,000 $79,800,000 93,000 93,000
Accounting Leverage Allowed
- -------------------------------------------------------------------------------------------------------------------------------
Index Overlay Account $60,400,000 $79,800,000 43,000 134,000
- -------------------------------------------------------------------------------------------------------------------------------
Global Tactical Asset Allocation $60,400,000 $79,800,000 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Passive U.S. Bond $60,400,000 $79,800,000 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Passive Commodity $60,400,000 $79,800,000 41,000 132,000
- -------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global $60,400,000 $79,800,000 1,036,000 1,036,000
Diversified
- -------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ --------------------- ----------------------------- ---------------- ---------
Inflation Indexed Bonds, Nominal Bond Accounts (1.58) 4/04 (1.80) 3/04-4/04 0 0
and Short Rates - Unleveraged, Lehman
Aggregate Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (1.91) 7/03 (2.77) 11/01-1/02 0 0
Unleveraged with Corporate Benchmark, Futures
Limited
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond and Nominal Bonds- (2.53) 4/01 (3.03) 4/01-5/01 1 0
Unleveraged C 18.16%
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (2.52) 4/01 (3.78) 4/01-5/01 0 0
Unleveraged, Corporate Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (1.83) 4/04 (2.51) 11/01-1/02 0 0
Unleveraged Corporate and IL Benchmark
Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (1.79) 4/04 (3.07) 11/01-1/02 0 0
Unleveraged EMD Constrained, Corporate Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (2.06) 4/04 (2.63) 11/01-1/02 0 0
Unleveraged, 85% Corporate Benchmark
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (2.39) 4/01 (4.38) 11/01-3/02 0 0
Unleveraged, 50% Australian Corporate
Benchmark, 50% Foreign Government
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (2.13) 4/01 (2.76) 4/01-5/01 0 0
Unleveraged No FX
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (1.75) 7/03 (2.39) 11/01-1/02 1, 0
Unleveraged , Long Only EMD, 50% Australian 4.04%
Government Benchmark, 50% Foreign Government
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (1.08) 10/05 (1.10) 10/05-11/05 0 0
Accounting Leverage Allowed
- --------------------------------------------------------------------------------------------------------------------------------
Index Overlay Account (15.00) 9/01 (57.41) 3/00-9/02 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Tactical Asset Allocation (0.45) 9/02 (0.99) 11/01-9/02 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Passive U.S. Bond (20.70) 7/03 (23.21) 6/03-7/03 1, 0
87.70%
- --------------------------------------------------------------------------------------------------------------------------------
Passive Commodity (6.13) 4/05 (6.88) 10/05-11/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global (5.06) 4/04 (5.46) 4/04-5/04 1 0
Diversified 2.80%
- --------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ ------------- ---------------- ------------- ---------------- -----------------
Inflation Indexed Bonds, Nominal Bond Accounts - - - 6.59 6.38
and Short Rates - Unleveraged, Lehman (10 mos)
Aggregate Benchmark
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- 1.51 14.74 12.73 11.87 6.75
Unleveraged with Corporate Benchmark, Futures (9 mos)
Limited
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bond and Nominal Bonds- 1.84 15.51 0.44 - -
Unleveraged C (9 mos) (1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- (0.19) 15.08 13.63 11.71 8.32
Unleveraged, Corporate Benchmark (9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- 2.77 13.76 10.59 12.77 7.13
Unleveraged Corporate and IL Benchmark (9 mos)
Conservative
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- 2.10 15.01 9.17 9.88 5.73
Unleveraged EMD Constrained, Corporate Benchmark (9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- 2.21 15.69 11.32 10.86 6.44
Unleveraged, 85% Corporate Benchmark (9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- 0.52 13.16 (0.99) 10.58 5.38
Unleveraged, 50% Australian Corporate (9 mos)
Benchmark, 50% Foreign Government
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- 1.06 11.64 6.11 10.29 8.68
Unleveraged No FX (9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- 2.42 13.20 10.07 11.23 7.47
Unleveraged , Long Only EMD, 50% Australian (9 mos)
Government Benchmark, 50% Foreign Government
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation Indexed Bonds and Nominal Bonds- - - - 3.82 4.65
Accounting Leverage Allowed (3 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Index Overlay Account (25.83) (21.45) 47.43 20.40 6.82
- ---------------------------------------------------------------------------------------------------------------------------------
Global Tactical Asset Allocation 0.28 (0.33) 0.43 - -
(9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Passive U.S. Bond 1.92 35.45 2.12 30.11 8.74
(9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Passive Commodity - - - (5.07) 19.91
(1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global - - 11.13 11.20 10.76
Diversified (8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
-63-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Long Term Emerging Markets, EMBI, Global Jun-85 Feb-04 1
Diversified, Expanded Alpha
- ----------------------------------------------------------------------------------------------------
EUR Long-Term Emerging Markets Accounts EMBI Jun-85 Dec-03 1
Global Diversified Hedged
- ----------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global Jun-85 May-03 1
- ----------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI+ Jun-85 May-96 1
- ----------------------------------------------------------------------------------------------------
Long Only Emerging Markets Jun-85 Dec-02 1
- ----------------------------------------------------------------------------------------------------
Passive International Bond Account Jun-85 Nov-99 0
- ----------------------------------------------------------------------------------------------------
Global Bond and Currency No Emerging Market Jun-85 Feb-98 1
Debt (Non-US Unhedged Custom Benchmark)
- ----------------------------------------------------------------------------------------------------
Global Bond and Currency with Emerging Market Jun-85 Jun-05 1
Debt, (Non-US Unhedged Custom Benchmark)
- ----------------------------------------------------------------------------------------------------
Global Bond and Currency Only, No Benchmark Jun-85 Mar-04 1
- ----------------------------------------------------------------------------------------------------
Passive, Bond Only All-Weather Jun-85 Aug-03 1
- ----------------------------------------------------------------------------------------------------
Very Constrained, Active, Bond and Commodity Jun-85 Dec-03 1
All Weather
- ----------------------------------------------------------------------------------------------------
All Weather, Passive Only, Ex Corp and Jun 85 July 05 2
Mortgages
- ----------------------------------------------------------------------------------------------------
All Weather, Passive Only, Leveraged Constrained Jun-85 May-05 1
- ----------------------------------------------------------------------------------------------------
All Weather and Low Volatility, Pure Alpha Jun-85 Feb-04 1
- ----------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 4.5% Jun-85 Apr-05 1
- ----------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 6% Jun-85 Jan-04 1
- ----------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD Jun-85 Dec-04 1
Restricted Commodities
- ----------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD June 85 Feb 2003 1
- ----------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 12% Jun-85 Apr-05 1
- ----------------------------------------------------------------------------------------------------
All Weather at 10%, AUD Jun-85 Nov-04 1
- ----------------------------------------------------------------------------------------------------
All Weather at 10%, USD, No Corporate, No Jun 85 July 05 1
Mortgage
- ----------------------------------------------------------------------------------------------------
Passive UK Fixed Income Jun-85 Jan-02 0
- ----------------------------------------------------------------------------------------------------
Customized UK Long Bond Passive Jun-85 Nov-03 1
- ----------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Long Term Emerging Markets, EMBI, Global $60,400,000 $79,800,000 45,000 45,000
Diversified, Expanded Alpha
- --------------------------------------------------------------------------------------------------------------------------------
EUR Long-Term Emerging Markets Accounts EMBI $60,400,000 $79,800,000 114,000 114,000
Global Diversified Hedged
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global $60,400,000 $79,800,000 172,000 172,000
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI+ $60,400,000 $79,800,000 121,000 121,000
- --------------------------------------------------------------------------------------------------------------------------------
Long Only Emerging Markets $60,400,000 $79,800,000 246,000 246,000
- --------------------------------------------------------------------------------------------------------------------------------
Passive International Bond Account $60,400,000 $79,800,000 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency No Emerging Market $60,400,000 $79,800,000 66,000 366,000
Debt (Non-US Unhedged Custom Benchmark)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency with Emerging Market $60,400,000 $79,800,000 47,000 47,000
Debt, (Non-US Unhedged Custom Benchmark)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency Only, No Benchmark $60,400,000 $79,800,000 2,000 754,000
- --------------------------------------------------------------------------------------------------------------------------------
Passive, Bond Only All-Weather $60,400,000 $79,800,000 231,000 231,000
- --------------------------------------------------------------------------------------------------------------------------------
Very Constrained, Active, Bond and Commodity $60,400,000 $79,800,000 970,000 970,000
All Weather
- --------------------------------------------------------------------------------------------------------------------------------
All Weather, Passive Only, Ex Corp and $60,400,000 $79,800,000 349,000 740,000
Mortgages
- --------------------------------------------------------------------------------------------------------------------------------
All Weather, Passive Only, Leveraged Constrained $60,400,000 $79,800,000 270,000 270,000
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Low Volatility, Pure Alpha $60,400,000 $79,800,000 626,000 626,000
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 4.5% $60,400,000 $79,800,000 721,000 721,000
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 6% $60,400,000 $79,800,000 240,000 240,000
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD $60,400,000 $79,800,000 110,000 110,000
Restricted Commodities
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD $60,400,000 $79,800,000 449,000 449,000
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 12% $60,400,000 $79,800,000 160,000 160,000
- --------------------------------------------------------------------------------------------------------------------------------
All Weather at 10%, AUD $60,400,000 $79,800,000 1,020,000 1,020,000
- --------------------------------------------------------------------------------------------------------------------------------
All Weather at 10%, USD, No Corporate, No $60,400,000 $79,800,000 1,705,000 1,705,000
Mortgage
- --------------------------------------------------------------------------------------------------------------------------------
Passive UK Fixed Income $60,400,000 $79,800,000 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Customized UK Long Bond Passive $60,400,000 $79,800,000 26,000 161,000
- --------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ---------------------- ----------------------------- ---------------- ---------
Long Term Emerging Markets, EMBI, Global (4.22) 04/04 (5.16) 04/04-05/04 0 0
Diversified, Expanded Alpha
- --------------------------------------------------------------------------------------------------------------------------------
EUR Long-Term Emerging Markets Accounts EMBI (4.94) 4/04 (6.02) 4/04-5/04 0 0
Global Diversified Hedged
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global (5.35) 4/04 (6.18) 4/04-5/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI+ (5.79) 4/04 (10.49) 5/02-7/02 1 0
19.94%
- --------------------------------------------------------------------------------------------------------------------------------
Long Only Emerging Markets (3.62) 7/03 (3.83) 4/04-5/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Passive International Bond Account (0.73) 2/01 (0.73) 2/01 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency No Emerging Market (3.53) 3/01 (9.98) 5/05-11/05 0 0
Debt (Non-US Unhedged Custom Benchmark)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency with Emerging Market (2.22) 10/05 (6.48) 6/05-11/05 0 0
Debt, (Non-US Unhedged Custom Benchmark)
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency Only, No Benchmark (0.25) (0.60) 0 0
8/05 5/05-8/05
- --------------------------------------------------------------------------------------------------------------------------------
Passive, Bond Only All-Weather (3.75) 9/03 (8.29) 9/03-12/03 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Very Constrained, Active, Bond and Commodity (1.10) 4/04 (1.10) 4/04 0 0
All Weather
- --------------------------------------------------------------------------------------------------------------------------------
All Weather, Passive Only, Ex Corp and (2.88) 10/05 (2.88) 10/05 0 0
Mortgages
- --------------------------------------------------------------------------------------------------------------------------------
All Weather, Passive Only, Leveraged Constrained (2.21) 10/05 (2.22) 9/05-10/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Low Volatility, Pure Alpha (4.46) 4/04 (4.46) 4/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 4.5% (2.31) 10/05 (2.31) 10/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 6% (6.14) 4/04 (6.14) 4/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD (4.80) 10/05 (5.85) 9/05-10/05 0 0
Restricted Commodities
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD (5.02) 4/04 (5.02) 4/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 12% (4.45) 10/05 (5.22) 10/05-11/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
All Weather at 10%, AUD (3.35) 10/05 (3.73) 9/05-10/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
All Weather at 10%, USD, No Corporate, No (3.69) 10/05 (3.69) 10/05 0 0
Mortgage
- --------------------------------------------------------------------------------------------------------------------------------
Passive UK Fixed Income (7.19) 3/02 (8.70) 2/02-3/02 1 0
38.32%
- --------------------------------------------------------------------------------------------------------------------------------
Customized UK Long Bond Passive (4.00) 4/04 (6.53) 4/04-5/04 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ---------------------------------------------- ---------------- ---------------- ------------- ---------------- -----------------
Long Term Emerging Markets, EMBI, Global - - - 9.73 12.37
Diversified, Expanded Alpha (11 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
EUR Long-Term Emerging Markets Accounts EMBI - - 2.64 11.45 9.71
Global Diversified Hedged (1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI Global - - 11.36 13.97 11.88
(8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term Emerging Markets Accounts EMBI+ 17.26 9.72 23.51 11.76 8.73
- ---------------------------------------------------------------------------------------------------------------------------------
Long Only Emerging Markets - 2.19 28.82 15.09 11.53
(1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
Passive International Bond Account (0.61) - - - -
(2 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency No Emerging Market (3.31) 21.73 15.68 10.78 (10.25)
Debt (Non-US Unhedged Custom Benchmark)
- ---------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency with Emerging Market - - - - (5.60)
Debt, (Non-US Unhedged Custom Benchmark) (7 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Global Bond and Currency Only, No Benchmark - - - 0.34 (0.37)
(10 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Passive, Bond Only All-Weather - - (4.93) 1.82 12.07
(5 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Very Constrained, Active, Bond and Commodity - - 0.58 12.72 10.04
All Weather (1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather, Passive Only, Ex Corp and - - - - 5.63
Mortgages (6 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather, Passive Only, Leveraged Constrained - - - - 7.94
(8 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather and Low Volatility, Pure Alpha - - - 13.23 10.59
(11 mos) (9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 4.5% - - - - 7.51
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 6% - - - 20.19 10.02
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD - - - 2.69 6.89
Restricted Commodities (1 mo)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 10%, USD - 17.74 19.57 13.42
(11 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather and Pure Alpha at 12% - - - - 7.31
(9 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather at 10%, AUD - - - 4.66 16.40
(2 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
All Weather at 10%, USD, No Corporate, No - - - - 5.58
Mortgage (6 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Passive UK Fixed Income - 25.52 10.20 - -
(5 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
Customized UK Long Bond Passive - - 6.96 7.50 8.79
(2 mos)
- ---------------------------------------------------------------------------------------------------------------------------------
-64-
Date CTA Date CTA Began Number of
Program Began Trading Trading Program Accounts
- ------------------------------------------------ -------------- ----------------- -------------
Passive Replication of Lehman Global Aggregate Jun 85 Sept 05 1
International Corporate Bonds
- ---------------------------------------------------------------------------------------------------
Passive Replication of Lehman Global Aggregate Jun 85 Sept 05 1
US Corporate Bonds
- ---------------------------------------------------------------------------------------------------
Options Strategy Jun-85 May-04 1
- ---------------------------------------------------------------------------------------------------
Equity Strategy Jun-85 Aug-04 1
- ---------------------------------------------------------------------------------------------------
Passive SP500 Equity Strategy Jun-85 Jan-05 1
- ---------------------------------------------------------------------------------------------------
Passive SP 500 Equity Strategy, GBP Hedged Jun 85 Dec 05 1
- ---------------------------------------------------------------------------------------------------
Aggregate Dollars Dollars in this Program
in All Programs (in thousands)
(in thousands) ----------------------------------
------------------------------------------ Excluding Including
Program Excluding Notional Including Notional Notional Notional
- ------------------------------------------------ --------------------- -------------------- ----------------- ----------------
Passive Replication of Lehman Global Aggregate $60,400,000 $79,800,000 488,000 488,000
International Corporate Bonds
- -------------------------------------------------------------------------------------------------------------------------------
Passive Replication of Lehman Global Aggregate $60,400,000 $79,800,000 1,532,000 1,532,000
US Corporate Bonds
- -------------------------------------------------------------------------------------------------------------------------------
Options Strategy $60,400,000 $79,800,000 237,000 237,000
- -------------------------------------------------------------------------------------------------------------------------------
Equity Strategy $60,400,000 $79,800,000 536,000 536,000
- -------------------------------------------------------------------------------------------------------------------------------
Passive SP500 Equity Strategy $60,400,000 $79,800,000 34,000 34,000
- -------------------------------------------------------------------------------------------------------------------------------
Passive SP 500 Equity Strategy, GBP Hedged $60,400,000 $79,800,000 150,000 150,000
- -------------------------------------------------------------------------------------------------------------------------------
Closed Accounts**
-------------------------
Largest Monthly Draw Largest Peak-to-Valley Draw Prof. Unprof.
Program Down Down Range Range
- ------------------------------------------------ ---------------------- ----------------------------- ---------------- ---------
Passive Replication of Lehman Global Aggregate (0.41) 10/05 (0.60) 9/05-10/05 0 0
International Corporate Bonds
- --------------------------------------------------------------------------------------------------------------------------------
Passive Replication of Lehman Global Aggregate (1.63) 9/05 (2.80) 9/05-10/05 0 0
US Corporate Bonds
- --------------------------------------------------------------------------------------------------------------------------------
Options Strategy (1.17) 8/04 (2.78) 7/04- 4/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Equity Strategy (1.98) 11/05 (5.26) 7/05-12/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Passive SP500 Equity Strategy (3.05) 8/05 (3.68) 3/05-4/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Passive SP 500 Equity Strategy, GBP Hedged (1.27) 12/05 (1.27) 12/05 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Dec
Program 2001 2002 2003 2004 2005++
- ------------------------------------------------ ------------- ---------------- ------------- ---------------- -----------------
Passive Replication of Lehman Global Aggregate - - - - 0.53
International Corporate Bonds (4 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Passive Replication of Lehman Global Aggregate - - - - (1.18)
US Corporate Bonds (4 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Options Strategy - - - (1.32) 1.69
(8 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Equity Strategy - - - 0.53 (1.40)
(5 mos)
- --------------------------------------------------------------------------------------------------------------------------------
Passive SP500 Equity Strategy - - - - 11.13
- --------------------------------------------------------------------------------------------------------------------------------
Passive SP 500 Equity Strategy, GBP Hedged - - - - (1.27)
(1 mo)
- --------------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE PROGRAMS LISTED
ABOVE ON PAGES 56 THROUGH 66.
_________________________
* The programs listed in the above capsule and noted with + are based
on the fully funded subset method for computing the rate of return.
The monthly rates of return for accounts excluded from the fully
funded subset, that is those which are partially funded, will often
be different from the rate of return for the fully funded subset.
Accounts not included in the fully funded subset for any particular
period may include: accounts opened or closed during the period;
accounts which have material additions or withdrawals during the
period; and the accounts which are being phased into the program
and, consequently, do not have a complete set of positions that the
other accounts in the program have. The rates of return for these
excluded accounts may be significantly higher or lower than the rate
of return for the fully funded subset.
** The Range with respect to both profitable and unprofitable accounts
reflects the range of returns experienced by both profitable and
unprofitable closed accounts during the period January 2001 to
December 2005.
++ The most recent performance numbers provided are as of December 2005
due to the unavailability of performance numbers for February 2006
at the time of compilation of these materials.
-65-
EAGLE TRADING SYSTEMS INC.
Eagle Trading Systems Inc., or Eagle, is a Delaware corporation formed in
May, 1993 to provide commodity trading advisory services to selected clients.
Eagle has been registered with the Commodity Future Trading Commission, or
CFTC, as a commodity pool operator and commodity trading advisor, or CTA, and
has been a member of the NFA since June 22, 1993. All of Eagle's stock is
owned by Liora and Menachem Sternberg, who are directors of Eagle. Eagle
acquired all right, title and interest in the Eagle systems as of March 31,
1993 and continues the systematic advisory services, pursuant to the Eagle
systems, previously provided by Tiverton Trading Incorporated, or Tiverton,
whose principal is unrelated to Eagle. Eagle has been independently
responsible for the operation of the Eagle systems since August 1, 1993.
Eagle trades its Eagle Momentum Program for WMT III Series I/J Trading
Vehicle LLC as described below. For past performance of Eagle, see pages
70-73.
Menachem Sternberg is the Chairman of the Board and Chief Executive
Officer of Eagle. He has been a principal, associated person and NFA associate
member of Eagle since March 10, 1997, April 7, 1997 and February 14, 1997,
respectively. Prior to joining Eagle in January 1997, Mr. Sternberg was a
Senior Vice President and senior trader at Caxton Corporation, or Caxton, and
since July 1995, also was a principal of Caxton Associates L.L.C. Caxton is a
New York based money management firm investing in the foreign exchange, global
financial, and commodities markets.
Prior to joining Caxton in 1992, Mr. Sternberg was the President and a
director of Tiverton, a registered commodity trading advisor. From August 1989
to December 1991, Mr. Sternberg also was a Managing Director of Global
Research and Trading Ltd., a corporation engaged in the research and
development of trading and investment strategies in the futures, forward and
option markets. Prior thereto, Mr. Sternberg was employed by Commodities
Corporation, (U.S.A.) from 1979 until December 31, 1989, first as a research
consultant and subsequently as a First Vice President of CC (U.S.A.). In 1986,
he became an employee of Tiverton in addition to his employment at CC
(U.S.A.). Prior to joining CC (U.S.A.), Mr. Sternberg was a systems analyst.
Mr. Sternberg received a B.A. cum laude from Tel Aviv University and a
Ph.D. in Economics from Princeton University. His doctoral dissertation,
entitled "Uncertainty and the Use of Forward Contracts", dealt with
theoretical issues concerning hedging and market behavior. In addition to his
involvement in global financial markets, Mr. Sternberg has advised
governmental and corporate clients as an economic consultant, and has authored
numerous research and academic papers. He also has served on the faculty of
Ben Gurion University and as a visiting scholar at Princeton University.
Liora Sternberg is the President and a Director of Eagle. She has been a
principal, associated person of Eagle since June 22, 1993. Mrs. Sternberg has
been involved in the computer industry since 1977. Starting in October 1982,
she was employed by Menorah Insurance Company Ltd. as a system analyst, in
charge of designing financial applications. From January 1984 until January
1992, she was managing the General Insurance computer applications department.
Mrs. Sternberg initiated and supervised the development and implementation of
a wide range of computer support systems, both at the management and
operational levels. Her position required involvement in key management and
business decisions of the company. Starting in January 1992, Mrs. Sternberg
devoted her time to the study of financial markets and the design of
computerized trading systems. In May 1993, Mrs. Sternberg formed and became
the President of Eagle. Mrs. Sternberg received a BA in Computer Science and
Philosophy from Bar Ilan University in 1982.
Eileen McFarlane is the Chief Financial Officer and Chief Operating
Officer of Eagle, is a member of the NFA, and is registered as an associated
person and as a principal of Eagle since August 5, 2003 and September 7, 2005,
respectively. Ms. McFarlane is a CPA, and prior to joining Eagle in May 2003,
was employed in public accounting practice for over fifteen years. Ms.
McFarlane was employed by Wilkin & Guttenplan, PC from May 1988 through
November 2001 and by WithumSmith+Brown, PC from November 2001 to May 2003.
Throughout her tenure in public accounting practice, Ms. McFarlane provided
audit, accounting, consulting and tax services to clients in a variety of
industries. Ms. McFarlane received a BS degree in accounting with highest
distinction from Rutgers University in 1988.
There have never been any civil, criminal or administrative actions
against Eagle or its principals.
TRADING APPROACH
Systematic Trading Approach
Eagle is offering clients advisory services pursuant to a systematic,
model driven, trading approach. The approach is designed to capture and
participate in trading opportunities and structural changes in the markets.
The systematic trading
-66-
approach is designed to identify and participate in intermediate and long term
price changes in markets. Systematization of strict trading rules is used to
incorporate money management principles and volatility adjustment features.
Decisions to initiate or liquidate positions are dependent upon
computer-generated signals which are based on mathematical analysis of closing
market prices and the incorporation of predetermined risk parameters.
Volatility adjustment features are designed to trigger profit-taking decisions
and to adjust participation in markets which exhibit excessive volatility.
Trading Programs
Eagle's systematic trading approach has served as a conceptual framework
for the development of its trading programs. Each system is based on defining
the market structures and situations it attempts to capture by formulation of
trading rules that will best achieve its goals. These goals are then analyzed
with the use of substantial market data to confirm that the rules can be
consistently applied in actual trading. Once the systems are used in actual
trading, they are constantly monitored and the trading rules are reevaluated
to identify any need for refinements or modifications. The systems are
designed to trade on a fully invested basis in markets exhibiting price
behavior which correspond to the market structure and situations they attempt
to achieve, while avoiding markets characterized by excessive volatility or
sharp price corrections. Sharp price corrections or high volatility will
generally trigger a scale down or even complete liquidation of positions.
Eagle's trading programs incorporate the trading concepts embedded in
its systematic trading approach.
Eagle Momentum Program
----------------------
The Eagle Momentum Program, or EMP, is a computerized, technical trading
system developed, based on Eagle's extensive experience in observing and
trading the global futures markets, to capture short and intermediate term
trading opportunities in markets that exhibit strong price momentum. The
current environment for each market is evaluated, based on its recent trading
range, volatility, and overall price behavior. The trading program utilizes
trading rules which are based on pattern recognition and money management
techniques on both the individual market and portfolio levels. EMP's
discipline in evaluating market behavior and the attention given to market
volatility as well as its risk control tend to screen participation to markets
which provide good risk to reward potential. EMP will primarily be involved in
markets that exhibit a rapid move away from the current trading range and exit
quickly when the momentum fades. This exit strategy attempts to dynamically
adjust exposure before major corrections occur, thus capturing the lion's
share of the profits.
The adoption of the trading philosophy to a computerized trading system
was done by applying rule based techniques to confirm the trading concept over
an extensive body of historical market data and by constantly monitoring and
reevaluating the rules in actual trading. The program currently covers 30
commodities, currencies, stock indices and global fixed income markets.
Set forth is a list of the futures markets which the Eagle Momentum
Program currently tracks and in which it may trade. Eagle in its sole
discretion reserves the right to change the markets and exchanges in which it
trades. The following parenthetical numbers reflect the approximate sector
allocations of the EMP as of February 28, 2006. Due to the short to
intermediate nature of EMP, positions and sector allocations can change
considerably from one month to another.
[Remainder of Page left blank intentionally.]
STOCK INDICES 14% ENERGY 7%
DAX EUREX Crude Oil NYM
S&P CME Unleaded Gas NYM
Nasdaq 100 CME Natural Gas NYM
Hang Seng HKFE Heating Oil NYM
Taiwan Index SIMEX
NIKKEI OSE (SIMEX)
-67-
FOREIGN FINANCIAL INSTRUMENTS 0% CURRENCIES 0%
German Bund EUREX Euro Currency IMM
German Bobl EUREX Japanese Yen IMM
Gilt LIFFE Swiss Franc IMM
JGB TSE Canadian Dollar IMM
Aussie 10yr Bond SFE Australian Dollar IMM
Mexican Peso IMM
British Pounds IMM
US FINANCIAL INSTRUMENTS 79% METALS 0%
10 Year Treasury Notes CBT Aluminum LME
5 Year Treasury Notes CBT Copper LME
Gold NYM
GRAINS 0%
Soybeans CBT
Corn CBT
Wheat CBT
[Remainder of page left blank intentionally.]
-68-
Eagle trades the Eagle Momentum Program on behalf of the Trust. Trading
for clients pursuant to the Eagle Momentum Program commenced in October 2003
and is detailed in Capsule A. Prior to October 2003, Eagle's proprietary
assets were traded under the Eagle Momentum Program. Complete performance
results for this program are shown on pages 264-265 of Part Two Statement of
Additional Information.
Trading pursuant to the Eagle-Global System commenced in August 1995 and
is detailed in Capsule B. Trading pursuant to the Eagle Yield Enhancement
program commenced in August 2000 and is detailed in Capsule C. Eagle commenced
exclusive management of client's accounts pursuant to the Eagle System in
August 1993 and is detailed in Capsule D. Trading for clients pursuant to the
Eagle Matrix commenced in October 2003 and is detailed in Capsule E. Trading
for clients pursuant to the Eagle Risk Allocation Program commenced in June
2004 and is detailed in Capsule F.
Each of the Capsules represents composite performance for all accounts
managed pursuant to a specific Trading Program and therefore, does not reflect
(except when the Capsule covers one account) the actual performance of any one
of the accounts. Within each Trading Program all of the accounts were traded
pursuant to the same signals generated by the Trading Program. The material
differences between and among such accounts and their relative performance are
caused by the size of each account, its use of notional funds, the number of
contracts traded by the account, the date each account started trading, the
brokerage commission rates charged, and the management and incentive fees paid
by the account. The Capsules do not include proprietary, experimental or
customized accounts.
Through March 2004, the rates of return set forth below in Capsules A, B,
D and E are based on the fully-funded subset of Eagle's accounts managed
pursuant to the Trading Program as detailed in CFTC advisory 93-13. This means
that (i) Eagle Trading is managing some accounts which are fully-funded and
others which are funded at less than 100%, but only fully-funded accounts are
shown; (ii) the value of the Fully-Funded accounts included in the subset
constitutes at least 10% of the cash and other margin qualifying assets, or
Actual Funds, plus the amount by which the account's trading level exceeds the
Actual Funds, or Nominal Account Size; and (iii) there are no material
differences in the gross trading profit (loss) between the Fully-Funded subset
and the Nominal Account Size. Starting April 2004, pursuant to NFA Compliance
Rule 2-34, rates of return calculated for all accounts include notional
funding.
Capsule C sets forth actual monthly rate of return of Eagle Yield
Enhancement from August 2000 based on Nominal Account size. This information
is based on the actual trading of client accounts which were funded at various
levels (5% - 100%) of Nominal Account size.
The rates of return shown in Capsule C are those of the Yield
Enhancement Program, and include partial interest income, reflecting actual
interest received on the cash in the accounts. For fully-funded accounts,
rates of return will be higher than those shown in Capsule C reflecting the
interest earned on the full value of such accounts.
[Remainder of page left blank intentionally.]
-69-
Eagle Momentum Program (Capsule A)
Eagle trades this program on behalf of the Trust. The following summary
performance information and chart present the composite results (unless
otherwise noted) of the Eagle Momentum Program for the period from October
2003 through February 2006.
Name of CTA: Eagle Trading Systems, Inc.
Name of program: Eagle Momentum Program
Inception of client account trading by CTA: August 1993
Inception of client account trading in program: October 2003
Number of open accounts: 5
Aggregate assets overall excluding "notional" equity: $625,275,841
Aggregate assets overall including "notional" equity: $938,437,141
Aggregate assets in program excluding "notional" equity: $30,945,728
Aggregate assets in program including "notional" equity: $43,560,551
Largest monthly drawdown (for an account): (9.96)% (01/05)
Largest peak-to-valley drawdown (for an account): (20.40)% (12/04 to 04/05)
Number of profitable accounts that have opened and closed: 1
Range of returns experienced by profitable accounts: 11.43%
Number of unprofitable accounts that have opened and closed: 3
Range of returns experienced by unprofitable accounts: (3.76)% to (12.12)%
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
January -- -- -- (0.64)% (9.32)% (7.07)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
February -- -- -- 3.12% (5.22)% (2.51)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
March -- -- -- (1.40)% 2.09%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
April -- -- -- (2.57)% (6.48)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
May -- -- -- (0.59)% 3.09%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
June -- -- -- (5.82)% 0.38%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
July -- -- -- 0.74% 7.40%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
August -- -- -- 1.19% 8.78%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
September -- -- -- 6.90% (8.43)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
October -- -- 1.56% (4.41)% 4.02%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
November -- -- (0.43)% 11.37% (0.06)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
December -- -- 3.91% (2.16%) (2.52)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
Compound Rate of -- -- 5.08% 4.60% (7.94)% (9.41)%
Return (3 months) (2 months)
- ---------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See Notes to Performance Information on pages 35-37.
-70-
Eagle Global System (Capsule B)
The following summary performance information presents the composite
results of the Eagle Global System for the period from January 2001 through
February 2006.
Name of CTA: Eagle Trading Systems, Inc.
Name of program: Eagle Global System
Inception of client account trading by CTA: August 1993
Inception of client account trading in program: August 1995
Number of open accounts: 3
Aggregate assets overall excluding "notional" equity: $625,275,841
Aggregate assets overall including "notional" equity: $938,437,141
Aggregate assets in program excluding "notional" equity: $217,301,795
Aggregate assets in program including "notional" equity: $224,523,240
Largest monthly drawdown: (14.86)% (4/01)
Largest peak-to-valley drawdown: (32.08)% (11/03/ to 09/04)
Number of profitable accounts that have opened and closed: 15
Range of returns experienced by profitable accounts: 0.88% to 190.05%
Number of unprofitable accounts that have opened and closed: 8
Range of returns experienced by unprofitable accounts: (2.05)% to (29.71)%
2006 compound rate of return: (1.04)% (2 months)
2005 compound rate of return: 25.82%
2004 compound rate of return: (19.69)%
2003 compound rate of return: 28.00%
2002 compound rate of return: 23.35%
2001 compound rate of return: 9.15%
Eagle Yield Enhancement (Capsule C)
The following summary performance information presents the composite
results of the Eagle Yield Enhancement for the period from January 2001
through February 2006.
Name of CTA: Eagle Trading Systems, Inc.
Name of program: Eagle Yield Enhancement
Inception of client account trading by CTA: August 1993
Inception of client account trading in program: August 2000
Number of open accounts: 10
Aggregate assets overall excluding "notional" equity: $625,275,841
Aggregate assets overall including "notional" equity: $938,437,141
Aggregate assets in program excluding "notional" equity: $307,001,226
Aggregate assets in program including "notional" equity: $571,126,038
Largest monthly drawdown: (3.91)% (04/04)
Largest peak-to-valley drawdown: (11.37)% (06/03 to 09/04)
Number of profitable accounts that have opened and closed: 5
Range of returns experienced by profitable accounts: 0.31% to 15.20%
Number of unprofitable accounts that have opened and closed: 21
Range of returns experienced by unprofitable accounts: (1.24) % to (12.95)%
2006 compound rate of return: 0.39% (2 months)
2005 compound rate of return: 5.57%
2004 compound rate of return: (1.46)%
2003 compound rate of return: (3.82)%
2002 compound rate of return: 12.64%
2001 compound rate of return: 12.72%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS ON THIS
PAGE.
-71-
Eagle System (Capsule D)
The following summary performance information presents the composite
results of the Eagle System for the period from January 2001 through February
2006.
Name of CTA: Eagle Trading Systems, Inc.
Name of program: Eagle System
Inception of client account trading by CTA: August 1993
Inception of client account trading in program: August 1993
Number of open accounts: 2
Aggregate assets overall excluding "notional" equity: $625,275,841
Aggregate assets overall including "notional" equity: $938,437,141
Aggregate assets in program excluding "notional" equity: $38,193,226
Aggregate assets in program including "notional" equity: $38,193,226
Largest monthly drawdown: (15.49)% (04/01)
Largest peak-to-valley drawdown: (37.75)% (11/03 to 09/04)
Number of profitable accounts that have opened and closed: 16
Range of returns experienced by profitable accounts: 9.09% to 1085.40%
Number of unprofitable accounts that have opened and closed: 1
Range of returns experienced by unprofitable accounts: (12.89)%
2006 compound rate of return: (6.08)% (2 months)
2005 compound rate of return: 19.13%
2004 compound rate of return: (24.65)%
2003 compound rate of return: 26.45%
2002 compound rate of return: 36.48%
2001 compound rate of return: 6.27%
Eagle Matrix (Capsule E)
The following summary performance information presents the composite
results of the Eagle Matrix for the period from October 2003 through February
2006.
Name of CTA: Eagle Trading Systems, Inc.
Name of program: Eagle Matrix
Inception of client account trading by CTA: August 1993
Inception of client account trading in program: October 2003
Number of open accounts: 1
Aggregate assets overall excluding "notional" equity: $625,275,841
Aggregate assets overall including "notional" equity: $938,437,141
Aggregate assets in program excluding "notional" equity: $24,746,789
Aggregate assets in program including "notional" equity: $24,746,789
Largest monthly drawdown: (6.70)% (4/04)
Largest peak-to-valley drawdown: (17.07)% (10/03 to 07/04)
Number of profitable accounts that have opened and closed: 2
Range of returns experienced by profitable accounts: 2.90% to 4.30%
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
2006 compound rate of return: (1.36)% (2 months)
2005 compound rate of return: 15.21%
2004 compound rate of return: (4.10)%
2003 compound rate of return: (5.17)% (3 months)
2002 compound rate of return: N/A
2001 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE TRUST'S
ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS ON THIS PAGE.
-72-
Eagle Risk Allocation (Capsule F)
The following summary performance information presents the composite
results of the Eagle Risk Allocation for the period from June 2004 to February
2006.
Name of CTA: Eagle Trading Systems, Inc.
Name of program: Eagle Risk Allocation
Inception of client account trading by CTA: August 1993
Inception of client account trading in program: June 2004
Number of open accounts: 1
Aggregate assets overall excluding "notional" equity: $625,275,841
Aggregate assets overall including "notional" equity: $938,437,141
Aggregate assets in program excluding "notional" equity: $7,087,077
Aggregate assets in program including "notional" equity: $36,287,297
Largest monthly drawdown: (5.48)% (04/05)
Largest peak-to-valley drawdown: (5.48)% (04/05)
Number of profitable accounts that have opened and closed: 2
Range of returns experienced by profitable accounts: 18.29% to 37.47%
Number of unprofitable accounts that have opened and closed: 0
Range of returns experienced by unprofitable accounts: N/A
2006 compound rate of return: 1.77% (2 months)
2005 compound rate of return: 25.60%
2004 compound rate of return: 7.75% (7 months)
2003 compound rate of return: N/A
2002 compound rate of return: N/A
2001 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM ON
THIS PAGE
-73-
USE OF PROCEEDS
The proceeds of the offering of the Units are used by each Series to
engage in the speculative trading on futures, forward, options and related
markets through allocating such proceeds to the applicable Advisor.
To the extent a Series trades in futures contracts on U.S. exchanges,
the assets deposited by the Series with its Clearing Brokers as margin must be
segregated pursuant to the regulations of the CFTC. Such segregated funds may
be invested only in a limited range of instruments -- principally U.S.
government obligations.
To the extent that a Series trades in futures, forward, options and
related contracts on markets other than regulated U.S. futures exchanges,
funds deposited to margin positions held on such exchanges are invested in
bank deposits or in instruments of a credit standing generally comparable to
those authorized by the CFTC for investment of "customer segregated funds,"
although applicable CFTC rules prohibit funds employed in trading on foreign
exchanges from being deposited in "customer segregated fund accounts."
As of the date of this Prospectus, the Trust places 100% of the Net
Asset Value of each Series in segregated accounts in the name of the Trust on
behalf of each Series with the Clearing Broker or another eligible financial
institution in the form of cash or U.S. Treasury bills to margin positions of
all commodities combined. Such funds are segregated pursuant to CFTC rules.
The Managing Owner, a registered commodity pool operator, will be
responsible for the cash management activities of the Trust, including
investing in U.S. Treasury and U.S. Government Agencies issues.
In addition, assets of each Series not required to margin positions may
be maintained in United States bank accounts opened in the name of the Trust
and may be held in U.S. Treasury bills (or other securities approved by the
CFTC for investment of customer funds).
Each Series receives 100% of the interest income earned on its assets.
[Remainder of page left blank intentionally.]
-74-
Summary of Fees and Charges; "Breakeven Table"
- -----------------------------------------------------------------------------------------------
Amount of Expenses
- -------------------- --------------------------------------------------------------------------
Series G Series G Series H Series H
Class I Class II(2) Class I Class II(2)
- -------------------- ------------------ ------------------ ------------------ -----------------
Expense(1) $ % $ % $ % $ %
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Managing Owner
Management Fee $25 0.50% $25 0.50% $25 0.50% $25 0.50%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Advisor's Base Fee $125 2.50% $125 2.50% $150 3.00% $150 3.00%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Advisor's
Incentive Fee(3) $46.51 0.93% $26.51 0.53% $51.63 1.03% $31.63 0.63%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Service Fee
Reimbursement(4) $100 2.00% N/A N/A $100 2.00% N/A N/A
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Sales
Commission(5) $50 1.00% $50 1.00% $50 1.00% $50 1.00%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Administrative
Expense(6) $75 1.50% $75 1.50% $75 1.50% $75 1.50%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Organization and
Offering Expense
Reimbursement(7) $25 0.50% $25 0.50% $25 0.50% $25 0.50%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Brokerage
Commissions(8) $42.44 0.85% $42.44 0.85% $16.87 0.34% $16.87 0.34%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
Interest
Income(9) $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)%
- -------------------- --------- -------- --------- -------- --------- -------- --------- -------
12-Month Break
Even $270.45 5.41% $150.45 3.01% $274.99 5.50% $154.99 3.10%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Amount of Expenses
- -------------------- --------------------------------------------------------------------------
Series I Series I Series J(10) Series J(10)
Class I Class II(2) Class I Class II
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Expense(1) $ % $ % $ % $ %
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Managing Owner
Management Fee $25 0.50% $25 0.50% $25 0.50% $25 0.50%
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Advisor's Base Fee $100 2.00% $100 2.00% $125 2.50% $125 2.50%
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Advisor's
Incentive Fee(3) $47.36 0.95% $27.36 0.55% $43.50 0.87% $23.50 0.47%
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Service Fee
Reimbursement(4) $100 2.00% N/A N/A $100.00 2.00% N/A N/A
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Sales
Commission(5) $50 1.00% $50 1.00% $50 1.00% $50 1.00%
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Administrative
Expense(6) $75 1.50% $75 1.50% $50 1.00% $50 1.00%
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Organization and
Offering Expense
Reimbursement(7) $25 0.50% $25 0.50% $25 0.50% $25 0.50%
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Brokerage
Commissions(8) $38.19 0.76% $38.19 0.76% $32.50 0.65 $32.50 0.65
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
Interest
Income(9) $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)% $(218.50) (4.37)%
- -------------------- --------- -------- --------- -------- --------- ------- --------- --------
12-Month Break
Even $242.05 4.84% $122.05 2.44% $232.50 4.65% $112.50 2.25%
- -----------------------------------------------------------------------------------------------
1. The foregoing breakeven analysis assumes that the Units have a constant
month-end Net Asset Value. Calculations are based on $5,000 as the Net
Asset Value per Unit. See "Charges" on page 77 for an explanation of the
expenses included in the "Breakeven Table."
2. Class II Units may be offered and sold only to investors who are
represented by approved Correspondent Selling Agents who are directly
compensated by the investor for services rendered in connection with an
investment in the Trust (such arrangements commonly referred to as
"wrap-accounts"). Class II Unitholders are not charged any Service Fee.
3. Based on assumptions herein, the Advisor's Incentive Fee is between
0.87% and 1.03% for Class I and 0.47% and 0.63% for Class II.
4. Investors who redeem all or a portion of their Class I Units of any
Series before the first anniversary of the purchase of such Units will
be subject to a redemption charge (which amount is reflected in this
Service Fee item) in an amount equal to the product of (i) the Net Asset
Value per Unit on the redemption date of the Units being redeemed,
multiplied by (ii) the number of months remaining before the first
anniversary of the date such Units were purchased, multiplied by (iii)
1/12th of 2.00%.
5. Each Unit purchased pays to Kenmar Securities Inc. in arrears a monthly
Sales Commission equal to 1/12th of 1.00% (1.00% per annum) of the Net
Asset Value of the outstanding Units as of the beginning of the month.
6. For Series G, H and I, administrative expenses are currently estimated
to be 11%, 5% and 11%, respectively, although the Managing Owner has
voluntarily agreed to pay and/or reimburse each such Series to the
extent that actual expenses for any such Series in any month are in
excess of 1/12 of 1.50% of any such Series' Net Asset Value. The
Managing Owner may discontinue such practice at any time in its
sole discretion. For Series J, administrative expenses are currently
estimated to be 1.00%. Actual expenses may be higher or lower. The
Managing Owner expects that as the Net Asset Value of a Series
increases, the administrative expenses of such Series will decline as a
percentage of such Series' Net Asset Value.
7. Expense levels are assumed to be at maximum amount. Actual expenses may
be lower.
-75-
8. Although the actual rates of brokerage commissions and transaction
related fees and expenses are the same for all Advisors, the total
amount of brokerage commissions and trading fees varies from Series to
Series based upon the trading frequency of such Series' Advisor and the
specific futures contracts traded. The estimates presented in the table
above are prepared using historical data about the Advisors' trading
activities for December 2005 through February 2006.
9. Interest income is currently estimated to be earned at a rate of 4.37%.
10. For purposes of this breakeven analysis, we have assumed (i) that the
Advisors will have identical performance and identical incentive fees,
(ii) that the Advisors will generate a weighted average rate of
brokerage commissions and other expenses equal to 0.65%, and (iii) a
weighted average Advisor's base fee of 2.50%. In actuality, the
Advisors' performance and incentive fees will be divergent among the
Advisors, the Advisors will generate a weighted average rate of
brokerage commissions and other expenses which could be higher or lower
than 0.65% and, because Advisors' base fees are assessed monthly while
Series J will rebalance quarterly, weighted average Advisors' base fees
could be higher or lower than 2.50%.
-76-
CHARGES
Management Fee
Each Series of Units pays to the Managing Owner in arrears a monthly
management fee equal to 1/12th of 0.50% (0.50% per annum) of the Net Asset
Value of such Series as of the beginning of the month.
Advisors' Fees
Series G pays to its Advisor in arrears a monthly base fee equal to
1/12th of 2.50% (2.50% per annum) of such Series' Net Asset Value as of the
end of the month. Series H pays to its Advisor in arrears a monthly base fee
equal to 1/12th of 3.00% (3.00% per annum) of such Series' Net Asset Value as
of the end of the month. Series I pays to its Advisor in arrears a monthly
base fee equal to 1/12th of 2.00% (2.00% per annum) of such Series' Net Asset
Value as of the end of the month. Series J pays to each of its Advisors in
arrears a monthly base fee equal to the base fee paid by each of Series G,
Series H and Series I to their respective Advisors on that portion of the
assets of Series J under the management of such Advisor. The aggregate
Advisors' base fees paid by Series J are expected roughly to approximate the
weighted average of the Advisors' base fees or 2.50%.
Each Series pays an incentive fee of 20% of New High Net Trading Profits
(defined below) generated by such Series, including realized and unrealized
gains and losses thereon, as of the close of business on the last day of each
calendar quarter, except that Series J will pay such incentive fee separately
with respect to each of its Advisors based on New High Net Trading Profits
generated by such Advisor, regardless of the profitability of Series J as a
whole. The incentive fees will be paid quarterly in arrears.
Below is a sample calculation of how the performance fee is determined:
Assume that your Series paid an incentive fee to an Advisor at the end
of the second quarter of 2006 and assume that such Advisor achieved "New High
Net Trading Profits (as defined in the next paragraph) of $200,000 during the
third quarter of 2006. The New High Net Trading Profits would be $200,000 and
the Advisor's incentive fee payable by your Series would be $40,000 (0.2 x
$200,000). Now assume your Series paid an incentive fee to an Advisor at the
end of the third quarter of 2006 but did not pay an incentive fee to such
Advisor at the end of the second quarter of 2006 because such Advisor had
trading losses for your Series of $100,000. If such Advisor achieved trading
profits for your Series of $200,000 at the end of the third quarter of 2006,
such Advisor's New High Net Trading Profits for the quarter would be $100,000
($200,000 - $100,000 loss carryforward) and the Advisor's performance fee
would be $20,000 (0.2 x $100,000). Please note that this simplified example
assumes that no investors have added or redeemed Units during this sample time
frame. Such capital changes require that the calculation be determined on a
"per unit" basis.
"New High Net Trading Profits" (for purposes of calculating an Advisor's
incentive fees) will be computed as the close of business of the last day of
each calendar quarter (the "Incentive Measurement Date") and will include such
profits (as outlined below) since the immediately preceding Incentive
Measurement Date (or, with respect to the first Incentive Measurement Date,
since commencement of operations of the Trading Vehicle) (each an "Incentive
Measurement Period"). New High Net Trading Profits for any Incentive
Measurement Period will be the net profits, if any, from the Trading Vehicle's
trading during such period (including (i) realized trading profit (loss) plus
or minus (ii) the change in unrealized trading profit (loss) on open
positions), and will be calculated after the determination of certain
transaction costs attributable to the Trading Vehicle and the Advisor's
management fee, but before deduction of any incentive fees payable during the
Incentive Measurement Period. New High Net Trading Profits will not include
interest earned or credited on the Trading Vehicle's assets. New High Net
Trading Profits will be generated only to the extent that the Trading
Vehicle's cumulative New High Net Trading Profits exceed the highest level of
cumulative New High Net Trading Profits achieved by such Trading Vehicle as of
a previous Incentive Measurement Date. Except as set forth below, net losses
from prior quarters must be recouped before New High Net Trading Profits can
again be generated. If a withdrawal or distribution occurs or if the Advisory
Agreement is terminated at any date that is not an Incentive Measurement Date,
the date of the withdrawal or distribution or termination will be treated as
if it were an Incentive Measurement Date, but any incentive fee accrued in
respect of the withdrawn assets on such date shall not be paid to the Advisor
until the next scheduled Incentive Measurement Date. New High Net Trading
Profits for an Incentive Measurement Period shall exclude
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capital contributions to the Trading Vehicle in an Incentive Measurement
Period, distributions or redemptions paid or payable by the Trading Vehicle
during an Incentive Measurement Period, as well as losses, if any, associated
with redemptions, distributions, and reallocations of assets during the
Incentive Measurement Period and prior to the Incentive Measurement Date (and
any loss carryforward attributable to the Trading Vehicle will be reduced in
the same proportion that the value of the assets allocated away from the
Trading Vehicle comprises of the value of the Trading Vehicle's assets prior
to such allocation away from the Advisor). In calculating New High Net Trading
Profits, incentive fees paid for a previous Incentive Measurement Period will
not reduce cumulative New High Net Trading Profits in subsequent periods.
Sales Commission
The Trust pays to the Selling Agent in arrears a monthly Sales
Commission equal to 1/12th of 1.00% (1.00% per annum) of the Net Asset Value
of the outstanding Units as of the beginning of each month. This sales
commission is in addition to the Service Fee charged in respect of Class I
Units.
Brokerage Commissions and Fees
Each Series pays to the Clearing Broker all brokerage commissions,
including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees
and other transaction related fees and expenses charged in connection with
such Series trading activities. On average, total charges paid to the Clearing
Broker are expected to be less than $10.00 per round-turn trade, although the
Clearing Broker's brokerage commissions and trading fees will be determined on
a contract-by-contract basis. The exact amount of such brokerage commissions
and trading fees to be incurred is impossible to estimate and will vary on a
Series by Series basis based upon a number of factors including the trading
frequency of such Series' Advisor, the types of instruments traded,
transaction sizes, degree of leverage employed and transaction rates in effect
from time to time. Based upon the Advisors' historical trading activities, the
Managing Owner does not expect brokerage commissions and fees to exceed 1.50%
of the Net Asset Value of any Series in any year.
Extraordinary Fees and Expenses
Each Series pays all its extraordinary fees and expenses, if any, and
its allocable portion of all extraordinary fees and expenses of the Trust
generally, if any, as determined by the Managing Owner. Extraordinary fees and
expenses are fees and expenses which are non-recurring and unusual in nature,
such as legal claims and liabilities and litigation costs and any permitted
indemnification payments related thereto. Extraordinary fees and expenses
shall also include material expenses which are not currently anticipated
obligations of the Trust or of managed futures funds in general, such as the
payment of partnership taxes or governmental fees associated with payment of
such taxes. Routine operational, administrative and other ordinary expenses
will not be deemed extraordinary expenses. Any fees and expenses imposed on
the Trust due to the status of an individual shall be paid by such individual
or the applicable Series, not the Managing Owner.
Routine Operational, Administrative and Other Ordinary Expenses
Each Series pays all of its routine operational, administrative and
other ordinary expenses and its allocable share of all routine operational,
administrative and other ordinary expenses of the Trust generally, as
determined by the Managing Owner including, but not limited to, accounting and
computer services, the fees and expenses of the Trustee, legal and accounting
fees and expenses, tax preparation expenses, filing fees, printing, mailing
and duplication costs. For Series J, such routine expenses are currently
estimated to be 1.00%; for Series G, H and I, such routine expenses are
currently estimated to be 11%, 5% and 11%, respectively. The Managing Owner
has voluntarily agreed to pay and/or reimburse each of Series G, H and/or I to
the extent that actual expenses for any such Series in any month are in excess
of 1/12 of 1.50% of any such Series' Net Asset Value, although the Managing
Owner may discontinue such practice at any time in its sole discretion. Actual
expenses may be higher or lower. The Managing Owner expects that as the Net
Asset Value of a Series increases, the routine expenses of such Series will
decline as a percentage of such Series' Net Asset Value.
Organization and Offering Expenses
Expenses incurred in connection with organizing the Trust and the
offering of Units during or prior to the initial offering period were
approximately $1,436,000, of which $68,461 has been reimbursed to the Managing
Owner by the Trust as of March 31, 2006. Such organizational and initial
offering expenses were paid by the Managing Owner, subject to reimbursement by
the Trust, without
-78-
interest, in 36 monthly payments during each of the first 36 months of the
Trust's operations; provided, however, that in no event shall the Managing
Owner be entitled to reimbursement for such expenses in an aggregate amount in
excess of 2.5% of the aggregate amount of all subscriptions accepted by the
Trust during the initial offering period and the first 36 months of the
Trust's operations. If any Series terminates prior to completion of the
foregoing reimbursement, or the full amount of such expenses has not been
fully reimbursed by the end of such 36 month period, the Managing Owner will
not be entitled to receive any further reimbursement in respect of such
expenses and such Series will have no further obligation to make reimbursement
payments in respect of such expenses from such Series.
The Managing Owner also will be responsible for the payment of all
offering expenses of each Series incurred during the offering; provided,
however, that the amount of such offering expenses paid by the Managing Owner
shall be subject to reimbursement by such Series, without interest, in up to
36 monthly payments during each of the first 36 months following the month in
which such expenses were paid by the Managing Owner. If such Series terminates
prior to the completion of any such reimbursement, or the full amount of such
expenses has not been fully reimbursed by the end of such 36 month period, the
Managing Owner will not be entitled to receive, and such Series will not be
required to pay, any unreimbursed portion of such expenses outstanding as of
the date of such termination.
In no event will the aggregate amount of payments by any Series in any
month in respect of reimbursement of organizational and offering expenses
(whether incurred prior to or during the offering) exceed 0.50% per annum of
the Net Asset Value of such Series as of the beginning of such month.
Organization and offering expenses means those expenses incurred in
connection with the formation, qualification and registration of the Trust and
the Units and in offering, distributing and processing the Units under
applicable Federal and state law, and any other expenses actually incurred
and, directly or indirectly, related to the organization of the Trust or the
initial and continuous offering of the Units, including, but not limited to,
expenses such as:
o initial and ongoing registration fees, filing fees, escrow fees and
taxes
o costs of preparing, printing (including typesetting), amending,
supplementing, mailing and distributing the Registration Statement, the
exhibits thereto and the Prospectus during the initial offering period and the
offering
o the costs of qualifying, printing, (including typesetting), amending,
supplementing, mailing and distributing sales materials used in connection
with the offering and issuance of the Units during the initial offering period
and the offering
o travel, telegraph, telephone and other expenses in connection with the
offering and issuance of the Units during the initial offering period and the
offering
o accounting, auditing and legal fees (including disbursements related
thereto) incurred in connection therewith and
o any extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any permitted indemnification
associated therewith) related thereto. Organizational and offering expenses
will be allocated among the Series as determined by the Managing Owner to be
fair and equitable provided that any such expenses attributable to a single
Series shall be borne by such Series alone.
The Managing Owner will not allocate to the Trust or any Series of the
Trust, the indirect expenses of the Managing Owner.
Service Fees - General
The Selling Agent and the Managing Owner have selected the Correspondent
Selling Agents to assist in the making of offers and sales of Units and to
provide customary ongoing services to the Trust and its Unitholders for
commodities related brokerage services. Such ongoing services may include,
without limitation:
o advising Unitholders of the Net Asset Value of the Trust, of the
relevant Series of the Trust and of their Units in such Series
o responding to Unitholders' inquiries about monthly statements and
annual reports and tax information provided to them
-79-
o advising Unitholders whether to make additional capital contributions
to the Trust or to redeem their Units
o assisting with redemptions of Units
o providing information to Unitholders with respect to futures and
forward market conditions and
o providing further services which may be requested by Unitholders.
Any Correspondent Selling Agent that will receive any ongoing service
fees with respect to Units sold by it must be duly registered with the NFA as
a futures commission merchant or introducing broker. Any associated person of
such a Correspondent Selling Agent must be registered with the NFA as an
associated person having taken the Series 3 and/or Series 31 Commodity
Brokerage Exam or having been "grandfathered" as an associated person
qualified to do commodities brokerage.
Class I - Service Fee
The Trust pays to the Selling Agent a Service Fee in respect of the
Class I Units of each Series, monthly in arrears, equal to 1/12th of 2.00%
(2.00% per annum) of the Net Asset Value per Unit of the outstanding Class I
Units at the beginning of the month for services provided to the Trust and its
Unitholders. The Service Fee is compensation which remains payable with
respect to the Class I Units for as long as such Units are outstanding.
Payment of the Service Fee is subject to rules, regulations and
interpretations of the National Association of Securities Dealers Regulation,
Inc.
The Correspondent Selling Agents are entitled to receive from the
Selling Agent in respect of Class I Units sold by them an initial service fee
for commodities brokerage related services in an amount equal to two percent
(2.00%) of the initial Net Asset Value of each Class I Unit sold by the
Correspondent Selling Agents, payable on the date such Units are purchased
and, commencing with the thirteenth month after the purchase date of a Class I
Unit, an ongoing monthly service fee equal to 1/12th of 2.00% (2.00% per
annum) of the Net Asset Value per Unit at the beginning of the month of each
Class I Unit sold by the Correspondent Selling Agents. In exchange for paying
the Correspondent Selling Agents the initial service fee in advance, the
Selling Agent will retain the Service Fee paid by the Trust in respect of each
Class I Unit during the first twelve months after the date of purchase.
Thereafter, the entire amount of the Selling Fee will be paid over to the
Correspondent Selling Agent by the Selling Agent.
The aggregate amount to be paid by the Trust to the Selling Agent under
the foregoing arrangement may be more or less than the amount paid to the
Correspondent Selling Agent by the Selling Agent in respect of the same Class
I Unit. If the aggregate amount paid to the Selling Agent by the Trust during
such twelve month period in respect of a Class I Unit exceeds the amount paid
to the Correspondent Selling Agent by the Selling Agent on the original
purchase date of such Class I Unit, the Selling Agent will not be required to
repay any such excess to the Trust. If the amount paid to a Correspondent
Selling Agent by the Selling Agent on the original purchase date of a Class I
Unit exceeds the aggregate amount paid to the Selling Agent by the Trust
during such twelve month period in respect of such Class I Unit, the Trust
will not be required to pay any such excess to the Selling Agent.
Class II
Class II Units may only be offered to investors who are represented by
approved Correspondent Selling Agents who are directly compensated by the
investor for services rendered in connection with an investment in the Trust
(such arrangements commonly referred to as "wrap-accounts").
Investors who purchase Class II Units will not be charged any Service
Fee in respect of such Class II Units.
Redemption Charge
There is no redemption charge in respect of Class II Units.
A Class I Unitholder who redeems a Class I Unit prior to the first
anniversary of the purchase of such Unit will be subject to a redemption
charge in an amount equal to the product of (i) the Net Asset Value per Unit
on the redemption date of the Units being redeemed, multiplied by (ii) the
number of months remaining before the first anniversary of the date such Units
were purchased, multiplied by (iii) 1/12th of 2.00%. There is no redemption
charge for Class I Units on or after the first anniversary of their purchase.
A Class I Unitholder who exchanges a Class I Unit prior to the first
anniversary of the purchase of
-80-
such Unit will not be subject to a redemption charge in respect of the Unit
being redeemed in connection with the Exchange. A Unit acquired in an exchange
that is subsequently redeemed will be subject to the redemption charge as if
the Unit acquired in connection with the exchange had been acquired on the
purchase date of the Unit redeemed in connection with the exchange. For
example, if Class I Units of Series G are purchased effective on August 1,
2006 and subsequently exchanged for Class I Units of Series H effective
November 1, 2006, no redemption charge would apply. The original purchase date
of those Class I Units of Series H would be deemed to remain August 1, 2006.
Therefore, if those Class I Units of Series H are redeemed at any month-end
before July 31, 2007, a redemption charge would apply at such time.
Redemption charges do not reduce Net Asset Value or New High Net Trading
Profit for any purpose, only the amount which Unitholders receive upon
redemption.
In the event that an investor acquires Units at more than one closing
date, the redemption charge will be calculated on a "first-in, first-out"
basis for redemption purposes (including determining the amount of any
applicable redemption charge).
The redemption charge is paid by the redeeming Unitholder to the Selling
Agent.
The Managing Owner believes that the fee structure of the Trust
described above complies with sections IV.C.1, IV.C.2 and IV.C.3c of the
Guidelines.
WHO MAY SUBSCRIBE
The Selling Agent and the Correspondent Selling Agents selling Units in
the Trust are obligated to make every reasonable effort to determine that the
purchase of Units is a suitable and appropriate investment for each
subscriber, based on information provided by the subscriber regarding his or
its financial situation and investment objective.
A PURCHASE OF THE UNITS SHOULD BE MADE ONLY BY THOSE PERSONS WHOSE
FINANCIAL CONDITION WILL PERMIT THEM TO BEAR THE RISK OF A TOTAL LOSS OF THEIR
INVESTMENT IN THE TRUST. AN INVESTMENT IN THE UNITS SHOULD BE CONSIDERED ONLY
AS A LONG-TERM INVESTMENT.
Investors should not purchase Units with the expectation of tax benefits
in the form of losses or deductions. If losses accrue to a Series, your
distributive share of such losses will, in all probability, be treated as a
capital loss and generally will be available only for offsetting capital gains
from other sources. To the extent that you have no capital gains, capital
losses can be used only to a very limited extent as a deduction from ordinary
income.
________________________
The Managing Owner sends each Unitholder of each Series a monthly
statement that includes a description of performance of such Series during the
prior month and sets forth, among other things, the brokerage commissions, the
Adviser's base fee and Incentive Fee in respect of such Series during such
month and on a year-to-date basis.
THE CLEARING BROKER AND FUTURES BROKER
The Trust's clearing broker is UBS Securities. UBS Securities also acts
as the Trust's futures broker. UBS Securities has not been involved in the
organization of the Trust and does not take any part in the Trust's ongoing
management. UBS Securities is not affiliated with the Managing Owner, nor is
UBS Securities responsible for the activities of the Managing Owner. UBS
Securities principal business address is 677 Washington Blvd, Stamford, CT
06901. UBS Securities is registered in the U.S. with the NASD as a
broker-dealer and with the CFTC as a futures commission merchant. UBS
Securities is a member of various U.S. futures securities exchanges. UBS
Securities was involved in the 2003 Global Research Analyst Settlement. This
settlement is part of the global settlement that UBS Securities and nine other
firms have reached with the SEC, NASD, NYSE and various state regulators. As
part of the settlement, UBS Securities has agreed to pay $80,000,000 divided
among retrospective relief, for procurement of independent research and for
investor education. UBS Securities has also undertaken to adopt enhanced
policies and procedures reasonably designed to address potential conflicts of
interest arising from research practices. UBS Securities will act only as a
clearing broker for the Trust and as such will be paid commissions for
executing and clearing trades on behalf of the Trust. UBS Securities has not
passed upon the adequacy or accuracy of this Prospectus. UBS Securities
neither will act in any supervisory capacity with respect to the Managing
-81-
Owner nor participate in the management of the Managing Owner or the Trust.
________________________
Additional or replacement clearing brokers or futures brokers may be
appointed in respect of the account of any Series of the Trust in the future.
CONFLICTS OF INTEREST
General
The Managing Owner has not established any formal procedure to resolve
conflicts of interest. Consequently, investors will be dependent on the good
faith of the respective parties subject to such conflicts to resolve them
equitably. Although the Managing Owner attempts to monitor these conflicts, it
is extremely difficult, if not impossible, for the Managing Owner to ensure
that these conflicts do not, in fact, result in adverse consequences to the
various Series of the Trust.
Prospective investors should be aware that the Managing Owner presently
intends to assert that Unitholders have, by subscribing to Series of the
Trust, consented to the following conflicts of interest in the event of any
proceeding alleging that such conflicts violated any duty owed by the Managing
Owner to investors.
The Managing Owner
Other Managed Futures Products Sponsored by the Managing Owner and its
Affiliates
The Managing Owner and its affiliates sponsor and operate other
commodity pools and alternative investment products. The Managing Owner and
its principals and affiliates have investments in certain of such products.
The Managing Owner has a conflict of interest in allocating its own resources
among different clients. The Managing Owner cannot and will not devote all of
its time or resources to the management of the business and affairs of the
Trust but intends to devote sufficient time and resources properly to manage
the business and affairs of the Trust consistent with its fiduciary duties to
the Trust and the Managing Owner's other clients.
The Advisors
Other Clients and Business Activities of the Advisors
The Advisors and their principals each devote their business time to
ventures in addition to managing the assets of the various Series.
The Advisors may have a conflict of interest in rendering advice to the
relevant Series of the Trust because of other accounts managed or traded by
them or their affiliates, including accounts owned by their principals, which
may be traded differently from the account of the relevant Series of the
Trust. The Advisors may have financial incentives to favor certain accounts
over the relevant Series of the Trust.
Brokers and Dealers Selected by Advisors
Certain of the Advisors may require, as a condition of their retention,
that the account of the Series which they trade must trade through specific
executing brokers with which such Advisors have ongoing business dealings.
Such Advisors may have a conflict of interest between insisting on the use of
such brokers and using the brokers most advantageous for such Series.
Certain of the Advisors may execute a number of the trades for the
account of the Series which they trade through affiliated floor brokers or
foreign exchange dealers, which will be compensated for their trading
services.
The Clearing Broker, the Futures Broker and Executing Brokers
Any clearing broker, including the Clearing Broker, any futures broker,
including the Futures Broker, and any executing broker selected by an Advisor
may act from time to time as a commodity broker for other accounts with which
it is affiliated or in which it or one of its affiliates has a financial
interest. The compensation received by the Clearing Broker, the Futures Broker
and executing brokers from such accounts may be more or less than the
compensation received for brokerage and forward trading services provided to
the various Series of the Trust. In addition, various accounts traded through
the Clearing Broker, the Futures Broker and executing brokers (and over which
their personnel may have discretionary trading authority) may take positions
in the futures markets opposite to those of the various Series of the Trust or
may compete with the various Series of the Trust for the same positions.
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The Clearing Broker, the Futures Broker and executing brokers may have a
conflict of interest in their execution of trades for the various Series of
the Trust and for other customers. The Managing Owner will, however, not
retain any clearing broker or futures broker for any Series of the Trust which
the Managing Owner has reason to believe would knowingly or deliberately favor
any other customer over any Series of the Trust with respect to the execution
of commodity trades.
The Clearing Broker, the Futures Broker and executing brokers will
benefit from executing orders for other clients, whereas the various Series of
the Trust may be harmed to the extent that the Clearing Broker, the Futures
Broker and executing brokers have fewer resources to allocate to such Series'
accounts due to the existence of such other clients.
Certain officers or employees of the Clearing Broker, the Futures Broker
and executing brokers may be members of United States commodities exchanges
and/or serve on the governing bodies and standing committees of such
exchanges, their clearinghouses and/or various other industry organizations.
In such capacities, these officers or employees may have a fiduciary duty to
the exchanges, their clearinghouses and/or such various other industry
organizations which could compel such employees to act in the best interests
of these entities, perhaps to the detriment of the various Series of the
Trust.
Selling Agents
The Selling Agent and the Correspondent Selling Agents to be selected
for the various Series of the Trust will receive the service fee in respect of
Class I Units sold by them. The individual registered representatives of the
Selling Agents and the Correspondent Selling Agents will themselves receive a
significant portion of the compensation paid to the Selling Agents.
Consequently, they will have a conflict of interest both in recommending the
purchase of Units by their clients and in counseling clients as to whether to
redeem.
Proprietary Trading/Other Clients
The Managing Owner, the Advisors, the Clearing Broker, the Futures
Broker and their respective principals and affiliates may trade in the
commodity markets for their own accounts and for the accounts of their
clients, and in doing so may take positions opposite to those held by the
various Series of the Trust or may compete with the various Series of the
Trust for positions in the marketplace. Such trading may create conflicts of
interest on behalf of one or more such persons in respect of their obligations
to the various Series of the Trust. Records of proprietary trading and trading
on behalf of other clients will not be available for inspection by
Unitholders.
Because the Managing Owner, the Advisors, the Clearing Broker, the
Futures Broker and their respective principals and affiliates may trade for
their own accounts at the same time that they are managing the accounts of the
various Series of the Trust, prospective investors should be aware that -- as
a result of a neutral allocation system, testing a new trading system, trading
their proprietary accounts more aggressively or other activities not
constituting a breach of fiduciary duty -- such persons may from time to time
take positions in their proprietary accounts which are opposite, or ahead of,
the positions taken for the various Series of the Trust.
Ancillary Business Arrangements Between the Managing Owner and Certain
Advisors
The Managing Owner and some of the Advisors may have business
arrangements between them that do not directly relate to the Trust's business.
For example, the Managing Owner or its affiliates may sponsor other investment
funds which employ one or more of the Advisors. In addition, an affiliate of
the Managing Owner may act as the selling agent for an investment fund
operated by one or more of the Advisors. These business arrangements may
present a disincentive for the Managing Owner to terminate such Advisors even
though termination may be in the best interest of the Series for which they
trade.
No Distributions
The Managing Owner has discretionary authority over all distributions
made by the Trust. In view of the Trust's objective of seeking significant
capital appreciation, the Managing Owner currently does not intend to make any
distributions. Greater management fees will be generated to the benefit of the
Managing Owner and the Advisors if the Trust's assets are not reduced by
distributions to the Unitholders.
Receipt of Soft Dollars
Certain of the Advisors may receive services or products provided by a
commodity broker, a practice known as receiving "soft dollars." Such services
of
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products may be used to provide appropriate assistance to such Advisors in
making investment decisions for its clients, which may include research
reports or analysis about particular commodities, publications, database
software and services, quotation equipment and other products or services that
may enhance such Advisors' investment decision making. As a result, such
Advisor has a conflict of interest because it receives valuable benefits from
a commodity broker, and the transaction compensation charged by the broker
might not be the lowest available.
Incentive Fees
The Incentive Fee arrangement between each Series and its Advisor or
Advisors (in the case of Series J) may create an incentive for the Advisor to
make trading decisions that are more speculative or subject to a greater risk
of loss than would be the case if no such arrangement existed.
Unified Counsel
In connection with this offering, the Trust and the Managing Owner have
been represented by unified counsel. To the extent that this offering could
benefit by further independent review, such benefit will not be available in
this offering.
REDEMPTIONS AND DISTRIBUTIONS
Each Series of the Trust is intended as a long-term "buy and hold"
investment. The objective of each Series of the Trust is to achieve
significant profits over time while controlling the risk of loss. However,
there can be no assurance that any Series of the Trust will meet its
objectives, and Unitholders may exacerbate their losses by "buying and
holding" an investment in the Units of a Series in the event that such Series
sustains a prolonged period of losses.
A Unitholder may redeem any or all of his or her Units as of the close
of business on the last Business Day of any calendar month -- beginning with
the end of the first month following such Unitholder's purchase of such Units
- -- at Net Asset Value, provided that the Request for Redemption is received by
the Managing Owner by 10:00 AM New York time at 900 King Street, Suite 100,
Rye Brook, New York 10573, at least five (5) Business Days prior to the end of
such month excluding the last Business Day of the month. For example, if the
last Business Day of the month is a Friday, notice must be received by the
Managing Owner by 10:00 AM New York time on the Friday of the immediately
preceding week. Redemption requests received before the foregoing deadline may
be withdrawn before the foregoing deadlines. The Managing Owner may, in its
sole discretion and for good cause, waive notice deadlines for redemptions.
Your minimum redemption request may be the lesser of either $1,000 or ten (10)
Units; provided that, if you are redeeming less than all your Units, your
remaining Units in any Series must have an aggregate Net Asset Value of at
least $500. If you only redeem some of your Units, and as a result, your
account balances fall below the minimum investment amount (i.e., $500) you may
be compulsorily redeemed at the Managing Owner's sole discretion. The Net
Assets of each Series are its assets less its liabilities determined in
accordance with generally accepted accounting principles. Net Asset Value per
Unit of any Series is equal to the Net Assets of such Series divided by the
number of Units of such Series outstanding as of the date of determination.
In the event that an investor acquires Units of any Series at more than
one time, his or her Units of such Series are treated on a "first-in,
first-out" basis for purposes of determining whether (or what) redemption
charges apply.
To redeem Units, Unitholders may contact their respective Correspondent
Selling Agent (in writing if required by such Correspondent Selling Agent).
Correspondent Selling Agents must notify the Managing Owner in writing in
order to effectuate redemptions of the Units. A signature guarantee may be
required by your Correspondent Selling Agent or the Managing Owner. However, a
Unitholder who no longer has a Correspondent Selling Agent account must
request redemption in writing (signature guaranteed unless waived by the
Managing Owner) by corresponding with the Managing Owner.
The Managing Owner may declare additional redemption dates, including
Special Redemption Dates which involve a suspension of trading, upon notice to
the Unitholders.
Redemption proceeds generally will be paid out within fifteen (15)
Business Days of redemption. However, in special circumstances, including, but
not limited to, default or delay in payments due to the relevant Series from
banks or other persons, such Series may in turn delay payment to persons
requesting redemption of Units of the proportionate part of the redemption
value of their Units equal to the proportionate part of the Net Assets of such
Series represented by the sums that are the subject of
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such default or delay. No such delays have been imposed to date by any fund
sponsored by the Managing Owner or its affiliates.
The Net Asset Value per Unit as of the date of redemption may differ
substantially from the Net Asset Value per Unit as of the date by which
irrevocable notice of redemption must be submitted.
The Managing Owner has not made, and has no intention of making, any
distribution from the profits or capital of any Series to its Unitholders.
Unitholders do not need to redeem all their Units of any Series in order
to redeem some of their Units of such Series.
THE TRUST, THE SERIES, THE TRUSTEE AND THE MANAGING OWNER;
CERTAIN MATERIAL TERMS OF THE TRUST DECLARATION
The following summary describes in brief certain aspects of the
operation of the Trust and the Series, the Trustee's and the Managing Owner's
respective responsibilities concerning the Trust and the Series and the
material terms of the Declaration of Trust. Prospective investors should
carefully review the Declaration of Trust attached hereto as Exhibit A and
consult with their own advisers concerning the implications to such
prospective subscribers of investing in a Series of a Delaware Statutory
Trust. Capitalized terms used in this section and not otherwise defined shall
have such meanings assigned to them under the Declaration of Trust.
Principal Office; Location of Records
The Trust is organized in a series as a statutory trust under the
Delaware Statutory Trust Act. The Trust is administered by the Managing Owner,
whose office is located 900 King Street, Suite 100, Rye Brook, New York 10573,
telephone: (914) 307-7000. The records of the Trust, including a list of the
Unitholders of each Series and their addresses, are located at the foregoing
address, and available for inspection and copying (upon payment of reasonable
reproduction costs) by Unitholders of such Series or their representatives for
any purposes reasonably related to a Unitholder's interest as a beneficial
owner of such Series during regular business hours as provided in the
Declaration of Trust. The Managing Owner will maintain and preserve the books
and records of the Trust for a period of not less than six years.
The Trust is formed and will be operated in a manner such that each
Series will be liable only for obligations attributable to such Series and
Unitholders of a Series will not be subject to the losses or liabilities of
any other Series. If any creditor or Unitholder in any particular Series
asserted against the Trust a valid claim with respect to its indebtedness or
Units, the creditor or Unitholder would only be able to recover money from
that particular Series and its assets and from the Managing Owner and its
assets. Accordingly, the debts, liabilities, obligations, claims and expenses,
or collectively, Claims, incurred, contracted for or otherwise existing solely
with respect to a particular Series will be enforceable only against the
assets of that Series and against the Managing Owner and its assets, and not
against any other Series or the Trust generally or any of their respective
assets. The assets of any particular Series include only those funds and other
assets that are paid to, held by or distributed to the Trust on account of and
for the benefit of that Series, including, without limitation, funds delivered
to the Trust for the purchase of Units in a Series. This limitation on
liability is referred to as the "Inter-Series Limitation on Liability." The
Inter-Series Limitation on Liability is expressly provided for under the
Delaware Statutory Trust Act, which provides that if certain conditions (as
set forth in Section 3804(a)) are met, then the debts of any particular Series
will be enforceable only against the assets of such Series and not against the
assets of any other Series or the Trust generally.
In furtherance of the Inter-Series Limitation on Liability, every party,
including the Unitholders, the Trustee and all parties providing goods or
services to the Trust, any Series or the Managing Owner on behalf of the Trust
or any Series, will acknowledge and consent in writing to:
o the Inter-Series Limitation on Liability with respect to such party's
Claims or Units;
o voluntarily reduce the priority of its Claims against and Units in the
Trust or any Series or their respective assets, such that its Claims and
Units are junior in right of repayment to all other parties' Claims
against and Units in the Trust or any Series or their respective assets,
except that (a) Units in the particular Series that such party purchased
pursuant to a Subscription Agreement or similar agreement and (b) Claims
against the Trust where recourse for the payment of such
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Claims was, by agreement, limited to the assets of a particular Series,
will not be junior in right of repayment, but will receive repayment
from the assets of such particular Series (but not from the assets of
any other Series or the Trust generally) equal to the treatment received
by all other creditors and Unitholders that dealt with such Series; and
o a waiver of certain rights that such party may have under the United
States Bankruptcy Code, if such party held collateral for its Claims, in
the event that the Trust is a debtor in a chapter 11 case under the
United States Bankruptcy Code, to have any deficiency Claim (i.e., the
difference, if any, between the amount of the Claim and the value of the
collateral) treated as an unsecured Claim against the Trust generally or
any other Series.
Certain Aspects of the Trust and the Series
Each Series of the Trust is the functional equivalent of a limited
partnership; prospective investors should not anticipate any legal or
practical protections under Delaware Statutory Trust Act greater than those
available to limited partners of a limited partnership.
No special custody arrangements are applicable to any Series of the
Trust that would not be applicable to a limited partnership, and the existence
of a trustee should not be taken as an indication of any additional level of
management or supervision over any Series of the Trust. To the greatest extent
permissible under Delaware law, the Trustee acts in an entirely passive role,
delegating all authority over the operation of each Series of the Trust to the
Managing Owner. The Managing Owner is the functional equivalent of a sole
general partner in a limited partnership.
Although Units of beneficial interest in a Series need not carry any
voting rights, the Declaration of Trust gives Unitholders of each Series
voting rights in respect of the business and affairs of such Series comparable
to those typically extended to limited partners in publicly-offered futures
funds.
The Trustee
Wilmington Trust Company, a Delaware banking corporation, is the sole
Trustee of the Trust and each Series. The Trustee's principal offices are
located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001. The Trustee is unaffiliated with the Managing Owner or the Selling
Agents. The Trustee's duties and liabilities with respect to the offering of
the Units and the administration of each Series of the Trust are limited to
its express obligations under the Declaration of Trust.
The rights and duties of the Trustee, the Managing Owner and the
Unitholders are governed by the provisions of the Delaware Statutory Trust Act
and by the Declaration of Trust.
The Trustee serves as the sole trustee of the Trust and each of the
Series in the State of Delaware. The Trustee will accept service of legal
process on the Trust or any Series of the Trust in the State of Delaware and
will make certain filings under the Delaware Statutory Trust Act The Trustee
does not owe any other duties to the Trust, the Managing Owner or the
Unitholders of any Series. The Trustee is permitted to resign upon at least
sixty (60) days' notice to the Trust, provided, that any such resignation will
not be effective until a successor Trustee is appointed by the Managing Owner.
The Declaration of Trust provides that the Trustee is compensated by each
Series of the Trust, and is indemnified by each Series of the Trust against
any expenses it incurs relating to or arising out of the formation, operation
or termination of such Series or the performance of its duties pursuant to the
Declaration of Trust, except to the extent that such expenses result from the
gross negligence or willful misconduct of the Trustee. The Managing Owner has
the discretion to replace the Trustee.
Only the Managing Owner has signed the Registration Statement of which
this Prospectus is a part, and only the assets of the Trust and the Managing
Owner are subject to issuer liability under the federal securities laws for
the information contained in this Prospectus and under federal and state laws
with respect to the issuance and sale of the Units. Under such laws, neither
the Trustee, either in its capacity as Trustee or in its individual capacity,
nor any director, officer or controlling person of the Trustee is, or has any
liability as, the issuer or a director, officer or controlling person of the
issuer of the Units. The Trustee's liability in connection with the issuance
and sale of the Units is limited solely to the express obligations of the
Trustee set forth in the Declaration of Trust.
Under the Declaration of Trust, the Trustee has delegated to the
Managing Owner the exclusive
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management and control of all aspects of the business of each Series of the
Trust. The Trustee will have no duty or liability to supervise or monitor the
performance of the Managing Owner, nor will the Trustee have any liability for
the acts or omissions of the Managing Owner. In addition, the Managing Owner
has been designated as the "tax matters partner" of each Series of the Trust
for purposes of the Internal Revenue Code of 1986, as amended. The Unitholders
of a Series have no voice in the operations of such Series, other than certain
limited voting rights as set forth in the Declaration of Trust. In the course
of its management, the Managing Owner may, in its sole and absolute
discretion, appoint an affiliate or affiliates of the Managing Owner as
additional managing owners (except where the Managing Owner has been notified
by the Unitholders that it is to be replaced as the managing owner) and retain
such persons, including affiliates of the Managing Owner, as it deems
necessary for the efficient operation of the Trust and each of the Series.
Because the Trustee has delegated substantially all of its authority
over the operation of each series of the Trust to the Managing Owner, the
Trustee itself is not registered in any capacity with the CFTC.
The Managing Owner
Background and Principals
Preferred Investment Solutions Corp. is the Managing Owner and commodity
pool operator of the Trust and is a wholly-owned subsidiary of Kenmar Holdings
Inc., or KHI, which has been a principal of the Managing Owner since January
31, 1989. Kenneth A. Shewer is the Managing Owner's Chairman and Marc S.
Goodman is its President. Messrs. Shewer and Goodman are the Managing Owner's
sole directors. All of the Managing Owner's stock is owned, indirectly and
equally, via KHI, by Messrs. Shewer and Goodman. The Managing Owner has been
registered with the CFTC as a commodity pool operator since February 7, 1984
and is a member in good standing of the NFA in such capacity. Its principal
place of business is 900 King Street, Suite 100, Rye Brook, New York 10573,
telephone number (914) 307-7000. The Managing Owner and its affiliates focus
on the design and management of investment programs in the hedge fund and
managed futures sector. The registration of the Managing Owner with the CFTC
and its membership in the NFA must not be taken as an indication that either
the CFTC or the NFA has recommended or approved either the Managing Owner or
the Trust.
Effective October 1, 2004, the Managing Owner assumed responsibility as
the commodity pool operator and managing owner of eight public commodity
pools. Effective as of February 28, 2006, the Managing Owner serves as the
commodity pool operator and managing owner of thirteen (13) public commodity
pools (including each of Series G, H, I and J) and one open-ended
investment company which is an exempted commodity pool in Ireland. See
"Performance of Commodity Pools Operated by the Managing Owner and its
Affiliates" on pages 109-113.
In 2004, the Managing Owner purchased Prudential Securities Futures
Management, Inc., or PSFMI, from Prudential Securities Group Inc. Pursuant to a
Certificate of Merger filed with the Delaware Secretary of State on October 1,
2004, PSFMI was merged into the Managing Owner, with the Managing Owner as the
surviving corporation. Pursuant to such merger, the Managing Owner attained
the rights to the World Monitor Trust investment funds.
No administrative, civil, or criminal action has ever been brought
against the Managing Owner, any of its principals or the Trust.
For past performance of commodity pools managed by the Managing Owner,
see "Performance of Commodity Pools Operated by the Managing Owner and its
Affiliates" from pages 109-113.
Principals and Key Employees
Mr. Marc S. Goodman and Mr. Kenneth A. Shewer are the founders, co-Chief
Executive Officers and co-Chief Investment Officers of the Managing Owner. Mr.
Shewer is the Managing Owner's Chairman and Mr. Goodman is its President.
Messrs. Goodman and Shewer are the Managing Owner's sole directors. All of the
Managing Owner's stock is owned, indirectly and equally, by Messrs. Goodman
and Shewer. Together, Messrs. Goodman and Shewer bring to the Trust and the
Managing Owner more 60 years of combined experience in commodities, futures,
and alternative investments. Messrs. Goodman and Shewer are the only
individuals who have the authority to allocate Series assets.
Mr. Kenneth A. Shewer (born 1953), has been a principal, associated
person and NFA associate member of the Managing Owner since February 8, 1984,
May 1, 1985 since August 1, 1985, respectively. He has been Chairman and
Co-Chief
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Executive Officer of the Managing Owner since February 1984. Mr. Shewer was
employed by Pasternak, Baum and Co., Inc., or Pasternak, Baum, an
international cash commodity firm, from June 1976 until September 1983. Mr.
Shewer created and managed Pasternak, Baum's Grain Logistics and
Administration Department and created its Domestic Corn and Soybean Trading
Department. Mr. Shewer's responsibilities at Pasternak, Baum included
merchandising South American grain and exporting United States corn and
soybeans. 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 has traveled extensively in South America and
Europe in connection with the commodity business and has organized and
effected grain and oilseed sales in those regions, the former Soviet Union,
and the Far East. While at Pasternak, Baum, Mr. Shewer was a member of the St.
Louis Merchants Exchange and was associated with the National Grain and Feed
Association and the North American Export Grain Association.
Mr. Shewer graduated from Syracuse University with a B.S. degree in
1975.
Mr. Shewer sits on the Board of the Stacy Joy Goodman Memorial
Foundation, a non-profit charity committed to finding a cure for Juvenile
Diabetes. He is also a member of the Board of the Diabetes Research Institute
Foundation, a not-for-profit organization affiliated with the University of
Miami School of Medicine. Mr. Shewer is a founding member and member of the
Board of the Greenwich Roundtable.
Mr. Marc S. Goodman (born 1948), has been a principal, associated person
and NFA associate member of the Managing Owner since February 7, 1984, May 1,
1985 since August 1, 1985, respectively. He has been President and Co-Chief
Executive Officer of the Managing Owner since February 1984. Mr. Goodman
joined Pasternak, Baum in September 1974 and was a Vice President and Director
from July 1981 until September 1983. While at Pasternak, Baum, Mr. Goodman was
largely responsible for business development outside of the United States, for
investment of its corporate retirement funds, and for selecting trading
personnel in the Vegetable Oil Division Mr. Goodman also created and developed
Pasternak, Baum's Laric Oils Department. Mr. Goodman has conducted extensive
business in South America, Europe and the Far East; he has been a merchandiser
of all major vegetable oils and their by-products, and of various other
commodities such as sunflower seeds, frozen poultry, pulses and potatoes.
Mr. Goodman graduated from the Bernard M. Baruch School of Business of
the City University of New York with a B.B.A. in 1969 and an M.B.A. in 1971 in
Finance and Investments, where he was awarded an Economics and Finance
Department Fellowship from September 1969 through June 1971. Mr. Goodman is a
member of the American Arbitration Association; while at Pasternak, Baum, he
was a member of the National Institute of Oilseeds Products and the American
Fats and Oils Association (including its Export Rules Committee).
Mr. Goodman the Chairman of the Board of the Stacy Joy Goodman Memorial
Foundation, a non-profit charity committed to finding a cure for Juvenile
Diabetes. He is also Chairman of the Board of the Diabetes Research Institute
Foundation, a not-for-profit organization which is the principle source of
funding for the Diabetes Research Institute, a world renowned cure based
research center affiliated with the University of Miami School of Medicine.
Mr. Goodman is a founding member and member of the Board of the Greenwich
Roundtable and is a member of the Board of Xethanol Corp.
Messrs. Shewer and Goodman left Pasternak, Baum in September 1983 to
form Kenmar Advisory Corp. (now known as Preferred Investment Solutions Corp.,
the Managing Owner) and they have occupied their present positions with the
Managing Owner since that time.
Ms. Esther Eckerling Goodman (born 1952), has been a principal,
associated person and NFA associate member of the Managing Owner since May 12,
1988, July 17, 1986 and July 17, 1986, respectively. She joined the Managing
Owner in July 1986 and is its Chief Operating Officer and Senior Executive
Vice President. Ms. Goodman 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 & Company,
Inc. where she was responsible for developing and managing a managed futures
program which, in 1979, became the trading system for Westchester Commodity
Management, an independent commodity trading advisor of which Ms. Goodman was
a founder and principal. From 1983 through mid-1986, Ms. Goodman was employed
as a marketing executive at
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Commodities Corp. (USA) of Princeton, New Jersey. Ms. Goodman was a Director
of the Managed Futures Trade Association from 1987 to 1991 and a Director of
its successor organization, the Managed Futures Association, from 1991 to 1995
(now the Managed Funds Association). Ms. Goodman graduated from Stanford
University with a B.A. degree in psychology in 1974.
Mr. Braxton Glasgow III (born 1953), has been a principal, associated
person, branch manager and NFA associate member of the Managing Owner since
June 21, 2001, June 21, 2001, July 13, 2004 and June 8, 2001, respectively.
Mr. Glasgow has been an Executive Vice President of the Managing Owner since
joining the Managing Owner is May 2001. Mr. Glasgow is responsible for
business development. Previously, he served as Executive Vice President,
Director of Client Services and a Principal at Chesapeake Capital Corp., a
commodities trading firm, and as Senior Managing Director at Signet Investment
Banking Co. Mr. Glasgow began his career at PricewaterhouseCoopers, where he
specialized in mergers and acquisitions and private equity, including
extensive work in Europe and the Far East. Mr. Glasgow received a B.S. in
Accounting from the University of North Carolina at Chapel Hill and is a
Certified Public Accountant. From 1994 to 1995, he was President of the Jay
Group Ltd. Mr. Glasgow received a B.S. degree in accounting from the
University of North Carolina in 1975.
Ms. Maureen D. Howley (born 1967), has been a principal of the Managing
Owner since August 11, 2003. She has been a Senior Vice President and Chief
Financial Officer of the Managing Owner since joining the Managing Owner in
July 2003. She is responsible for corporate finance. From July 2001 until July
2003, Ms. Howley was an Associate at Andor Capital Management, LLC, an equity
hedge fund company. At Andor, she was responsible for managing the corporate
accounting functions. Previously, she was the Controller at John W. Henry &
Company, Inc., a commodity-trading advisor, or JWH, where she held positions
of increasing responsibility from September 1996 to July 2001. She began her
career at Deloitte & Touche where she specialized in the financial services
industry. She held many positions of increasing responsibility for seven
years, and left as an Audit Senior Manager in September 1996 to join JWH. Ms.
Howley received a B.A. in Accounting from Muhlenberg College in 1989 and
designation as a Certified Public Accountant in 1990.
Mr. Lawrence S. Block (born 1967) has been a principal of the Managing
Owner since March 17, 2005 and a Senior Vice President and General Counsel of
the Managing Owner since joining the Managing Owner in March 2005. Prior to
joining the Managing Owner, Mr. Block was a Managing Director and General
Counsel of Lipper & Company, L.P., a New York-based investment management
firm, from January 1998 until March 2005. Prior to joining Lipper & Company,
Mr. Block was a senior associate at the law firm Cadwalader, Wickersham & Taft
in New York from May 1996 through December 1997. Mr. Block also worked as an
associate at the law firm Proskauer Rose Goetz & Mendelsohn from September
1992 through May 1996. Mr. Block received a B.S. in Business Administration
with a concentration in Accounting from the University of North Carolina at
Chapel Hill in 1989 and a J.D. from the University of Pennsylvania School of
Law in 1992. Mr. Block's registration as a principal of the Managing Owner has
been effective since March 17, 2005.
Ms. Joanne D. Rosenthal (born 1965), has been a principal, associated
person and NFA associate member of the Managing Owner since February 29, 2000,
February 29, 2000 and November 30, 1999, respectively. Ms. Rosenthal is Senior
Vice President and Director of Portfolio Management and Implementation for the
Managing Owner. Prior to joining the Managing Owner in October 1999, Ms.
Rosenthal spent nine years at The Chase Manhattan Bank, in various positions
of increasing responsibility. From July 1991 through April 1994, she managed
the Trade Execution Desk and from May 1994 through September 1999, she was a
Vice President and Senior Portfolio Manager of Chase Alternative Asset
Management, Inc. Ms. Rosenthal received a Masters of Business Administration
with a concentration in Finance from Cornell University and a Bachelor of Arts
in Economics from Concordia University in Montreal, Canada.
Mr. Peter J. Fell (born 1960), Senior Vice President, Director of Due
Diligence since joining the Managing Owner in September 2004. He is
responsible for manager selection and due diligence. Mr. Fell is a member of
the Investment Committee. From 2000 through August 2004, Mr. Fell was a
founding partner and Investment Director of Starview Capital Management. Prior
to co-founding Starview Capital Management, Mr. Fell was Vice President of
Research and Product Development at Merrill Lynch Investment Partners Inc
(MLIP). He was responsible for the investment evaluation and recommendation
process pertaining to MLIP funds and sat on MLIP's
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Investment Committee. Prior to joining MLIP, Mr. Fell had been with Deutsche
Bank Financial Products Corporation for six years starting in 1989, where he
was Vice President in the over-the-counter fixed income derivatives area. From
1985 to 1989, he was employed by Manufacturers Hanover Trust Company,
ultimately holding the position of Assistant Vice President in the Swaps and
Futures Group. Mr. Fell holds an A.B. cum laude in Music Theory and History
and an M.B.A. in Finance from Columbia University.
Mr. Bala Kasturi (born 1964), Senior Vice President and Director of Risk
Management, joined the Managing Owner in March 2006. He is responsible for
investment analytics and portfolio/risk management and collaborates on manager
due diligence and analytics. Mr. Kasturi is a member of the Investment
Committee. From February 2002 through July 2005, Mr. Kasturi served as a
Managing Partner and Portfolio Manager of the Taurus Global Macro Fund at
VegaPlus Capital Partners. Prior to joining VegaPlus, Mr. Kasturi was a macro
fund manager at Bankers Trust/Deutsch Asset Management from January 2000
through December 2001 for the DB Global Macro Fund where he developed
quantitative models for valuation and trading across all asset classes and
strategies. From October 1997 through December 2000, he was Portfolio Manager
at Bankers Trust for a global fixed income fund. Mr. Kasturi worked at Tiger
Management from March 1993 through October 1997 as a Risk Manager, where he
developed market risk systems and was a member of the Risk Management
Committee. Mr. Kasturi has an undergraduate degree in Commerce from Osmania
University in India, an MBA from Northeast Louisiana University and a MS in
Computer Science from Ballarat University in Australia.
Ms. Melissa Cohn (born 1960), Vice President and Senior Research
Analyst, joined the Managing Owner in 1988. Her responsibilities include
manager due diligence, manager analysis, and portfolio/risk management. Ms.
Cohn has been involved in the futures industry for over 20 years. Prior to
joining the Managing Owner, she spent six years in positions of increasing
responsibility in the Commodities Division at Shearson Lehman Hutton Inc. Her
experience includes that of Sales Assistant, Assistant Commodity Trader and
Trader executing orders from numerous CTAs that traded through Shearson. Ms.
Cohn graduated from the University of Wisconsin Madison with a B.S. in
Agriculture in 1982.
Mr. James Dodd (born 1951), has been a principal, associated person and
NFA associate member of the Managing Owner since February 26, 2002, February
26, 2002 and January 25, 2002, respectively. He is responsible for structuring
and marketing investment products to financial institutions and to retail
investors via the brokerage and financial consultant channels. Earlier in his
career, Mr. Dodd was a senior marketing officer of the Capital Markets Group
of Continental Bank in Chicago; President of Signet Investment Banking in
Richmond, Virginia; and Managing Director of Financial Institutions Marketing
at Chesapeake Capital, a large Richmond-based CTA. Mr. Dodd received an AB
degree from Cornell University in 1974 and a M.B.A. degree from the University
of Chicago in 1983.
Ms. Florence Y. Sofer (born 1966), has been a principal of the Managing
Owner since February 28, 2002. She has been Vice President, Investor
Relations/ Communications of the Managing Owner since joining the Managing
Owner in November 2001. From 1997 to 2001, Ms. Sofer was the Vice President,
Marketing, and a Principal of JWH, where she was responsible for strategic
marketing and client communications for the firm and its subsidiaries. From
1994 to 1997, Ms. Sofer was the Marketing Manager at Global Asset Management,
or GAM, where she was involved in the successful development and launch the
firm's mutual fund product line. Ms. Sofer received a B.A. degree from
American University in 1988 and a M.B.A. in Marketing from George Washington
University in 1992.
Mr. David Spohr (born 1963), Vice President and Director of Fund
Administration, joined the Managing Owner in 2005. He is responsible for the
development and execution of the administration group support
responsibilities. From 2002 to 2005, Mr. Spohr was a Vice President at Safra
Group, where he was responsible for the Alternative Investment operations, tax
reporting and pricing valuation. From 1999 to 2002, he was a consultant to
Safra Group. From 1994-1999, he was Manager of Investment Services for the
Bank of Bermuda, supporting private client transactions. From 1993 to 1994, he
was the Manager of Global Operations for Highbridge Capital Corporation during
the fund's infancy. Mr. Spohr received a B.S. in Business Economics from The
State University of New York College at Oneonta in 1985 and designation as a
Chartered Financial Analyst in 1998.
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Management of Traders
The Managing Owner's hallmark is its extensive due diligence and
emphasis on vigilant management of its portfolios of traders. The Managing
Owner analyzes trading and performance on a daily basis and performs ongoing
due diligence with respect to each trader it retains, including the Advisors.
This detailed analysis identifies sources of profits and losses for each
trader each day, enabling management to make highly informed decisions
regarding the performance of each such trader (including the Trust's
Advisors).
Based on the Managing Owner's perception of market conditions, Advisor
performance and other factors, the Managing Owner may determine to remove or
replace an Advisor or shift to another trading program of an existing Advisor
if profitability, risk assumptions or other significant factors indicate that
replacement is in the best interests of the Unitholders of the Trust.
Naturally, these activities require a strong knowledge of trading and
markets. The Managing Owner operates and updates continuously a database that
tracks over 600 different trading programs offered by traders around the
globe. Added to these quantitative data are qualitative assessments based on
detailed trader interviews and analysis of trades, trading performance and
trading strategies.
Fiduciary Obligations of the Managing Owner
As managing owner of the Trust, the Managing Owner is effectively
subject to the same restrictions imposed on "fiduciaries" under both statutory
and common law. The Managing Owner has a fiduciary responsibility to the
Unitholders to exercise good faith, fairness and loyalty in all dealings
affecting the Trust, consistent with the terms of the Trust's Second Amended
and Restated Declaration of Trust and Trust Agreement dated as of September
27, 2005 or the Declaration of Trust. The Trust is referred to as the "Trust"
in the Declaration of Trust which is attached hereto as Exhibit A. The general
fiduciary duties which would otherwise be imposed on the Managing Owner (which
would make the operation of the Trust as described herein impracticable due to
the strict prohibition imposed by such duties on, for example, conflicts of
interest on behalf of a fiduciary in its dealings with its beneficiaries), are
defined and limited in scope by the disclosure of the business terms of the
Trust, as set forth herein and in the Declaration of Trust (to which terms all
Unitholders, by subscribing to the Units, are deemed to consent).
The Trust, as a publicly-offered "commodity pool," is subject to the
Statement of Policy of the North American Securities Administrators
Association, Inc. relating to the registration, for public offering, of
commodity pool interests (the "NASAA Guidelines"). The NASAA Guidelines
explicitly prohibit a managing owner of a commodity pool from "contracting
away the fiduciary obligation owed to investors under the common law."
Consequently, once the terms of a given commodity pool, such as the Trust, are
established, the managing owner is effectively precluded from changing such
terms in a manner that disproportionately benefits the managing owner, as any
such change could constitute self-dealing under common law fiduciary
standards, and it is virtually impossible to obtain the consent of existing
investors of the Trust to such self-dealing (whereas, given adequate
disclosure, new investors subscribing to a pool should be deemed to evidence
their consent to the business terms thereof by the act of subscribing).
The Declaration of Trust provides that the Managing Owner and its
affiliates shall have no liability to the Trust or to any Unitholder for any
loss suffered by the Trust arising out of any action or inaction of the
Managing Owner or its affiliates or their directors, officers, shareholders,
partners, members or employees (the "Managing Owner Related Parties") if the
Managing Owner Related Parties, in good faith, determined that such course of
conduct was in the best interests of the Trust, and such course of conduct did
not constitute negligence or misconduct by the Managing Owner Related Parties.
The Trust has agreed to indemnify the Managing Owner Related Parties against
claims, losses or liabilities based on their conduct relating to the Trust,
provided that the conduct resulting in the claims, losses or liabilities for
which indemnity is sought did not constitute negligence or misconduct and was
done in good faith and in a manner reasonably believed to be in the best
interests of the Trust. The NASAA Guidelines prescribe the maximum permissible
extent to which the Trust can indemnify the Managing Owner Related Parties and
prohibit the Trust from purchasing insurance to cover indemnification which
the Trust itself could not undertake directly.
Fiduciary and Regulatory Duties of the Managing Owner
An investor should be aware that the Managing Owner has a fiduciary
responsibility to the Unitholders to exercise good faith and fairness in all
dealings affecting the Trust.
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Under Delaware law, a beneficial owner of a business trust (such as a
Unitholder of the Trust) may, under certain circumstances, institute legal
action on behalf of himself and all other similarly situated beneficial
owners, or a class action, to recover damages from a managing owner of such
business trust for violations of fiduciary duties, or on behalf of a business
trust (a "derivative action") to recover damages from a third party where a
managing owner has failed or refused to institute proceedings to recover such
damages. In addition, beneficial owners may have the right, subject to certain
legal requirements, to bring class actions in federal court to enforce their
rights under the federal securities laws and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission or the SEC.
Beneficial owners who have suffered losses in connection with the purchase or
sale of their beneficial interests may be able to recover such losses from a
managing owner where the losses result from a violation by the managing owner
of the anti-fraud provisions of the federal securities laws.
Under certain circumstances, Unitholders also have the right to
institute a reparations proceeding before the CFTC against the Managing Owner
(a registered commodity pool operator), the Clearing Brokers (registered
futures commission merchants) and the Advisors (registered commodity trading
advisors), as well as those of their respective employees who are required to
be registered under the Commodity Exchange Act, as amended, and the rules and
regulations promulgated thereunder. Private rights of action are conferred by
the Commodity Exchange Act, as amended. Investors in commodities and in
commodity pools may, therefore, invoke the protections provided by such
legislation.
There are substantial and inherent conflicts of interest in the
structure of the Trust which are, on their face, inconsistent with the
Managing Owner's fiduciary duties. One of the purposes underlying the
disclosures set forth in this Prospectus is to disclose to all prospective
Unitholders these conflicts of interest so that the Managing Owner may have
the opportunity to obtain investors' informed consent to such conflicts.
Prospective investors who are not willing to consent to the various conflicts
of interest described under "Conflicts of Interest" and elsewhere are
ineligible to invest in the Trust. The Managing Owner presently intends to
raise such disclosures and consent as a defense in any proceeding brought
seeking relief based on the existence of such conflicts of interest.
The foregoing summary describing in general terms the remedies available
to Unitholders under federal and state law is based on statutes, rules and
decisions as of the date of this Prospectus. This is a rapidly developing and
changing area of the law. Therefore, Unitholders who believe that they may
have a legal cause of action against any of the foregoing parties should
consult their own counsel as to their evaluation of the status of the
applicable law at such time.
Investment of the Managing Owner in the Trust
The Managing Owner and/or its Affiliates have agreed to purchase and
maintain an interest in each Series in an amount not less than 1% of the Net
Asset Value of such Series or $25,000, whichever is greater. As of February
28, 2006, the Managing Owner and its Affiliates have subscribed for an
aggregate of 250 Series G General Units, 250 Series H General Units, 250
Series I General Units and 4,528 Series J General Units and an aggregate of
4,120 Series G Limited Units, 3,580 Series H Limited Units and 4,790 Series I
Limited Units.
Management; Voting by Unitholders
The Unitholders of a Series take no part in the management or control,
and have no voice in the operations of the Trust, such Series or their
respective businesses. Unitholders, voting together as a single series, may,
however, remove and replace the Managing Owner as the managing owner of the
Trust and all of the Series, and may amend the Declaration of Trust, except in
certain limited respects, by the affirmative vote of a majority of the
outstanding Units then owned by Unitholders (as opposed to by the Managing
Owner and its affiliates). The owners of a majority of the outstanding Units
then owned by Unitholders may also compel dissolution of the Trust and all of
the Series. The owners of 10% of the outstanding Units then owned by
Unitholders have the right to bring a matter before a vote of the Unitholders.
The Managing Owner has no power under the Declaration of Trust to restrict any
of the Unitholders' voting rights. Any Units purchased by the Managing Owner
or its affiliates, as well as the Managing Owner's general liability interest
in each Series of the Trust, are non-voting.
The Managing Owner has the right unilaterally to amend the Declaration
of Trust as it applies to any Series provided that any such amendment is for
the benefit of and not adverse to the Unitholders of such Series or the
Trustee and also in certain unusual
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circumstances -- for example, if doing so is necessary to effect the intent of
a Series' tax allocations or to comply with certain regulatory requirements.
In the event that the Managing Owner or the Unitholders vote to amend
the Declaration of Trust in any material respect, the amendment will not
become effective prior to all Unitholders having an opportunity to redeem
their Units.
Recognition of the Trust and the Series in Certain States
A number of states do not have "business trust" statutes such as that
under which the Trust has been formed in the State of Delaware. It is
possible, although unlikely, that a court in such a state could hold that, due
to the absence of any statutory provision to the contrary in such
jurisdiction, the Unitholders, although entitled under Delaware law to the
same limitation on personal liability as stockholders in a private corporation
for profit organized under the laws of the State of Delaware, are not so
entitled in such state. To protect Unitholders against any loss of limited
liability, the Declaration of Trust provides that no written obligation may be
undertaken by any Series of the Trust unless such obligation is explicitly
limited so as not to be enforceable against any Unitholder personally.
Furthermore, each Series itself indemnifies all its Unitholders against any
liability that such Unitholders might incur in addition to that of a
beneficial owner. The Managing Owner is itself generally liable for all
obligations of each Series of the Trust and will use its assets to satisfy any
such liability before such liability would be enforced against any Unitholder
individually.
Possible Repayment of Distributions Received by Unitholders;
Indemnification by Unitholders
The Units are limited liability investments; investors may not lose more
than the amount that they invest plus any profits recognized on their
investment. However, Unitholders of a Series could be required, as a matter of
bankruptcy law, to return to the estate of such Series any distribution they
received at a time when such Series was in fact insolvent or in violation of
the Declaration of Trust. In addition, although the Managing Owner is not
aware of this provision ever having been invoked in the case of any public
futures fund, Unitholders of a Series agree in the Declaration of Trust that
they will indemnify such Series for any harm suffered by it as a result of
o Unitholders' actions unrelated to the business of such Series,
o transfers of their Units in violation of the Declaration of Trust, or
o taxes imposed on such Series by the states or municipalities in which
such investors reside.
The foregoing repayment of distributions and indemnity provisions (other
than the provision for Unitholders of a Series indemnifying such Series for
taxes imposed upon it by the state or municipality in which particular
Unitholders reside, which is included only as a formality due to the fact that
many states do not have business trust statutes so that the tax status of a
Series of the Trust in such states might, theoretically, be challenged --
although the Managing Owner is unaware of any instance in which this has
actually occurred) are commonplace in publicly-offered commodity pools as well
as other trusts and limited partnerships.
Transfers of Units Restricted
A Unitholder may, subject to compliance with applicable federal and
state securities laws, assign such Unitholder's Units upon notice to the Trust
and the Managing Owner. No assignment will be effective in respect of the
Trust or the Managing Owner until the first day of the month succeeding the
month in which such notice is received. No assignee may become a substituted
Unitholder except with the consent of the Managing Owner and upon execution
and delivery of an instrument of transfer in form and substance satisfactory
to the Managing Owner. No Units may be transferred where, after the transfer,
either the transferee or the transferor would hold less than the minimum
number of Units equivalent to an initial minimum purchase, except for
transfers by gift, inheritance, intrafamily transfers, family dissolutions,
and transfers to affiliates.
There are, and will be, no certificates for the Units. Any transfers of
Units will be reflected on the books and records of the applicable Series of
the Trust. Transferors and transferees of Units will each receive notification
from the Managing Owner to the effect that such transfers have been duly
reflected as notified to the Managing Owner.
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Exchange Privilege
You may exchange your Units in one Series for Units in another Series,
each such transaction, an Exchange. Exchanges will be available between the
various Class I of the Series, and Exchanges will be available between the
various Class II of the Series. A Unitholder may not receive Units in a closed
Series. It is important to note that Exchanges will not be allowed from Class
I to Class II or vice-versa. Units submitted for exchange must have an
aggregate Net Asset Value not less than $2,000. An Exchange will be
effectuated through a redemption of Units in one Series and an immediate
purchase of Units in another Series. Each Unit purchased in an Exchange will
be issued and sold at Net Asset Value per Unit of Units of the Series into
which the Exchange is being made as of the Closing Date upon which the
Exchange is to be effectuated. Because an Exchange involves a redemption of
the Unit being exchanged, an exchanging Unitholder may realize a taxable gain
or loss in connection with the Exchange.
Each Exchange is subject to satisfaction of the conditions governing
redemption on the applicable day, as well as the requirement that the Series
being exchanged into is then offering registered Units. The Net Asset Value of
Units to be exchanged, as well as the Units to be acquired, on the applicable
Closing Date may be higher or lower than it is on the date that the Request
for Exchange is submitted due to the potential fluctuation in the Net Asset
Value per Unit of Units of each Series. To effect an Exchange, a Request for
Exchange must be submitted to the Managing Owner on a timely basis (i.e., at
10:00 AM New York time at least five (5) Business Days prior to the day on
which the Exchange is to become effective). The Managing Owner, in its sole
and absolute discretion, may change the notice requirement upon written notice
to you. You must request an Exchange on the applicable Request for Exchange
form attached as an annex to Exhibit A to the Statement of Additional
Information.
A Class I Unitholder who exchanges a Class I Unit prior to the first
anniversary of the purchase of such Unit will not be subject to a redemption
charge in respect of the Unit being redeemed in connection with the Exchange.
Units acquired in an Exchange that are subsequently redeemed will be subject
to the redemption charge as if the Units acquired in connection with the
Exchange had been acquired on the purchase date of the Units redeemed in
connection with the Exchange.
Reports to Unitholders
Each month the Managing Owner reports such information as the CFTC may
require to be given to the participants in "commodity pools" such as the
Series of the Trust, and any such other information as the Managing Owner may
deem appropriate. There are similarly distributed to Unitholders, not later
than March 30 of each year, certified financial statements and, not later than
March 15 of each year, the tax information related to each Series of the Trust
necessary for the preparation of their annual federal income tax returns.
The Managing Owner will notify Unitholders of any change in the fees
paid by any Series of the Trust or of any material changes in the basic
investment policies or structure of any Series of the Trust. Any such
notification shall include a description of Unitholders' voting rights.
General
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the registration of
commodity pool programs under state securities or "Blue Sky" laws, the
Declaration of Trust provides that:
o the executing and clearing commissions paid by each Series of the Trust
shall be reasonable, and the Managing Owner shall include in the annual
reports containing each Series' certified financial statements
distributed to Unitholders each year the approximate round-turn
equivalent rate paid on such Series' trades during the preceding year;
o no rebates or give-ups, among other things, may be received from any
Series by any of the Selling Agents in respect of sales of the Units of
such Series, and such restriction may not be circumvented by any
reciprocal business arrangements among any Selling Agents or any of
their respective affiliates and such Series;
o no trading advisor of any Series (including the Managing Owner) may
participate directly or indirectly in any per-trade commodity brokerage
commissions generated by such Series;
o any agreement between any Series and the Managing Owner or any
affiliates of the Managing Owner must be terminable by such Series upon
no more than sixty (60) days' written notice;
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o no Series may make any loans, and the funds of such Series will not be
commingled with the funds of any other Series or any other person
(deposit of the assets of such Series with a commodity broker,
clearinghouse or currency dealer does not constitute commingling for
these purposes); and
o no Series will employ the trading technique commonly known as
"pyramiding."
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Organizational Chart
The chart below sets forth the ownership of the Managing Owner.
Kenneth A. Shewer Marc S. Goodman
\ /
\ /
50% \ / 50%
\ /
\ /
-----------------
| |
| Kenmar |
| Group Inc. |
| |
-----------------
/ \
/ \
100% / \ 100%
/ \
/ \
----------------- -----------------
| KAS | | MSG |
| Commodities, | | Commodities, |
| Inc. | | Inc. |
----------------- -----------------
\ /
\ /
50% \ / 50%
\ /
\ /
-----------------
| Kenmar |
| Investment |
| Associates |
-----------------
|
| 100%
|
-----------------
| |
| Kenmar |
| Holdings Inc. |
| |
-----------------
|
| 100%
|
-----------------
| Preferred |
| Investment |
| Solutions |
| Corp. |
-----------------
All entities in the above chart have their principal place of business at 900
King Street, Suite 100, Rye Brook, New York 10573.
[Remainder of page left blank intentionally.]
MATERIAL CONTRACTS
Advisory Agreements
There is an Advisory Agreement among the Managing Owner and each Advisor
and the Trading Vehicle corresponding to such Advisor by which the Managing
Owner indirectly via the Trading Vehicle delegated to each Advisor sole
discretion and responsibility to trade commodities for such Trading Vehicle.
The Advisor for each Trading Vehicle will place trades based on its
agreed-upon trading approach, or the Trading Approach, which is described
under the heading "Series G," "Series H" and "Series I," and each Advisor has
agreed that at least 90% of the gains and income if any, generated by its
Trading Approach will largely result from buying and selling commodities or
futures, forwards and options on commodities. All trading is subject to the
Trust's Trading Limitations and Policies which are described under the heading
"Trading Limitations and Policies." The Advisory Agreements will be effective
for one year after trading commences and will be renewed automatically for
additional one-year terms unless terminated. Each Advisory Agreement with an
Advisor will terminate automatically:
o if the Series it indirectly manages is terminated (other than Series
J); or
o if, as of the end of any Business Day, the Net Asset Value of the
relevant Trading Vehicle declines by 40% from the Net Asset Value of such
Trading Vehicle (a) as of the beginning of the first day of the Advisory
Agreement or (b) as of beginning of the first day of any calendar year, in
each case after appropriate adjustment for distributions, withdrawals,
redemptions, reallocations and additional allocations.
Each Advisory Agreement may be terminated at the discretion of the
Trading Vehicle at any time upon 30 days' prior written notice to an Advisor.
Also, each Advisory Agreement may be terminated at the discretion of the
Trading Vehicle upon prior written notice to the Advisor for cause, which may
include the following:
o the Trading Vehicle determines in good faith that the Advisor is
unable to use its agreed upon Trading Approach to any material extent;
o the Advisor's registration as a CTA under the CE Act or membership as
a CTA with the NFA is revoked, suspended, terminated or not renewed;
o the Trading Vehicle determines in good faith that the Advisor has
failed to conform and, after receipt of written notice, continues to fail to
conform in any material respect, to (A) the Trading Limitations and Policies,
or (B) the Advisor's Trading Approach;
o there is an unauthorized assignment of the Advisory Agreement by the
Advisor;
o the Advisor dissolves, merges or consolidates with another entity or
sells a substantial portion of its assets, any portion of its Trading Approach
utilized
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by a Trading Vehicle or its business goodwill, in each instance without the
consent of the Trading Vehicle;
o the Advisor becomes bankrupt or insolvent; or
o for any other reason if the Trading Vehicle determines in good faith
that the termination is essential for the protection of the assets of such
Trading Vehicle, including, without limitation, a good faith determination by
the Trading Vehicle that such Advisor has breached a material obligation to
the Trading Vehicle under the Advisory Agreement relating to the trading of
the Trading Vehicle's assets.
Each Advisor also has the right to terminate the Advisory Agreement in
its discretion at any time for cause in the event:
o of the receipt by the Advisor of an opinion of independent counsel
satisfactory to the Advisor and the Trading Vehicle that by reason of the
Advisor's activities with respect to the Trading Vehicle, the Advisor is
required to register as an investment adviser under the Investment Advisers
Act of 1940 and it is not so registered;
o the registration of the Managing Owner as a CPO under the CE Act or
membership as a CPO with the NFA is revoked, suspended, terminated or not
renewed;
o the Trading Vehicle imposes additional trading limitation(s) which the
Advisor does not agree to follow in its trading of a Series' assets; or the
Trading Vehicle overrides trading instructions;
o the assets allocated to the Advisor decrease, for any reason, to less
than an amount specified in the particular Advisory Agreement;
o the Trading Vehicle elects to have the Advisor use a different Trading
Approach and the Advisor objects;
o there is an unauthorized assignment of the Advisory Agreement by the
Trading Vehicle;
o the material breach of the Advisory Agreement by the Trading Vehicle
after giving written notice to the Trading Vehicle which identifies such
breach and such material breach has not been cured within 10 days following
receipt of such notice by the Trading Vehicle;
o the Advisor provides the Trading Vehicle with written notice as
specified in the particular Advisory Agreement; or
o other good cause is shown and the written consent of the Trading
Vehicle is obtained (which shall not unreasonably be withheld).
In addition to the trading management services each Advisor provides
pursuant to the Advisory Agreement, each Advisor also is permitted to manage
and trade accounts for other investors (including other public and private
commodity pools), and trade for its own account, and for the accounts of its
partners, shareholders, directors, officers and employees, using the same
Trading Approach and other information it uses on behalf of the Trading
Vehicle, so long as in the Advisor's reasonable judgment the aggregate amount
of capital being managed or traded by the Advisor does not (i) materially
impair the Advisor's ability to carry out its obligations and duties to the
Trading Vehicle pursuant to the Advisory Agreement or (ii) create a reasonable
likelihood of the Advisor having to modify materially its agreed upon Trading
Approach being used for the Trading Vehicle in a manner which might reasonably
be expected to have a material adverse effect on the Trading Vehicle. Each
Advisor will, upon reasonable request, permit the Managing Owner or Trading
Vehicle to review at the Advisor's offices such trading records that the
Managing Owner or Trading Vehicle may reasonably request.
None of the Advisors nor their officers, directors, partners,
shareholders or employees or controlling persons will be liable to the Trading
Vehicle, its shareholders, members, directors, officers, employees or
controlling persons, except by reason of acts or omissions in material breach
of the Advisory Agreement or due to their willful misconduct or gross
negligence or by reason of not having acted in good faith in the reasonable
belief that such actions or omissions were in, or not opposed to, the best
interests of the Trading Vehicle; it being understood that none of the
Advisors makes any guarantee of profit and provides no protection against
loss, and that all purchases and sales of commodities are for the account and
risk of the Trading Vehicle, and that the Advisors shall incur no liability
for trading profits or losses resulting therefrom except as set forth above.
Each of the Advisors, and their respective shareholders, directors, officers,
partners, employees and controlling persons, will be indemnified and held
harmless by the Trading Vehicle and the Managing Owner from and against
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any losses liabilities and expenses (including without limitation reasonable
attorneys' fees) and amounts paid in settlement of any claims, collectively,
Losses, sustained by the Advisor in connection with any acts or omissions of
the Advisor or its partners, officers, directors, shareholders or employees
relating to their management of the Trading Vehicle or as a result of any
material breach of the Advisory Agreement by the Trading Vehicle or the
Managing Owner, provided that:
o such Losses were not the result of negligence or misconduct or a
material breach of the Advisory Agreement on the part of the Advisor or its
partners, officers, directors, shareholders or employees or controlling
persons;
o the Advisor, and its shareholders, directors, officers, partners,
employees and each person controlling the Advisor, acted in good faith and in
a manner reasonably believed by such person to be in, or not opposed to, the
best interests of the Trading Vehicle and its members; and
o any such indemnification will be recoverable from the assets of the
Trading Vehicle but not from the assets of any Series; provided further,
however, that no indemnification shall be permitted for amounts paid in
settlement if the Trading Vehicle does not approve the amount of the
settlement (which approval shall not be unreasonably withheld).
Expenses incurred by an indemnified person in defending a threatened or
pending civil, administrative or criminal action, suit or proceeding shall be
paid by the Trading Vehicle in advance of the final disposition of such
action, suit or proceeding if:
o the legal action, suit or proceeding, if sustained, would entitle the
indemnitee to indemnification under the terms of the Advisory Agreement; and
o the Advisor undertakes to repay the advanced funds to the Trading
Vehicle in cases in which the indemnitee is not entitled to indemnification
under the terms of the Advisory Agreement.
The Trading Vehicle has the right to offer to settle any indemnity
matter with the approval of the applicable Advisor (which approval shall not
be unreasonably withheld).
Brokerage Agreement
The Clearing Broker and the Trust on behalf of each Series entered into
a brokerage agreement, or each, a Brokerage Agreement. As a result the
Clearing Broker:
o acts as the executing and clearing broker with respect to each Series;
o acts as custodian of each Series' assets;
o assists with foreign currency; and
o performs such other services for the Trust as the Managing Owner may
from time to time request.
As executing and clearing broker for each of the Series, the Clearing
Broker receives each Advisor's orders for trades. Generally, when an Advisor
gives an instruction either to sell or buy a particular foreign currency
forward contract, the Trust, on behalf of each Series, engages in back-to-back
principal trades with the Clearing Brokers in order to carry out the Advisor's
instructions. In back-to-back currency transactions, a Clearing Broker, as
principal, arranges bank lines of credit and contracts to make or to take
future delivery of specified amounts of the currency at the negotiated price.
The Clearing Broker, again as principal, in turn contracts with the Trust on
behalf of each Series to make or take future delivery of the same specified
amounts of currencies at the same price. In these transactions, such Clearing
Broker acts in the best interests of each Series, as applicable, of the Trust.
Confirmations of all executed trades for each Series are given to the
Trust by the Clearing Broker. The Brokerage Agreement incorporates the
Clearing Broker's standard customer agreements and related documents, which
generally include provisions that:
o all funds, commodities and open or cash positions carried for each
Series will be held as security for that Series' obligations to the Clearing
Broker;
o the margins required to initiate or maintain open positions will be as
from time to time established by the Clearing Brokers and may exceed exchange
minimum levels; and
o each Clearing Broker may close out positions, purchase commodities or
cancel orders at any time it deems necessary for its protection, without the
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consent of the Trust on behalf of the applicable Series.
As custodian of each Series' assets, the Clearing Brokers are
responsible, among other things, for providing periodic accountings of all
dealings and actions taken by each Series during the reporting period,
together with an accounting of all securities, cash or other indebtedness or
obligations held by it or its nominees for or on behalf of each Series of each
Series of the Trust.
Administrative functions provided by the Clearing Brokers for each
Series include, but are not limited to, preparing and transmitting daily
confirmations of transactions and monthly statements of account, calculating
equity balances and margin requirements.
As long as the Brokerage Agreement between it and the Trust (on behalf
of each Series) is in effect, each Clearing Broker will not charge the Trust a
fee for any of the services it has agreed to perform, except for the
agreed-upon brokerage fee.
Each Brokerage Agreement is not exclusive and runs for successive
one-year terms to be renewed automatically each year unless terminated. Each
Brokerage Agreement is terminable by the Trust on behalf of each Series or UBS
Securities without penalty upon thirty (30) days' prior written notice (unless
where certain events of default occur or there is a material adverse change in
such Series' financial position, in which case only prior written notice is
required to terminate the Brokerage Agreement).
The Brokerage Agreement provides that neither UBS Securities nor any of
its managing directors, officers, employees or affiliates shall be liable for
any costs, losses, penalties, fines, taxes and damages sustained or incurred
by any Series of the Trust other than as a result of UBS Securities negligence
or reckless or intentional misconduct or breach of such agreement.
Selling Agreement
The Selling Agent has entered into an Amended and Restated Selling
Agreement, or Selling Agent Agreement, with the Trust and the Managing Owner.
The Managing Owner and the Selling Agent intend to appoint certain other
broker-dealers registered under the Securities Exchange Act of 1934, as
amended, and members of the NASD, as additional selling agents, or
Correspondent Selling Agents. Each Correspondent Selling Agent has signed a
Correspondent Selling Agent Agreement, as amended from time-to-time with the
Trust and the Selling Agent. The Selling Agent and each Correspondent Selling
Agent will use their "best efforts" to sell Units. This means that the Selling
Agent and the Correspondent Selling Agents are not required to purchase any
Units or sell any specific number or dollar amount of Units but will use their
best efforts to sell the Units offered.
The Selling Agent and each Correspondent Selling Agent, in recommending
to any person the purchase or sale of Units, will use commercially reasonable
efforts to determine, on the basis of information obtained from the
prospective purchaser concerning the prospective purchaser's investment
objectives, the prospective purchaser's other investments and the prospective
purchaser's financial situation and needs, and any other information known by
the Selling Agent or the Correspondent Selling Agent, as applicable, through
the review of its offeree questionnaire completed by such prospective
purchaser and maintain in the Selling Agent's or the Correspondent Selling
Agent's files documents disclosing the basis upon which the determination of
suitability was reached as to each purchaser.
In connection with the offer, sale and distribution of the Units, the
Selling Agent and each Correspondent Selling Agent has agreed that it will
comply fully with all applicable laws and regulations, and the rules, policy
statements and interpretations of the NASD, the SEC, the CFTC, state
securities administrators and any other regulatory or self-regulatory body.
The Selling Agent and each Correspondent Selling Agent has agreed that it will
not execute any sales of Units from a discretionary account over which it has
control without prior written approval of the customer in whose name such
discretionary account is being maintained.
The Selling Agent Agreement (and any Correspondent Selling Agent
Agreement) will be terminated at the conclusion of the offering with respect
to each Series. Prior to the conclusion of the offering, the Selling Agent
Agreement (and any Correspondent Selling Agent Agreement) may be terminated by
the Selling Agent, at the Selling Agent's option, by giving thirty (30) days'
notice to the Trust and the Managing Owner, in the event:
o there is, since the respective dates as of which information is given
in the Registration Statement, any material adverse change in the condition,
financial or otherwise, of the Trust or the Managing Owner which, in the
judgment of the Selling Agent,
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renders it inadvisable to proceed with the offer and sale of the Units;
o the Registration Statement and/or the Prospectus is not amended
promptly after written request by the Selling Agent for it to be so amended
because an event has occurred which, in the opinion of counsel for the Selling
Agent, should be set forth in the Registration Statement or the Prospectus in
order to make the statements therein not misleading;
o any of the conditions specified in Section 7 (relating to covenants of
the Managing Owner) of the Selling Agent Agreement are not fulfilled when and
as required by the Selling Agent Agreement to be fulfilled;
o there is a general suspension of, or a general limitation on prices
for, trading in commodity futures or option contracts on commodity exchanges
in the United States or other commodities instruments, or there is any other
national or international calamity or crisis in the financial markets of the
United States to the extent that it is determined by the Selling Agent, in its
discretion, that such limitations would materially impede the Trust's trading
activities or make the offering or delivery of the Units impossible or
impractical; or
o there is a declaration of a banking moratorium by Federal, New York or
Delaware authorities. In addition, each Selling Agent Agreement may be
terminated with respect to a Series by written agreement among the parties to
the Selling Agent Agreement.
The Selling Agent and the Correspondent Selling Agents shall not be
liable to the Trust, the Trustee or the Managing Owner for any act or failure
to act on behalf of the Trust, if such act or failure to act on the part of
the Selling Agent, the Correspondent Selling Agent or their respective
principals or affiliates did not constitute negligence, misconduct or a breach
of any of the representations, warranties, covenants or agreements of the
Selling Agent or Correspondent Selling Agent, as the case may be, contained in
the Selling Agent Agreement or Correspondent Selling Agent Agreement, as the
case may be.
The Managing Owner and the Trust will indemnify and hold harmless the
Selling Agent, the Correspondent Selling Agents and their respective
principals and affiliates from and against any and all loss, liability, claim,
damage, expense, fine, penalty, cost or expense (including, without
limitation, attorneys' and accountants' fees and disbursements), judgments and
amounts paid in settlement, or Losses, to which the Selling Agent, the
Correspondent Selling Agent or their respective principals and affiliates may
become subject arising out of or in connection with the Selling Agent
Agreement or the Correspondent Selling Agent Agreement, as the case may be,
the transactions contemplated thereby or the fact that the Selling Agent or
Correspondent Selling Agent is or was a selling agent of the Trust arising out
of or based upon:
o any untrue statement of material fact contained in the Selling Agent
Agreement or Correspondent Selling Agent Agreement, as applicable, the
Prospectus or any application or written communication executed by the
Managing Owner or the Trust filed in any jurisdiction in order to qualify the
Units under the securities laws thereof;
o any omission from such documents of a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
o any breach of any representation, warranty, covenant or agreement made
by the Managing Owner or the Trust in the Selling Agent Agreement, except to
the extent that any such Losses arise out of, relate to, or are based upon the
Selling Agent's failure to meet the standard of liability applicable to it
under the Selling Agent Agreement.
The Selling Agent agrees to indemnify and hold harmless the Trust, the
Trustee and the Managing Owner and the Principals and Affiliates of the
Trustee and the Managing Owner from and against all Losses incurred by any of
them arising out of or based upon the Selling Agent's failure to meet the
standard of liability set forth in the Selling Agent Agreement.
FEDERAL INCOME TAX CONSEQUENCES
The following constitutes the opinion of Sidley Austin LLP and
summarizes the material federal income tax consequences to United States
taxpayers who are individuals.
Partnership Tax Status of Each Series
In the opinion of counsel, each Series of the Trust will be classified
as a partnership for federal income tax purposes and, based on the type of
income expected to be earned by each Series, will not
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be treated as a "publicly-traded partnership" taxable as a corporation.
Taxation of Unitholders on Profits or Losses
Each Unitholder of a Series will be subject to tax on such Unitholder's
share of such Series' income and gains, if any, even if such Unitholders do
receive any cash distributions or redeem Units. In addition, a Unitholder of a
Series may be subject to payment of taxes on such Series' interest income even
though the Net Asset Value per Unit of such Series has decreased due to
trading losses. See "-- Tax on Capital Gains and Losses; Interest Income," on
the following page.
Each Series of the Trust provides each of its Unitholders with an annual
schedule of such Unitholder's share of tax items. Each Series generally
allocates these items of gain and loss equally to each Unit. However, when a
Unitholder redeems Units, the Series shall allocate capital gains or losses to
the Unitholder of such Series so as to reduce or eliminate any difference
between the redemption proceeds and the tax basis of such Units. A
Unitholder's adjusted tax basis in a Unit equals the amount originally paid
for the Unit, increased by income or gains allocated to the Unit and decreased
(but not below zero) by distributions, deductions or losses allocated to the
Unit.
Limited Deductibility of Trust Losses and Deductions
A Unitholder of a Series may not deduct losses or deductions in excess
of his or her tax basis in his or her Units as of year-end. Generally, a
Unitholder's tax basis in such Unitholder's Units is the amount paid for such
Units reduced (but not below zero) by such Unitholder's share of any
distributions, losses and deductions and increased by such Unitholder's share
of income and gains. However, a Unitholder subject to "at-risk" limitations
(generally non-corporate taxpayers and closely-held corporations) can only
deduct losses to the extent he is "at-risk." The "at-risk" amount is similar
to tax basis, except that it does not include any amount borrowed on a
non-recourse basis or from someone with an interest in the Trust.
Limited Deductibility for Certain Expenses
The Managing Owner does not consider the brokerage fees and the
Incentive Fee, as well as other ordinary expenses of any Series, investment
advisory expenses or other expenses of producing income. Accordingly, for tax
reporting purposes, the Managing Owner currently treats the ordinary expenses
of each Series as ordinary business expenses not subject to the limitations
which apply to investment advisory expenses described below. However, the IRS
might contend otherwise and to the extent the IRS recharacterizes these
expenses a Unitholder would have the amount of the ordinary expenses allocated
to him accordingly.
Individual taxpayers are subject to material limitations on their
ability to deduct investment advisory fees, unreimbursed expenses of an
employee, and certain other expenses of producing income not resulting from
the conduct of a trade or business. For individuals who itemize deductions,
the expenses of producing income, including "investment advisory fees," are
aggregated with unreimbursed employee business expenses, certain other
expenses of producing income and deductions (collectively, the "Aggregate
Investment Expenses"), and such Aggregate Investment Expenses are deductible
only to the extent such amount exceeds 2% of the individual's adjusted gross
income. In addition, Aggregate Investment Expenses in excess of the 2%
threshold, when combined with certain other itemized deductions, are subject
to a reduction generally equal to the lesser of 3% of the individual's
adjusted gross income in excess of a certain threshold amount and 80% of
certain itemized deductions otherwise allowable for the tax year. Moreover,
such Aggregate Investment Expenses are miscellaneous itemized deductions,
which are not deductible by an individual in calculating his or her
alternative minimum tax liability.
If the Profit Shares, the Incentive Fee and other expenses of a Series
were determined to constitute "investment advisory fees," an individual
Unitholder's pro rata share of the amounts so characterized would be included
in Aggregate Investment Expenses potentially subject to the deduction
limitations described above. In addition, each individual Unitholder's share
of income from such Series would be increased (solely for tax purposes) by
such Unitholder's pro rata share of the amounts so characterized. Any such
characterization by the IRS could require Unitholders to file amended tax
returns and pay additional taxes, plus interest. It is unlikely that tax
penalties would be imposed on account of such an IRS characterization.
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Year-End Mark-to-Market of Open Section 1256 Contract Positions
Section 1256 Contracts are futures, options on futures and stock index
options traded on U.S. exchanges and certain foreign currency contracts.
Section 1256 Contracts that remain open at the end of a tax year are treated
for tax purposes as if such positions had been sold at year-end and any gain
or loss is recognized. The gain or loss on Section 1256 Contracts is
characterized as 40% short-term capital gain or loss and 60% long-term capital
gain or loss regardless of how long any given position has been held.
Non-Section 1256 Contracts include, among other things, certain foreign
currency transactions and non-U.S. exchange traded futures. Gain or loss on
any non-Section 1256 Contracts is recognized when sold by a Series and are
primarily short-term gain or loss.
Tax on Capital Gains and Losses; Interest Income
As described under "-- Year-End Mark-to-Market of Open Section 1256
Contract Positions," each Series' trading, not including its cash management
which generates primarily ordinary income, generates 60% long-term capital
gains or losses and 40% short-term capital gains or losses from its Section
1256 Contracts and primarily short-term capital gain or loss from any
non-Section 1256 Contracts. Individuals pay tax on long-term capital gains at
a maximum rate of 15%. Short-term capital gains are subject to tax at the same
rates as ordinary income.
Individual taxpayers may deduct capital losses only to the extent of
their capital gains plus $3,000. Accordingly, a Series could incur significant
losses but a Unitholder could be required to pay taxes on such Unitholder's
share of such Series' interest income.
If an individual taxpayer incurs a net capital loss for a year, he may
elect to carry back (up to three years) the portion of such loss which
consists of a net loss on Section 1256 Contracts. A taxpayer may deduct such
losses only against net capital gain for a carryback year to the extent that
such gain includes gains on Section 1256 Contracts. To the extent that a
taxpayer could not use such losses to offset gains on Section 1256 Contracts
in a carryback year, the taxpayer may carry forward such losses indefinitely
as losses on Section 1256 Contracts.
Syndication Expenses
No Series nor any Unitholder of such Series will be entitled to any
deduction for such Series' syndication expenses, including the one-time
upfront organizational charge paid to the Managing Owner and any amount paid
by the Managing Owner to any additional Selling Agents, nor can such expenses
be amortized by such Series or any Unitholder. Such expenses may be included
in capital losses upon redemption.
Unrelated Business Taxable Income
Tax-exempt Unitholders of a Series will not be required to pay tax on
their share of income or gains of such Series, provided that such Unitholders
do not purchase Units with borrowed funds.
IRS Audits of the Series and Their Respective Unitholders
If a Series is audited, the IRS is required to audit Series-related
items at the Series level rather than the Unitholder level. The Managing Owner
is the "tax matters partner" of each Series with general authority to
determine such Series' responses to a tax audit. If an audit of a Series
results in an adjustment, all Unitholders of such Series may be required to
pay additional taxes, interest and penalties.
State and Other Taxes
In addition to the federal income tax consequences described above, each
Series and its Unitholders may be subject to various state and other taxes.
Tax Elections
The Managing Owner has the discretion to make any election available to
any Series under the Code. Such elections may affect the timing and/or
character of gains and losses generated by such Series.
____________________
Prospective investors are urged to consult their tax advisers before
deciding whether to invest.
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PURCHASES BY EMPLOYEE BENEFIT PLANS
Although there can be no assurance that an investment in any Series of
the Trust, or any other managed futures product, will achieve the investment
objectives of an employee benefit plan in making such investment, futures
investments have certain features which may be of interest to such a plan. For
example, the futures markets are one of the few investment fields in which
employee benefit plans can participate in leveraged strategies without being
required to pay tax on "unrelated business taxable income." See "Federal
Income Tax Consequences -- `Unrelated Business Taxable Income'" at page 102.
In addition, because they are not taxpaying entities, employee benefit plans
are not subject to paying annual tax on profits (if any) of any Series of the
Trust.
As a matter of policy, the Managing Owner will attempt to limit
subscriptions to each Series from any employee benefit plan to no more than
10% of the value of the readily marketable assets of such plan (irrespective
of the net worth of the beneficiary or beneficiaries of such plan).
General
A regulation issued under ERISA, or the ERISA Regulation, contains rules
for determining when an investment by a Plan in an entity will result in the
underlying assets of such entity being assets of the Plan for purposes of
ERISA and Section 4975 of the Code (i.e., "plan assets"). Those rules provide
that assets of an entity will not be considered assets of a Plan which
purchases an equity interest in the entity if certain exceptions apply,
including (i) an exception applicable if the equity interest purchased is a
"publicly-offered security", or the Publicly-Offered Security Exception, and
(ii) an exception applicable if the investment by all "benefit plan investors"
is not "significant" (the "Significant Participation Exception"). Each Series
will rely on the Significant Participation Exception until such time as each
Series satisfies the conditions of the Publicly-Offered Security Exception.
The Significant Participation Exception applies if investments by
benefit plan investors is not significant. The term "benefit plan investors"
includes all Plans (i.e., all "employee benefit plans" as defined in and
subject to ERISA and all "plans" as defined in and subject to Section 4975 of
the Code), all "employee benefit plans" and "plans" as defined in but not
subject to either ERISA or Section 4975 of the Code, and all entities that
hold "plan assets" due to investments made in such entities by already
described benefit plan investors. In addition, all or a portion of an
investment made by an insurance company using assets from its general account
may be treated as a benefit plan investor. Investments by benefit plan
investors will be deemed not significant if benefit plan investors own, in the
aggregate, less than 25% of the total capital of each class of equity
interests in the entity (determined by not including the investments of
persons with discretionary authority or control over the assets of such
entity, of any person who provides investment advice for a fee (direct or
indirect) with respect to such assets, and "affiliates" (as defined in the
regulations issued under ERISA) of such persons).
During any time that the Trust is relying on the Significant
Participation Exception in order to avoid causing assets of each Series to be
"plan assets," the Managing Owner intends to restrict the aggregate investment
by benefit plan investors to under 25% of the total capital of each class of
equity interests of each Series (not including the investments of the Trustee,
the Managing Owner, any of the Advisors, any person who provides investment
advice for a fee (direct or indirect) with respect to the assets of each
Series, and any entity that is directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with any of
such entities (including a partnership or any other similar entity for which
the Managing Owner is the general partner (or the functional equivalent
thereof) or provides investment advice), and each of the principals, officers
and employees of any of the foregoing entities who has the power to exercise a
controlling influence over the management or policies of such entity or of the
Trust). Furthermore, because the 25% test is ongoing, it not only restricts
additional investments by benefit plan investors, but also can cause the
Managing Owner to require that existing benefit plan investors withdraw from
the applicable Series in the event that other investors withdraw. If rejection
of subscriptions or such mandatory withdrawals are necessary, as determined by
the Managing Owner, to avoid causing the assets of the Trust to be "plan
assets," the Managing Owner will effect such rejections or withdrawals in such
manner as the Managing Owner, in its sole discretion, determines.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code together refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an
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employer's employees and their beneficiaries. Such plans and accounts include,
but are not limited to, corporate pension and profit sharing plans,
"simplified employee pension plans," KEOGH plans for self-employed individuals
(including partners), individual retirement accounts described in Section 408
of the Code and medical plans.
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in any Series of the Trust,
including the role that an investment in such Series would play in the Plan's
overall investment portfolio. Each Plan Fiduciary, before deciding to invest
in any Series of the Trust, must be satisfied that such investment is prudent
for the Plan, that the investments of the Plan, including the investment in
such Series, are diversified so as to minimize the risk of large losses and
that an investment in such Series complies with the Plan and related trust.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT WITH ITS
OWN LEGAL AND TAX ADVISERS BEFORE DOING SO. AN INVESTMENT IN ANY SERIES OF THE
TRUST IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. NEITHER THE TRUST AS
A WHOLE NOR ANY SERIES OF THE TRUST IS INTENDED AS A COMPLETE INVESTMENT
PROGRAM.
"Plan Assets"
A regulation issued under ERISA (the "ERISA Regulation") contains rules
for determining when an investment by a Plan in an entity will result in the
underlying assets of such entity being assets of the Plan for purposes of
ERISA and Section 4975 of the Code (i.e., "plan assets"). Those rules provide
that assets of an entity will not be considered assets of a Plan which
purchases an equity interest in the entity if certain exceptions apply,
including (i) an exception applicable if the equity interest purchased is a
"publicly-offered security" (the "Publicly-Offered Security Exception") and
(ii) an exception applicable if the investment by all "benefit plan investors"
is not "significant" (the "Significant Participation Exception"). A Series
will rely on the Significant Participation Exception until such time as such
Series satisfies the conditions of the Publicly-Offered Security Exception.
The Significant Participation Exception applies if investments by
benefit plan investors is not significant. The term "benefit plan investors"
includes all Plans (i.e., all "employee benefit plans" as defined in and
subject to ERISA and all "plans" as defined in and subject to Section 4975 of
the Code), all "employee benefit plans" and "plans" as defined in but not
subject to either ERISA or Section 4975 of the Code, and all entities that
hold "plan assets" due to investments made in such entities by already
described benefit plan investors. In addition, all or a portion of an
investment made by an insurance company using assets from its general account
may be treated as a benefit plan investor. Investments by benefit plan
investors will be deemed not significant if benefit plan investors own, in the
aggregate, less than 25% of the total capital of each class of equity
interests in the entity (determined by not including the investments of
persons with discretionary authority or control over the assets of such
entity, of any person who provides investment advice for a fee (direct or
indirect) with respect to such assets, and "affiliates" (as defined in the
regulations issued under ERISA) of such persons).
During any time that the Trust is relying on the Significant
Participation Exception in order to avoid causing assets of each Series to be
"plan assets," the Managing Owner intends to restrict the aggregate investment
by benefit plan investors to under 25% of the total capital of each class of
equity interests of each Series (not including the investments of the Trustee,
the Managing Owner, any of the Advisors, any person who provides investment
advice for a fee (direct or indirect) with respect to the assets of each
Series, and any entity that is directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with any of
such entities (including a partnership or any other similar entity for which
the Managing Owner is the general partner (or the functional equivalent
thereof) or provides investment advice), and each of the principals, officers
and employees of any of the foregoing entities who has the power to exercise a
controlling influence over the management or policies of such entity or of the
Trust). Furthermore, because the 25% test is ongoing, it not only restricts
additional investments by benefit plan investors, but also can cause the
Managing Owner to require that existing benefit plan investors withdraw from
the applicable Series in the event that other investors withdraw. If rejection
of subscriptions or such mandatory withdrawals are necessary, as determined by
the Managing Owner, to avoid causing the assets of the Trust to be "plan
assets," the Managing Owner will effect such rejections or withdrawals in such
manner as the Managing Owner, in its sole discretion, determines.
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The Publicly-Offered Security Exception applies if the equity interest
is a security that is (1) "freely transferable," (2) part of a class of
securities that is "widely held" and (3) either (a) part of a class of
securities registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, or (b) sold to the Plan as part of a public offering pursuant to
an effective registration statement under the Securities Act of 1933 and the
class of which such security is a part is registered under the Securities
Exchange Act of 1934 within 120 days (or such later time as may be allowed by
the SEC) after the end of the fiscal year of the issuer in which the offering
of such security occurred. The ERISA Regulation states that the determination
of whether a security is "freely transferable" is to be made based on all
relevant facts and circumstances. The ERISA Regulation specifies that, in the
case of a security that is part of an offering in which the minimum investment
is $10,000 or less, the following requirements, alone or in combination,
ordinarily will not affect a finding that the security is freely transferable:
(i) a requirement that no transfer or assignment of the security or rights in
respect thereof be made that would violate any federal or state law; (ii) a
requirement that no transfer or assignment be made without advance written
notice given to the entity that issued the security; and (iii) any restriction
on substitution of an assignee as "a limited partner of a partnership,
including a general partner consent requirement, provided that the economic
benefits of ownership of the assignor may be transferred or assigned without
regard to such restriction or consent" (other than compliance with any of the
foregoing restrictions). Under the ERISA Regulation, a class of securities is
"widely held" only if it is of a class of securities owned by 100 or more
investors independent of the issuer and of each other. A class of securities
will not fail to be widely held solely because subsequent to the initial
offering the number of independent investors falls below 100 as a result of
events beyond the issuer's control.
The Publicly Offered Security Exception applies with respect to Units of
Series J. First, the Units of Series J are being sold only as part of a public
offering pursuant to an effective registration statement under the Securities
Act of 1933, and were registered under the Securities Exchange Act of 1934
within 120 days (or such later time as allowed by the SEC) after the end of
the fiscal year of such Series in which the offering of such Units occurred.
Second, it appears that Units of Series J are freely transferable
because the minimum investment is not more than $5,000 and Unitholders may
assign their economic interests in such Series by giving written notice to the
Managing Owner, provided such assignment would not violate any federal or
state securities laws and would not adversely affect the tax status of such
Series. As described in the second preceding paragraph, the ERISA Regulation
provides that if a security is part of an offering in which the minimum
investment is $10,000 or less, a restriction on substitution of a limited
partner of a partnership, including a general partner consent requirement,
will not prevent a finding that the security is freely transferable, provided
that the economic benefits of ownership can be transferred without such
consent. Although this provision, read literally, applies only to
partnerships, the Managing Owner believes that because the determination as to
whether a security is freely transferable is based on the facts and
circumstances, the fact that the Units, which are issued by a series of a
statutory trust rather than a partnership, have an identical restriction
should not affect a finding that the Series J Units are freely transferable.
Third, the Units of Series J expected owned by more than 100 investors
who are independent of the Trust and of each other.
Until such time as Units of each of Series G, H or I are owned by more
than 100 investors who are independent of the Trust and of each other such
Series will each rely on the Significant Participation Exception.
Ineligible Purchasers
Units may not be purchased with the assets of a Plan if the Managing
Owner, any of the Advisors, the Selling Agents, any Clearing Broker, any of
the brokers through which any Advisor requires any Series of the Trust to
trade, any Series or any of their respective affiliates, any of their
respective employees or any employees of their respective affiliates: (a) has
investment discretion with respect to the investment of such Plan assets; (b)
has authority or responsibility to give or regularly gives investment advice
with respect to such Plan assets, for a fee, and pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such Plan assets and that such advice will be based
on the particular investment needs of the Plan; or (c) is an employer
maintaining or contributing to such Plan. A party that is described in clause
(a) or (b) of the preceding sentence is a fiduciary under ERISA and the Code
with respect to the Plan, and any such
-105-
purchase might result in a "prohibited transaction" under ERISA and the Code.
Except as otherwise set forth, the foregoing statements regarding the
consequences under ERISA and the Code of an investment in any Series of the
Trust are based on the provisions of the Code and ERISA as currently in
effect, and the existing administrative and judicial interpretations
thereunder. No assurance can be given that administrative, judicial or
legislative changes will not occur that will not make the foregoing statements
incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE FUND, ANY SERIES, THE MANAGING OWNER, ANY ADVISOR, ANY
CLEARING BROKERS, THE SELLING AGENTS OR ANY OTHER PARTY THAT THIS INVESTMENT
MEETS SOME OR ALL OF THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO
INVESTMENTS BY ANY PARTICULAR PLAN OR THAT THIS INVESTMENT IS APPROPRIATE FOR
ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH
HIS OR HER ATTORNEY AND FINANCIAL ADVISERS AS TO THE PROPRIETY OF AN
INVESTMENT IN UNITS OF ANY SERIES IN LIGHT OF THE CIRCUMSTANCES OF THE
PARTICULAR PLAN AND CURRENT TAX LAW.
PLAN OF DISTRIBUTION
The Offering
Units of each Series are offered continuously to the public -- on a
"best-efforts" basis -- at their month-end Net Asset Value per Unit. The
minimum investment is $5,000 in the aggregate except for (i) trustees or
custodians of eligible employee benefit plans and individual retirement
accounts and (ii) existing Unitholders of a Series subscribing for additional
Units of such Series, where the minimum investment is $2,000 in the aggregate.
The Managing Owner, in its sole discretion, may waive the minimums. A
subscriber may purchase Units in any one or a combination of Series, although
the minimum purchase for any single Series is $500. Units will be issued as of
the commencement of business on the first Business Day of each month.
Subscription Procedure
To purchase Units of any Series, an investor must complete, execute and
deliver a copy of the Subscription Agreement and Power of Attorney Signature
Pages. Existing investors in a Series must execute new Subscription Agreement
and Power of Attorney Signature Pages and verify their continued suitability
to make additional investments and must have received a current Prospectus for
the Trust. Subscription payments may be made by wire transfer or by
authorizing a Selling Agent to debit a subscriber's customer securities
account for the amount of his or her subscription. When a subscriber
authorizes such a debit (which authorization is given in the Subscription
Agreement and Power of Attorney), the subscriber is required to have the
amount of his or her subscription payment on deposit in his or her account as
of the settlement date specified by the relevant Selling Agent -- generally,
the fifth Business Day after the date of purchase (the first day of the month
immediately following the month during which a subscription is accepted) if
the Subscription Agreement and Power of Attorney is executed and delivered at
least five (5) Business Days prior to the end of such month.
The Units are sold when, as and if subscriptions therefor are accepted by
the Managing Owner, subject to the satisfaction of certain conditions set
forth in the Selling Agent Agreement and to the approval by counsel of certain
legal matters.
All subscriptions will be irrevocable by the subscriber, except as set
forth below. In the Subscription Agreement, you are required to represent that
you received the Prospectus five (5) days prior to the date of receipt of your
Subscription Agreement. We are prohibited from selling Units to you until five
(5) days after you receive the Prospectus. Rejected or revoked subscriptions
will be returned with interest. No fees or other amounts will be deducted from
your subscription, which will be returned to you within seven Business Days
after such rejection. Subscriptions which are received after the subscription
deadline for any month will be deemed to be a subscription to purchase Units
as of the first Business Day of the next succeeding month, subject to
acceptance by the Managing Owner, satisfaction of certain conditions set forth
in the Selling Agent Agreement and approval by counsel of certain legal
matters.
All subscribers will receive a confirmation of their purchase from their
Selling Agent.
-106-
There is no minimum number of Units of any Series which must be sold as
of the beginning of a given month for any Units of such Series to be sold at
such time.
Subscribers' Representations and Warranties
By executing a Subscription Agreement and Power of Attorney Signature
Page, each subscriber is representing and warranting, among other things,
that:
o the subscriber is of legal age to execute and deliver such Subscription
Agreement and Power of Attorney and has full power and authority to do
so;
o the subscriber has read and understands Exhibit B to this Prospectus and
meets or exceeds the applicable suitability criteria of net worth and
annual income set forth therein; and
o the subscriber has received a copy of this Prospectus.
These representations and warranties might be used by the Managing Owner
or others against a subscriber in the event that the subscriber were to take a
position inconsistent therewith.
While the foregoing representations and warranties are binding on
subscribers, the Managing Owner believes that to a large extent such
representations and warranties would be implied from the fact that an investor
has subscribed for Units. Any subscriber who is not prepared to give such
representations and warranties, and to be bound by them, should not invest in
the Units.
LEGAL MATTERS
Sidley Austin LLP has advised the Managing Owner in connection with the
Units being offered hereby. Sidley Austin LLP also advises the Managing Owner
with respect to its responsibilities as managing owner of, and with respect to
matters relating to, the Trust and each of the Series. Sidley Austin LLP has
prepared the section "Federal Income Tax Consequences" and "Purchases By
Employee Benefit Plans" with respect to ERISA. Sidley Austin LLP has not
represented, nor will it represent, the Trust, any Series or the Unitholders
of any Series in matters relating to the Trust or any Series.
EXPERTS
Arthur F. Bell, Jr. & Associates, L.L.C. served as the independent
registered public accounting firm for the Trust during the period September
28, 2004 (inception) through December 1, 2005 and Deloitte & Touche LLP has
served as the independent registered public accounting firm for the Trust
since such date.
The Statement of Financial Condition as of December 31, 2005 of World
Monitor Trust III - Series G as of December 31, 2005, and the related
statements of Operations and Changes in Unitholders' Capital for the year then
ended included in this Prospectus have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in its report
appearing herein, and has been so included in reliance upon such report given
upon the authority of that firm as experts in accounting and auditing.
The Statement of Financial Condition as of December 31, 2005 of World
Monitor Trust III - Series H as of December 31, 2005, and the related
Statements of Operations and Changes in Unitholder' Capital for
the year then ended included in this Prospectus have been audited by Deloitte
& Touche LLP, an independent registered public accounting firm, as stated in
its report appearing herein, and has been so included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
The Statement of Financial Condition as of December 31, 2005 of World
Monitor Trust III - Series I as of December 31, 2005, and the related
Statements of Operations and Changes in Unitholders' Capital for
the year then ended included in this Prospectus have been audited by Deloitte
& Touche LLP, an independent registered public accounting firm, as stated in
its report appearing herein, and has been so included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
The Statement of Financial Condition as of December 31, 2005 of World
Monitor Trust III - Series J as of December 31, 2005, and the related
Statements of Operations and Changes in Unitholders' Capital for the period
March 10, 2005 (inception) to December 31, 2005 included in this Prospectus
have been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in its report appearing herein, and has been so
included in reliance upon such report given upon the authority of that firm as
experts in accounting and auditing.
-107-
The Statement of Financial Condition, including the Condensed Schedule of
Investments, as of December 31, 2005 of WMT III Series G/J Trading Vehicle and
the related Statements of Operations and Changes in Members' Capital (net
asset value) for the period December 1, 2005 (commencement of operations) to
December 31, 2005 included in this Prospectus have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in its
report appearing herein, and has been so included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
The Statement of Financial Condition, including the Condensed Schedule of
Investments, as of December 31, 2005 of WMT III Series H/J Trading Vehicle and
the related Statements of Operations and Changes in Members' Capital (net
asset value) for the period December 1, 2005 (commencement of operations) to
December 31, 2005 included in this Prospectus have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in its
report appearing herein, and has been so included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
The Statement of Financial Condition, including the Condensed Schedule of
Investments, as of December 31, 2005 of WMT III Series I/J Trading Vehicle and
the related Statements of Operations and Changes in Members' Capital (net
asset value) for the period December 1, 2005 (commencement of operations) to
December 31, 2005 included in this Prospectus have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in its
report appearing herein, and has been so included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
The Statements of Financial Condition of World Monitor Trust III -
Series G, H and I as of December 31, 2004 included in this Prospectus have
been audited by Arthur F. Bell, Jr. & Associates, L.L.C. as stated in its
reports appearing herein, and have been so included in reliance upon such
reports given upon the authority of that firm as experts in auditing and
accounting.
The Statement of Financial Condition of Preferred Investment Solutions
Corp., the Managing Owner, as of December 31, 2005 included in this Prospectus
have been audited by Arthur F. Bell, Jr. & Associates, L.L.C. as stated in
their reports appearing herein, and has been so included in reliance upon such
report given upon the authority of that firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement filed by
the Trust and each of the Series with the SEC in Washington, D.C. This
Prospectus does not contain all of the information set forth in such
Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the SEC, including, without limitation,
certain exhibits thereto (for example, the forms of the Selling Agent
Agreement, the Advisory Agreements, and the Customer Agreements). The
descriptions contained herein of agreements included as exhibits to the
Registration Statement are necessarily summaries; the exhibits themselves may
be inspected without charge at the public reference facilities maintained by
the SEC in Washington, D.C., and copies of all or part thereof may be obtained
from the Commission upon payment of the prescribed fees. The SEC maintains a
Website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of such site is http://www.sec.gov.
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS
Pursuant to applicable CFTC regulations, prospective subscribers for
Units of any Series must receive recent financial information (current within
60 calendar days) relating to such Series, as well as its most recent Annual
Report (due by March 30 of each year, in respect of the prior year), together
with this Prospectus, unless the material that would be
-108-
otherwise included in such Report or information has been included herein.
PRIVACY POLICY OF THE MANAGING OWNER
The Managing Owner collects non-public information about you from the
following sources: (i) information received from you on applications or other
forms, which may include information received by you in writing, in person, by
telephone, electronically, or by any other means; and (ii) information about
your transactions and investments with the Managing Owner and others. The
Managing Owner does not disclose any non-public personal information about you
to anyone, other than as set forth below, as permitted by applicable law and
regulation. The Managing Owner may disclose non-public personal information
about you to the funds in which you invest. The Managing Owner may disclose
non-public personal information about you to non-affiliated companies that
work with the Managing Owner to service your account(s), or to provide
services or process transactions that you have requested. The Managing Owner
may disclose non-public personal information about you to parties representing
you, such as your investment representative, your accountant, your tax
advisor, or to other third parties at your direction/consent. If you decide to
close your account(s) or become an inactive customer, the Managing Owner will
adhere to the privacy policies and practices as described in this notice. The
Managing Owner restricts access to your personal and account information to
those employees who need to know that information to provide products and
services to you. The Managing Owner maintains appropriate physical, electronic
and procedural safeguards to guard your non-public personal information.
[Remainder of page left blank intentionally.]
-109-
PERFORMANCE OF COMMODITY POOLS OPERATED BY THE MANAGING OWNER AND
ITS AFFILIATES
General
The performance information included herein is presented in accordance
with CFTC regulations. Each Series of the Trust differs materially in certain
respects from each of the pools whose performance is included herein. The
following sets forth summary performance information for all pools operated by
the Managing Owner (other than the Trust and the Series) since January 1,
2001. The Managing Owner has offered certain of these pools exclusively on a
private basis to financially sophisticated investors -- either on a private
placement basis in the United States or offshore exclusively to non-U.S.
persons.
The pools, the performance of which is summarized herein, are materially
different in certain respects from the various Series of the Trust, and the
past performance summaries of such pools are generally not representative of
how any Series of the Trust might perform in the future. These pools also have
material differences from one another in terms of number of advisors,
leverage, fee structure and trading programs. The performance records of these
pools may give some general indication of the Managing Owner's capabilities in
advisor selection by indicating the past performance of the pools sponsored by
the Managing Owner.
Effective October 1, 2004, the Managing Owner assumed responsibility as the
commodity pool operator and managing owner of eight public commodity pools.
Effective as of February 28, 2006, the Managing Owner serves as the commodity
pool operator and managing owner of thirteen (13) public commodity pools
(including each of Series G, H, I and J) and for one open-ended investment
company which is an exempted commodity pool in Ireland.
All summary performance information is current as of February 28, 2006
(except in the case of pools dissolved prior to such date). Performance
information is set forth, in accordance with CFTC Regulations, since January
1, 2001 or, if later, the inception of the pool in question. CFTC Regulations
require inclusion of only performance information within the five most recent
calendar years and year-to-date. Performance information with respect to the
newly acquired pools in which the Managing Owner serves either as managing
owner or general partner is disclosed starting as of October 1, 2004.
INVESTORS SHOULD NOTE THAT AFFILIATES OF THE MANAGING OWNER PERFORM ASSET
ALLOCATION FUNCTIONS ON BEHALF OF MANAGED ACCOUNTS AND OTHER COMMODITY POOLS
SIMILAR TO THOSE PERFORMED BY THE MANAGING OWNER. PURSUANT TO CFTC
REGULATIONS, THE PERFORMANCE OF ACCOUNTS AND OTHER POOLS OPERATED, MANAGED
AND/OR SPONSORED BY AFFILIATES OF THE MANAGING OWNER HAS NOT BEEN INCLUDED
HEREIN.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND
MATERIAL DIFFERENCES EXIST BETWEEN THE POOLS WHOSE PERFORMANCE IS SUMMARIZED
HEREIN AND EACH SERIES OF THE FUND.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A SIGNIFICANT
PORTION OF A COMMODITY POOL'S INCOME AND, IN CERTAIN INSTANCES, MAY GENERATE
PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM COMMODITY
TRADING.
--------------------
-110-
Assets Under Management
The Managing Owner - Total assets under management as of February 28, 2006 $186.9 million
The Managing Owner -Total assets under multi-advisor management as of February 28, 2006 $87.3 million
The Managing Owner and affiliates - Total assets under management as of February 28, 2006 $2.2 billion
(excluding notional funds)
The Managing Owner and affiliates - Total assets under management as of February 28, 2006 $2.4 billion
(including notional funds)
Multi-Advisor Pools
These are all of the multi-advisor pools operated
by the Managing Owner since January 1, 2001. The
Managing Owner has actively allocated and reallocated
trading assets among a changing group of advisors
selected by it.
Single-Advisor Pools
These are all of the pools (other than pools for
the research and development of traders) operated by
the Managing Owner since January 1, 2001 that were, or
are, advised by a single advisor (as opposed to a
portfolio of commodity trading advisors).
Pools for the Research and Development of Advisors
These are all of the pools operated by the
Managing Owner since January 1, 2001 that were
established as a way of testing, in a limited
liability vehicle, one or more commodity trading
advisors relatively untested in the management of
customer assets.
[Remainder of page left blank intentionally]
-111-
- -------------------------------------------------------------------------------------------------------------
% WORST
% WORST PEAK-TO-
CURRENT CURRENT MONTHLY VALLEY
TYPE START CLOSE AGGREGATE TOTAL NAV PER DRAW-DOWN DRAW-DOWN
OF POOL DATE DATE SUBSCRIPT. NAV UNIT & MONTH PERIOD
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
MULTI-ADVISOR POOLS
- -------------------------------------------------------------------------------------------------------------
Kenmar Global Trust * 05/97 -- 55,651,122 10,560,760 96.04 (7.42) (24.66)
- -------------------------------------------------------------------------------------------------------------
01/05 10/98-02/02
- -------------------------------------------------------------------------------------------------------------
Diversified Futures
Trust I+ * 1/95 -- N/A 16,957,011 226.57 (10.11) (11.87)
- -------------------------------------------------------------------------------------------------------------
1/05 11/04-4/05
- -------------------------------------------------------------------------------------------------------------
Futures Strategic Trust
(formerly known as
Prudential Securities
Strategic Trust) * 5/96 -- N/A 6,059,392 103.07 (3.25) (9.23)
- -------------------------------------------------------------------------------------------------------------
4/05 12/04-7/05
- -------------------------------------------------------------------------------------------------------------
International Futures
Fund D PLC+ * 10/96 5/05 N/A 0 7.34 (8.56) (19.14)
- -------------------------------------------------------------------------------------------------------------
5/27/05 5/05 11/04-5/05
- -------------------------------------------------------------------------------------------------------------
Kenmar Performance
Partners L.P. ** 08/85 3/02 265,038,978 0 0 (22.66) (74.94)
- -------------------------------------------------------------------------------------------------------------
6/00 10/98-1/02
- -------------------------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
- -------------------------------------------------------------------------------------------------------------
World Monitor Trust-
Series A+,+++ Single 6/98 -- N/A 1,941,932 89.06 (5.18) (7.97)
- -------------------------------------------------------------------------------------------------------------
2/28/06 8/05 11/04-3/05
- -------------------------------------------------------------------------------------------------------------
World Monitor Trust -
Series B+,+++ Single 6/98 -- N/A 3,695,907 91.92 (6.33) (18.29)
- -------------------------------------------------------------------------------------------------------------
2/28/06 3/05 11/04-10/05
- -------------------------------------------------------------------------------------------------------------
World Monitor Trust II-
Series D+,+++ Single 3/00 -- N/A 16,483,560 125.91 (4.85) (8.20)
- -------------------------------------------------------------------------------------------------------------
2/28/06 7/05 3/05-12/05
- -------------------------------------------------------------------------------------------------------------
World Monitor Trust II-
Series E+,+++ Single 4/00 -- N/A 29,083,352 163.36 (10.03) (19.58)
- -------------------------------------------------------------------------------------------------------------
2/28/06 1/05 12/04-4/05
- -------------------------------------------------------------------------------------------------------------
World Monitor Trust II-
Series F+,+++ Single 3/00 -- N/A 35,492,728 160.59 (5.07) (7.35)
- -------------------------------------------------------------------------------------------------------------
2/28/06 8/05 11/04-3/05
- -------------------------------------------------------------------------------------------------------------
Diversified Futures
Trust II+,+++ Single 3/97 -- N/A 4,829,209 91.98 (15.09) (34.77)
- -------------------------------------------------------------------------------------------------------------
2/28/06 1/05 11/04-4/05
- -------------------------------------------------------------------------------------------------------------
Diversified Futures
Fund L.P.+ Single 10/88 -- N/A 4,814,385 329.85 (12.83) (35.01)
- -------------------------------------------------------------------------------------------------------------
2/28/06 1/05 11/04-2/06
- -------------------------------------------------------------------------------------------------------------
International Futures
Fund B PLC+ Single 7/96 -- N/A 16,980,990 16.92 (11.33) (28.64)
- -------------------------------------------------------------------------------------------------------------
2/28/06 8/05 11/04-2/06
- -------------------------------------------------------------------------------------------------------------
International Futures
Fund C PLC+ Single 6/96 9/05 N/A 0 11.890 (14.25) (26.38)
- -------------------------------------------------------------------------------------------------------------
9/2/05 8/05 6/05-8/05
- -------------------------------------------------------------------------------------------------------------
International Futures
Fund F PLC+ Single 9/97 8/05 N/A 0 11.72 (12.54) (24.25)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
PERCENTAGE RATE OF RETURN (COMPUTED ON A
COMPOUNDED MONTHLY BASIS)
------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006++
- -------------------------------------------------------------------------------------------
MULTI-ADVISOR POOLS
- -------------------------------------------------------------------------------------------
Kenmar Global Trust (0.54) 14.81 0.23 (2.69) (9.42) (1.85)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Diversified Futures
Trust I+ -- -- -- 10.88 (2.22) 2.50
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
Futures Strategic Trust
(formerly known as
Prudential Securities
Strategic Trust) -- -- -- 12.08 (8.01) 3.73
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
International Futures
Fund D PLC+ -- -- -- 1.73 (17.74) --
- -------------------------------------------------------------------------------------------
(3 mos.) (5 mos.)
- -------------------------------------------------------------------------------------------
Kenmar Performance
Partners L.P. (24.58) (11.31) -- -- -- --
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
- -------------------------------------------------------------------------------------------
World Monitor Trust-
Series A+(,)+++ -- -- -- (2.15) 7.72 1.89
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
World Monitor Trust -
Series B+(,)+++ -- -- -- (1.02) (15.80) (1.70)
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
World Monitor Trust II-
Series D+(,)+++ -- -- -- 8.14 (3.95) 5.98
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
World Monitor Trust II-
Series E+(,)+++ -- -- -- 19.17 (13.74) 2.40
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
World Monitor Trust II-
Series F+(,)+++ -- -- -- 6.18 9.55 2.02
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
Diversified Futures
Trust II+(,)+++ -- -- -- 25.16 21.67 (9.45)
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
Diversified Futures
Fund L.P.+ -- -- -- 29.98 (23.97) (11.92)
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
International Futures
Fund B PLC+ -- -- -- 40.79 (20.38) (10.20)
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
International Futures
Fund C PLC+ -- -- -- 7.93 (20.31) --
- -------------------------------------------------------------------------------------------
(3 mos.)
- -------------------------------------------------------------------------------------------
International Futures
Fund F PLC+ -- -- -- 15.26 (20.93) --
- -------------------------------------------------------------------------------------------
-112-
- -------------------------------------------------------------------------------------------------------------
% WORST
% WORST PEAK-TO-
CURRENT CURRENT MONTHLY VALLEY
TYPE START CLOSE AGGREGATE TOTAL NAV PER DRAW-DOWN DRAW-DOWN
OF POOL DATE DATE SUBSCRIPT. NAV UNIT & MONTH PERIOD
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
9/2/05 7/05 11/04-8/05
- -------------------------------------------------------------------------------------------------------------
The Fulcrum Fund LP(1) Single 04/97 12/03 62,688,110 0 0 (21.22) (68.16)
- -------------------------------------------------------------------------------------------------------------
6/00 7/99-9/03
- -------------------------------------------------------------------------------------------------------------
Hirst Investment Fund
L.P. Single 10/97 10/02 4,347,088 0 0 (8.19) (24.41)
- -------------------------------------------------------------------------------------------------------------
7/01 1/99-10/01
- -------------------------------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND
DEVELOPMENT OF TRADERS
- -------------------------------------------------------------------------------------------------------------
Kenmar Venture Partners
L.P.(2) * 03/87 12/02 2,625,000 0 N/A(3) (7.82) (9.91)
- -------------------------------------------------------------------------------------------------------------
12/01 10/01-2/02
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
PERCENTAGE RATE OF RETURN (COMPUTED ON A
COMPOUNDED MONTHLY BASIS)
------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006++
- -------------------------------------------------------------------------------------------
9/2/05 --
(3 mos.)
- ------------------------------------------------------------------------------------------
The Fulcrum Fund LP(1) (23.35) 5.72 (15.99) -- -- --
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Hirst Investment Fund
L.P. (7.56) -- -- -- -- --
- ------------------------------------------------------------------------------------------
(10 mos.)
- ------------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND
DEVELOPMENT OF TRADERS
- ------------------------------------------------------------------------------------------
Kenmar Venture Partners
L.P.(2) (4.68) 2.39 -- -- -- --
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
- ----------------------------
+ The Managing Owner acquired control of the pool as of October 1, 2004.
Pursuant to CFTC Rules and NFA requirements, performance prior to
October 1, 2004 has not been included.
++ Current as of February 28, 2006, unless otherwise noted.
+++ Current as of February 24, 2006
1 Formerly The Dennis Fund LP "B" and renamed The Fulcrum Fund LP as of
November 1, 2000. The Fulcrum Fund LP was sold to Beacon Management
Corporation effective December 31, 2003 and, therefore, Preferred
Investment Solutions Corp. no longer serves as general partner.
2 Kenmar Venture Partners L.P. ceased being a Unit-based fund as of
October 1, 2001. After October 1, 2001 Kenmar Venture Partners L.P.
utilized a value based valuation of each limited partner's ownership
interest. Kenmar Venture Partners L.P. was closed on December 31, 2002.
-113-
Footnotes to Performance Information
1. Name of Pool.
2. Type of Pool:
"Single" means that the assets are managed by one commodity trading
advisor.
* Although multiple commodity trading advisors were used at certain
times during the history of the pool, the pool may not have been a
"multi-advisor pool" as defined by the CFTC due to the fact that one of
those commodity trading advisors may have been allocated in excess of
twenty-five percent of the pool's funds available for trading.
** Commenced trading as a single-advisor pool and assets were
subsequently allocated to multiple trading advisors. The pool is not a
"multi-advisor-pool" as defined by the CFTC for the reason discussed
above.
3. Start Date. Pools that were purchased by the Managing Owner have existed
prior to the effective date of ownership, October 1, 2004, and
performance with respect to such recently purchased pools has been
disclosed starting as of October 1, 2004, as applicable.
4. "Close Date" is the date the pool liquidated its assets and ceased to do
business.
5. "Aggregate Subscript." is the aggregate of all amounts ever contributed
to the pool, including investors who subsequently redeemed their
investments.
6. "Current Total NAV" is the Net Asset Value of the pool as of February
28, 2006, unless otherwise noted as of February 24, 2006.
7. "Current NAV Per Unit" is the Current Net Asset Value of the pool
divided by the total number of units (shares) outstanding as of February
28, 2006, unless otherwise noted as of February 24, 2006. Current NAV per
Unit is based on the value of a hypothetical $1,000 unit ($1,050 for
Kenmar Venture Partners L.P. prior to October 1, 2001) of investment
over time.
In the case of liquidated pools, the NAV per unit on the date of
liquidation of the pool is set forth.
8. "% Worst Monthly Drawdown" is the largest single month loss sustained
since inception of trading. "Drawdown" as used in this section of the
Prospectus means losses experienced by the relevant pool over the
specified period and is calculated on a rate of return basis, i.e.,
dividing net performance by beginning equity. "Drawdown" is measured on
the basis of monthly returns only, and does not reflect intra-month
figures. "Month" is the month of the % Worst Monthly Drawdown.
9. "% Worst Peak-to-Valley Drawdown" is the largest percentage decline in
the Net Asset Value per Unit over the history of the pool. This need not
be a continuous decline, but can be a series of positive and negative
returns where the negative returns are larger than the positive returns.
"% Worst Peak-to-Valley Drawdown" represents the greatest percentage
decline from any month-end Net Asset Value per Unit that occurs without
such month-end Net Asset Value per Unit being equaled or exceeded as of
a subsequent month-end. For example, if the Net Asset Value per Unit of
a particular pool declined by $1 in each of January and February,
increased by $1 in March and declined again by $2 in April, a
"peak-to-valley drawdown" analysis conducted as of the end of April
would consider that "drawdown" to be still continuing and to be $3 in
amount, whereas if the Net Asset Value per Unit had increased by $2 in
March, the January-February drawdown would have ended as of the end of
February at the $2 level.
10. "Period" is the period of the "% Worst Peak-to-Valley Drawdown."
-114-
INDEX OF DEFINED TERMS
A number of defined terms are used in this Prospectus. The respective
definitions or descriptions of such terms may be found on the following
pages of this Prospectus.
Page(s)
CFTC.......................................................................iv
Declaration of Trust.......................................................91
IRS........................................................................23
Managing Owner Related Parties.............................................91
NASAA Guidelines...........................................................91
NFA........................................................................iv
Publicly-Offered Security Exception.......................................103
SEC........................................................................92
115
INDEX TO FINANCIAL STATEMENTS
World Monitor Trust III- Series G
Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) ...........................................118
Report of Independent Registered Public Accounting Firm (Arthur F. Bell, Jr. & Associates, L.L.C.).........................119
Statements of Financial Condition as of December 31, 2005 and 2004 ........................................................121
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005 .................120
Statement of Changes in Unitholders' Capital for the Year Ended December 31, 2005 122......................................122
Notes to Financial Statements .............................................................................................123
WMT III Series G/J Trading Vehicle LLC
Independent Auditors' Report...............................................................................................130
Statement of Financial Condition as of December 31, 2005...................................................................131
Condensed Schedule of Investments as of December 31, 2005..................................................................132
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005..................133
Statement of Changes in Members' Capital (Net Asset Value) for the period December 1, 2005 (commencement of operations)
to December 31, 2005.......................................................................................................134
Notes to Financial Statements..............................................................................................135
World Monitor Trust III- Series H
Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) ...........................................141
Report of Independent Registered Public Accounting Firm (Arthur F. Bell, Jr. & Associates, L.L.C.).........................142
Statements of Financial Condition as of December 31, 2005 and 2004.........................................................143
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005..................144
Statement of Changes in Unitholders' Capital for the Year Ended December 31, 2005 .........................................145
Notes to Financial Statements .............................................................................................146
WMT III Series H/J Trading Vehicle LLC
Independent Auditors' Report...............................................................................................153
Statement of Financial Condition as of December 31, 2005...................................................................154
Condensed Schedule of Investments as of December 31, 2005..................................................................155
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005..................156
Statement of Changes in Members' Capital (Net Asset Value) for the period December 1, 2005 (commencement of operations)
to December 31, 2005.......................................................................................................157
Notes to Financial Statements..............................................................................................158
World Monitor Trust III- Series I
Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)............................................164
Report of Independent Registered Public Accounting Firm (Arthur F. Bell, Jr. & Associates, L.L.C.).........................165
Statements of Financial Condition as of December 31, 2005 and 2004 ........................................................166
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005..................167
Statement of Changes in Unitholders' Capital for the Year Ended December 31, 2005..........................................168
Notes to Financial Statements..............................................................................................169
WMT III Series I/J Trading Vehicle LLC
Independent Auditors' Report...............................................................................................176
Statement of Financial Condition as of December 31, 2005...................................................................177
Condensed Schedule of Investments as of December 31, 2005..................................................................178
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005 .................179
116
Statement of Changes in Members' Capital (Net Asset Value) for the period December 1, 2005 (commencement of operations)
to December 31, 2005.......................................................................................................180
Notes to Financial Statements..............................................................................................181
World Monitor Trust III- Series J
Report of Independent Registered Public Accounting Firm....................................................................187
Statement of Financial Condition as of December 31, 2005...................................................................188
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005..................189
Statement of Changes in Unitholders' Capital for the Year Ended December 31, 2005..........................................190
Notes to Financial Statements..............................................................................................191
WMT III Series G/J Trading Vehicle LLC
Independent Auditors' Report...............................................................................................198
Statement of Financial Condition as of December 31, 2005...................................................................199
Condensed Schedule of Investments as of December 31, 2005..................................................................200
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005..................201
Statement of Changes in Members' Capital (Net Asset Value) for the period December 1, 2005 (commencement of operations)
to December 31, 2005.......................................................................................................202
Notes to Financial Statements..............................................................................................203
WMT III Series H/J Trading Vehicle LLC
Independent Auditors' Report...............................................................................................209
Statement of Financial Condition as of December 31, 2005...................................................................210
Condensed Schedule of Investments as of December 31, 2005..................................................................211
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005..................212
Statement of Changes in Members' Capital (Net Asset Value) for the period December 1, 2005 (commencement of operations)
to December 31, 2005.......................................................................................................213
Notes to Financial Statements..............................................................................................214
WMT III Series I/J Trading Vehicle LLC
Independent Auditors' Report...............................................................................................220
Statement of Financial Condition as of December 31, 2005...................................................................221
Condensed Schedule of Investments as of December 31, 2005..................................................................222
Statement of Operations for the period December 1, 2005 (commencement of operations) to December 31, 2005 .................223
Statement of Changes in Members Capital (Net Asset Value) for the period December 1, 2005 (commencement operations)
to December 31, 2005.......................................................................................................224
Notes to Financial Statements..............................................................................................225
Preferred Investment Solutions Corp.
Independent Auditor's Report...............................................................................................231
Statement of Financial Condition as of December 31, 2005 (Audited).........................................................232
Notes to Statement of Financial Condition (Audited)........................................................................233
-117-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Managing Owner and Unitholders of
World Monitor Trust III - Series G
We have audited the accompanying statement of financial condition of World
Monitor Trust III - Series G (the "Series") as of December 31, 2005, and the
related statements of operations and changes in unitholders' capital for the
year then ended. These financial statements are the responsibility of the
Series' management. Our responsibility is to express an opinion on these
financial statements based on our audit. The statement of financial condition
as of December 31, 2004 was audited by other auditors whose report dated
February 16, 2005 expressed an unqualified opinion on that statement.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Series is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Series' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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 Series at December 31,
2005, and the results of its operations and the changes in unitholders'
capital for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
March 29, 2006
Arthur F. Bell, Jr. & Associates, L.L.C.
- -------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 201 International Circle, Suite 200
Hunt Valley, Maryland 21030
Tel: 410.771.0001 - Fax: 410.785.9784
www.afb-a.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Unitholder
World Monitor Trust III - Series G
We have audited the accompanying statement of financial condition of World
Monitor Trust III - Series G as of December 31, 2004. This financial statement
is the responsibility of World Monitor Trust III - Series G's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 of the statement of financial
condition 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 World
Monitor Trust III - Series G as of December 31, 2004, in conformity with U.S.
generally accepted accounting principles.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Hunt Valley, Maryland
February 16, 2005
WORLD MONITOR TRUST III - SERIES G
STATEMENTS OF FINANCIAL CONDITION
December 31, 2005 and 2004
---------------
2005 2004
---- ----
ASSETS
Cash $ 252 $ 1,000
Investment in WMT III Series G/J Trading Vehicle LLC
(100.54% of net asset value) 509,406 0
-------- --------
Total assets $509,658 $ 1,000
======== ========
LIABILITIES
Accrued expenses $ 1,234 $ 0
Service fee payable 875 0
Sales commission payable 438 0
Management fee payable 219 0
Offering costs payable 219 0
-------- --------
Total liabilities 2,985 0
-------- --------
UNITHOLDERS' CAPITAL
Class I Units:
Unitholders' - 5,000 and 0 units outstanding,
respectively 482,546 0
Managing Owners Interests - 250 and 10 units
outstanding, respectively 24,127 1,000
-------- --------
Total unitholders' capital 506,673 1,000
-------- --------
Total liabilities and unitholders' capital $509,658 $ 1,000
======== ========
NET ASSET VALUE PER UNIT
Class I $ 96.51 $ 100.00
======== ========
See accompanying notes.
-120-
WORLD MONITOR TRUST III - SERIES G
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
NET LOSS ALLOCATED FROM
WMT III SERIES G/J TRADING VEHICLE LLC:
REVENUES
Realized $(20,970)
Change in unrealized 6,554
Interest income 1,614
---------
Total revenues (12,802)
---------
EXPENSES
Brokerage commissions 337
Advisor fee 1,064
Operating expenses 1,391
---------
Total expenses 2,792
---------
NET LOSS ALLOCATED FROM
WMT III SERIES G/J TRADING VEHICLE LLC (15,594)
---------
NET LOSS FROM SERIES OPERATIONS:
REVENUES
Interest income 252
---------
EXPENSES
Management fee 219
Service fee 875
Sales commission 438
Operating expenses 1,234
---------
Total expenses 2,766
NET LOSS FROM SERIES OPERATIONS (2,514)
---------
NET LOSS $(18,108)
==========
NET LOSS PER WEIGHTED AVERAGE
UNITHOLDER AND MANAGING OWNER UNIT
Net loss per weighted average Unitholder and Managing Owner Unit $ (3.45)
==========
Weighted average number of Units outstanding 5,250
==========
See accompanying notes.
-121-
WORLD MONITOR TRUST III - SERIES G
STATEMENT OF CHANGES IN UNITHOLDERS' CAPITAL
For the Year Ended December 31, 2005
---------------
Class I
--------------------------------------------------
Managing Owner
Unitholders Interests Total
-------------------------- ---------------------- -----------------------
Units Amount Units Amount Units Amount
----------- ------------ ---------- ---------- --------- ------------
Unitholders' capital
at December 31, 2004 0 $ 0 10 $ 1,000 10 $ 1,000
Additions 5,000 500,000 240 24,000 5,240 524,000
Net loss (17,245) (863) (18,108)
Offering costs 0 (209) 0 (10) 0 (219)
----------- ------------ ---------- ---------- --------- ------------
Unitholders' capital
at December 31, 2005 5,000 $ 482,546 250 $ 24,127 5,250 $ 506,673
=========== ============ ========== ========== ========= ============
See accompanying notes.
-122-
WORLD MONITOR TRUST III - SERIES G
NOTES TO FINANCIAL STATEMENTS
------------------------------
Note 1. ORGANIZATION
------------
A. General Description of the Trust
World Monitor Trust III (the "Trust") is a business trust
organized under the laws of Delaware on September 28, 2004. The
Trust consists of four separate and distinct series ("Series"):
Series G, H, I and J. Series G, H, I and J commenced trading
operations on December 1, 2005, and each Series will continue to
exist until terminated pursuant to the provisions of Article XIII
of the Amended and Restated Declaration of Trust and Trust
Agreement. The assets of each Series are segregated from those of
the other Series, separately valued and independently managed.
Each Series was formed to engage in the speculative trading of a
diversified portfolio of futures, forward and options contracts
and may, from time to time, engage in cash and spot transactions.
Each Series is initially divided into two classes: the Class I
Units and the Class II Units. The Class I and Class II Units are
identical except for the applicable service fee charged to each
Class. As of December 31, 2005, Class II Units have not been
issued.
Effective December 1, 2005, Series G allocated its net assets to
WMT III Series G/J Trading Vehicle LLC, (the "Trading Vehicle")
and received a Voting Membership Interest in the Trading Vehicle.
The Trading Vehicle was formed to function as an aggregate trading
vehicle. The sole members of the Trading Vehicle are Series G and
Series J. Preferred Investment Solutions Corp. is the Managing
Owner of all Series and has been delegated administrative
authority over the operations of the Trading Vehicle. The Trading
Vehicle engages in the speculative trading of futures contracts,
options on futures contracts and forward currency contracts. The
financial statements of the Trading Vehicle, including the
condensed schedule of investments, are included in Section II of
these financial statements and should be used in conjunction with
Series G's financial statements.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Trust and each Series are subject to the regulatory requirements
under the Securities Act of 1933 and the Securities Exchange Act
of 1934. As a commodity pool, the Trust and each Series are
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 the various commodity
exchanges where the Trust through the Trading Vehicle executes
transactions.
C. The Offering
Up to $37,500,000 Series G, Class I; $12,500,000 Series G, Class
II; $37,500,000 Series H, Class I; $12,500,000 Series H, Class II;
$18,750,000 Series I, Class I; $6,250,000 Series I, Class II;
$281,250,000 Series J, Class I; and $93,750,000 Series J, Class II
of Units are being offered (totaling $500,000,000) ("Subscription
Maximum"). Interests are being offered to investors who meet
certain established suitability standards, with a minimum initial
subscription of $5,000 (and for Series J, $2,000 for certain
Benefit Plan Investors (including IRAs)), although the minimum
purchase for any single Series is $500. Units are also being sold
to the Managing Owner and its affiliates.
-123-
WORLD MONITOR TRUST III - SERIES G
NOTES TO FINANCIAL STATEMENTS
------------------
Note 1. ORGANIZATION (CONTINUED)
------------------------
C. The Offering (Continued)
Initially, the Units for each Series were offered for a period
ending November 30, 2005 ("Initial Offering Period") at $100 per
Interest. The Subscription Minimum of $30,000,000 for Series J was
reached during the Initial Offering Period permitting all Series
G, H, I and J to commence trading operations. Series G completed
its initial offering on December 1, 2005 with gross proceeds of
$525,000, which was fully allocated to the Trading Vehicle. Until
the subscription maximum for each Series is reached, each Series'
Units will continue to be offered on a monthly basis at the then
current net asset value per Unit.
D. Exchanges, Redemptions and Termination
Units owned in one series of the Trust (Series G, H, I and J) may
be exchanged, without any charge, for Units of one or more other
Series on a monthly basis for as long as Limited Units in those
Series are being offered to the public. Exchanges are made at the
applicable Series' then current net asset value per Unit as of the
close of business on the last day of the month in which the
exchange request is effected. The exchange of Units is treated as
a redemption of Units in one Series (with the related tax
consequences) and the simultaneous purchase of Units in the other
Series. Future redemptions and exchanges will impact the amount of
funds available for investment in the Trading Vehicle in
subsequent periods.
Redemptions are permitted on a monthly basis. Class I Units
redeemed prior to the first anniversary of their purchase will be
subject to a redemption charge of up to 2% of the net asset value
per Unit at which they were redeemed. Redemption fees are paid to
the Selling Agent, Kenmar Securities, Inc. There is no redemption
charge associated with the Class II Units.
In the event that the net asset value of a Series, after
adjustments for distributions, contributions and redemptions,
declines by 50% or more since the commencement of trading
activities or the first day of a fiscal year, the Series will
automatically terminate.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of Series G are prepared in accordance
with accounting principles generally accepted in the United States
of America. Such principles require the Managing Owner to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The weighted average number of Units outstanding was computed for
purposes of disclosing net income (loss) per weighted average
Unit. The weighted average Units are equal to the number of Units
outstanding at period end, adjusted proportionately for Units
subscribed and redeemed based on their respective time outstanding
during such period.
-124-
WORLD MONITOR TRUST III - SERIES G
NOTES TO FINANCIAL STATEMENTS
------------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
Series G has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standards No. 102,
"Statement of Cash Flows - Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale."
Consistent with standard business practices in the normal course
of business, Series G has provided general indemnifications to the
Managing Owner, its Trading Advisor and others when they act, in
good faith, in the best interests of Series G. Series G is unable
to develop an estimate of the maximum potential amount of future
payments that could potentially result from any hypothetical
future claim, but expects the risk of having to make any payments
under these general business indemnifications to be remote.
Cash represents amounts deposited with clearing brokers, a portion
of which are restricted for purposes of meeting margin
requirements, which typically range from 0% to 35% of the notional
amounts of the derivatives traded, and receives interest on all
cash balances held by the clearing brokers at prevailing rates.
B. Income Taxes
Series G is treated as a partnership for Federal income tax
purposes. As such, Series G is not required to provide for, or
pay, any Federal or state income taxes. Income tax attributes that
arise from its operations are passed directly to the individual
Unitholders including the Managing Owner. Series G may be subject
to other state and local taxes in jurisdictions in which it
operates.
C. Investment in WMT III Series G/J Trading Vehicle LLC
The investment in the Trading Vehicle is reported in Series G's
statement of financial condition at fair value. Fair value
ordinarily is the value determined for the Trading Vehicle in
accordance with the Trading Vehicle's valuation policies and
reported at the time of Series G's valuation by the management of
the Trading Vehicle. Generally, the fair value of Series G's
investment in the Trading Vehicle represents the amount that
Series G could reasonably expect to receive from the Trading
Vehicle if Series G's investment were redeemed at the time of
valuation, based on information available at the time the
valuation was made and that Series G believes to be reliable.
Series G records its proportionate share of each item of income
and expense from the investment in the Trading Vehicle in the
statement of operations.
The accounting policies, including valuation policies, of the
Trading Vehicle are contained in the notes to the Trading
Vehicle's financial statements included in Section II of these
financial statements.
D. Profit and Loss Allocations and Distributions
Income and expenses (excluding the service fee) are allocated pro
rata to the Class I Units and Class II Units monthly based on the
units outstanding during the month. Class I Units are charged with
the service fee applicable to such units. Distributions (other
than redemptions of units) may be made at the sole discretion of
the Managing Owner on a pro rata basis in accordance with the
respective capital balances of the unitholders. The Managing Owner
has not and does not presently intend to make any distributions.
-125-
WORLD MONITOR TRUST III - SERIES G
NOTES TO FINANCIAL STATEMENTS
------------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. Offering Costs
Initial offering costs (exclusive of the initial selling fee),
totaling $1,436,257, were advanced by the Managing Owner. Such
initial offering expenses will be reimbursed by the Series,
without interest, in 36 monthly payments during each of the first
36 months of the continuous offering period. The amount of initial
offering costs that each Series will reimburse the Managing Owner
each month is based on each Series percentage of total Trust net
asset value at the beginning of each month. In no event shall the
Managing Owner be entitled to reimbursement for such expenses in
an aggregate amount in excess of 2.5% of the aggregate amount of
all subscriptions accepted by the Trust during the Initial
Offering Period and the first 36 months of the continuous offering
period.
The Managing Owner also will pay all offering expenses incurred
after the Initial Offering Period ("ongoing offering costs"). Such
expenses will be allocated among the Series as the Managing Owner
determines to be fair and equitable and, each Series will
reimburse the Managing Owner, without interest, in up to 36
monthly payments during each of the first 36 months following the
month in which such expenses were paid by the Managing Owner.
In no event shall the amount of any payment in any month for
reimbursement of initial and ongoing offering costs exceed 0.50%
per annum of the Net Asset Value of each Series as of the
beginning of such month. The amount of monthly reimbursement due
to the Managing Owner is charged directly to unitholders' capital.
During the period December 1, 2005 (commencement of operations) to
December 31, 2005, Series G's calculated offering costs
reimbursement exceeded 0.50% per annum of the Net Asset Value of
Series G. Series G was only liable for the amount up to the 0.50%
per annum limitation.
The Series will only be liable for payment of initial and ongoing
offering costs on a monthly basis. If a Series terminates prior to
completion of payment of such amounts to the Managing Owner, the
Managing Owner will not be entitled to any additional payments,
and the Series will have no further obligation to the Managing
Owner. The amount of monthly reimbursement due to the Managing
Owner is charged directly to unitholders' capital.
F. Interest Income
During the period December 1, 2005 (commencement of operations) to
December 31, 2005, interest income includes interest earned on
subscription monies held in escrow prior to December 1, 2005.
Note 3. MANAGING OWNER
--------------
The Managing Owner of the Trust is Preferred Investment Solutions Corp.,
which conducts and manages the business of the Trust. The Declaration of
Trust and Trust Agreement requires the Managing Owner and or its
affiliates to maintain a capital account equal to 1% of the total
capital accounts of the Series (subject to a $25,000 minimum per
Series).
The Managing Owner is paid a monthly management fee of 1/12 of 0.5%
(0.5% annually) of Series G's net asset value at the beginning of the
month.
-126-
WORLD MONITOR TRUST III - SERIES G
NOTES TO FINANCIAL STATEMENTS
------------------
Note 4. SERVICE FEES AND SALES COMMISSIONS
----------------------------------
Series G pays a service fee with respect to Class I Units, monthly in
arrears, equal to 1/12 of 2% ( 2% per annum) of the Net Asset Value per
unit of the outstanding Class I Units as of the beginning of the month.
The service fee is paid directly by Series G to the Selling Agent,
Kenmar Securities, Inc., an affiliate of the Managing Owner. The Selling
Agent is responsible for paying all commissions owing to the
correspondent selling agents, who are entitled to receive from the
Selling Agent an initial commission equal to 2% of the initial Net Asset
Value per Unit of each Class I Unit sold by them, payable on the date
such Class I Units are purchased and, commencing with the 13th month
after the purchase of a Class I Unit, an ongoing monthly commission
equal to 1/12th of 2% (2% per annum) of the Net Asset Value per Class I
Unit as of the beginning of the month of the Class I Units sold by them.
Class II unitholders are not assessed service fees.
Series G will also pay Kenmar Securities, Inc. a monthly sales
commission equal to 1/12 of 1% (1% annually) of the Net Asset Value of
the outstanding units as of the beginning of each month.
Note 5. TRUSTEE
-------
The trustee of the Trust is Wilmington Trust Company, a Delaware banking
corporation. The trustee has delegated to the Managing Owner the power
and authority to manage the business and affairs of the Trust and has
only nominal duties and liabilities to the Trust.
Note 6. OPERATING EXPENSES
------------------
Operating expenses of Series G are paid for by Series G. However, during
the period December 1, 2005 (commencement of operations) to December 31,
2005, the Managing Owner has agreed to pay $19,341 of operating expenses
on behalf of Series G.
Note 7. INVESTMENT IN WMT III SERIES G/J TRADING VEHICLE LLC
----------------------------------------------------
Effective December 1, 2005, Series G invested a substantial portion of
its assets in the Trading Vehicle. Series G's investments in the Trading
Vehicle represents approximately 4.83% of the net asset value of the
Trading Vehicle at December 31, 2005. The investment in the Trading
Vehicle is subject to the Organization Agreement of the Trading Vehicle.
Summarized information for this investment is as follows:
Net Asset Net Asset
Value Value
December 1, December 31,
2005 Investments (Loss) Redemptions 2005
------------- ------------- ---------- ------------- --------------
WMT III Series G/J
Trading Vehicle LLC $ 0 $ 525,000 $(15,594) $ 0 $ 509,406
=========== ========= ========= =========== =========
Series G may make additional contributions to, or redemptions from, the
Trading Vehicle on a monthly basis.
-127-
WORLD MONITOR TRUST III - SERIES G
NOTES TO FINANCIAL STATEMENTS
------------------
Note 8. MARKET AND CREDIT RISK
----------------------
Series G's investment in the Trading Vehicle is subject to the market
and credit risks of the futures contracts, options on futures contracts,
forward currency contracts and other financial instruments held or sold
short by the Trading Vehicle. Series G bears the risk of loss only to
the extent of the market value of its investments and, in certain
specific circumstances, distributions and redemptions received.
Series G has cash on deposit with financial institutions. In the event
of a financial institution's insolvency, recovery of cash on deposit may
be limited to account insurance or other protection afforded such
deposits.
The Managing Owner has established procedures to actively monitor market
risk and minimize credit risk, although there can be no assurance that
it will, in fact, succeed in doing so. The Unitholders bear the risk of
loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
-128-
WORLD MONITOR TRUST III - SERIES G
NOTES TO FINANCIAL STATEMENTS
------------------
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance data
and other supplemental financial data for the period December 1, 2005
(commencement of operations) to December 31, 2005. This information has
been derived from information presented in the financial statements.
Class I
Per Unit Performance
(for a unit outstanding throughout the entire period)
- -----------------------------------------------------
Net asset value per unit at December 1, 2005
(commencement of operations) $100.00
------------
Loss from operations: (3)
Net realized and change in unrealized loss (1) (2.75)
Interest income (1) 0.36
Expenses (1) (1.06)
------------
Total loss from operations (3.45)
------------
Offering costs (1) (0.04)
------------
Net decrease for the period December 1, 2005
(commencement of operations) to December 31, 2005 (3.49)
------------
Net asset value per unit at December 31, 2005 $ 96.51
============
Total Return (5)
Total return before incentive fee (3.49)%
Incentive fee 0.00 %
Total return after incentive fee (3.49)%
============
Supplemental Data
Ratios to average net asset value: (3), (6)
Net investment loss before incentive fee (2) (8.44)%
Incentive fee (5) 0.00 %
------------
Net investment loss after incentive fee (8.44)%
============
Interest income 4.27 %
============
Incentive fees (5) 0.00 %
Other expenses (4) 12.70 %
------------
Total expenses 12.70 %
============
Total returns are calculated based on the change in value of a unit
during the period. An individual unitholders' total returns and ratios
may vary from the above total returns and ratios based on the timing of
additions and redemptions.
(1) Net realized and change in unrealized loss per unit, interest
income per unit, expenses per unit and offering costs per unit are
calculated by dividing net realized and change in unrealized loss,
interest income, expenses and offering costs by the weighted
average number of units outstanding during the period.
(2) Represents interest income less total expenses (exclusive of
incentive fees). All components of the net investment loss ratio
have been annualized except interest income and operating
expenses.
(3) Includes Series G's proportionate share of income and expenses
from WMT III Series G/J Trading Vehicle LLC.
(4) All components of the other expenses ratio have been annualized
except operating expenses.
(5) Not annualized.
(6) If the Trust had borne all its expenses that were reimbursed or
waived by the Managing Owner, the annualized expense and net
investment loss ratios would be as follows:
Expense ratio 16.39 %
Net investment loss before incentive fee (12.12)%
Incentive fee 0.00 %
----------
Net investment loss after incentive fee (12.12)%
==========
-129-
World Monitor Trust III - Series G
Section II
INDEPENDENT AUDITORS' REPORT
To the Managing Owner and Members of
WMT III Series G/J Trading Vehicle LLC
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of WMT III Series G/J Trading Vehicle
LLC (the "Trading Vehicle") as of December 31, 2005, and the related
statements of operations and changes in members' capital (net asset value) for
the period December 1, 2005 (commencement of operations) to December 31, 2005.
These financial statements are the responsibility of the Trading Vehicle's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States) and
in accordance with auditing standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Trading Vehicle is not required to have, nor were
we engaged to perform, an audit of is internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trading Vehicle's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 WMT III Series G/J Trading
Vehicle LLC as of December 31, 2005, and the results of its operations and
changes in its members' capital (net asset value) for the period December 1,
2005 (commencement of operations) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
/s/Deloitte & Touche LLP
March 29, 2006
-130-
WMT III SERIES G/J TRADING VEHICLE LLC
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
---------------
ASSETS
Cash in commodity trading accounts $10,427,355
Net unrealized gain on open futures contracts 61,653
Net unrealized gain on open forward currency contracts 74,001
Interest receivable 32,357
-----------
Total assets $10,595,366
===========
LIABILITIES
Accrued expenses $ 28,800
Commissions payable 843
Advisor fee payable 22,012
-----------
Total liabilities 51,655
-----------
MEMBERS' CAPITAL (Net Asset Value)
Member G 509,406
Member J 10,034,305
-----------
Total members' capital
(Net Asset Value) 10,543,711
-----------
Total liabilities and members' capital $10,595,366
===========
See accompanying notes.
-131-
WMT III SERIES G/J TRADING VEHICLE LLC
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2005
---------------
Net
Unrealized
Gain (Loss) Net
as a % of Net Unrealized
Asset Value Gain/Loss
------------- ----------
Futures and Forward Contracts
Futures contracts purchased:
Commodities 0.01% $1,605
Interest rates 0.20% 21,025
Metals 0.52% 54,528
Stock indices 0.25% 26,579
------------- ----------
Net unrealized gain on futures contracts purchased 0.98% 103,737
------------- ----------
Futures contracts sold:
Commodities (0.12)% (12,463)
Interest rates 0.00% 248
Metals (0.28)% (29,869)
------------- ----------
Net unrealized loss on futures contracts sold (0.40)% (42,084)
------------- ----------
Net unrealized gain on futures contracts 0.58% $61,653
============= ==========
Forward currency contracts purchased:
Net unrealized loss on forward currency contracts
purchased (0.68)% (71,768)
------------- ----------
Forward currency contracts sold:
Net unrealized gain on forward currency contracts sold 1.38% 145,769
------------- ----------
Net unrealized gain on forward currency contracts 0.70% $74,001
============= ==========
See accompanying notes.
-132-
WMT III SERIES G/J TRADING VEHICLE LLC
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
REVENUES
Realized $(434,052)
Change in unrealized 135,654
Interest income 33,425
-------------
Total revenues (264,973)
-------------
EXPENSES
Brokerage commissions 6,985
Advisor fee 22,012
Operating expenses 28,800
-------------
Total expenses 57,797
-------------
NET LOSS $(322,770)
=============
See accompanying notes.
-133-
WMT III SERIES G/J TRADING VEHICLE LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL (NET ASSET VALUE)
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
Members' Capital
-----------------------------------------
Member G Member J Total
------------- ------------ ------------
Balance at December 1, 2005
(commencement of operations) $ 0 $ 0 $ 0
Additions 525,000 10,341,481 10,866,481
Net loss (15,594) (307,176) (322,770)
---------- ----------- ------------
Balance at
December 31, 2005 $ 509,406 $10,034,305 $10,543,711
========== ============ ============
See accompanying notes.
-134-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
Note 1. ORGANIZATION
------------
A. General Description of the Trading Vehicle
WMT III Series G/J Trading Vehicle LLC (the "Trading Vehicle") is
a limited liability company organized under the laws of Delaware
on March 10, 2005 which will terminate on December 31, 2054 unless
terminated sooner under the provisions of the Organization
Agreement. The Trading Vehicle commenced trading operations on
December 1, 2005. The Trading Vehicle was formed to engage in the
speculative trading of a diversified portfolio of futures
contracts, options on futures contracts and forward currency
contracts. Preferred Investment Solutions Corp. ("Preferred") is
the Managing Owner of the Trading Vehicle. The Trading Vehicle
currently consists of two members: World Monitor Trust III -
Series G ("Member G") and World Monitor Trust III - Series J
("Member J") (collectively, the "Members"). Preferred is also the
Managing Owner of each of the Members. Upon making the initial
capital contribution, each Member received Voting Membership
Interests.
The Trading Vehicle is a Member managed limited liability company
that is not registered in any capacity with, or subject directly
to regulation by the Commodity Futures Trading Commission or the
United States Securities and Exchange Commission.
B. The Trading Advisor
The Trading Vehicle entered into an advisory agreement with Graham
Capital Management, L.P. (the "Trading Advisor") to make the
trading decisions for the Trading Vehicle. The Trading Advisor
manages approximately 100% of the assets of the Trading Vehicle
pursuant to its Global Diversified at 150% Leverage program.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of the Trading Vehicle are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Commodity futures and forward transactions are reflected in the
accompanying statement of financial condition on the trade date.
Net unrealized gain or loss on open contracts (the difference
between contract trade price and market price) is reflected in the
financial statements in accordance with Financial Accounting
Standards Board Interpretation No. 39 - "Offsetting of Amounts
Related to Certain Contracts." The market value of futures
(exchange-traded) contracts is based upon the closing quotation on
the various futures exchanges on which the contract is traded. The
fair value of forward (non-exchange traded) contracts is
extrapolated on a forward basis from the spot price. Any change in
net unrealized gain or loss during the current period is reported
in the statement of operations. Realized gains and losses on
commodity transactions are recognized in the period in which the
contracts are closed.
Brokerage commissions include other trading fees and are charged
to expense when contracts are opened.
-135-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
The Trading Vehicle has elected not to provide a Statement of Cash
Flows as permitted by Statement of Financial Accounting Standards
No. 102, "Statement of Cash Flows - Exemption of Certain
Enterprises and Classification of Cash Flows from Certain
Securities Acquired for Resale."
Consistent with standard business practices in the normal course
of business, the Trading Vehicle has provided general
indemnifications to its Trading Advisor and others when they act,
in good faith, in the best interests of the Trading Vehicle. The
Trading Vehicle is unable to develop an estimate of the maximum
potential amount of future payments that could potentially result
from any hypothetical future claim, but expects the risk of having
to make any payments under these general business indemnifications
to be remote.
B. Income Taxes
The Trading Vehicle is treated as a partnership for Federal income
tax purposes. As such, the Trading Vehicle is not required to
provide for, or pay, any Federal or state income taxes. Income tax
attributes that arise from its operations are passed directly to
the Members. The Trading Vehicle may be subject to other state and
local taxes in jurisdictions in which it operates.
C. Capital Accounts
The Trading Vehicle accounts for subscriptions, allocations and
redemptions on a per member capital account basis.
The Trading Vehicle allocates profits and losses to its Members
monthly on a pro rata basis based on each Member's pro rata
capital in the Trading Vehicle during the month. Distributions
(other than redemptions of capital) may be made at the sole
discretion of the Members on a pro rata basis in accordance with
the Members' respective capital balances. The Trading Vehicle does
not presently intend to make any distributions.
D. Foreign Currency Transactions
The Trading Vehicle'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 U.S.
dollars 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.
-136-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
Note 3. MANAGEMENT AND INCENTIVE FEES
-----------------------------
The Trading Vehicle pays the Trading Advisor a monthly management fee
equal to 1/12 of 2.5% (2.5% annually) of the Trading Vehicle's allocated
assets determined as of the close of business on the last day of each
month. For purposes of determining the management fee, any
distributions, redemptions or reallocation of assets made as of the last
day of each month shall be added back to the assets and there shall be
no reduction for (i) the management fees calculated or (ii) any accrued
but unpaid incentive fees due the Trading Advisor.
Additionally, the Trading Vehicle pays the Trading Advisor an incentive
fee of 20% (the "Incentive Fee") of "New High Net Trading Profits" (as
defined in the Advisory Agreement). The incentive fee accrues monthly
and is paid quarterly. The Trading Advisor did not earn an incentive fee
for the period December 1, 2005 (commencement of operations) to December
31, 2005.
Note 4. OPERATING EXPENSES
------------------
Operating expenses of the Trading Vehicle are paid for by the
Trading Vehicle.
Note 5. DEPOSITS WITH BROKER
--------------------
The Trading Vehicle deposits funds with UBS Securities LLC to act as
broker subject to Commodity Futures Trading Commission regulations and
various exchange and broker requirements. The Trading Vehicle also
deposits collateral with UBS AG for margin against over-the-counter
forward and foreign exchange deals. Margin requirements of approximately
0% to 35% are satisfied by the deposit of cash with such broker. The
Trading Vehicle earns interest income on assets deposited with the
broker.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Additional investments in the Trading Vehicle can be made at any time
subject to the terms of the Organization Agreement.
The Trading Vehicle is not required to make distributions, but could do
so at the discretion of the Members. A Member can request and receive
redemption of capital at any time, subject to the terms in the
Organization Agreement.
-137-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
-------------------------------------------
The Trading Vehicle is exposed to various types of risks associated with
the derivative instruments and related markets in which it invests.
These risks include, but are not limited to, risk of loss from
fluctuations in the value of derivative instruments held (market risk)
and the inability of counterparties to perform under the terms of the
Trading Vehicle's investment activities (credit risk).
A. Market Risk
Trading in futures and forward contracts (including foreign
exchange) involves entering into contractual commitments to
purchase or sell a particular commodity at a specified date and
price. The gross or face amount of the contracts, which is
typically many times that of the Trading Vehicle's net assets
being traded, significantly exceeds the Trading Vehicle's future
cash requirements since the Trading Vehicle intends to close out
its open positions prior to settlement. As a result, the Trading
Vehicle is generally subject only to the risk of loss arising from
the change in the value of the contracts. As such, the Trading
Vehicle considers the "fair value" of its derivative instruments
to be the net unrealized gain or loss on the contracts. The market
risk associated with the Trading Vehicle's commitments to purchase
commodities is limited to the gross or face amount of the contract
held. However, when the Trading Vehicle enters into a contractual
commitment to sell commodities, it must make delivery of the
underlying commodity at the contract price and then repurchase the
contract at prevailing market prices or settle in cash. Since the
repurchase price to which a commodity can rise is unlimited,
entering into commitments to sell commodities exposes the Trading
Vehicle to unlimited risk.
Market risk is influenced by a wide variety of factors, including
government programs and policies, political and economic events,
the level and volatility of interest rates, foreign currency
exchange rates, the diversification effect among the derivative
instruments the Trading Vehicle holds and the liquidity and
inherent volatility of the markets in which the Trading Vehicle
trades.
B. Credit Risk
When entering into futures and forward contracts, the Trading
Vehicle is exposed to credit risk that the counterparty to the
contract will not meet its obligations. The counterparty for
futures contracts traded on United States and most foreign futures
exchanges is the clearinghouse associated with the particular
exchange. In general, a clearinghouse is backed by its corporate
members who are required to share any financial burden resulting
from the non-performance by one of their members and, as such,
should significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks
or other financial institutions. On the other hand, there is a
concentration risk on forward transactions entered into by the
Trading Vehicle as UBS AG is the sole counterparty. The Trading
Vehicle has entered into a master netting agreement dated November
29, 2005 with UBS AG and, as a result, when applicable, presents
unrealized gains and losses on open forward positions as a net
amount in the statement of financial condition. The amount at risk
associated with counterparty non-performance of all of the Trading
Vehicle's contracts is the net unrealized gain included in the
statement of financial condition; however, counterparty
non-performance on only certain of the Trading Vehicle's contracts
may result in greater loss than non-performance on all of the
Trading Vehicle's contracts. There can be no assurance that any
counterparty, clearing member or clearinghouse will meet its
obligations to the Trading Vehicle.
-138-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
Note 8. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
-------------------------------------------------------
B. Credit Risk (Continued)
The Managing Owner attempts to minimize both credit and market
risks by requiring the Trading Vehicle and its Trading Advisor to
abide by various trading limitations and policies. Preferred
monitors compliance with these trading limitations and policies,
which include, but are not limited to, executing and clearing all
trades with creditworthy counterparties; limiting the amount of
margin or premium required for any one commodity or all
commodities combined; and generally limiting transactions to
contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. Additionally, pursuant to the
Advisory Agreement among the Trading Vehicle, Preferred and the
Trading Advisor, the Trading Vehicle shall automatically terminate
the Trading Agreement, if the net asset value allocated to the
Trading Advisor declines as of the end of any business day by at
least 40% from the value at the beginning of any calendar year or
since the effective date of the Advisory Agreement. The decline in
net asset value is after giving effect for distributions,
subscriptions and redemptions.
The Trading Vehicle's futures commission merchant, in accepting
orders for the purchase or sale of domestic futures contracts, is
required by Commodity Futures Trading Commission ("CFTC")
regulations to separately account for and segregate as belonging
to the Trading Vehicle all assets of the Trading Vehicle relating
to domestic futures trading and is not allowed to commingle such
assets with its other assets. At December 31, 2005, such
segregated assets totaled $10,705,114. Part 30.7 of the CFTC
regulations also requires the Trading Vehicle's futures commission
merchant to secure assets of the Trading Vehicle related to
foreign futures trading which totaled $(216,106) at December 31,
2005. There are no segregation requirements for assets related to
forward trading.
As of December 31, 2005, all open futures and forward contracts
mature between February 2006 and June 2007.
-139-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents the financial highlights of the
Trading Vehicle for the period December 1, 2005 (commencement of
operations) to December 31, 2005. This information has been derived from
information presented in the financial statements.
Total return (1)
Total return before incentive fee (2.97)%
Incentive fee 0.00 %
----------
Total return after incentive fee (2.97)%
==========
Ratios to average net asset
value:
Expenses prior to incentive fee (2) 6.38 %
Incentive fee (1) 0.00 %
----------
Total expenses and incentive fee 6.38 %
==========
Net investment loss (2), (3) (2.69)%
==========
Total returns and ratios to average net asset value are calculated for
Members' capital taken as a whole. An individual Member's total return and
ratios may vary from the above return and ratios based on the timing of
additions and redemptions.
- ----------
(1) Not annualized.
(2) Annualized.
(3) Represents interest income less total expenses (exclusive of
incentive fee).
Note 10. SUBSEQUENT EVENT
----------------
Effective January 1, 2006, additions of $2,541,412 were made to the
Trading Vehicle by Member J.
-140-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Managing Owner and Unitholders of
World Monitor Trust III - Series H
We have audited the accompanying statement of financial condition of World
Monitor Trust III - Series H (the "Series") as of December 31, 2005, and the
related statements of operations and changes in unitholders' capital for the
year then ended. These financial statements are the responsibility of the
Series' management. Our responsibility is to express an opinion on these
financial statements based on our audit. The statement of financial condition
as of December 31, 2004 was audited by other auditors whose report dated
February 16, 2005 expressed an unqualified opinion on that statement.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Series is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Series' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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 Series at December 31,
2005, and the results of its operations and the changes in unitholders'
capital for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
March 29, 2006
[GRAPHIC OMITTED]Arthur F. Bell, Jr. & Associates, L.L.C.
- -------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 201 International Circle, Suite 200
Hunt Valley, Maryland 21030
Tel: 410.771.0001 - Fax: 410.785.9784
www.afb-a.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Unitholder
World Monitor Trust III - Series H
We have audited the accompanying statement of financial condition of World
Monitor Trust III - Series H as of December 31, 2004. This financial statement
is the responsibility of World Monitor Trust III - Series H's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 of the statement of financial
condition 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 World
Monitor Trust III - Series H as of December 31, 2004, in conformity with U.S.
generally accepted accounting principles.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Hunt Valley, Maryland
February 16, 2005
WORLD MONITOR TRUST III - SERIES H
STATEMENTS OF FINANCIAL CONDITION
December 31, 2005 and 2004
---------------
2005 2004
---- ----
ASSETS
Cash $ 307 $ 1,000
Investment in WMT III Series H/J Trading Vehicle LLC
(100.52% of net asset value) 515,430 0
-------- --------
Total assets $515,737 $ 1,000
======== ========
LIABILITIES
Accrued expenses $ 1,234 $ 0
Service fee payable 875 0
Sales commission payable 437 0
Management fee payable 219 0
Offering costs payable 219 0
-------- --------
Total liabilities 2,984 0
-------- --------
UNITHOLDERS' CAPITAL
Class I Units:
Unitholders' - 5,000 and 0 units outstanding,
respectively 488,336 0
Managing Owners Interests - 250 and 10 units
outstanding, respectively 24,417 1,000
-------- --------
Total unitholders' capital 512,753 1,000
-------- --------
Total liabilities and unitholders' capital $515,737 $ 1,000
======== ========
NET ASSET VALUE PER UNIT
Class I $ 97.67 $ 100.00
======== ========
See accompanying notes.
-143-
WORLD MONITOR TRUST III - SERIES H
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
NET LOSS ALLOCATED FROM
WMT III SERIES H/J TRADING VEHICLE LLC: 2005
----
REVENUES
Realized $ 7,791
Change in unrealized (15,872)
Interest income 1,659
-----------
Total revenues (6,422)
-----------
EXPENSES
Brokerage commissions 465
Advisor fee 1,292
Operating expenses 1,391
-----------
Total expenses 3,148
-----------
NET LOSS ALLOCATED FROM
WMT III SERIES H/J TRADING VEHICLE LLC (9,570)
-----------
NET LOSS FROM SERIES OPERATIONS:
REVENUES
Interest income 307
-----------
EXPENSES
Management fee 219
Service fee 875
Sales commission 437
Operating expenses 1,234
-----------
Total expenses 2,765
-----------
NET LOSS FROM SERIES OPERATIONS (2,458)
-----------
NET LOSS $(12,028)
===========
NET LOSS PER WEIGHTED AVERAGE
UNITHOLDER AND MANAGING OWNER UNIT
Net loss per weighted average Unitholder and Managing Owner Unit $ (2.29)
===========
Weighted average number of Units outstanding 5,250
===========
See accompanying notes.
-144-
WORLD MONITOR TRUST III - SERIES H
STATEMENT OF CHANGES IN UNITHOLDERS' CAPITAL
For the Year Ended December 31, 2005
---------------
Class I
--------------------------------------------------
Managing Owner
Unitholders Interests Total
-------------------------- ---------------------- -----------------------
Units Amount Units Amount Units Amount
----------- ------------ ---------- ---------- --------- ------------
Unitholders' capital
at December 31, 2004 0 $ 0 10 $ 1,000 10 $ 1,000
Additions 5,000 500,000 240 24,000 5,240 524,000
Net loss (11,455) (573) (12,028)
Offering costs 0 (209) 0 (10) 0 (219)
----------- ------------ ---------- ---------- --------- ------------
Unitholders' capital
at December 31, 2005 5,000 $ 488,336 250 $ 24,417 5,250 $ 512,753
=========== ============ ========== ========== ========= ============
See accompanying notes.
-145-
WORLD MONITOR TRUST III - SERIES H
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION
A. General Description of the Trust
World Monitor Trust III (the "Trust") is a business trust
organized under the laws of Delaware on September 28, 2004. The
Trust consists of four separate and distinct series ("Series"):
Series G, H, I and J. Series G, H, I and J commenced trading
operations on December 1, 2005, and each Series will continue to
exist until terminated pursuant to the provisions of Article XIII
of the Amended and Restated Declaration of Trust and Trust
Agreement. The assets of each Series are segregated from those of
the other Series, separately valued and independently managed.
Each Series was formed to engage in the speculative trading of a
diversified portfolio of futures, forward and options contracts
and may, from time to time, engage in cash and spot transactions.
Each Series is initially divided into two classes: the Class I
Units and the Class II Units. The Class I and Class II Units are
identical except for the applicable service fee charged to each
Class. As of December 31, 2005, Class II Units have not been
issued.
Effective December 1, 2005, Series H allocated its net assets to
WMT III Series H/J Trading Vehicle LLC, (the "Trading Vehicle")
and received a Voting Membership Interest in the Trading Vehicle.
The Trading Vehicle was formed to function as an aggregate trading
vehicle. The sole members of the Trading Vehicle are Series H and
Series J. Preferred Investment Solutions Corp. is the Managing
Owner of all Series and has been delegated administrative
authority over the operations of the Trading Vehicle. The Trading
Vehicle engages in the speculative trading of futures contracts
and options on futures contracts. The financial statements of the
Trading Vehicle, including the condensed schedule of investments,
are included in Section II of these financial statements and
should be used in conjunction with Series H's financial
statements.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Trust and each Series are subject to the regulatory requirements
under the Securities Act of 1933 and the Securities Exchange Act
of 1934. As a commodity pool, the Trust and each Series are
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 the various commodity
exchanges where the Trust through the Trading Vehicle executes
transactions.
C. The Offering
Up to $37,500,000 Series G, Class I; $12,500,000 Series G, Class
II; $37,500,000 Series H, Class I; $12,500,000 Series H, Class II;
$18,750,000 Series I, Class I; $6,250,000 Series I, Class II;
$281,250,000 Series J, Class I; and $93,750,000 Series J, Class II
of Units are being offered (totaling $500,000,000) ("Subscription
Maximum"). Interests are being offered to investors who meet
certain established suitability standards, with a minimum initial
subscription of $5,000 (and for Series J, $2,000 for certain
Benefit Plan Investors (including IRAs)), although the minimum
purchase for any single Series is $500. Units are also being sold
to the Managing Owner and its affiliates.
-146-
WORLD MONITOR TRUST III - SERIES H
NOTES TO FINANCIAL STATEMENTS
--------------
Note 1. ORGANIZATION (CONTINUED)
------------------------
C. The Offering (Continued)
Initially, the Units for each Series were offered for a period
ending November 30, 2005 ("Initial Offering Period") at $100 per
Interest. The Subscription Minimum of $30,000,000 for Series J was
reached during the Initial Offering Period permitting all Series
G, H, I and J to commence trading operations. Series H completed
its initial offering on December 1, 2005 with gross proceeds of
$525,000, which was fully allocated to the Trading Vehicle. Until
the subscription maximum for each Series is reached, each Series'
Units will continue to be offered on a monthly basis at the then
current net asset value per Unit.
D. Exchanges, Redemptions and Termination
Units owned in one series of the Trust (Series G, H, I and J) may
be exchanged, without any charge, for Units of one or more other
Series on a monthly basis for as long as Units in those Series are
being offered to the public. Exchanges are made at the applicable
Series' then current net asset value per Unit as of the close of
business on the last day of the month in which the exchange
request is effected. The exchange of Units is treated as a
redemption of Units in one Series (with the related tax
consequences) and the simultaneous purchase of Units in the other
Series. Future redemptions and exchanges will impact the amount of
funds available for investment in the Trading Vehicle in
subsequent periods.
Redemptions are permitted on a monthly basis. Class I Units
redeemed prior to the first anniversary of their purchase will be
subject to a redemption charge of up to 2% of the net asset value
per Unit at which they were redeemed. Redemption fees are paid to
the Selling Agent, Kenmar Securities, Inc. There is no redemption
charge associated with the Class II Units.
In the event that the net asset value of a Series, after
adjustments for distributions, contributions and redemptions,
declines by 50% or more since the commencement of trading
activities or the first day of a fiscal year, the Series will
automatically terminate.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of Series H are prepared in accordance
with accounting principles generally accepted in the United States
of America. Such principles require the Managing Owner to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The weighted average number of Units outstanding was computed for
purposes of disclosing net income (loss) per weighted average
Unit. The weighted average Units are equal to the number of Units
outstanding at period end, adjusted proportionately for Units
subscribed and redeemed based on their respective time outstanding
during such period.
-147-
WORLD MONITOR TRUST III - SERIES H
NOTES TO FINANCIAL STATEMENTS
--------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
Series H has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standards No. 102,
"Statement of Cash Flows - Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale."
Consistent with standard business practices in the normal course
of business, Series H has provided general indemnifications to the
Managing Owner, its Trading Advisor and others when they act, in
good faith, in the best interests of Series H. Series H is unable
to develop an estimate of the maximum potential amount of future
payments that could potentially result from any hypothetical
future claim, but expects the risk of having to make any payments
under these general business indemnifications to be remote.
Cash represents amounts deposited with clearing brokers, a portion
of which are restricted for purposes of meeting margin
requirements, which typically range from 0% to 35% of the notional
amounts of the derivatives traded, and receives interest on all
cash balances held by the clearing brokers at prevailing rates.
B. Income Taxes
Series H is treated as a partnership for Federal income tax
purposes. As such, Series H is not required to provide for, or
pay, any Federal or state income taxes. Income tax attributes that
arise from its operations are passed directly to the individual
Unitholders including the Managing Owner. Series H may be subject
to other state and local taxes in jurisdictions in which it
operates.
C. Investment in WMT III Series H/J Trading Vehicle LLC
The investment in the Trading Vehicle is reported in Series H's
statement of financial condition at fair value. Fair value
ordinarily is the value determined for the Trading Vehicle in
accordance with the Trading Vehicle's valuation policies and
reported at the time of Series H's valuation by the management of
the Trading Vehicle. Generally, the fair value of Series H's
investment in the Trading Vehicle represents the amount that
Series H could reasonably expect to receive from the Trading
Vehicle if Series H's investment were redeemed at the time of
valuation, based on information available at the time the
valuation was made and that Series H believes to be reliable.
Series H records its proportionate share of each item of income
and expense from the investment in the Trading Vehicle in the
statement of operations.
The accounting policies, including valuation policies, of the
Trading Vehicle are contained in the notes to the Trading
Vehicle's financial statements included in Section II of these
financial statements.
D. Profit and Loss Allocations and Distributions
Income and expenses (excluding the service fee) are allocated pro
rata to the Class I Units and Class II Units monthly based on the
units outstanding during the month. Class I Units are charged with
the service fee applicable to such units. Distributions (other
than redemptions of units) may be made at the sole discretion of
the Managing Owner on a pro rata basis in accordance with the
respective capital balances of the unitholders. The Managing Owner
has not and does not presently intend to make any distributions.
-148-
WORLD MONITOR TRUST III - SERIES H
NOTES TO FINANCIAL STATEMENTS
--------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. Offering Costs
Initial offering costs (exclusive of the initial selling fee),
totaling $1,436,257, were advanced by the Managing Owner. Such
initial offering expenses will be reimbursed by the Series,
without interest, in 36 monthly payments during each of the first
36 months of the continuous offering period. The amount of initial
offering costs that each Series will reimburse the Managing Owner
each month is based on each Series percentage of total Trust net
asset value at the beginning of each month. In no event shall the
Managing Owner be entitled to reimbursement for such expenses in
an aggregate amount in excess of 2.5% of the aggregate amount of
all subscriptions accepted by the Trust during the Initial
Offering Period and the first 36 months of the continuous offering
period.
The Managing Owner also will pay all offering expenses incurred
after the Initial Offering Period ("ongoing offering costs"). Such
expenses will be allocated among the Series as the Managing Owner
determines to be fair and equitable and, each Series will
reimburse the Managing Owner, without interest, in up to 36
monthly payments during each of the first 36 months following the
month in which such expenses were paid by the Managing Owner.
In no event shall the amount of any payment in any month for
reimbursement of initial and ongoing offering costs exceed 0.50%
per annum of the Net Asset Value of the Series as of the beginning
of such month. The amount of monthly reimbursement due to the
Managing Owner is charged directly to unitholders' capital. During
the period December 1, 2005 (commencement of operations) to
December 31, 2005, Series H's calculated offering costs
reimbursement exceeded 0.50% per annum of the Net Asset Value of
Series H. Series H was only liable for the amount up to the 0.50%
per annum limitation.
The Series will only be liable for payment of initial and ongoing
offering costs on a monthly basis. If a Series terminates prior to
completion of payment of such amounts to the Managing Owner, the
Managing Owner will not be entitled to any additional payments,
and the Series will have no further obligation to the Managing
Owner. The amount of monthly reimbursement due to the Managing
Owner is charged directly to unitholders' capital.
F. Interest Income
During the period December 1, 2005 (commencement of operations) to
December 31, 2005, interest income includes interest earned on
subscription monies held in escrow prior to December 1, 2005.
Note 3. MANAGING OWNER
--------------
The Managing Owner of the Trust is Preferred Investment Solutions Corp.,
which conducts and manages the business of the Trust. The Declaration of
Trust and Trust Agreement requires the Managing Owner and or its
affiliates to maintain a capital account equal to 1% of the total
capital accounts of the Series (subject to a $25,000 minimum per
Series).
The Managing Owner is paid a monthly management fee of 1/12 of 0.5%
(0.5% annually) of Series H's net asset value at the beginning of the
month.
-149-
WORLD MONITOR TRUST III - SERIES H
NOTES TO FINANCIAL STATEMENTS
--------------
Note 4. SERVICE FEES AND SALES COMMISSIONS
----------------------------------
Series H pays a service fee with respect to Class I Units, monthly in
arrears, equal to 1/12 of 2% ( 2% per annum) of the Net Asset Value per
unit of the outstanding Class I Units as of the beginning of the month.
The service fee is paid directly by Series H to the Selling Agent,
Kenmar Securities, Inc., an affiliate of the Managing Owner. The Selling
Agent is responsible for paying all commissions owing to the
correspondent selling agents, who are entitled to receive from the
Selling Agent an initial commission equal to 2% of the initial Net Asset
Value per Unit of each Class I Unit sold by them, payable on the date
such Class I Units are purchased and, commencing with the 13th month
after the purchase of a Class I Unit, an ongoing monthly commission
equal to 1/12th of 2% (2% per annum) of the Net Asset Value per Class I
Unit as of the beginning of the month of the Class I Units sold by them.
Class II Unitholders are not assessed service fees.
Series H will also pay Kenmar Securities, Inc. a monthly sales
commission equal to 1/12 of 1% (1% annually) of the Net Asset Value of
the outstanding units as of the beginning of each month.
Note 5. TRUSTEE
-------
The trustee of the Trust is Wilmington Trust Company, a Delaware banking
corporation. The trustee has delegated to the Managing Owner the power
and authority to manage the business and affairs of the Trust and has
only nominal duties and liabilities with respect to the Trust.
Note 6. OPERATING EXPENSES
------------------
Operating expenses of Series H are paid for by Series H. However, during
the period December 1, 2005 (commencement of operations) to December 31,
2005, the Managing Owner has agreed to pay $19,341 of operating expenses
on behalf of Series H.
Note 7. INVESTMENT IN WMT III SERIES H/J TRADING VEHICLE LLC
----------------------------------------------------
Effective December 1, 2005, Series H invested a substantial portion of
its assets in the Trading Vehicle. Series H's investment in the Trading
Vehicle represents approximately 4.83% of the net asset value of the
Trading Vehicle at December 31, 2005. The investment in the Trading
Vehicle is subject to the Organization Agreement of the Trading Vehicle.
Summarized information for this investment is as follows:
Net Asset Net Asset
Value Value
December 1, December 31,
2005 Investments (Loss) Redemptions 2005
------------- ------------- ---------- ------------- --------------
WMT III Series H/J
Trading Vehicle LLC $ 0 $ 525,000 $ (9,570) $ 0 $ 515,430
=========== ========= ========= =========== =========
Series H may make additional contributions to, or redemptions from, the
Trading Vehicle on a monthly basis.
-150-
WORLD MONITOR TRUST III - SERIES H
NOTES TO FINANCIAL STATEMENTS
--------------
Note 8. MARKET AND CREDIT RISK
----------------------
Series H's investment in the Trading Vehicle is subject to the market
and credit risks of the futures contracts, options on futures contracts,
and other financial instruments held or sold short by the Trading
Vehicle. Series H bears the risk of loss only to the extent of the
market value of its investment and, in certain specific circumstances,
distributions and redemptions received.
Series H has cash on deposit with financial institutions. In the event
of a financial institution's insolvency, recovery of cash on deposit may
be limited to account insurance or other protection afforded such
deposits.
The Managing Owner has established procedures to actively monitor market
risk and minimize credit risk, although there can be no assurance that
it will, in fact, succeed in doing so. The Unitholders bear the risk of
loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
-151-
WORLD MONITOR TRUST III - SERIES H
NOTES TO FINANCIAL STATEMENTS
--------------
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance data
and other supplemental financial data for the period December 1, 2005
(commencement of operations) to December 31, 2005. This information has
been derived from information presented in the financial statements.
Class I
Per Unit Performance
(for a unit outstanding throughout the entire period)
- -----------------------------------------------------
Net asset value per unit at December 1, 2005
(commencement of operations) $100.00
-----------
Loss from operations: (3)
Net realized and change in unrealized loss (1) (1.54)
Interest income (1) 0.38
Expenses (1) (1.13)
-----------
Total loss from operations (2.29)
-----------
Offering costs (1) (0.04)
-----------
Net decrease for the period December 1, 2005 (2.33)
(commencement of operations) to December 31, 2005
Net asset value per unit at December 31, 2005 $ 97.67
===========
Total Return (5)
Total return before incentive fee (2.33)%
Incentive fee 0.00 %
-----------
Total return after incentive fee (2.33)%
===========
Supplemental Data
Ratios to average net asset value: (3), (6)
Net investment loss before incentive fee (2) (9.02)%
Incentive fee (5) 0.00 %
-----------
Net investment loss after incentive fee (9.02)%
===========
Interest income 4.49 %
===========
Incentive fees (5) 0.00 %
Other expenses (4) 13.52 %
-----------
Total expenses 13.52 %
===========
Total returns are calculated based on the change in value of a unit
during the period. An individual unitholders' total returns and ratios
may vary from the above total returns and ratios based on the timing of
additions and redemptions.
(1) Net realized and change in unrealized loss per unit, interest
income per unit, expenses per unit and offering costs per unit are
calculated by dividing net realized and change in unrealized loss,
interest income, expenses and offering costs by the weighted
average number of units outstanding during the period.
(2) Represents interest income less total expenses (exclusive of
incentive fees). All components of the net investment loss ratio
have been annualized except interest income and operating
expenses.
(3) Includes Series H's proportionate share of income and expenses
from WMT III Series H/J Trading Vehicle LLC.
(4) All components of the other expenses ratio have been annualized
except operating expenses.
(5) Not annualized.
(6) If the Trust had borne all its expenses that were reimbursed or
waived by the Managing Owner, the annualized expense and net
investment loss ratios would be as follows:
Expense ratio 17.20 %
Net investment loss before incentive fee (12.71)%
Incentive fee 0.00 %
--------
Net investment loss after incentive fee (12.71)%
========
-152-
World Monitor Trust III - Series H
Section II
INDEPENDENT AUDITORS' REPORT
To the Managing Owner and Members of
WMT III Series H/J Trading Vehicle LLC
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of WMT III Series H/J Trading Vehicle
LLC (the "Trading Vehicle") as of December 31, 2005, and the related
statements of operations and changes in members' capital (net asset value) for
the period December 1, 2005 (commencement of operations) to December 31, 2005.
These financial statements are the responsibility of the Trading Vehicle's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States) and
in accordance with auditing standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Trading Vehicle is not required to have, nor were
we engaged to perform, an audit of is internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trading Vehicle's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 WMT III Series H/J Trading
Vehicle LLC as of December 31, 2005, and the results of its operations and
changes in its members' capital (net asset value) for the period December 1,
2005 (commencement of operations) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
/s/Deloitte & Touche LLP
March 29, 2006
WMT III SERIES H/J TRADING VEHICLE LLC
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
---------------
ASSETS
Cash in commodity trading accounts $11,022,502
Net unrealized loss on open futures contracts (328,519)
Interest receivable 33,259
-------------
Total assets $10,727,242
=============
LIABILITIES
Accrued expenses $ 28,800
Commissions payable 3,294
Advisor fee payable 26,738
-------------
Total liabilities 58,832
-------------
MEMBERS' CAPITAL (Net Asset Value)
Member H 515,430
Member J 10,152,980
-------------
Total members' capital
(Net Asset Value) 10,668,410
-------------
Total liabilities and members' capital $10,727,242
=============
See accompanying notes.
-154-
WMT III SERIES H/J TRADING VEHICLE LLC
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2005
---------------
Net
Unrealized
Gain (Loss) Net
as a % of Net Unrealized
Asset Value Gain/Loss
------------- ----------
Futures Contracts
- -----------------
Futures contracts purchased:
Commodities (0.13)% $(14,296)
Currencies (2.00)% (213,075)
Interest rates 0.22% 23,738
Metals 0.13% 13,709
Stock indices 0.10% 10,498
------------- ----------
Net unrealized gain on futures contracts purchased (1.68)% (179,426)
------------- ----------
Futures contracts sold:
Currencies 1.06% 112,658
Interest rates (2.14)% (228,391)
Metals (0.03)% (2,900)
Stock indices (0.29)% (30,460)
------------- ----------
Net unrealized loss on futures contracts sold (1.40)% (149,093)
------------- ----------
Net unrealized gain on futures contracts (3.08)% $(328,519)
============= ==========
See accompanying notes.
-155-
WMT III SERIES H/J TRADING VEHICLE LLC
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
REVENUES
Realized $161,273
Change in unrealized (328,519)
Interest income 34,330
-----------
Total revenues (losses) (132,916)
-----------
EXPENSES
Brokerage commissions 9,617
Advisor fee 26,738
Operating expenses 28,800
-----------
Total expenses 65,155
-----------
NET LOSS $(198,071)
===========
See accompanying notes.
-156-
WMT III SERIES H/J TRADING VEHICLE LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL (NET ASSET VALUE)
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
Members' Capital
-----------------------------------------
Member H Member J Total
------------- ------------ ------------
Balance at December 1, 2005
(commencement of operations) $ 0 $ 0 $ 0
Additions 525,000 10,341,481 10,866,481
Net loss (9,570) (188,501) (198,071)
---------- ----------- ------------
Balance at
December 31, 2005 $ 515,430 $10,152,980 $10,688,410
========== ============ ============
See accompanying notes
-157-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION
------------
A. General Description of the Trading Vehicle
WMT III Series H/J Trading Vehicle LLC (the "Trading Vehicle") is
a limited liability company organized under the laws of Delaware
on March 10, 2005 which will terminate on December 31, 2054 unless
terminated sooner under the provisions of the Organization
Agreement. The Trading Vehicle commenced trading operations on
December 1, 2005. The Trading Vehicle was formed to engage in the
speculative trading of a diversified portfolio of futures
contracts and options on futures contracts. Preferred Investment
Solutions Corp. ("Preferred") is the Managing Owner of the Trading
Vehicle. The Trading Vehicle currently consists of two members:
World Monitor Trust III - Series H ("Member H") and World Monitor
Trust III - Series J ("Member J") (collectively, the "Members").
Preferred is also the Managing Owner of each of the Members. Upon
making the initial capital contribution, each Member received
Voting Membership Interests.
The Trading Vehicle is a Member managed limited liability company
that is not registered in any capacity with, or subject directly
to regulation by the Commodity Futures Trading Commission or the
United States Securities and Exchange Commission.
B. The Trading Advisor
The Trading Vehicle entered into an advisory agreement with
Bridgewater Associates, Inc. (the "Trading Advisor") to make the
trading decisions for the Trading Vehicle. The Trading Advisor
manages approximately 100% of the assets of the Trading Vehicle
pursuant to its Aggressive Pure Alpha Futures Only - A, No
Benchmark program.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of the Trading Vehicle are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Commodity futures transactions are reflected in the accompanying
statement of financial condition on the trade date. Net unrealized
gain or loss on open contracts (the difference between contract
trade price and market price) is reflected in the financial
statements in accordance with Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to Certain
Contracts." The market value of futures (exchange-traded)
contracts is based upon the closing quotation on the various
futures exchanges on which the contract is traded. Any change in
net unrealized gain or loss during the current period is reported
in the statement of operations. Realized gains and losses on
commodity transactions are recognized in the period in which the
contracts are closed.
Brokerage commissions include other trading fees and are charged
to expense when contracts are opened.
-158-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
----------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
The Trading Vehicle has elected not to provide a Statement of Cash
Flows as permitted by Statement of Financial Accounting Standards
No. 102, "Statement of Cash Flows - Exemption of Certain
Enterprises and Classification of Cash Flows from Certain
Securities Acquired for Resale."
Consistent with standard business practices in the normal course
of business, the Trading Vehicle has provided general
indemnifications to its Trading Advisor and others when they act,
in good faith, in the best interests of the Trading Vehicle. The
Trading Vehicle is unable to develop an estimate of the maximum
potential amount of future payments that could potentially result
from any hypothetical future claim, but expects the risk of having
to make any payments under these general business indemnifications
to be remote.
B. Income Taxes
The Trading Vehicle is treated as a partnership for Federal income
tax purposes. As such, the Trading Vehicle is not required to
provide for, or pay, any Federal or state income taxes. Income tax
attributes that arise from its operations are passed directly to
the Members. The Trading Vehicle may be subject to other state and
local taxes in jurisdictions in which it operates.
C. Capital Accounts
The Trading Vehicle accounts for subscriptions, allocations and
redemptions on a per member capital account basis.
The Trading Vehicle allocates profits and losses to its Members
monthly on a pro rata basis based on each Member's pro rata
capital in the Trading Vehicle during the month. Distributions
(other than redemptions of capital) may be made at the sole
discretion of the Members on a pro rata basis in accordance with
the Members' respective capital balances. The Trading Vehicle does
not presently intend to make any distributions.
D. Foreign Currency Transactions
The Trading Vehicle'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 U.S.
dollars 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.
-159-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
----------------
Note 3. MANAGEMENT AND INCENTIVE FEES
-----------------------------
The Trading Vehicle pays the Trading Advisor a monthly management fee
equal to 1/12 of 3.0% (3.0% annually) of the Trading Vehicle's allocated
assets determined as of the close of business on the last day of each
month. For purposes of determining the management fee, any
distributions, redemptions or reallocation of assets made as of the last
day of each month shall be added back to the assets and there shall be
no reduction for (i) the management fees calculated or (ii) any accrued
but unpaid incentive fees due the Trading Advisor.
Additionally, the Trading Vehicle pays the Trading Advisor an incentive
fee of 20% (the "Incentive Fee") of "New High Net Trading Profits" (as
defined in the Advisory Agreement). The incentive fee accrues monthly
and is paid quarterly. The Trading Advisor did not earn an incentive fee
for the period December 1, 2005 (commencement of operations) to December
31, 2005.
Note 4. OPERATING EXPENSES
------------------
Operating expenses of the Trading Vehicle are paid for by the Trading
Vehicle.
Note 5. DEPOSITS WITH BROKER
--------------------
The Trading Vehicle deposits funds with UBS Securities LLC to act as
broker subject to Commodity Futures Trading Commission regulations and
various exchange and broker requirements. Margin requirements of
approximately 0% to 35% are satisfied by the deposit of cash with such
broker. The Trading Vehicle earns interest income on assets deposited
with the broker.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Additional investments in the Trading Vehicle can be made at any time
subject to the terms of the Organization Agreement.
The Trading Vehicle is not required to make distributions, but could do
so at the discretion of the Members. A Member can request and receive
redemption of capital at any time, subject to the terms in the
Organization Agreement.
-160-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
----------------
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
-------------------------------------------
The Trading Vehicle is exposed to various types of risks associated with
the derivative instruments and related markets in which it invests.
These risks include, but are not limited to, risk of loss from
fluctuations in the value of derivative instruments held (market risk)
and the inability of counterparties to perform under the terms of the
Trading Vehicle's investment activities (credit risk).
A. Market Risk
Trading in futures contracts (including foreign exchange) involves
entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or
face amount of the contracts, which is typically many times that
of the Trading Vehicle's net assets being traded, significantly
exceeds the Trading Vehicle's future cash requirements since the
Trading Vehicle intends to close out its open positions prior to
settlement. As a result, the Trading Vehicle is generally subject
only to the risk of loss arising from the change in the value of
the contracts. As such, the Trading Vehicle considers the "fair
value" of its derivative instruments to be the net unrealized gain
or loss on the contracts. The market risk associated with the
Trading Vehicle's commitments to purchase commodities is limited
to the gross or face amount of the contract held. However, when
the Trading Vehicle enters into a contractual commitment to sell
commodities, it must make delivery of the underlying commodity at
the contract price and then repurchase the contract at prevailing
market prices or settle in cash. Since the repurchase price to
which a commodity can rise is unlimited, entering into commitments
to sell commodities exposes the Trading Vehicle to unlimited risk.
Market risk is influenced by a wide variety of factors, including
government programs and policies, political and economic events,
the level and volatility of interest rates, foreign currency
exchange rates, the diversification effect among the derivative
instruments the Trading Vehicle holds and the liquidity and
inherent volatility of the markets in which the Trading Vehicle
trades.
B. Credit Risk
When entering into futures contracts, the Trading Vehicle is
exposed to credit risk that the counterparty to the contract will
not meet its obligations. The counterparty for futures contracts
traded on United States and most foreign futures exchanges is the
clearinghouse associated with the particular exchange. In general,
a clearinghouse is backed by its corporate members who are
required to share any financial burden resulting from the
non-performance by one of their members and, as such, should
significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks
or other financial institutions. The amount at risk associated
with counterparty non-performance of all of the Trading Vehicle's
contracts is the net unrealized gain included in the statement of
financial condition; however, counterparty non-performance on only
certain of the Trading Vehicle's contracts may result in greater
loss than non-performance on all of the Trading Vehicle's
contracts. There can be no assurance that any counterparty,
clearing member or clearinghouse will meet its obligations to the
Trading Vehicle.
-161-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
----------------
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
-------------------------------------------------------
B. Credit Risk (Continued)
The Managing Owner attempts to minimize both credit and market
risks by requiring the Trading Vehicle and its Trading Advisor to
abide by various trading limitations and policies. Preferred
monitors compliance with these trading limitations and policies,
which include, but are not limited to, executing and clearing all
trades with creditworthy counterparties; limiting the amount of
margin or premium required for any one commodity or all
commodities combined; and generally limiting transactions to
contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. Additionally, pursuant to the
Advisory Agreement among the Trading Vehicle, Preferred and the
Trading Advisor, the Trading Vehicle shall automatically terminate
the Trading Agreement, if the net asset value allocated to the
Trading Advisor declines as of the end of any business day by at
least 40% from the value at the beginning of any calendar year or
since the effective date of the Advisory Agreement. The decline in
net asset value is after giving effect for distributions,
subscriptions and redemptions.
The Trading Vehicle's futures commission merchant, in accepting
orders for the purchase or sale of domestic futures contracts, is
required by Commodity Futures Trading Commission ("CFTC")
regulations to separately account for and segregate as belonging
to the Trading Vehicle all assets of the Trading Vehicle relating
to domestic futures trading and is not allowed to commingle such
assets with its other assets. At December 31, 2005, such
segregated assets totaled $10,857,532. Part 30.7 of the CFTC
regulations also requires the Trading Vehicle's futures commission
merchant to secure assets of the Trading Vehicle related to
foreign futures trading which totaled $(163,549) at December 31,
2005.
As of December 31, 2005, all open futures contracts mature between
February and December 2006.
-162-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
----------------
Note 8. FINANCIAL HIGHLIGHTS
--------------------
The following information presents the financial highlights of the
Trading Vehicle for the period December 1, 2005 (commencement of
operations) to December 31, 2005. This information has been derived from
information presented in the financial statements.
Total return (1)
Total return before incentive fee (1.82)%
Incentive fee 0.00 %
------------
Total return after incentive fee (1.82)%
============
Ratios to average net asset value:
Expenses prior to incentive fee (2) 7.20 %
Incentive fee (1) 0.00 %
------------
Total expenses and incentive fee 7.20 %
============
Net investment loss (2), (3) (3.40)%
============
Total returns and ratios to average net asset value are calculated for
Members' capital taken as a whole. An individual Member's total return and
ratios may vary from the above return and ratios based on the timing of
additions and redemptions.
- -----------------
(1) Not annualized.
(2) Annualized.
(3) Represents interest income less total expenses (exclusive of incentive
fee).
Note 9. SUBSEQUENT EVENT
----------------
Effective January 1, 2006, additions of $2,525,900 were made to the
Trading Vehicle by Member J.
-163-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Managing Owner and Unitholders of
World Monitor Trust III - Series I
We have audited the accompanying statement of financial condition of World
Monitor Trust III - Series I (the "Series") as of December 31, 2005, and the
related statements of operations and changes in unitholders' capital for the
year then ended. These financial statements are the responsibility of the
Series' management. Our responsibility is to express an opinion on these
financial statements based on our audit. The statement of financial condition
as of December 31, 2004 was audited by other auditors whose report dated
February 16, 2005 expressed an unqualified opinion on that statement.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Series is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Series' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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 Series at December 31,
2005, and the results of its operations and the changes in unitholders'
capital for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
March 29, 2006
[GRAPHIC OMITTED]Arthur F. Bell, Jr. & Associates, L.L.C.
- -------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 201 International Circle, Suite 200
Hunt Valley, Maryland 21030
Tel: 410.771.0001 - Fax: 410.785.9784
www.afb-a.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Unitholder
World Monitor Trust III - Series I
We have audited the accompanying statement of financial condition of World
Monitor Trust III - Series I as of December 31, 2004. This financial statement
is the responsibility of World Monitor Trust III - Series I's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 of the statement of financial
condition 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 World
Monitor Trust III - Series I as of December 31, 2004, in conformity with U.S.
generally accepted accounting principles.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Hunt Valley, Maryland
February 16, 2005
WORLD MONITOR TRUST III - SERIES I
STATEMENTS OF FINANCIAL CONDITION
December 31, 2005 and 2004
---------------
2005 2004
---- ----
ASSETS
Cash $ 121 $ 1,000
Investment in WMT III Series I/J Trading Vehicle LLC
(100.57% of net asset value) 509,108 0
---------- ----------
Total assets $509,229 $ 1,000
========== ==========
LIABILITIES
Accrued expenses $ 1,234 $ 0
Service fee payable 875 0
Sales commission payable 437 0
Management fee payable 219 0
Offering costs payable 219 0
---------- ----------
Total liabilities 2,984 0
---------- ----------
UNITHOLDERS' CAPITAL
Class I Units:
Unitholders' - 5,000 and 0 units outstanding,
respectively 482,138 0
Managing Owners Interests - 250 and 10 units
outstanding, respectively 24,107 1,000
---------- ----------
Total unitholders' capital 506,245 1,000
---------- ----------
Total liabilities and unitholders' capital $509,229 $ 1,000
========== ==========
NET ASSET VALUE PER UNIT
Class I $ 96.43 $ 100.00
========== ==========
See accompanying notes.
-166-
WORLD MONITOR TRUST III - SERIES I
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
NET LOSS ALLOCATED FROM
WMT III SERIES I/J TRADING VEHICLE LLC: 2005
----
REVENUES
$
Realized (9,975)
Change in unrealized (4,756)
Interest income 1,660
----------
Total revenues (13,071)
----------
EXPENSES
Brokerage commissions 580
Advisor fee 850
Operating expenses 1,391
----------
Total expenses 2,821
----------
NET LOSS ALLOCATED FROM
WMT III SERIES I/J TRADING VEHICLE LLC (15,892)
----------
NET LOSS FROM SERIES OPERATIONS:
REVENUES
Interest income 121
----------
EXPENSES
Management fee 219
Service fee 875
Sales commission 437
Operating expenses 1,234
----------
Total expenses 2,765
----------
NET LOSS FROM SERIES OPERATIONS (2,644)
----------
NET LOSS $(18,536)
==========
NET LOSS PER WEIGHTED AVERAGE
UNITHOLDER AND MANAGING OWNER UNIT
Net loss per weighted average Unitholder and Managing Owner Unit $ (3.53)
==========
Weighted average number of Units outstanding 5,250
==========
See accompanying notes.
-167-
WORLD MONITOR TRUST III - SERIES I
STATEMENT OF CHANGES IN UNITHOLDERS' CAPITAL
For the Year Ended December 31, 2005
---------------
Class I
--------------------------------------------------
Managing Owner
Unitholders Interests Total
-------------------------- ---------------------- -----------------------
Units Amount Units Amount Units Amount
----------- ------------ ---------- ---------- --------- ------------
Unitholders' capital
at December 31, 2004 0 $ 0 10 $ 1,000 10 $ 1,000
Additions 5,000 500,000 240 24,000 5,240 524,000
Net loss (17,653) (883) (18,536)
Offering costs 0 (209) 0 (10) 0 (219)
----------- ------------ ---------- ---------- --------- ------------
Unitholders' capital
at December 31, 2005 5,000 $ 482,138 250 $ 24,107 5,250 $ 506,245
=========== ============ ========== ========== ========= ============
See accompanying notes.
-168-
WORLD MONITOR TRUST III - SERIES I
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION
------------
A. General Description of the Trust
World Monitor Trust III (the "Trust") is a business trust
organized under the laws of Delaware on September 28, 2004. The
Trust consists of four separate and distinct series ("Series"):
Series G, H, I and J. Series G, H, I and J commenced trading
operations on December 1, 2005, and each Series will continue to
exist until terminated pursuant to the provisions of Article XIII
of the Amended and Restated Declaration of Trust and Trust
Agreement. The assets of each Series are segregated from those of
the other Series, separately valued and independently managed.
Each Series was formed to engage in the speculative trading of a
diversified portfolio of futures, forward and options contracts
and may, from time to time, engage in cash and spot transactions.
Each Series is initially divided into two classes: the Class I
Units and the Class II Units. The Class I and Class II Units are
identical except for the applicable service fee charged to each
Class. As of December 31, 2005, Class II Units have not been
issued.
Effective December 1, 2005, Series I allocated its net assets to
WMT III Series I/J Trading Vehicle LLC, (the "Trading Vehicle")
and received a Voting Membership Interest in the Trading Vehicle.
The Trading Vehicle was formed to function as an aggregate trading
vehicle. The sole members of the Trading Vehicle are Series I and
Series J. Preferred Investment Solutions Corp. is the Managing
Owner of all Series and has been delegated administrative
authority over the operations of the Trading Vehicle. The Trading
Vehicle engages in the speculative trading of futures contracts
and options on futures contracts. The financial statements of the
Trading Vehicle, including the condensed schedule of investments,
are included in Section II of these financial statements and
should be used in conjunction with Series I's financial
statements.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Trust and each Series are subject to the regulatory requirements
under the Securities Act of 1933 and the Securities Exchange Act
of 1934. As a commodity pool, the Trust and each Series are
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 the various commodity
exchanges where the Trust through the Trading Vehicle executes
transactions.
C. The Offering
Up to $37,500,000 Series G, Class I; $12,500,000 Series G, Class
II; $37,500,000 Series H, Class I; $12,500,000 Series H, Class II;
$18,750,000 Series I, Class I; $6,250,000 Series I, Class II;
$281,250,000 Series J, Class I; and $93,750,000 Series J, Class II
of Units are being offered (totaling $500,000,000) ("Subscription
Maximum"). Interests are being offered to investors who meet
certain established suitability standards, with a minimum initial
subscription of $5,000 (and for Series J, $2,000 for certain
Benefit Plan Investors (including IRAs)), although the minimum
purchase for any single Series is $500. Units are also being sold
to the Managing Owner and its affiliates.
-169-
WORLD MONITOR TRUST III - SERIES I
NOTES TO FINANCIAL STATEMENTS
------------------
Note 1. ORGANIZATION (CONTINUED)
------------------------
C. The Offering (Continued)
Initially, the Units for each Series were offered for a period
ending November 30, 2005 ("Initial Offering Period") at $100 per
Interest. The Subscription Minimum of $30,000,000 for Series J was
reached during the Initial Offering Period permitting all Series
G, H, I and J to commence trading operations. Series I completed
its initial offering on December 1, 2005 with gross proceeds of
$525,000, which was fully allocated to the Trading Vehicle. Until
the subscription maximum for each Series is reached, each Series'
Units will continue to be offered on a monthly basis at the then
current net asset value per Unit.
D. Exchanges, Redemptions and Termination
Units owned in one series of the Trust (Series G, H, I and J) may
be exchanged, without any charge, for Units of one or more other
Series on a monthly basis for as long as Limited Units in those
Series are being offered to the public. Exchanges are made at the
applicable Series' then current net asset value per Unit as of the
close of business on the last day of the month in which the
exchange request is effected. The exchange of Units is treated as
a redemption of Units in one Series (with the related tax
consequences) and the simultaneous purchase of Units in the other
Series. Future redemptions and exchanges will impact the amount of
funds available for investment in the Trading Vehicle in
subsequent periods.
Redemptions are permitted on a monthly basis. Class I Units
redeemed prior to the first anniversary of their purchase will be
subject to a redemption charge of up to 2% of the net asset value
per Unit at which they were redeemed. Redemption fees are paid to
the Selling Agent, Kenmar Securities, Inc. There is no redemption
charge associated with the Class II Units.
In the event that the net asset value of a Series, after
adjustments for distributions, contributions and redemptions,
declines by 50% or more since the commencement of trading
activities or the first day of a fiscal year, the Series will
automatically terminate.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of Series I are prepared in accordance
with accounting principles generally accepted in the United States
of America. Such principles require the Managing Owner to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The weighted average number of Units outstanding was computed for
purposes of disclosing net income (loss) per weighted average
Unit. The weighted average Units are equal to the number of Units
outstanding at period end, adjusted proportionately for Units
subscribed and redeemed based on their respective time outstanding
during such period.
-170-
WORLD MONITOR TRUST III - SERIES I
NOTES TO FINANCIAL STATEMENTS
------------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
Series I has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standards No. 102,
"Statement of Cash Flows - Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale."
Consistent with standard business practices in the normal course
of business, Series I has provided general indemnifications to the
Managing Owner, its Trading Advisor and others when they act, in
good faith, in the best interests of Series I. Series I is unable
to develop an estimate of the maximum potential amount of future
payments that could potentially result from any hypothetical
future claim, but expects the risk of having to make any payments
under these general business indemnifications to be remote.
Cash represents amounts deposited with clearing brokers, a portion
of which are restricted for purposes of meeting margin
requirements, which typically range from 0% to 35% of the notional
amounts of the derivatives traded, and receives interest on all
cash balances held by the clearing brokers at prevailing rates.
B. Income Taxes
Series I is treated as a partnership for Federal income tax
purposes. As such, Series I is not required to provide for, or
pay, any Federal or state income taxes. Income tax attributes that
arise from its operations are passed directly to the individual
Unitholders including the Managing Owner. Series I may be subject
to other state and local taxes in jurisdictions in which it
operates.
C. Investment in WMT III Series I/J Trading Vehicle LLC
The investment in the Trading Vehicle is reported in Series I's
statement of financial condition at fair value. Fair value
ordinarily is the value determined for the Trading Vehicle in
accordance with the Trading Vehicle's valuation policies and
reported at the time of Series I's valuation by the management of
the Trading Vehicle. Generally, the fair value of Series I's
investment in the Trading Vehicle represents the amount that
Series I could reasonably expect to receive from the Trading
Vehicle if Series I's investment were redeemed at the time of
valuation, based on information available at the time the
valuation was made and that Series I believes to be reliable.
Series I records its proportionate share of each item of income
and expense from the investment in the Trading Vehicle in the
statement of operations.
The accounting policies, including valuation policies, of the
Trading Vehicle are contained in the notes to the Trading
Vehicle's financial statements included in Section II of these
financial statements.
D. Profit and Loss Allocations and Distributions
Income and expenses (excluding the service fee) are allocated pro
rata to the Class I Units and Class II Units monthly based on the
units outstanding during the month. Class I Units are charged with
the service fee applicable to such units. Distributions (other
than redemptions of units) may be made at the sole discretion of
the Managing Owner on a pro rata basis in accordance with the
respective capital balances of the unitholders. The Managing Owner
has not and does not presently intend to make any distributions.
-171-
WORLD MONITOR TRUST III - SERIES I
NOTES TO FINANCIAL STATEMENTS
------------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. Offering Costs
Initial offering costs (exclusive of the initial selling fee),
totaling $1,436,257, were advanced by the Managing Owner. Such
initial offering expenses will be reimbursed by the Series,
without interest, in 36 monthly payments during each of the first
36 months of the continuous offering period. The amount of initial
offering costs that each Series will reimburse the Managing Owner
each month is based on each Series percentage of total Trust net
asset value at the beginning of each month. In no event shall the
Managing Owner be entitled to reimbursement for such expenses in
an aggregate amount in excess of 2.5% of the aggregate amount of
all subscriptions accepted by the Trust during the Initial
Offering Period and the first 36 months of the continuous offering
period.
The Managing Owner also will pay all offering expenses incurred
after the Initial Offering Period ("ongoing offering costs"). Such
expenses will be allocated among the Series as the Managing Owner
determines to be fair and equitable and, each Series will
reimburse the Managing Owner, without interest, in up to 36
monthly payments during each of the first 36 months following the
month in which such expenses were paid by the Managing Owner.
In no event shall the amount of any payment in any month for
reimbursement of initial and ongoing offering costs exceed 0.50%
per annum of the Net Asset Value of the Series as of the beginning
of such month. The amount of monthly reimbursement due to the
Managing Owner is charged directly to unitholders' capital. During
the period December 1, 2005 (commencement of operations) to
December 31, 2005, Series I's calculated offering costs
reimbursement exceeded 0.50% per annum of the Net Asset Value of
Series I. Series I was only liable for the amount up to the 0.50%
per annum limitation.
The Series will only be liable for payment of initial and ongoing
offering costs on a monthly basis. If a Series terminates prior to
completion of payment of such amounts to the Managing Owner, the
Managing Owner will not be entitled to any additional payments,
and the Series will have no further obligation to the Managing
Owner. The amount of monthly reimbursement due to the Managing
Owner is charged directly to unitholders' capital.
F. Interest Income
During the period December 1, 2005 (commencement of operations) to
December 31, 2005, interest income includes interest earned on
subscription monies held in escrow prior to December 1, 2005.
Note 3. MANAGING OWNER
--------------
The Managing Owner of the Trust is Preferred Investment Solutions Corp.,
which conducts and manages the business of the Trust. The Declaration of
Trust and Trust Agreement requires the Managing Owner and or its
affiliates to maintain a capital account equal to 1% of the total
capital accounts of the Series (subject to a $25,000 minimum per
Series).
The Managing Owner is paid a monthly management fee of 1/12 of 0.5%
(0.5% annually) of Series I's net asset value at the beginning of the
month.
-172-
WORLD MONITOR TRUST III - SERIES I
NOTES TO FINANCIAL STATEMENTS
------------------
Note 4. SERVICE FEES AND SALES COMMISSIONS
----------------------------------
Series I pays a service fee with respect to Class I Units, monthly in
arrears, equal to 1/12 of 2% ( 2% per annum) of the Net Asset Value per
unit of the outstanding Class I Units as of the beginning of the month.
The service fee is paid directly by Series I to the Selling Agent,
Kenmar Securities, Inc., an affiliate of the Managing Owner. The Selling
Agent is responsible for paying all commissions owing to the
correspondent selling agents, who are entitled to receive from the
Selling Agent an initial commission equal to 2% of the initial Net Asset
Value per Unit of each Class I Unit sold by them, payable on the date
such Class I Units are purchased and, commencing with the 13th month
after the purchase of a Class I Unit, an ongoing monthly commission
equal to 1/12th of 2% (2% per annum) of the Net Asset Value per Class I
Unit as of the beginning of the month of the Class I Units sold by them.
Class II unitholders are not assessed service fees.
Series I will also pay Kenmar Securities, Inc. a monthly sales
commission equal to 1/12 of 1% (1% annually) of the Net Asset Value of
the outstanding units as of the beginning of each month.
Note 5. TRUSTEE
-------
The trustee of the Trust is Wilmington Trust Company, a Delaware banking
corporation. The trustee has delegated to the Managing Owner the power
and authority to manage the business and affairs of the Trust and has
only nominal duties and liabilities with respect to the Trust.
Note 6. OPERATING EXPENSES
------------------
Operating expenses of Series I are paid for by Series I. However, during
the period December 1, 2005 (commencement of operations) to December 31,
2005, the Managing Owner has agreed to pay $19,341 of operating expenses
on behalf of Series I.
Note 7. INVESTMENT IN WMT III SERIES I/J TRADING VEHICLE LLC
----------------------------------------------------
Effective December 1, 2005, Series I invested a substantial portion of
its assets in the Trading Vehicle. Series I's investments in the Trading
Vehicle represents approximately 4.83% of the net asset value of the
Trading Vehicle at December 31, 2005. The investment in the Trading
Vehicle is subject to the Organization Agreement of the Trading Vehicle.
Summarized information for this investment is as follows:
Net Asset Net Asset
Value Value
December 1, December 31,
2005 Investments (Loss) Redemptions 2005
------------- ------------- ---------- ------------- --------------
WMT III Series I/J
Trading Vehicle LLC $ 0 $ 525,000 $(15,892) $ 0 $ 509,108
=========== ========= ========= =========== =========
Series I may make additional contributions to, or redemptions from, the
Trading Vehicle on a monthly basis.
-173-
WORLD MONITOR TRUST III - SERIES I
NOTES TO FINANCIAL STATEMENTS
------------------
Note 8. MARKET AND CREDIT RISK
----------------------
Series I's investment in the Trading Vehicle is subject to the market
and credit risks of the futures contracts, options on futures contracts,
and other financial instruments held or sold short by the Trading
Vehicle. Series I bears the risk of loss only to the extent of the
market value of its investment and, in certain specific circumstances,
distributions and redemptions received.
Series I has cash on deposit with financial institutions. In the event
of a financial institution's insolvency, recovery of cash on deposit may
be limited to account insurance or other protection afforded such
deposits.
The Managing Owner has established procedures to actively monitor market
risk and minimize credit risk, although there can be no assurance that
it will, in fact, succeed in doing so. The Unitholders bear the risk of
loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
-174-
WORLD MONITOR TRUST III - SERIES I
NOTES TO FINANCIAL STATEMENTS
------------------
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance data
and other supplemental financial data for the period December 1, 2005
(commencement of operations) to December 31, 2005. This information has
been derived from information presented in the financial statements.
Class I
-------
Per Unit Performance
(for a unit outstanding throughout the entire period)
- -----------------------------------------------------
Net asset value per unit at December 1, 2005
(commencement of operations) $100.00
--------
Loss from operations: (3)
Net realized and change in unrealized loss (1) (2.81)
Interest income (1) 0.34
Expenses (1) (1.06)
--------
Total loss from operations (3.53)
--------
Offering costs (1) (0.04)
--------
Net decrease for the period December 1, 2005
(commencement of operations) to December 31, 2005 (3.57)
--------
Net asset value per unit at December 31, 2005 $ 96.43
---------
Total Return (5)
Total return before incentive fee (3.57)%
Incentive fee 0.00 %
---------
Total return after incentive fee (3.57)%
=========
Supplemental Data
Ratios to average net asset value: (3), (6)
Net investment loss before incentive fee (2) (8.70)%
Incentive fee (5) 0.00 %
---------
Net investment loss after incentive fee (8.70)%
=========
Interest income 4.07 %
=========
Incentive fees (5) 0.00 %
Other expenses (4) 12.77 %
---------
Total expenses 12.77 %
=========
Total returns are calculated based on the change in value of a unit
during the period. An individual unitholders' total returns and ratios
may vary from the above total returns and ratios based on the timing of
additions and redemptions.
(1) Net realized and change in unrealized loss per unit, interest
income per unit, expenses per unit and offering costs per unit are
calculated by dividing net realized and change in unrealized loss,
interest income, expenses and offering costs by the weighted
average number of units outstanding during the period.
(2) Represents interest income less total expenses (exclusive of
incentive fees). All components of the net investment loss ratio
have been annualized except interest income and operating
expenses.
(3) Includes Series I's proportionate share of income and expenses
from WMT III Series I/J Trading Vehicle LLC.
(4) All components of the other expenses ratio have been annualized
except operating expenses.
(5) Not annualized.
(6) If the Trust had borne all its expenses that were reimbursed or
waived by the Managing Owner, the annualized expense and net
investment loss ratios would be as follows:
Expense ratio 16.45 %
Net investment loss before incentive fee (12.38)%
Incentive fee 0.00 %
--------
Net investment loss after incentive fee (12.38)%
========
-175-
World Monitor Trust III - Series I
Section II
INDEPENDENT AUDITORS' REPORT
To the Managing Owner and Members of
WMT III Series I/J Trading Vehicle LLC
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of WMT III Series I/J Trading Vehicle
LLC (the "Trading Vehicle") as of December 31, 2005, and the related
statements of operations and changes in members' capital (net asset value) for
the period December 1, 2005 (commencement of operations) to December 31, 2005.
These financial statements are the responsibility of the Trading Vehicle's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States) and
in accordance with auditing standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Trading Vehicle is not required to have, nor were
we engaged to perform, an audit of is internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trading Vehicle's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 WMT III Series I/J Trading
Vehicle LLC as of December 31, 2005, and the results of its operations and
changes in its members' capital (net asset value) for the period December 1,
2005 (commencement of operations) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
/s/Deloitte & Touche LLP
March 29, 2006
WMT III SERIES I/J TRADING VEHICLE LLC
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
---------------
ASSETS
Cash in commodity trading accounts $10,651,193
Net unrealized loss on open futures contracts (98,436)
Interest receivable 33,290
------------
Total assets $10,586,047
===========
LIABILITIES
Accrued expenses $ 28,800
Commissions payable 2,098
Advisor fee payable 17,592
-----------
Total liabilities 48,490
-----------
MEMBERS' CAPITAL (Net Asset Value)
Member I 509,108
Member J 10,028,449
-----------
Total members' capital
(Net Asset Value) 10,537,557
-----------
Total liabilities and members' capital $10,586,047
See accompanying notes.
-177-
WMT III SERIES I/J TRADING VEHICLE LLC
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2005
---------------
Net
Unrealized
Gain (Loss) Net
as a % of Net Unrealized
Asset Value Gain/Loss
------------- ----------
Futures Contracts
- -----------------
Futures contracts purchased:
Commodities (0.41)% $(42,900)
Currencies (0.46)% (48,760)
Interest rates (0.28)% (29,562)
Metals 0.66% 69,290
Stock indices (0.44)% (46,504)
------------- ----------
Net unrealized (loss) on futures contracts purchased (0.93)% $(98,436)
============= ==========
See accompanying notes.
-178-
WMT III SERIES I/J TRADING VEHICLE LLC
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
REVENUES
Realized $(206,454)
Change in unrealized (98,436)
Interest income 34,356
--------------
Total revenues (losses) (270,534)
--------------
EXPENSES
Brokerage commissions 11,998
Advisor fee 17,592
Operating expenses 28,800
--------------
Total expenses 58,390
--------------
NET LOSS $(328,924)
==============
See accompanying notes.
-179-
WMT III SERIES I/J TRADING VEHICLE LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL (NET ASSET VALUE)
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
Members' Capital
-----------------------------------------
Member I Member J Total
------------- ------------ ------------
Balance at December 1, 2005
(commencement of operations) $ 0 $ 0 $ 0
Additions 525,000 10,341,481 10,866,481
Net loss (15,892) (313,032) (328,924)
---------- ----------- ------------
Balance at
December 31, 2005 $ 509,108 $10,028,449 $10,537,557
========== ============ ============
See accompanying notes.
-180-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION
------------
A. General Description of the Trading Vehicle
WMT III Series I/J Trading Vehicle LLC (the "Trading Vehicle") is
a limited liability company organized under the laws of Delaware
on March 10, 2005 which will terminate on December 31, 2054 unless
terminated sooner under the provisions of the Organization
Agreement. The Trading Vehicle commenced trading operations on
December 1, 2005. The Trading Vehicle was formed to engage in the
speculative trading of a diversified portfolio of futures
contracts and options on futures contracts. Preferred Investment
Solutions Corp. ("Preferred") is the Managing Owner of the Trading
Vehicle. The Trading Vehicle currently consists of two members:
World Monitor Trust III - Series I ("Member I") and World Monitor
Trust III - Series J ("Member J") (collectively, the "Members").
Preferred is also the Managing Owner of each of the Members. Upon
making the initial capital contribution, each Member received
Voting Membership Interests.
The Trading Vehicle is a Member managed limited liability company
that is not registered in any capacity with, or subject directly
to regulation by the Commodity Futures Trading Commission or the
United States Securities and Exchange Commission.
B. The Trading Advisor
The Trading Vehicle entered into an advisory agreement with Eagle
Trading Systems Inc. (the "Trading Advisor") to make the trading
decisions for the Trading Vehicle. The Trading Advisor manages
approximately 100% of the assets of the Trading Vehicle pursuant
to its Momentum program.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of the Trading Vehicle are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Commodity futures transactions are reflected in the accompanying
statement of financial condition on the trade date. Net unrealized
gain or loss on open contracts (the difference between contract
trade price and market price) is reflected in the financial
statements in accordance with Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to Certain
Contracts." The market value of futures (exchange-traded)
contracts is based upon the closing quotation on the various
futures exchanges on which the contract is traded. Any change in
net unrealized gain or loss during the current period is reported
in the statement of operations. Realized gains and losses on
commodity transactions are recognized in the period in which the
contracts are closed.
Brokerage commissions include other trading fees and are charged
to expense when contracts are opened.
-181-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
The Trading Vehicle has elected not to provide a Statement of Cash
Flows as permitted by Statement of Financial Accounting Standards
No. 102, "Statement of Cash Flows - Exemption of Certain
Enterprises and Classification of Cash Flows from Certain
Securities Acquired for Resale."
Consistent with standard business practices in the normal course
of business, the Trading Vehicle has provided general
indemnifications to its Trading Advisor and others when they act,
in good faith, in the best interests of the Trading Vehicle. The
Trading Vehicle is unable to develop an estimate of the maximum
potential amount of future payments that could potentially result
from any hypothetical future claim, but expects the risk of having
to make any payments under these general business indemnifications
to be remote.
B. Income Taxes
The Trading Vehicle is treated as a partnership for Federal income
tax purposes. As such, the Trading Vehicle is not required to
provide for, or pay, any Federal or state income taxes. Income tax
attributes that arise from its operations are passed directly to
the Members. The Trading Vehicle may be subject to other state and
local taxes in jurisdictions in which it operates.
C. Capital Accounts
The Trading Vehicle accounts for subscriptions, allocations and
redemptions on a per member capital account basis.
The Trading Vehicle allocates profits and losses to its Members
monthly on a pro rata basis based on each Member's pro rata
capital in the Trading Vehicle during the month. Distributions
(other than redemptions of capital) may be made at the sole
discretion of the Members on a pro rata basis in accordance with
the Members' respective capital balances. The Trading Vehicle does
not presently intend to make any distributions.
D. Foreign Currency Transactions
The Trading Vehicle'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 U.S.
dollars 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.
-182-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 3. MANAGEMENT AND INCENTIVE FEES
-----------------------------
The Trading Vehicle pays the Trading Advisor a monthly management fee
equal to 1/12 of 2.0% (2.0% annually) of the Trading Vehicle's allocated
assets determined as of the close of business on the last day of each
month. For purposes of determining the management fee, any
distributions, redemptions or reallocation of assets made as of the last
day of each month shall be added back to the assets and there shall be
no reduction for (i) the management fees calculated or (ii) any accrued
but unpaid incentive fees due the Trading Advisor.
Additionally, the Trading Vehicle pays the Trading Advisor an incentive
fee of 20% (the "Incentive Fee") of "New High Net Trading Profits" (as
defined in the Advisory Agreement). The incentive fee accrues monthly
and is paid quarterly. The Trading Advisor did not earn an incentive fee
for the period December 1, 2005 (commencement of operations) to December
31, 2005.
Note 4. OPERATING EXPENSES
------------------
Operating expenses of the Trading Vehicle are paid for by the Trading
Vehicle.
Note 5. DEPOSITS WITH BROKER
--------------------
The Trading Vehicle deposits funds with UBS Securities LLC to act as
broker subject to Commodity Futures Trading Commission regulations and
various exchange and broker requirements. Margin requirements of
approximately 0% to 35% are satisfied by the deposit of cash with such
broker. The Trading Vehicle earns interest income on assets deposited
with the broker.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Additional investments in the Trading Vehicle may be made at any time
subject to the terms of the Organization Agreement.
The Trading Vehicle is not required to make distributions, but could do
so at the discretion of the Members. A Member can request and receive
redemption of capital at any time, subject to the terms in the
Organization Agreement.
-183-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
-------------------------------------------
The Trading Vehicle is exposed to various types of risks associated with
the derivative instruments and related markets in which it invests.
These risks include, but are not limited to, risk of loss from
fluctuations in the value of derivative instruments held (market risk)
and the inability of counterparties to perform under the terms of the
Trading Vehicle's investment activities (credit risk).
A. Market Risk
Trading in futures contracts (including foreign exchange) involves
entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or
face amount of the contracts, which is typically many times that
of the Trading Vehicle's net assets being traded, significantly
exceeds the Trading Vehicle's future cash requirements since the
Trading Vehicle intends to close out its open positions prior to
settlement. As a result, the Trading Vehicle is generally subject
only to the risk of loss arising from the change in the value of
the contracts. As such, the Trading Vehicle considers the "fair
value" of its derivative instruments to be the net unrealized gain
or loss on the contracts. The market risk associated with the
Trading Vehicle's commitments to purchase commodities is limited
to the gross or face amount of the contract held. However, when
the Trading Vehicle enters into a contractual commitment to sell
commodities, it must make delivery of the underlying commodity at
the contract price and then repurchase the contract at prevailing
market prices or settle in cash. Since the repurchase price to
which a commodity can rise is unlimited, entering into commitments
to sell commodities exposes the Trading Vehicle to unlimited risk.
Market risk is influenced by a wide variety of factors, including
government programs and policies, political and economic events,
the level and volatility of interest rates, foreign currency
exchange rates, the diversification effect among the derivative
instruments the Trading Vehicle holds and the liquidity and
inherent volatility of the markets in which the Trading Vehicle
trades.
B. Credit Risk
When entering into futures contracts, the Trading Vehicle is
exposed to credit risk that the counterparty to the contract will
not meet its obligations. The counterparty for futures contracts
traded on United States and most foreign futures exchanges is the
clearinghouse associated with the particular exchange. In general,
a clearinghouse is backed by its corporate members who are
required to share any financial burden resulting from the
non-performance by one of their members and, as such, should
significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks
or other financial institutions. The amount at risk associated
with counterparty non-performance of all of the Trading Vehicle's
contracts is the net unrealized gain included in the statement of
financial condition; however, counterparty non-performance on only
certain of the Trading Vehicle's contracts may result in greater
loss than non-performance on all of the Trading Vehicle's
contracts. There can be no assurance that any counterparty,
clearing member or clearinghouse will meet its obligations to the
Trading Vehicle.
-184-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
-------------------------------------------------------
B. Credit Risk (Continued)
The Managing Owner attempts to minimize both credit and market
risks by requiring the Trading Vehicle and its Trading Advisor to
abide by various trading limitations and policies. Preferred
monitors compliance with these trading limitations and policies,
which include, but are not limited to, executing and clearing all
trades with creditworthy counterparties; limiting the amount of
margin or premium required for any one commodity or all
commodities combined; and generally limiting transactions to
contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. Additionally, pursuant to the
Advisory Agreement among the Trading Vehicle, Preferred and the
Trading Advisor, the Trading Vehicle shall automatically terminate
the Trading Agreement, if the net asset value allocated to the
Trading Advisor declines as of the end of any business day by at
least 40% from the value at the beginning of any calendar year or
since the effective date of the Advisory Agreement. The decline in
net asset value is after giving effect for distributions,
subscriptions and redemptions.
The Trading Vehicle's futures commission merchant, in accepting
orders for the purchase or sale of domestic futures contracts, is
required by Commodity Futures Trading Commission ("CFTC")
regulations to separately account for and segregate as belonging
to the Trading Vehicle all assets of the Trading Vehicle relating
to domestic futures trading and is not allowed to commingle such
assets with its other assets. At December 31, 2005, such
segregated assets totaled $10,679,510. Part 30.7 of the CFTC
regulations also requires the Trading Vehicle's futures commission
merchant to secure assets of the Trading Vehicle related to
foreign futures trading which totaled $(126,753) at December 31,
2005.
As of December 31, 2005, all open futures contracts mature between
February and March 2006.
-185-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 8. FINANCIAL HIGHLIGHTS
--------------------
The following information presents the financial highlights of the
Trading Vehicle for the period December 1, 2005 (commencement of
operations) to December 31, 2005. This information has been derived from
information presented in the financial statements.
Total return (1)
Total return before incentive fee (3.03)%
Incentive fee 0.00
-------
Total return after incentive fee (3.03)%
=======
Ratios to average net asset value:
Expenses prior to incentive fee (2) 6.45%
Incentive fee (1) 0.00%
-------
Total expenses and incentive fee 6.45%
=======
Net investment loss (2), (3) 2.65%
=======
Total returns and ratios to average net asset value are calculated for
Members' capital taken as a whole. An individual Member's total return and
ratios may vary from the above return and ratios based on the timing of
additions and redemptions.
(1) Not annualized.
(2) Annualized.
(3) Represents interest income less total expenses (exclusive of incentive
fee).
Note 9. SUBSEQUENT EVENT
----------------
Effective January 1, 2006, additions of $2,460,748 were made to the
Trading Vehicle by Member J.
-186-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Managing Owner and Unitholders of
World Monitor Trust III - Series J
We have audited the accompanying statement of financial condition of World
Monitor Trust III - Series J (the "Series") as of December 31, 2005, and the
related statements of operations and the changes in unitholders' capital for
the period March 10, 2005 (inception) to December 31, 2005. These financial
statements are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Series is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Series' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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 Series' at December 31,
2005, and the results of its operations and the changes in unitholders'
capital for the period March 10, 2005 (inception) to December 31, 2005, in
conformity with accounting principles generally accepted in the United States
of America.
/s/ Deloitte & Touche LLP
March 29, 2006
WORLD MONITOR TRUST III - SERIES J
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
---------------
2005
----
ASSETS
Cash $ 7,687,671
Investment in WMT III Series G/J Trading
Vehicle LLC (33.21% of net asset value) 10,034,305
Investment in WMT III Series H/J Trading
Vehicle LLC (33.61% of net asset value) 10,152,980
Investment in WMT III Series I/J Trading
Vehicle LLC (33.18% of net asset value) 10,028,449
Interest receivable 11,918
-------------
Total assets $37,915,323
=============
LIABILITIES
Accrued expenses $ 72,896
Service fees payable 51,707
Sales commission payable 25,854
Management fee payable 12,927
Offering costs payable 12,927
Subscriptions received in advance 7,528,060
-------------
Total liabilities 7,704,371
-------------
UNITHOLDERS' CAPITAL
Class I Units:
Unitholders' - 307,154.4306 units
outstanding, respectively 29,910,054
Managing Owners Interests - 3,090.0000
units outstanding, respectively 300,898
-------------
Total unitholders' capital 30,210,952
-------------
Total liabilities and unitholders' capital $37,915,323
=============
NET ASSET VALUE PER UNIT
Class I $ 97.38
=============
See accompanying notes.
-188-
WORLD MONITOR TRUST III - SERIES J
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
2005
----
NET LOSS ALLOCATED FROM TRADING VEHICLES:
REVENUES
Realized $ (456,079)
Change in unrealized (277,227)
Interest income 97,179
-------------
Total revenues (636,127)
-------------
EXPENSES
Brokerage commissions 27,219
Advisor fee 63,136
Operating expenses 82,227
-------------
Total expenses 172,582
-------------
NET LOSS ALLOCATED FROM TRADING VEHICLES (808,709)
-------------
NET LOSS FROM SERIES OPERATIONS:
REVENUE
Interest income 171,529
-------------
EXPENSES
Management fee 12,927
Service fee 51,707
Sales commission 25,854
Operating expenses 72,896
-------------
Total expenses 163,384
-------------
NET INCOME FROM SERIES OPERATIONS 8,145
-------------
NET LOSS $ (800,564)
=============
NET LOSS PER WEIGHTED AVERAGE
UNITHOLDER AND MANAGING OWNER UNIT
Net loss per weighted average Unitholder
and Managing Owner Unit $ (2.58)
=============
Weighted average number of Units outstanding 310,244.4306
=============
See accompanying notes.
-189-
WORLD MONITOR TRUST III - SERIES J
STATEMENT OF CHANGES IN TRUST CAPITAL For the
Period March 10, 2005 (inception) to December 31, 2005
---------------
Class I
---------------------------------------------------
Managing Owner
Unitholders Interests Total
-------------------------- ----------------------- -------------------------
Units Amount Units Amount Units Amount
----------- ------------ ---------- ---------- --------- ------------
Unitholders' capital
at March 10, 2005
(inception) 0.0000 $ 0 0.0000 $ 0 0.0000 $ 0
Additions 307,154.4306 30,715,443 3,090.0000 309,000 310,244.4306 31,024,443
Net loss (792,590) (7,974) (800,564)
Offering costs 0.0000 (12,799) 0.0000 (128) 0.0000 (12,927)
------------ ------------- ---------- ---------- ------------ ------------
Unitholders' capital
at December 31, 2005 307,154.4306 $29,910,054 3,090.0000 $ 300,898 310,244.4306 $ 30,210,952
============ ============= ========== ========== ============ =============
See accompanying notes.
-190-
WORLD MONITOR TRUST III - SERIES J
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION
------------
A. General Description of the Trust
World Monitor Trust III (the "Trust") is a business trust
organized under the laws of Delaware on September 28, 2004. The
Trust consists of four separate and distinct series ("Series"):
Series G, H, I and J. Series G, H, I and J commenced trading
operations on December 1, 2005, and each Series will continue to
exist until terminated pursuant to the provisions of Article XIII
of the Amended and Restated Declaration of Trust and Trust
Agreement. The Managing Owner made an initial capital contribution
of $1,000 to Series J on March 10, 2005 (inception). The assets of
each Series are segregated from those of the other Series,
separately valued and independently managed. Each Series was
formed to engage in the speculative trading of a diversified
portfolio of futures, forward and options contracts and may, from
time to time, engage in cash and spot transactions.
Each Series is initially divided into two classes: Class I Units
and Class II Units. The Class I and Class II Units are identical
except for the applicable service fee charged to each Class. As of
December 31, 2005, Class II Units have not been issued.
Effective December 1, 2005, Series J allocated its net assets
equally to WMT III Series G/J Trading Vehicle LLC (whose sole
members are Series G and Series J), WMT III Series H/J Trading
Vehicle LLC (whose sole members are Series H and Series J) and WMT
III Series I/J Trading Vehicle LLC (whose sole members are Series
I and Series J) (collectively, the "Trading Vehicles") and
received a Voting Membership Interest in each Trading Vehicle. The
Trading Vehicles were each formed to function as an aggregate
trading vehicle. Preferred Investment Solutions Corp. is the
Managing Owner of all Series and has been delegated administrative
authority over the operations of the Trading Vehicles. The Trading
Vehicles engage in the speculative trading of futures contracts,
options on futures contracts and forward currency contracts. The
financial statements of the Trading Vehicles, including the
condensed schedules of investments, are included in Sections II,
III and IV of these financial statements and should be used in
conjunction with Series J's financial statements.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Trust and each Series are subject to the regulatory requirements
under the Securities Act of 1933 and the Securities Exchange Act
of 1934. As a commodity pool, the Trust and each Series are
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 the various commodity
exchanges where the Trust through the Trading Vehicle executes
transactions.
C. The Offering
Up to $37,500,000 Series G, Class I; $12,500,000 Series G, Class
II; $37,500,000 Series H, Class I; $12,500,000 Series H, Class II;
$18,750,000 Series I, Class I; $6,250,000 Series I, Class II;
$281,250,000 Series J, Class I; and $93,750,000 Series J, Class II
of Units are being offered (totaling $500,000,000) ("Subscription
Maximum"). Interests are being offered to investors who meet
certain established suitability standards, with a minimum initial
subscription of $5,000 (and for Series J, $2,000 for certain
Benefit Plan Investors (including IRAs)), although the minimum
purchase for any single Series is $500. Units are also being sold
to the Managing Owner and its affiliates.
-191-
WORLD MONITOR TRUST III - SERIES J
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 1. ORGANIZATION (CONTINUED)
------------------------
C. The Offering (Continued)
Initially, the Units for each Series were offered for a period
ending November 30, 2005 ("Initial Offering Period") at $100 per
Interest. The Subscription Minimum of $30,000,000 for Series J was
reached during the Initial Offering Period permitting all Series
G, H, I and J to commence trading operations. Series J completed
its initial offering on December 1, 2005 with gross proceeds of
$31,024,443, which was fully allocated to the Trading Vehicles.
Until the subscription maximum for each Series is reached, each
Series' Units will continue to be offered on a monthly basis at
the then current net asset value per Unit.
D. Exchanges, Redemptions and Termination
Units owned in one series of the Trust (Series G, H, I and J) may
be exchanged, without any charge, for Units of one or more other
Series on a monthly basis for as long as Units in those Series are
being offered to the public. Exchanges are made at the applicable
Series' then current net asset value per Unit as of the close of
business on the last day of the month in which the exchange
request is effected. The exchange of Units is treated as a
redemption of Units in one Series (with the related tax
consequences) and the simultaneous purchase of Units in the other
Series. Future redemptions and exchanges will impact the amount of
funds available for investment in the Trading Vehicles in
subsequent periods.
Redemptions are permitted on a monthly basis. Class I Units
redeemed prior to the first anniversary of their purchase will be
subject to a redemption charge of up to 2% of the net asset value
per Unit at which they were redeemed. Redemption fees are paid to
the Selling Agent, Kenmar Securities, Inc. There is no redemption
charge associated with the Class II Units.
In the event that the net asset value of a Series, after
adjustments for distributions, contributions and redemptions,
declines by 50% or more since the commencement of trading
activities or the first day of a fiscal year, the Series will
automatically terminate.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of Series J are prepared in accordance
with accounting principles generally accepted in the United States
of America. Such principles require the Managing Owner to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The weighted average number of Units outstanding was computed for
purposes of disclosing net income (loss) per weighted average
Unit. The weighted average Units are equal to the number of Units
outstanding at period end, adjusted proportionately for Units
subscribed and redeemed based on their respective time outstanding
during such period.
-192-
WORLD MONITOR TRUST III - SERIES J
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
Series J has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standards No. 102,
"Statement of Cash Flows - Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale."
Consistent with standard business practices in the normal course
of business, Series J has provided general indemnifications to the
Managing Owner, its Trading Advisor and others when they act, in
good faith, in the best interests of Series J. Series J is unable
to develop an estimate of the maximum potential amount of future
payments that could potentially result from any hypothetical
future claim, but expects the risk of having to make any payments
under these general business indemnifications to be remote.
Cash represents amounts deposited with clearing brokers, a portion
of which are restricted for purposes of meeting margin
requirements, which typically range from 0% to 35% of the notional
amounts of the derivatives traded, and receives interest on all
cash balances held by the clearing brokers at prevailing rates.
B. Income Taxes
Series J is treated as a partnership for Federal income tax
purposes. As such, Series J is not required to provide for, or
pay, any Federal or state income taxes. Income tax attributes that
arise from its operations are passed directly to the individual
Unitholders including the Managing Owner. Series J may be subject
to other state and local taxes in jurisdictions in which it
operates.
C. Investments in Trading Vehicles
The investments in the Trading Vehicles are reported in Series J's
statement of financial condition at fair value. Fair value
ordinarily is the value determined for the Trading Vehicle in
accordance with the Trading Vehicle's valuation policies and
reported at the time of Series J's valuation by the management of
the Trading Vehicle. Generally, the fair value of Series J's
investment in a Trading Vehicle represents the amount that Series
J could reasonably expect to receive from the Trading Vehicle if
Series J's investment were redeemed at the time of valuation,
based on information available at the time the valuation was made
and that Series J believes to be reliable. Series J records its
proportionate share of each item of income and expense from the
investment in the Trading Vehicles in the statement of operations.
The accounting policies, including valuation policies, of the
Trading Vehicle are contained in the notes to each Trading
Vehicle's financial statements included in Sections II, III and IV
of these financial statements.
D. Profit and Loss Allocations and Distributions
Income and expenses (excluding the service fee) are allocated pro
rata to the Class I Units and Class II Units monthly based on the
units outstanding during the month. Class I Units are charged with
the service fee applicable to such units. Distributions (other
than redemptions of units) may be made at the sole discretion of
the Managing Owner on a pro rata basis in accordance with the
respective capital balances of the unitholders. The Managing Owner
has not and does not presently intend to make any distributions.
-193-
WORLD MONITOR TRUST III - SERIES J
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. Offering Costs
Initial offering costs (exclusive of the initial selling fee),
totaling $1,436,257, were advanced by the Managing Owner. Such
initial offering expenses will be reimbursed by each Series,
without interest, in 36 monthly payments during each of the first
36 months of the continuous offering period. The amount of initial
offering costs that each Series will reimburse the Managing Owner
is equal to each Series percentage of total Trust net asset value
at the beginning of each month. In no event shall the Managing
Owner be entitled to reimbursement for such expenses in an
aggregate amount in excess of 2.5% of the aggregate amount of all
subscriptions accepted by the Trust during the Initial Offering
Period and the first 36 months of the continuous offering period.
The Managing Owner also will pay all offering expenses incurred
after the Initial Offering Period ("ongoing offering costs"). Such
expenses will be allocated among the Series as the Managing Owner
determines to be fair and equitable and, each Series will
reimburse the Managing Owner, without interest, in up to 36
monthly payments during each of the first 36 months following the
month in which such expenses were paid by the Managing Owner.
In no event shall the amount of any payment in any month for
reimbursement of initial and ongoing offering costs exceed 0.50%
per annum of the Net Asset Value of the Trust as of the beginning
of such month. The amount of monthly reimbursement due to the
Managing Owner is charged directly to unitholders' capital. During
the period December 1, 2005 (commencement of operations) to
December 31, 2005, Series J's calculated offering costs
reimbursement exceeded 0.50% per annum of the Net Asset Value of
Series J. Series J was only liable for the amount up to the 0.50%
per annum limitation.
The Series will only be liable for payment of initial and ongoing
offering costs on a monthly basis. If a Series terminates prior to
completion of payment of such amounts to the Managing Owner, the
Managing Owner will not be entitled to any additional payments,
and the Series will have no further obligation to the Managing
Owner. The amount of monthly reimbursement due to the Managing
Owner is charged directly to unitholders' capital.
F. Interest Income
During the period December 1, 2005 (commencement of operations) to
December 31, 2005, interest income includes interest earned on
subscription monies held in escrow prior to December 1, 2005.
Note 3. MANAGING OWNER
--------------
The Managing Owner of the Trust is Preferred Investment Solutions Corp.,
which conducts and manages the business of the Trust. The Declaration of
Trust and Trust Agreement requires the Managing Owner and or its
affiliates to maintain a capital account equal to 1% of the total
capital accounts of the Series (subject to a $25,000 minimum per
Series).
The Managing Owner is paid a monthly management fee of 1/12 of 0.5%
(0.5% annually) of Series J's net asset value at the beginning of the
month.
-194-
WORLD MONITOR TRUST III - SERIES J
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 4. SERVICE FEES AND SALES COMMISSIONS
----------------------------------
Series J pays a service fee with respect to Class I Units, monthly in
arrears, equal to 1/12 of 2% ( 2% per annum) of the Net Asset Value per
unit of the outstanding Class I Units as of the beginning of the month.
The service fee is paid directly by the Trust to the Selling Agent,
Kenmar Securities, Inc., an affiliate of the Managing Owner. The Selling
Agent is responsible for paying all commissions owing to the
correspondent selling agents, who will be entitled to receive from the
Selling Agent an initial commission equal to 2% of the initial Net Asset
Value per Unit of each Class I Unit sold by them, payable on the date
such Class I Units are purchased and, commencing with the 13th month
after the purchase of a Class I Unit, an ongoing monthly commission
equal to 1/12th of 2% (2% per annum) of the Net Asset Value per Class I
Unit as of the beginning of the month of the Class I Units sold by them.
Class II unitholders are not assessed service fees.
Series J will also pay Kenmar Securities, Inc. a monthly sales
commission equal to 1/12th of 1% (1% annually) of the Net Asset Value of
the outstanding units as of the beginning of each month.
Note 5. TRUSTEE
-------
The trustee of the Trust is Wilmington Trust Company, a Delaware banking
corporation. The trustee has delegated to the Managing Owner the power
and authority to manage the business and affairs of the Trust and has
only nominal duties and liabilities with respect to the Trust.
Note 6. OPERATING EXPENSES
------------------
Operating expenses of the Trust are paid for by the Trust.
Note 7. INVESTMENTS IN TRADING VEHICLES
-------------------------------
Effective December 1, 2005, Series J invested a substantial portion of
its assets in the Trading Vehicles. Series J's investments in WMT III
Series G/J Trading Vehicle LLC, WMT III Series H/J Trading Vehicle LLC
and WMT III Series I/J Trading Vehicle LLC represent approximately
95.17% of the net asset value of each Trading Vehicle at December 31,
2005. The investments in the Trading Vehicles are subject to the
Organization Agreements of the Trading Vehicles.
Summarized information for these investments are as follows:
Net Asset Net Asset
Value Value
December 1, December 31,
2005 Investments (Loss) Redemptions 2005
----------- ----------- ---------- ----------- ------------
WMT III Series G/J
Trading Vehicle LLC $ 0 $10,341,481 $(307,176) $ 0 $10,034,305
WMT III Series H/J
Trading Vehicle LLC 0 10,341,481 (188,501) 0 10,152,980
WMT III Series I/J
Trading Vehicle LLC 0 10,341,481 (313,032) 0 10,028,449
----------- ----------- ---------- ----------- ------------
Total $ 0 $31,024,443 $(808,709) $ 0 $30,215,734
=========== =========== ========== =========== ============
-195-
WORLD MONITOR TRUST III - SERIES J
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 7. INVESTMENTS IN TRADING VEHICLES (CONTINUED)
-------------------------------------------
Series J's proportionate share of the income and expenses of the Trading
Vehicles for the period December 1, 2005 (commencement of operations) to
December 31, 2005 is as follows:
WMT III WMT III WMT III
Series G/J Series H/J Series I/J
Trading Trading Trading
Vehicle LLC Vehicle LLC Vehicle LLC Total
----------- ----------- ----------- ---------
Realized trading gains
(losses) $(413,082) $ 153,482 $(196,479) $(456,079)
Change in unrealized
trading gains
(losses) 129,100 (312,647) (93,680) (277,227)
Brokerage commissions (6,648) (9,153) (11,418) (27,219)
Interest income 31,811 32,672 32,696 97,179
Management fee (20,948) (25,446) (16,742) (63,136)
Operating expenses (27,409) (27,409) (27,409) (82,227)
------------ ------------ ------------ ------------
Total $(307,176) $(188,501) $(313,032) $(808,709)
============ ============ ============= =============
Series J may make additional contributions to, or redemptions from, the
Trading Vehicles on a monthly basis.
Note 8. MARKET AND CREDIT RISK
----------------------
Series J's investments in the Trading Vehicles are subject to the market
and credit risks of the futures contracts, options on futures contracts,
forward currency contracts and other financial instruments held or sold
short by the Trading Vehicles. Series J bears the risk of loss only to
the extent of the market value of its investment and, in certain
specific circumstances, distributions and redemptions received.
Series J has cash on deposit with financial institutions. In the event
of a financial institution's insolvency, recovery of cash on deposit may
be limited to account insurance or other protection afforded such
deposits.
The Managing Owner has established procedures to actively monitor market
risk and minimize credit risk, although there can be no assurance that
it will, in fact, succeed in doing so. The Unitholders bear the risk of
loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
Note 9. SUBSEQUENT EVENT
----------------
Effective January 1, 2006, additions of $7,528,060 were made to Series J.
-196-
WORLD MONITOR TRUST III - SERIES J
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 10. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance data
and other supplemental financial data for the period December 1, 2005
(commencement of operations) to December 31, 2005. This information has
been derived from information presented in the financial statements.
Class I
-------
Per Unit Performance
(for a unit outstanding throughout the entire period)
-----------------------------------------------------
Net asset value per unit at December 1, 2005
(commencement of operations) $100.00
--------
Loss from operations: (3)
Net realized and change in unrealized loss (1) (2.36)
Interest income (1) 0.86
Expenses (1) (1.08)
--------
Total loss from operations (2.58)
--------
Offering costs (1) (0.04)
--------
Net decrease for the period December 1, 2005
(commencement of operations) to December 31, 2005 (2.62)
--------
Net asset value per unit at December 31, 2005 $ 97.38
========
Total Return (5)
Total return before incentive fee (2.62)%
=========
Incentive fee 0.00 %
---------
Total return after incentive fee (2.62)%
Supplemental Data
Ratios to average net asset value: (3)
Net investment loss before incentive fee (2) (2.60)%
Incentive fee (5) 0.00 %
Net investment loss after incentive fee (2.60)%
=========
Interest income (5) 10.39 %
=========
Incentive fees (5) 0.00 %
Other expenses (4) 12.99 %
---------
Total expenses 12.99 %
=========
Total returns are calculated based on the change in value of a unit
during the period. An individual unitholders' total returns and ratios
may vary from the above total returns and ratios based on the timing of
additions and redemptions.
----------------------------
(1) Net realized and change in unrealized loss per unit, interest
income per unit, expenses per unit and offering costs per unit are
calculated by dividing net realized and change in unrealized loss,
interest income, expenses and offering costs by the weighted
average number of units outstanding during the period.
(2) Represents interest income less total expenses (exclusive of
incentive fees). All components of the net investment loss ratio
have been annualized except interest income and operating
expenses.
(3) Includes Series J's proportionate share of income and expenses
from the Trading Vehicles.
(4) All components of the other expenses ratio have been annualized
except operating expenses.
(5) Not annualized.
-197-
World Monitor Trust III - Series J
Section II
INDEPENDENT AUDITORS' REPORT
To the Managing Owner and Members of
WMT III Series G/J Trading Vehicle LLC
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of WMT III Series G/J Trading Vehicle
LLC (the "Trading Vehicle") as of December 31, 2005, and the related
statements of operations and changes in members' capital (net asset value) for
the period December 1, 2005 (commencement of operations) to December 31, 2005.
These financial statements are the responsibility of the Trading Vehicle's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States) and
in accordance with auditing standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Trading Vehicle is not required to have, nor were
we engaged to perform, an audit of is internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trading Vehicle's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 WMT III Series G/J Trading
Vehicle LLC as of December 31, 2005, and the results of its operations and
changes in its members' capital (net asset value) for the period December 1,
2005 (commencement of operations) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
/s/Deloitte & Touche LLP
March 29, 2006
-198-
WMT III SERIES G/J TRADING VEHICLE LLC
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
---------------
ASSETS
Cash in commodity trading accounts $10,427,355
Net unrealized gain on open futures contracts 61,653
Net unrealized gain on open forward currency 74,001
contracts
Interest receivable 32,357
-------------
Total assets $10,595,366
=============
LIABILITIES
Accrued expenses $ 28,800
Commissions payable 843
Advisor fee payable 22,012
-------------
Total liabilities 51,655
-------------
MEMBERS' CAPITAL (Net Asset Value)
Member G 509,406
Member J 10,034,305
-------------
Total members' capital
(Net Asset Value) 10,543,711
-------------
Total liabilities and members' capital $10,595,366
=============
See accompanying notes.
-199-
WMT III SERIES G/J TRADING VEHICLE LLC
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2005
---------------
Net
Unrealized
Gain (Loss) Net
as a % of Net Unrealized
Asset Value Gain/Loss
------------- ----------
Futures and Forward Contracts
- -----------------------------
Futures contracts purchased:
Commodities 0.01% $1,605
Interest rates 0.20% 21,025
Metals 0.52% 54,528
Stock indices 0.25% 26,579
------------- ----------
Net unrealized gain on futures contracts purchased 0.98% 103,737
------------- ----------
Futures contracts sold:
Commodities (0.12)% (12,463)
Interest rates 0.00% 248
Metals (0.28)% (29,869)
------------- ----------
Net unrealized loss on futures contracts sold (0.40)% (42,084)
------------- ----------
Net unrealized gain on futures contracts 0.58% $61,653
============= ==========
Forward currency contracts purchased:
Net unrealized loss on forward currency contracts
purchased (0.68)% (71,768)
------------- ----------
Forward currency contracts sold:
Net unrealized gain on forward currency contracts sold 1.38% 145,769
------------- ----------
Net unrealized gain on forward currency contracts 0.70% $74,001
============= ==========
See accompanying notes.
-200-
WMT III SERIES G/J TRADING VEHICLE LLC
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
REVENUES
Realized $(434,052)
Change in unrealized 135,654
Interest income 33,425
-------------
Total revenues (264,973)
-------------
EXPENSES
Brokerage commissions 6,985
Advisor fee 22,012
Operating expenses 28,800
-------------
Total expenses 57,797
-------------
NET LOSS $(322,770)
=============
See accompanying notes.
-201-
WMT III SERIES G/J TRADING VEHICLE LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL (NET ASSET VALUE)
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
Members' Capital
-----------------------------------------
Member G Member J Total
----------- ------------ -------------
Balance at December 1, 2005
(commencement of operations) $ 0 $ 0 $ 0
Additions 525,000 10,341,481 10,866,481
Net loss (15,594) (307,176) (322,770)
----------- ------------ ------------
Balance at
December 31, 2005 $ 509,406 $10,034,305 $10,543,711
=========== ============ ============
See accompanying notes.
-202-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION
------------
A. General Description of the Trading Vehicle
WMT III Series G/J Trading Vehicle LLC (the "Trading Vehicle") is
a limited liability company organized under the laws of Delaware
on March 10, 2005 which will terminate on December 31, 2054 unless
terminated sooner under the provisions of the Organization
Agreement. The Trading Vehicle commenced trading operations on
December 1, 2005. The Trading Vehicle was formed to engage in the
speculative trading of a diversified portfolio of futures
contracts, options on futures contracts and forward currency
contracts. Preferred Investment Solutions Corp. ("Preferred") is
the Managing Owner of the Trading Vehicle. The Trading Vehicle
currently consists of two members: World Monitor Trust III -
Series G ("Member G") and World Monitor Trust III - Series J
("Member J") (collectively, the "Members"). Preferred is also the
Managing Owner of each of the Members. Upon making the initial
capital contribution, each Member received Voting Membership
Interests.
The Trading Vehicle is a Member managed limited liability company
that is not registered in any capacity with, or subject directly
to regulation by the Commodity Futures Trading Commission or the
United States Securities and Exchange Commission.
B. The Trading Advisor
The Trading Vehicle entered into an advisory agreement with Graham
Capital Management, L.P. (the "Trading Advisor") to make the
trading decisions for the Trading Vehicle. The Trading Advisor
manages approximately 100% of the assets of the Trading Vehicle
pursuant to its Global Diversified at 150% Leverage program.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of the Trading Vehicle are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Commodity futures and forward transactions are reflected in the
accompanying statement of financial condition on the trade date.
Net unrealized gain or loss on open contracts (the difference
between contract trade price and market price) is reflected in the
financial statements in accordance with Financial Accounting
Standards Board Interpretation No. 39 - "Offsetting of Amounts
Related to Certain Contracts." The market value of futures
(exchange-traded) contracts is based upon the closing quotation on
the various futures exchanges on which the contract is traded. The
fair value of forward (non-exchange traded) contracts is
extrapolated on a forward basis from the spot price. Any change in
net unrealized gain or loss during the current period is reported
in the statement of operations. Realized gains and losses on
commodity transactions are recognized in the period in which the
contracts are closed.
Brokerage commissions include other trading fees and are charged
to expense when contracts are opened.
-203-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
The Trading Vehicle has elected not to provide a Statement of Cash
Flows as permitted by Statement of Financial Accounting Standards
No. 102, "Statement of Cash Flows - Exemption of Certain
Enterprises and Classification of Cash Flows from Certain
Securities Acquired for Resale."
Consistent with standard business practices in the normal course
of business, the Trading Vehicle has provided general
indemnifications to its Trading Advisor and others when they act,
in good faith, in the best interests of the Trading Vehicle. The
Trading Vehicle is unable to develop an estimate of the maximum
potential amount of future payments that could potentially result
from any hypothetical future claim, but expects the risk of having
to make any payments under these general business indemnifications
to be remote.
B. Income Taxes
The Trading Vehicle is treated as a partnership for Federal income
tax purposes. As such, the Trading Vehicle is not required to
provide for, or pay, any Federal or state income taxes. Income tax
attributes that arise from its operations are passed directly to
the Members. The Trading Vehicle may be subject to other state and
local taxes in jurisdictions in which it operates.
C. Capital Accounts
The Trading Vehicle accounts for subscriptions, allocations and
redemptions on a per member capital account basis.
The Trading Vehicle allocates profits and losses to its Members
monthly on a pro rata basis based on each Member's pro rata
capital in the Trading Vehicle during the month. Distributions
(other than redemptions of capital) may be made at the sole
discretion of the Members on a pro rata basis in accordance with
the Members' respective capital balances. The Trading Vehicle does
not presently intend to make any distributions.
D. Foreign Currency Transactions
The Trading Vehicle'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 U.S.
dollars 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.
-204-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 3. MANAGEMENT AND INCENTIVE FEES
-----------------------------
The Trading Vehicle pays the Trading Advisor a monthly management fee
equal to 1/12 of 2.5% (2.5% annually) of the Trading Vehicle's allocated
assets determined as of the close of business on the last day of each
month. For purposes of determining the management fee, any
distributions, redemptions or reallocation of assets made as of the last
day of each month shall be added back to the assets and there shall be
no reduction for (i) the management fees calculated or (ii) any accrued
but unpaid incentive fees due the Trading Advisor.
Additionally, the Trading Vehicle pays the Trading Advisor an incentive
fee of 20% (the "Incentive Fee") of "New High Net Trading Profits" (as
defined in the Advisory Agreement). The incentive fee accrues monthly
and is paid quarterly. The Trading Advisor did not earn an incentive fee
for the period December 1, 2005 (commencement of operations) to December
31, 2005.
Note 4. OPERATING EXPENSES
------------------
Operating expenses of the Trading Vehicle are paid for by the Trading
Vehicle.
Note 5. DEPOSITS WITH BROKER
--------------------
The Trading Vehicle deposits funds with UBS Securities LLC to act as
broker subject to Commodity Futures Trading Commission regulations and
various exchange and broker requirements. The Trading Vehicle also
deposits collateral with UBS AG for margin against over-the-counter
forward and foreign exchange deals. Margin requirements of approximately
0% to 35% are satisfied by the deposit of cash with such broker. The
Trading Vehicle earns interest income on assets deposited with the
broker.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Additional investments in the Trading Vehicle can be made at any time
subject to the terms of the Organization Agreement.
The Trading Vehicle is not required to make distributions, but could do
so at the discretion of the Members. A Member can request and receive
redemption of capital at any time, subject to the terms in the
Organization Agreement.
-205-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
-------------------------------------------
The Trading Vehicle is exposed to various types of risks associated with
the derivative instruments and related markets in which it invests.
These risks include, but are not limited to, risk of loss from
fluctuations in the value of derivative instruments held (market risk)
and the inability of counterparties to perform under the terms of the
Trading Vehicle's investment activities (credit risk).
A. Market Risk
Trading in futures and forward contracts (including foreign
exchange) involves entering into contractual commitments to
purchase or sell a particular commodity at a specified date and
price. The gross or face amount of the contracts, which is
typically many times that of the Trading Vehicle's net assets
being traded, significantly exceeds the Trading Vehicle's future
cash requirements since the Trading Vehicle intends to close out
its open positions prior to settlement. As a result, the Trading
Vehicle is generally subject only to the risk of loss arising from
the change in the value of the contracts. As such, the Trading
Vehicle considers the "fair value" of its derivative instruments
to be the net unrealized gain or loss on the contracts. The market
risk associated with the Trading Vehicle's commitments to purchase
commodities is limited to the gross or face amount of the contract
held. However, when the Trading Vehicle enters into a contractual
commitment to sell commodities, it must make delivery of the
underlying commodity at the contract price and then repurchase the
contract at prevailing market prices or settle in cash. Since the
repurchase price to which a commodity can rise is unlimited,
entering into commitments to sell commodities exposes the Trading
Vehicle to unlimited risk.
Market risk is influenced by a wide variety of factors, including
government programs and policies, political and economic events,
the level and volatility of interest rates, foreign currency
exchange rates, the diversification effect among the derivative
instruments the Trading Vehicle holds and the liquidity and
inherent volatility of the markets in which the Trading Vehicle
trades.
B. Credit Risk
When entering into futures and forward contracts, the Trading
Vehicle is exposed to credit risk that the counterparty to the
contract will not meet its obligations. The counterparty for
futures contracts traded on United States and most foreign futures
exchanges is the clearinghouse associated with the particular
exchange. In general, a clearinghouse is backed by its corporate
members who are required to share any financial burden resulting
from the non-performance by one of their members and, as such,
should significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks
or other financial institutions. On the other hand, there is a
concentration risk on forward transactions entered into by the
Trading Vehicle as UBS AG is the sole counterparty. The Trading
Vehicle has entered into a master netting agreement dated November
29, 2005 with UBS AG and, as a result, when applicable, presents
unrealized gains and losses on open forward positions as a net
amount in the statement of financial condition. The amount at risk
associated with counterparty non-performance of all of the Trading
Vehicle's contracts is the net unrealized gain included in the
statement of financial condition; however, counterparty
non-performance on only certain of the Trading Vehicle's contracts
may result in greater loss than non-performance on all of the
Trading Vehicle's contracts. There can be no assurance that any
counterparty, clearing member or clearinghouse will meet its
obligations to the Trading Vehicle.
-206-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 8. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
-------------------------------------------------------
B. Credit Risk (Continued)
The Managing Owner attempts to minimize both credit and market
risks by requiring the Trading Vehicle and its Trading Advisor to
abide by various trading limitations and policies. Preferred
monitors compliance with these trading limitations and policies,
which include, but are not limited to, executing and clearing all
trades with creditworthy counterparties; limiting the amount of
margin or premium required for any one commodity or all
commodities combined; and generally limiting transactions to
contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. Additionally, pursuant to the
Advisory Agreement among the Trading Vehicle, Preferred and the
Trading Advisor, the Trading Vehicle shall automatically terminate
the Trading Agreement, if the net asset value allocated to the
Trading Advisor declines as of the end of any business day by at
least 40% from the value at the beginning of any calendar year or
since the effective date of the Advisory Agreement. The decline in
net asset value is after giving effect for distributions,
subscriptions and redemptions.
The Trading Vehicle's futures commission merchant, in accepting
orders for the purchase or sale of domestic futures contracts, is
required by Commodity Futures Trading Commission ("CFTC")
regulations to separately account for and segregate as belonging
to the Trading Vehicle all assets of the Trading Vehicle relating
to domestic futures trading and is not allowed to commingle such
assets with its other assets. At December 31, 2005, such
segregated assets totaled $10,705,114. Part 30.7 of the CFTC
regulations also requires the Trading Vehicle's futures commission
merchant to secure assets of the Trading Vehicle related to
foreign futures trading which totaled $(216,106) at December 31,
2005. There are no segregation requirements for assets related to
forward trading.
As of December 31, 2005, all open futures and forward contracts
mature between February 2006 and June 2007.
-207-
WMT III SERIES G/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents the financial highlights of the
Trading Vehicle for the period December 1, 2005 (commencement of
operations) to December 31, 2005. This information has been derived from
information presented in the financial statements.
Total return (1)
Total return before incentive fee (2.97)%
Incentive fee 0.00 %
---------
Total return after incentive fee (2.97)%
=========
Ratios to average net asset value:
Expenses prior to incentive fee (2) 6.38 %
Incentive fee (1) 0.00 %
---------
Total expenses and incentive fee 6.38 %
=========
Net investment loss (2), (3) (2.69)%
=========
Total returns and ratios to average net asset value are calculated for
Members' capital taken as a whole. An individual Member's total return and
ratios may vary from the above return and ratios based on the timing of
additions and redemptions.
- ----------
(1) Not annualized.
(2) Annualized.
(3) Represents interest income less total expenses (exclusive of incentive
fee).
Note 10. SUBSEQUENT EVENT
----------------
Effective January 1, 2006, additions of $2,541,412 were made to the
Trading Vehicle by Member J.
-208-
World Monitor Trust III - Series J
Section III
INDEPENDENT AUDITORS' REPORT
To the Managing Owner and Members of
WMT III Series H/J Trading Vehicle LLC
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of WMT III Series H/J Trading Vehicle
LLC (the "Trading Vehicle") as of December 31, 2005, and the related
statements of operations and changes in members' capital (net asset value) for
the period December 1, 2005 (commencement of operations) to December 31, 2005.
These financial statements are the responsibility of the Trading Vehicle's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States) and
in accordance with auditing standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Trading Vehicle is not required to have, nor were
we engaged to perform, an audit of is internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trading Vehicle's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 WMT III Series H/J Trading
Vehicle LLC as of December 31, 2005, and the results of its operations and
changes in its members' capital (net asset value) for the period December 1,
2005 (commencement of operations) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
/s/Deloitte & Touche LLP
March 29, 2006
-209-
WMT III SERIES H/J TRADING VEHICLE LLC
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
---------------
ASSETS
Cash in commodity trading accounts $11,022,502
Net unrealized loss on open futures contracts (328,519)
Interest receivable 33,259
--------------
Total assets $10,727,242
==============
LIABILITIES
Accrued expenses $ 28,800
Commissions payable 3,294
Advisor fee payable 26,738
--------------
Total liabilities 58,832
--------------
MEMBERS' CAPITAL (Net Asset Value)
Member H 515,430
Member J 10,152,980
--------------
Total members' capital
(Net Asset Value) 10,668,410
--------------
Total liabilities and members' capital $10,727,242
==============
See accompanying notes.
-210-
WMT III SERIES H/J TRADING VEHICLE LLC
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2005
---------------
Net
Unrealized
Gain (Loss) Net
as a % of Net Unrealized
Asset Value Gain/Loss
------------- ----------
Futures Contracts
Futures contracts purchased:
Commodities (0.13)% $(14,296)
Currencies (2.00)% (213,075)
Interest rates 0.22% 23,738
Metals 0.13% 13,709
Stock indices 0.10% 10,498
-------------- ----------
Net unrealized loss on futures contracts purchased (1.68)% (179,426)
-------------- ----------
Futures contracts sold:
Currencies 1.06% 112,658
Interest rates (2.14)% (228,391)
Metals (0.03)% (2,900)
Stock indices (0.29)% (30,460)
-------------- ----------
Net unrealized loss on futures contracts sold (1.40)% (149,093)
-------------- ----------
Net unrealized loss on futures contracts (3.08)% $(328,519)
============== ==========
See accompanying notes.
-211-
WMT III SERIES H/J TRADING VEHICLE LLC
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
REVENUES
Realized $161,273
Change in unrealized (328,519)
Interest income 34,330
-------------
Total revenues (losses) (132,916)
-------------
EXPENSES
Brokerage commissions 9,617
Advisor fee 26,738
Operating expenses 28,800
-------------
Total expenses 65,155
-------------
NET LOSS $(198,071)
=============
See accompanying notes.
-212-
WMT III SERIES H/J TRADING VEHICLE LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL (NET ASSET VALUE)
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
---------------
Members' Capital
-----------------------------------------
Member H Member J Total
------------ ------------- ------------
Balance at December 1, 2005
(commencement of operations) $ 0 $ 0 $ 0
Additions 525,000 10,341,481 10,866,481
Net loss (9,570) (188,501) (198,071)
------------ ------------ ------------
Balance at
December 31, 2005 $ 515,430 $10,152,980 $10,668,410
========== ============= ============
See accompanying notes.
-213-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION
------------
A. General Description of the Trading Vehicle
WMT III Series H/J Trading Vehicle LLC (the "Trading Vehicle") is
a limited liability company organized under the laws of Delaware
on March 10, 2005 which will terminate on December 31, 2054 unless
terminated sooner under the provisions of the Organization
Agreement. The Trading Vehicle commenced trading operations on
December 1, 2005. The Trading Vehicle was formed to engage in the
speculative trading of a diversified portfolio of futures
contracts and options on futures contracts. Preferred Investment
Solutions Corp. ("Preferred") is the Managing Owner of the Trading
Vehicle. The Trading Vehicle currently consists of two members:
World Monitor Trust III - Series H ("Member H") and World Monitor
Trust III - Series J ("Member J") (collectively, the "Members").
Preferred is also the Managing Owner of each of the Members. Upon
making the initial capital contribution, each Member received
Voting Membership Interests.
The Trading Vehicle is a Member managed limited liability company
that is not registered in any capacity with, or subject directly
to regulation by the Commodity Futures Trading Commission or the
United States Securities and Exchange Commission.
B. The Trading Advisor
The Trading Vehicle entered into an advisory agreement with
Bridgewater Associates, Inc. (the "Trading Advisor") to make the
trading decisions for the Trading Vehicle. The Trading Advisor
manages approximately 100% of the assets of the Trading Vehicle
pursuant to its Aggressive Pure Alpha Futures Only - A, No
Benchmark program.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of the Trading Vehicle are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Commodity futures transactions are reflected in the accompanying
statement of financial condition on the trade date. Net unrealized
gain or loss on open contracts (the difference between contract
trade price and market price) is reflected in the financial
statements in accordance with Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to Certain
Contracts." The market value of futures (exchange-traded)
contracts is based upon the closing quotation on the various
futures exchanges on which the contract is traded. Any change in
net unrealized gain or loss during the current period is reported
in the statement of operations. Realized gains and losses on
commodity transactions are recognized in the period in which the
contracts are closed.
Brokerage commissions include other trading fees and are charged
to expense when contracts are opened.
-214-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
The Trading Vehicle has elected not to provide a Statement of Cash
Flows as permitted by Statement of Financial Accounting Standards
No. 102, "Statement of Cash Flows - Exemption of Certain
Enterprises and Classification of Cash Flows from Certain
Securities Acquired for Resale."
Consistent with standard business practices in the normal course
of business, the Trading Vehicle has provided general
indemnifications to its Trading Advisor and others when they act,
in good faith, in the best interests of the Trading Vehicle. The
Trading Vehicle is unable to develop an estimate of the maximum
potential amount of future payments that could potentially result
from any hypothetical future claim, but expects the risk of having
to make any payments under these general business indemnifications
to be remote.
B. Income Taxes
The Trading Vehicle is treated as a partnership for Federal income
tax purposes. As such, the Trading Vehicle is not required to
provide for, or pay, any Federal or state income taxes. Income tax
attributes that arise from its operations are passed directly to
the Members. The Trading Vehicle may be subject to other state and
local taxes in jurisdictions in which it operates.
C. Capital Accounts
The Trading Vehicle accounts for subscriptions, allocations and
redemptions on a per member capital account basis.
The Trading Vehicle allocates profits and losses to its Members
monthly on a pro rata basis based on each Member's pro rata
capital in the Trading Vehicle during the month. Distributions
(other than redemptions of capital) may be made at the sole
discretion of the Members on a pro rata basis in accordance with
the Members' respective capital balances. The Trading Vehicle does
not presently intend to make any distributions.
D. Foreign Currency Transactions
The Trading Vehicle'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 U.S.
dollars 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.
-215-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 3. MANAGEMENT AND INCENTIVE FEES
-----------------------------
The Trading Vehicle pays the Trading Advisor a monthly management fee
equal to 1/12 of 3.0% (3.0% annually) of the Trading Vehicle's allocated
assets determined as of the close of business on the last day of each
month. For purposes of determining the management fee, any
distributions, redemptions or reallocation of assets made as of the last
day of each month shall be added back to the assets and there shall be
no reduction for (i) the management fees calculated or (ii) any accrued
but unpaid incentive fees due the Trading Advisor.
Additionally, the Trading Vehicle pays the Trading Advisor an incentive
fee of 20% (the "Incentive Fee") of "New High Net Trading Profits" (as
defined in the Advisory Agreement). The incentive fee accrues monthly
and is paid quarterly. The Trading Advisor did not earn an incentive fee
for the period December 1, 2005 (commencement of operations) to December
31, 2005.
Note 4. OPERATING EXPENSES
------------------
Operating expenses of the Trading Vehicle are paid for by the Trading
Vehicle.
Note 5. DEPOSITS WITH BROKER
--------------------
The Trading Vehicle deposits funds with UBS Securities LLC to act as
broker subject to Commodity Futures Trading Commission regulations and
various exchange and broker requirements. Margin requirements of
approximately 0% to 35% are satisfied by the deposit of cash with such
broker. The Trading Vehicle earns interest income on assets deposited
with the broker.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Additional investments in the Trading Vehicle can be made at any time
subject to the terms of the Organization Agreement.
The Trading Vehicle is not required to make distributions, but could do
so at the discretion of the Members. A Member can request and receive
redemption of capital at any time, subject to the terms in the
Organization Agreement.
-216-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
-------------------------------------------
The Trading Vehicle is exposed to various types of risks associated with
the derivative instruments and related markets in which it invests.
These risks include, but are not limited to, risk of loss from
fluctuations in the value of derivative instruments held (market risk)
and the inability of counterparties to perform under the terms of the
Trading Vehicle's investment activities (credit risk).
A. Market Risk
Trading in futures contracts (including foreign exchange) involves
entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or
face amount of the contracts, which is typically many times that
of the Trading Vehicle's net assets being traded, significantly
exceeds the Trading Vehicle's future cash requirements since the
Trading Vehicle intends to close out its open positions prior to
settlement. As a result, the Trading Vehicle is generally subject
only to the risk of loss arising from the change in the value of
the contracts. As such, the Trading Vehicle considers the "fair
value" of its derivative instruments to be the net unrealized gain
or loss on the contracts. The market risk associated with the
Trading Vehicle's commitments to purchase commodities is limited
to the gross or face amount of the contract held. However, when
the Trading Vehicle enters into a contractual commitment to sell
commodities, it must make delivery of the underlying commodity at
the contract price and then repurchase the contract at prevailing
market prices or settle in cash. Since the repurchase price to
which a commodity can rise is unlimited, entering into commitments
to sell commodities exposes the Trading Vehicle to unlimited risk.
Market risk is influenced by a wide variety of factors, including
government programs and policies, political and economic events,
the level and volatility of interest rates, foreign currency
exchange rates, the diversification effect among the derivative
instruments the Trading Vehicle holds and the liquidity and
inherent volatility of the markets in which the Trading Vehicle
trades.
B. Credit Risk
When entering into futures contracts, the Trading Vehicle is
exposed to credit risk that the counterparty to the contract will
not meet its obligations. The counterparty for futures contracts
traded on United States and most foreign futures exchanges is the
clearinghouse associated with the particular exchange. In general,
a clearinghouse is backed by its corporate members who are
required to share any financial burden resulting from the
non-performance by one of their members and, as such, should
significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks
or other financial institutions. The amount at risk associated
with counterparty non-performance of all of the Trading Vehicle's
contracts is the net unrealized gain included in the statement of
financial condition; however, counterparty non-performance on only
certain of the Trading Vehicle's contracts may result in greater
loss than non-performance on all of the Trading Vehicle's
contracts. There can be no assurance that any counterparty,
clearing member or clearinghouse will meet its obligations to the
Trading Vehicle.
-217-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
-------------------------------------------------------
B. Credit Risk (Continued)
The Managing Owner attempts to minimize both credit and market
risks by requiring the Trading Vehicle and its Trading Advisor to
abide by various trading limitations and policies. Preferred
monitors compliance with these trading limitations and policies,
which include, but are not limited to, executing and clearing all
trades with creditworthy counterparties; limiting the amount of
margin or premium required for any one commodity or all
commodities combined; and generally limiting transactions to
contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. Additionally, pursuant to the
Advisory Agreement among the Trading Vehicle, Preferred and the
Trading Advisor, the Trading Vehicle shall automatically terminate
the Trading Agreement, if the net asset value allocated to the
Trading Advisor declines as of the end of any business day by at
least 40% from the value at the beginning of any calendar year or
since the effective date of the Advisory Agreement. The decline in
net asset value is after giving effect for distributions,
subscriptions and redemptions.
The Trading Vehicle's futures commission merchant, in accepting
orders for the purchase or sale of domestic futures contracts, is
required by Commodity Futures Trading Commission ("CFTC")
regulations to separately account for and segregate as belonging
to the Trading Vehicle all assets of the Trading Vehicle relating
to domestic futures trading and is not allowed to commingle such
assets with its other assets. At December 31, 2005, such
segregated assets totaled $10,857,532. Part 30.7 of the CFTC
regulations also requires the Trading Vehicle's futures commission
merchant to secure assets of the Trading Vehicle related to
foreign futures trading which totaled $(163,549) at December 31,
2005.
As of December 31, 2005, all open futures contracts mature between
February and December 2006.
-218-
WMT III SERIES H/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
---------------
Note 8. FINANCIAL HIGHLIGHTS
--------------------
The following information presents the financial highlights of the
Trading Vehicle for the period December 1, 2005 (commencement of
operations) to December 31, 2005. This information has been derived from
information presented in the financial statements.
Total return (1)
Total return before incentive fee (1.82)%
Incentive fee 0.00 %
-------
Total return after incentive fee (1.82)%
=======
Ratios to average net asset value:
Expenses prior to incentive fee (2) 7.20 %
Incentive fee (1) 0.00 %
-------
Total expenses and incentive fee 7.20 %
=======
Net investment loss (2), (3) (3.40)%
=======
Total returns and ratios to average net asset value are calculated for
Members' capital taken as a whole. An individual Member's total return and
ratios may vary from the above return and ratios based on the timing of
additions and redemptions.
- -----------------
(1) Not annualized.
(2) Annualized.
(3) Represents interest income less total expenses (exclusive of incentive
fee).
Note 9. SUBSEQUENT EVENT
----------------
Effective January 1, 2006, additions of $2,525,900 were made to the
Trading Vehicle by Member J.
-219-
World Monitor Trust III - Series J
Section IV
INDEPENDENT AUDITORS' REPORT
To the Managing Owner and Members of
WMT III Series I/J Trading Vehicle LLC
We have audited the accompanying statement of financial condition, including
the condensed schedule of investments, of WMT III Series I/J Trading Vehicle
LLC (the "Trading Vehicle") as of December 31, 2005, and the related
statements of operations and changes in members' capital (net asset value) for
the period December 1, 2005 (commencement of operations) to December 31, 2005.
These financial statements are the responsibility of the Trading Vehicle's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States) and
in accordance with auditing standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Trading Vehicle is not required to have, nor were
we engaged to perform, an audit of is internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trading Vehicle's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 WMT III Series I/J Trading
Vehicle LLC as of December 31, 2005, and the results of its operations and
changes in its members' capital (net asset value) for the period December 1,
2005 (commencement of operations) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
/s/Deloitte & Touche LLP
March 29, 2006
See accompanying notes.
-220-
WMT III SERIES I/J TRADING VEHICLE LLC
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
_______________
ASSETS
Cash in commodity trading accounts $10,651,193
Net unrealized loss on open futures contracts (98,436)
Interest receivable 33,290
------------
Total assets $10,586,047
============
LIABILITIES
Accrued expenses $ 28,800
Commissions payable 2,098
Advisor fee payable 17,592
------------
Total liabilities 48,490
------------
MEMBERS' CAPITAL (Net Asset Value)
Member I 509,108
Member J 10,028,449
------------
Total members' capital
(Net Asset Value) 10,537,557
------------
Total liabilities and members' capital $10,586,047
See accompanying notes.
-221-
WMT III SERIES I/J TRADING VEHICLE LLC
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2005
_______________
Net Unrealized
Gain (Loss) as a % Net Unrealized
of Net Asset Value Gain/Loss
------------------ --------------
Futures Contracts
- -----------------
Futures contracts purchased:
Commodities (0.41)% $ (42,900)
Currencies (0.46)% (48,760)
Interest rates (0.28)% (29,562)
Metals 0.66% 69,290
Stock indices (0.44)% (46,504)
------------------ --------------
Net unrealized (loss) on futures contracts purchased (0.93)% $ (98,436)
------------------ --------------
See accompanying notes.
-222-
WMT III SERIES I/J TRADING VEHICLE LLC
STATEMENT OF OPERATIONS
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
_______________
REVENUES
Realized $(206,454)
Change in unrealized (98,436)
Interest income 34,356
------------
Total revenues (losses) (270,534)
------------
EXPENSES
Brokerage commissions 11,998
Advisor fee 17,592
Operating expenses 28,800
------------
Total expenses 58,390
------------
NET LOSS $(328,924)
============
See accompanying notes.
-223-
WMT III SERIES I/J TRADING VEHICLE LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL (NET ASSET VALUE)
For the Period December 1, 2005 (commencement of operations)
to December 31, 2005
_______________
Members' Capital
------------------------------------------------------------
Member I Member J Total
------------------------------------------------------------
Balance at December 1, 2005
(commencement of operations) $ 0 $ 0 $ 0
Additions 525,000 10,341,481 10,866,481
Net loss (15,892) (313,032) (328,924)
-------------- -------------- --------------
Balance at
December 31, 2005 $ 509,108 $ 10,028,449 $ 10,537,557
============== ============== ==============
See accompanying notes.
-224-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
_______________
Note 1. ORGANIZATION
------------
A. General Description of the Trading Vehicle
WMT III Series I/J Trading Vehicle LLC (the "Trading Vehicle")
is a limited liability company organized under the laws of
Delaware on March 10, 2005 which will terminate on December 31,
2054 unless terminated sooner under the provisions of the
Organization Agreement. The Trading Vehicle commenced trading
operations on December 1, 2005. The Trading Vehicle was formed
to engage in the speculative trading of a diversified portfolio
of futures contracts and options on futures contracts.
Preferred Investment Solutions Corp. ("Preferred") is the
Managing Owner of the Trading Vehicle. The Trading Vehicle
currently consists of two members: World Monitor Trust III -
Series I ("Member I") and World Monitor Trust III - Series J
("Member J") (collectively, the "Members"). Preferred is also
the Managing Owner of each of the Members. Upon making the
initial capital contribution, each Member received Voting
Membership Interests.
The Trading Vehicle is a Member managed limited liability
company that is not registered in any capacity with, or subject
directly to regulation by the Commodity Futures Trading
Commission or the United States Securities and Exchange
Commission.
B. The Trading Advisor
The Trading Vehicle entered into an advisory agreement with
Eagle Trading Systems Inc. (the "Trading Advisor") to make the
trading decisions for the Trading Vehicle. The Trading Advisor
manages approximately 100% of the assets of the Trading Vehicle
pursuant to its Momentum program.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Basis of Accounting
The financial statements of the Trading Vehicle are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Commodity futures transactions are reflected in the
accompanying statement of financial condition on the trade
date. Net unrealized gain or loss on open contracts (the
difference between contract trade price and market price) is
reflected in the financial statements in accordance with
Financial Accounting Standards Board Interpretation No. 39 -
"Offsetting of Amounts Related to Certain Contracts." The
market value of futures (exchange-traded) contracts is based
upon the closing quotation on the various futures exchanges on
which the contract is traded. Any change in net unrealized gain
or loss during the current period is reported in the statement
of operations. Realized gains and losses on commodity
transactions are recognized in the period in which the
contracts are closed.
Brokerage commissions include other trading fees and are
charged to expense when contracts are opened.
-225-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
_______________
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
A. Basis of Accounting (Continued)
The Trading Vehicle has elected not to provide a Statement of
Cash Flows as permitted by Statement of Financial Accounting
Standards No. 102, "Statement of Cash Flows - Exemption of
Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale."
Consistent with standard business practices in the normal
course of business, the Trading Vehicle has provided general
indemnifications to its Trading Advisor and others when they
act, in good faith, in the best interests of the Trading
Vehicle. The Trading Vehicle is unable to develop an estimate
of the maximum potential amount of future payments that could
potentially result from any hypothetical future claim, but
expects the risk of having to make any payments under these
general business indemnifications to be remote.
B. Income Taxes
The Trading Vehicle is treated as a partnership for Federal
income tax purposes. As such, the Trading Vehicle is not
required to provide for, or pay, any Federal or state income
taxes. Income tax attributes that arise from its operations are
passed directly to the Members. The Trading Vehicle may be
subject to other state and local taxes in jurisdictions in
which it operates.
C. Capital Accounts
The Trading Vehicle accounts for subscriptions, allocations and
redemptions on a per member capital account basis.
The Trading Vehicle allocates profits and losses to its Members
monthly on a pro rata basis based on each Member's pro rata
capital in the Trading Vehicle during the month. Distributions
(other than redemptions of capital) may be made at the sole
discretion of the Members on a pro rata basis in accordance
with the Members' respective capital balances. The Trading
Vehicle does not presently intend to make any distributions.
D. Foreign Currency Transactions
The Trading Vehicle'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 U.S. dollars 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.
-226-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
_______________
Note 3. MANAGEMENT AND INCENTIVE FEES
-----------------------------
The Trading Vehicle pays the Trading Advisor a monthly management fee
equal to 1/12 of 2.0% (2.0% annually) of the Trading Vehicle's
allocated assets determined as of the close of business on the last
day of each month. For purposes of determining the management fee,
any distributions, redemptions or reallocation of assets made as of
the last day of each month shall be added back to the assets and
there shall be no reduction for (i) the management fees calculated or
(ii) any accrued but unpaid incentive fees due the Trading Advisor.
Additionally, the Trading Vehicle pays the Trading Advisor an
incentive fee of 20% (the "Incentive Fee") of "New High Net Trading
Profits" (as defined in the Advisory Agreement). The incentive fee
accrues monthly and is paid quarterly. The Trading Advisor did not
earn an incentive fee for the period December 1, 2005 (commencement
of operations) to December 31, 2005.
Note 4. OPERATING EXPENSES
------------------
Operating expenses of the Trading Vehicle are paid for by the Trading
Vehicle.
Note 5. DEPOSITS WITH BROKER
--------------------
The Trading Vehicle deposits funds with UBS Securities LLC to act as
broker subject to Commodity Futures Trading Commission regulations
and various exchange and broker requirements. Margin requirements of
approximately 0% to 35% are satisfied by the deposit of cash with
such broker. The Trading Vehicle earns interest income on assets
deposited with the broker.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Additional investments in the Trading Vehicle may be made at any time
subject to the terms of the Organization Agreement.
The Trading Vehicle is not required to make distributions, but could
do so at the discretion of the Members. A Member can request and
receive redemption of capital at any time, subject to the terms in
the Organization Agreement.
-227-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
_______________
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
-------------------------------------------
The Trading Vehicle is exposed to various types of risks associated
with the derivative instruments and related markets in which it
invests. These risks include, but are not limited to, risk of loss
from fluctuations in the value of derivative instruments held (market
risk) and the inability of counterparties to perform under the terms
of the Trading Vehicle's investment activities (credit risk).
A. Market Risk
Trading in futures contracts (including foreign exchange)
involves entering into contractual commitments to purchase or
sell a particular commodity at a specified date and price. The
gross or face amount of the contracts, which is typically many
times that of the Trading Vehicle's net assets being traded,
significantly exceeds the Trading Vehicle's future cash
requirements since the Trading Vehicle intends to close out its
open positions prior to settlement. As a result, the Trading
Vehicle is generally subject only to the risk of loss arising
from the change in the value of the contracts. As such, the
Trading Vehicle considers the "fair value" of its derivative
instruments to be the net unrealized gain or loss on the
contracts. The market risk associated with the Trading
Vehicle's commitments to purchase commodities is limited to the
gross or face amount of the contract held. However, when the
Trading Vehicle enters into a contractual commitment to sell
commodities, it must make delivery of the underlying commodity
at the contract price and then repurchase the contract at
prevailing market prices or settle in cash. Since the
repurchase price to which a commodity can rise is unlimited,
entering into commitments to sell commodities exposes the
Trading Vehicle to unlimited risk.
Market risk is influenced by a wide variety of factors,
including government programs and policies, political and
economic events, the level and volatility of interest rates,
foreign currency exchange rates, the diversification effect
among the derivative instruments the Trading Vehicle holds and
the liquidity and inherent volatility of the markets in which
the Trading Vehicle trades.
B. Credit Risk
When entering into futures contracts, the Trading Vehicle is
exposed to credit risk that the counterparty to the contract
will not meet its obligations. The counterparty for futures
contracts traded on United States and most foreign futures
exchanges is the clearinghouse associated with the particular
exchange. In general, a clearinghouse is backed by its
corporate members who are required to share any financial
burden resulting from the non-performance by one of their
members and, as such, should significantly reduce this credit
risk. In cases where the clearinghouse is not backed by the
clearing members (i.e., some foreign exchanges), it is normally
backed by a consortium of banks or other financial
institutions. The amount at risk associated with counterparty
non-performance of all of the Trading Vehicle's contracts is
the net unrealized gain included in the statement of financial
condition; however, counterparty non-performance on only
certain of the Trading Vehicle's contracts may result in
greater loss than non-performance on all of the Trading
Vehicle's contracts. There can be no assurance that any
counterparty, clearing member or clearinghouse will meet its
obligations to the Trading Vehicle.
-228-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
_______________
Note 7. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
-------------------------------------------------------
B. Credit Risk (Continued)
The Managing Owner attempts to minimize both credit and market
risks by requiring the Trading Vehicle and its Trading Advisor
to abide by various trading limitations and policies. Preferred
monitors compliance with these trading limitations and
policies, which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties; limiting
the amount of margin or premium required for any one commodity
or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume
to permit the taking and liquidating of positions.
Additionally, pursuant to the Advisory Agreement among the
Trading Vehicle, Preferred and the Trading Advisor, the Trading
Vehicle shall automatically terminate the Trading Agreement, if
the net asset value allocated to the Trading Advisor declines
as of the end of any business day by at least 40% from the
value at the beginning of any calendar year or since the
effective date of the Advisory Agreement. The decline in net
asset value is after giving effect for distributions,
subscriptions and redemptions.
The Trading Vehicle's futures commission merchant, in accepting
orders for the purchase or sale of domestic futures contracts,
is required by Commodity Futures Trading Commission ("CFTC")
regulations to separately account for and segregate as
belonging to the Trading Vehicle all assets of the Trading
Vehicle relating to domestic futures trading and is not allowed
to commingle such assets with its other assets. At December 31,
2005, such segregated assets totaled $10,679,510. Part 30.7 of
the CFTC regulations also requires the Trading Vehicle's
futures commission merchant to secure assets of the Trading
Vehicle related to foreign futures trading which totaled
$(126,753) at December 31, 2005.
As of December 31, 2005, all open futures contracts mature
between February and March 2006.
-229-
WMT III SERIES I/J TRADING VEHICLE LLC
NOTES TO FINANCIAL STATEMENTS
_______________
Note 8. FINANCIAL HIGHLIGHTS
--------------------
The following information presents the financial highlights of the
Trading Vehicle for the period December 1, 2005 (commencement of
operations) to December 31, 2005. This information has been derived
from information presented in the financial statements.
Total return (1)
Total return before incentive fee (3.03)%
Incentive fee 0.00
------------
Total return after incentive fee (3.03)%
============
Ratios to average net asset value:
Expenses prior to incentive fee (2) 6.45%
Incentive fee (1) 0.00%
------------
Total expenses and incentive fee 6.45%
============
Net investment loss (2), (3) 2.65%
============
Total returns and ratios to average net asset value are calculated for
Members' capital taken as a whole. An individual Member's total return and
ratios may vary from the above return and ratios based on the timing of
additions and redemptions.
(1) Not annualized.
(2) Annualized.
(3) Represents interest income less total expenses (exclusive of incentive fee).
Note 9. SUBSEQUENT EVENT
----------------
Effective January 1, 2006, additions of $2,460,748 were made to the
Trading Vehicle by Member J.
-230-
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholder
Preferred Investment Solutions Corp.
We have audited the accompanying statement of financial condition of Preferred
Investment Solutions Corp. as of December 31, 2005. 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. The Company
has investments in affiliated commodity pools, of which the Company is the
Managing Owner, General Partner or Sponsor. The financial statements for
certain of these affiliated commodity pools were audited by other auditors.
The value of such investments in affiliated commodity pools audited by other
auditors of $2,287,597 at December 31, 2005, is derived from the audited
financial statements of such affiliated commodity pools. The reports of the
other auditors have been furnished to us, and our opinion, insofar as it
relates to these investments, is based solely on the reports of such other
auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
statement of financial condition referred to above presents fairly, in all
material respects, the financial position of Preferred Investment Solutions
Corp. as of December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in the notes to the statement of financial condition, Preferred
Investment Solutions Corp. is a wholly-owned subsidiary and a member of a
group of affiliated companies and, as described in the statement of financial
condition and notes thereto, has extensive transactions and relationships with
members of the group.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C
Hunt Valley, Maryland
April 24, 2006
PREFERRED INVESTMENT SOLUTIONS CORP.
STATEMENT OF FINANCIAL CONDITION
December 31, 2005
_______________
ASSETS
Cash and cash equivalents $ 119,750
Fees and other receivables 1,128,905
Due from affiliates, net 1,968,219
Investments in affiliated commodity pools 2,348,563
Subscription in affiliated commodity pool paid in advance 44,721
Redemptions receivable from affiliated commodity pools 82,762
Redemption receivable from commodity pool 21,093
Property and equipment, net 130,792
Goodwill 2,040,182
Other assets 135,341
----------
Total assets $8,020,328
==========
LIABILITIES
Service fees and other fees payable $ 888,116
Accrued expenses 2,197,602
Notes payable 1,353,165
Interest payable 81,254
Obligations under capital leases 93,476
----------
Total liabilities 4,613,613
----------
STOCKHOLDER'S EQUITY
Common stock, $0.01 par value:
Authorized - 1,000 shares; issued
and outstanding - 248 shares 2
Additional paid-in capital 4,863,713
Retained earnings 902,510
----------
5,766,225
Less: Cost of treasury stock - 148 shares of
common stock 2,359,510
----------
Total stockholder's equity 3,406,715
----------
Total liabilities and stockholder's equity $8,020,328
==========
See accompanying notes.
-232-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
_______________
Note 1. GENERAL DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING
-------------------------------------------------------------
POLICIES
--------
A. General
Preferred Investment Solutions Corp. (the Company), a commodity
pool operator registered with the Commodity Futures Trading
Commission, organizes and operates commodity pools that engage
primarily in the speculative trading of futures, forwards and
option contracts and receives substantially all of its revenue
from the management thereof.
The Company is a wholly-owned subsidiary of Kenmar Holdings
Inc. (the Parent), which in turn, is owned indirectly by Kenmar
Group, Inc. (KGI). Two of the Company's officers are each the
sole and equal owners of KGI.
The accompanying statement of financial condition is presented
in accordance with accounting principles generally accepted in
the United States of America, which require the use of certain
estimates made by the Company's management. Actual results
could differ from those estimates.
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. In the
event of a financial institution's insolvency, the Company's
recovery of cash and cash equivalent balances on deposit may be
limited to account insurance or other protection afforded such
deposits.
C. Investments in Commodity Pools
The Company's investments in affiliated commodity pools, of
which the Company is the Managing Owner, General Partner or
Sponsor, and the Company's investment in an unaffiliated
commodity pool are carried at fair value. Fair value is the
value determined for each commodity pool in accordance with
such commodity pool's valuation policies and, as a general
matter, represents the amount that the company could reasonably
expect to receive from the commodity pool if the Company's
investment was redeemed at the date of the statement of
financial condition.
D. Revenue Recognition
Commission income is recognized when earned, in accordance with
the terms of the respective agreements, and is calculated based
on a percentage of assets under management. Incentive fees are
recognized in accordance with the terms of the respective
agreements and are based on a percentage of the net profits
experienced by the affiliated commodity pools.
-233-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
---------------------
Note 1. GENERAL DESCRIPTION OF THE COMPANY AND SIGNIFACANT ACCOUNTING
POLICIES (CONTINUED)
E. Property and Equipment
Depreciation of furniture, fixtures and office equipment is
computed using the straight-line method over the estimated
useful lives of the assets, which range from 5 to 7 years.
Depreciation of software is computed using the straight-line
method over the estimated useful life of the software, which is
3 years. Amortization of leased assets and leasehold
improvements is computed using the straight-line method over
the lesser of the term of the related lease or the estimated
useful lives of the assets.
F. Income Taxes
The Company has elected S corporation status, pursuant to which
the Company does not pay U.S. Corporate or state income tax on
its taxable income. Instead, the ultimate stockholders of the
Company are liable for individual income tax on their share of
the Company's taxable income.
G. Goodwill
Goodwill represents costs in excess of the fair value of the
net assets of the companies acquired in a purchase transaction.
The Company tests for impairment on a quarterly basis based on
a review of projected net fees from the underlying commodity
pools which the Company manages as a result of the acquisition.
Note 2. GOODWILL
--------
On June 30, 2004, Prudential Securities Group Inc. (PSG) and the
Company entered into a Stock Purchase Agreement, pursuant to which
PSG would sell, and the Company would buy, all of the capital stock
of Prudential Securities Futures Management Inc. (PSFMI) (the then
current Managing Owner or Sponsor of 12 commodity pools, namely
World Monitor Trust - Series A, World Monitor Trust - Series B,
World Monitor Trust II - Series D, World Monitor Trust II - Series
E, World Monitor Trust II - Series F, Futures Strategic Trust,
Diversified Futures Trust I, Diversified Futures Trust II,
International Futures Fund B PLC, International Futures Fund C PLC,
International Futures Fund D PLC and International Futures Fund F
PLC) and Seaport Futures Management, Inc. (Seaport) (the then
General Partner of one commodity pool, Diversified Futures Fund
L.P.) (collectively, the acquired commodity pools). In connection
with the transaction, PSFMI and Seaport solicited proxies seeking
approval from the interestholders of the acquired commodity pools
for (i) the sale of the stock of PSFMI and Seaport to the Company;
(ii) the concomitant approval of the Company as the new General
Partner, Managing Owner or Sponsor of the acquired commodity pools
and (iii) the approval of certain amendments to the Declaration of
the Trust and Trust Agreements and Agreements of Limited
Partnership of the acquired commodity pools.
As of October 1, 2004, the Company acquired from PSG all of the
outstanding stock of PSFMI and Seaport. Immediately after such
acquisition, PSFMI and Seaport were merged with and into the
Company. Accordingly, as of October 1, 2004, all of the board of
directors and officers of PSFMI and Seaport resigned. Following the
Company's acquisition of PSFMI and Seaport and their merger with
and into the Company, the Company became the successor General
Partner, Managing Owner or Sponsor of the acquired commodity pools.
In consideration for the purchase of the capital stock of PSFMI and
Seaport, the Company agreed to pay to PSG $1,961,755. The Company
also incurred legal and accounting expenses directly related to the
acquisition. The acquisition has been accounted for as a purchase
and as such, the excess of the total purchase price over the
estimated fair value of the acquired net assets has been recorded
as goodwill.
In addition to the purchase price noted above, the Company pays a
contingent finder's fee of 20% of the net fees earned from the
management of the acquired commodity pools. This finder's fee is
payable during the period October 1, 2004 through September 30,
2006, at which time the agreement terminates. Such finder's fee
will be treated as a component of the direct cost of the
acquisition and will increase the amount of goodwill related to the
business combination as such amounts are incurred by the Company.
The changes in the net carrying amount of goodwill for the year
ended December 31, 2005 are as follows:
Goodwill at December 31, 2004 $1,389,260
Legal and accounting expenses directly
related to the acquisition 3,450
Finder's fee 647,472
-------------
Goodwill at December 31, 2005 $ 2,040,182
=============
The acquisition price was financed in part by the notes payable as
described in Note 5.
As of December 31, 2005, the Company concluded that there was no
impairment of goodwill based on a review of projected net fees from the
acquired commodity pools.
No part of the goodwill is expected to be deductible for tax
purposes.
-235-
Note 3. INVESTMENTS IN COMMODITY POOLS
------------------------------
During 2005, the Company was the Managing Owner, General Partner or
Sponsor of the following affiliated commodity pools: Kenmar Global
Trust, World Monitor Trust - Series A, World Monitor Trust - Series
B, World Monitor Trust II - Series D, World Monitor Trust II -
Series E, World Monitor Trust II - Series F, Futures Strategic
Trust, Diversified Futures Trust I, Diversified Futures Trust II,
Diversified Futures Fund L.P., International Futures Fund B PLC,
International Futures Fund C PLC, International Futures Fund D PLC,
International Futures Fund F PLC, World Monitor Trust III - Series
G, World Monitor Trust III - Series H, World Monitor Trust III -
Series I and World Monitor Trust III - Series J (collectively, the
affiliated commodity pools). Summarized activity as of and for the
year ended December 31, 2005, related to these Managing Owner,
General Partner or Sponsor interests, together with the Company's
Non-Managing Owner interests in certain of the affiliated commodity
pools, are as follows:
-236-
Note 3. INVESTMENTS IN COMMODITY POOLS (CONTINUED)
------------------------------------------
Value at Net Income Value at
December 31, 2004 Additions (Loss) Redemptions December 31, 2005
----------------- --------- ------ ----------- -----------------
Managing Owner or General Partner
participating interests
Kenmar Global Trust $ 260,285 $ 0 $ (24,390) $(119,069) $ 116,826
World Monitor Trust - Series A 31,564 0 2,193 (11,286) 22,471
World Monitor Trust - Series B 67,148 0 (10,055) (15,235) 41,858
World Monitor Trust II - Series D 203,969 0 (7,607) (20,608) 175,754
World Monitor Trust II - Series E 438,484 0 (59,749) (66,791) 311,944
World Monitor Trust II - Series F 401,474 0 37,137 (59,476) 379,135
World Monitor Trust III - Series G 1,000 14,000 (524) 0 14,476
World Monitor Trust III - Series H 1,000 14,000 (350) 0 14,650
World Monitor Trust III - Series I 1,000 14,000 (536) 0 14,464
World Monitor Trust III - Series J 0 185,400 (4,861) 0 180,539
Futures Strategic Trust 76,366 0 (5,955) (10,396) 60,015
Diversified Futures Trust I 206,753 0 (4,873) (24,343) 177,537
Diversified Futures Trust II 90,260 0 (19,529) (9,765) 60,966
Diversified Futures Fund L.P. 77,329 0 (18,612) (6,290) 52,427
----------- ----------- ----------- ----------- -----------
1,856,632 227,400 (117,711) (343,259) 1,623,062
----------- ----------- ----------- ----------- -----------
Sponsor non-participating interests
International Futures Fund B PLC 7 0 0 0 7
International Futures Fund C PLC 7 0 0 (7) 0
International Futures Fund D PLC 7 0 0 (7) 0
International Futures Fund F PLC 7 0 0 (7) 0
----------- ----------- ----------- ----------- -----------
28 0 0 (21) 7
----------- ----------- ----------- ----------- -----------
Non-Managing Owner participating interests
World Monitor Trust III - Series G 0 247,200 (8,629) 0 238,571
World Monitor Trust III - Series H 0 214,800 (5,010) 0 209,790
World Monitor Trust III - Series I 0 287,400 (10,267) 0 277,133
----------- ----------- ----------- ----------- -----------
0 749,400 (23,906) 0 725,494
----------- ----------- ----------- ----------- -----------
Total $1,856,660 $ 976,800 $(141,617) $(343,280) $2,348,563
=========== =========== =========== =========== ===========
The net asset values as of December 31, 2005 for each commodity
pool managed are as follows:
Net Asset Value as of
December 31, 2005
---------------------
Kenmar Global Trust $ 11,188,682
World Monitor Trust - Series A 2,159,884
World Monitor Trust - Series B 4,030,491
World Monitor Trust II - Series D 16,807,046
World Monitor Trust II - Series E 30,099,134
World Monitor Trust II - Series F 36,754,963
World Monitor Trust III - Series G 506,673
World Monitor Trust III - Series H 512,753
World Monitor Trust III - Series I 506,245
World Monitor Trust III - Series J 30,210,952
Futures Strategic Trust 5,921,335
Diversified Futures Trust I 16,812,728
Diversified Futures Trust II 5,657,670
Diversified Futures Fund L.P. 4,913,548
International Futures Fund B PLC (1) 13,974,637
--------------
$180,056,741
==============
_____________________
(1) Net asset value as of December 31, 2005 is unaudited, as the
fund has a March 31 year-end.
-237-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 3. INVESTMENTS IN COMMODITY POOLS (CONTINUED)
------------------------------------------
As the Managing Owner, General Partner or Sponsor of the affiliated
commodity pools, the Company manages the respective businesses of the
affiliated commodity pools. The governing documents of the affiliated
commodity pools typically require the Company or for certain funds,
the Company and/or its affiliates, to maintain a capital account
equal to 1% of the total capital accounts of the affiliated commodity
pools. The Company, as the Managing Owner or General Partner of the
affiliated commodity pools has also agreed to maintain a net worth of
not less than $1,000,000. As of December 31, 2005, the Company and/or
its affiliates were in compliance with the aforementioned capital
account requirements and the Company was in compliance with the net
worth requirements.
For managing the businesses of the affiliated commodity pools, the
Company earns commissions and fees in accordance with the terms of
the respective agreements. The Company in turn pays commissions to
selling agents and management and incentive fees to trading advisors,
if applicable. At December 31, 2005, the Company is owed fees of
$855,253 from the affiliated commodity pools which are included in
"Fees and other receivables" in the statement of financial condition.
As Managing Owner, General Partner or Sponsor of the affiliated
commodity pools, the Company has a fiduciary responsibility to the
affiliated commodity pools, and a potential liability beyond the
amounts recognized as an asset in the statement of financial
condition.
International Futures Fund D PLC ceased trading in May 2005 and a
liquidator was appointed to wind up the fund in September 2005.
International Futures Fund C PLC and International Futures Fund F PLC
ceased trading in September 2005 and a liquidator was appointed to
wind up both funds in November 2005.
The Company also had an investment in The Fulcrum Fund Limited
Partnership (Fulcrum) as a Limited Partner. The Company fully
redeemed its investment in Fulcrum as of December 31, 2005.
Summarized activity as of and for the year ended December 31, 2005,
related to the investment in Fulcrum, is as follows:
Value at Value at
December 31, 2004 (Loss) Redemptions December 31, 2005
----------------- ------ ----------- -----------------
Fulcrum $22,996 $ (1,903) $(21,093) $ 0
======= ======== ======== ===========
-238-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 4. PROPERTY AND EQUIPMENT
----------------------
At December 31, 2005, the Company's property and equipment consists
of:
Furniture, fixtures and office equipment $ 1,100,075
Software 70,594
Leased assets 128,396
-----------
1,299,065
Less: Accumulated depreciation and amortization (1,168,273)
------------
$ 130,792
============
At December 31, 2005, accumulated amortization of the leased
assets amounted to $105,323.
Note 5. NOTES PAYABLE
-------------
Notes payable - Kenmar Global Trust Selling Commissions
-------------------------------------------------------
The Company entered into a line of credit agreement with a
financial institution in July 2003 under which a series of secured
notes may be executed to fund specified selling commissions incurred
by the Company as Managing Owner of Kenmar Global Trust (KGT). The
aggregate borrowings may not exceed the lesser of the value of the
assets used as security (see below) or $1,500,000. Each note executed
under the agreement is payable on demand and matures and becomes
payable no later than fourteen months after the date the note is
executed. Interest is payable monthly at a floating rate, which is
based upon the higher of : a) the Federal Funds Rate plus 0.5%, or b)
the financial institution's Prime Rate. The average interest rate is
approximately 7.25% as of December 31, 2005, for all notes
outstanding.
Amounts outstanding under the agreement are secured by the Company's
investment in KGT and any amounts due to the Company from KGT. The
agreement also contains certain covenants which, if not met, could
subject amounts outstanding under the agreement to accelerated
repayment.
At December 31, 2005, notes totaling $70,026 are outstanding under
this line of credit agreement, which are included in "Notes payable"
in the statement of financial condition. All outstanding notes are
repayable within one year from the date of the statement of financial
condition.
Notes payable - Acquisition of PSFMI and Seaport
------------------------------------------------
The Company entered into two loan agreements, one with a financial
institution and the other with an affiliate of the financial
institution on September 20, 2004 and September 29, 2004,
respectively. Each loan was originally for $750,000. The total
outstanding at December 31, 2005 of $1,283,139 on these two loans is
included in "Notes payable" in the statement of financial condition.
-239-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 5. NOTES PAYABLE (CONTINUED)
-------------------------
Notes payable - Acquisition of PSFMI and Seaport (continued)
------------------------------------------------------------
The loans were entered into to provide financing in connection with
the Company's acquisition of two corporations effective October 1,
2004 as described in Note 2. The loans were repayable on September
27, 2005 and September 29, 2005, respectively, with the Company
having the option to extend the repayment date by a further six
months. Effective September 6, 2005, both loan repayment dates were
extended to March 31, 2006 and effective February 17, 2006, both loan
repayment dates were further extended to December 31, 2006.
Interest for each loan consists of two components. The first
component provides that the Company makes a quarterly interest
payment of 1.25% (5% per annum) on the outstanding loan balance
quarterly in arrears. The first interest rate component was amended
whereby effective October 1, 2005, a monthly interest rate of 1.25%
(15% per annum) is paid on the outstanding loan balance monthly in
arrears. The second component provides that interest shall accrue on
the loan amount outstanding at a rate indexed to 100% of the
performance of the Managing Owner, General Partner or Sponsor
interests invested in the acquired commodity pools as described in
Note 2., which is payable at the maturity of the loan. The total
performance of the acquired commodity pools allocated to each loan
provider cannot be less than zero over the life of the notes payable.
Total interest payable on the loans as of December 31, 2005 is
$81,254.
Amounts outstanding on the loans are secured by the Company's General
Partner or Managing Owner interests in the respective funds.
The Company also entered into a secured promissory note arrangement
with a financial institution on October 1, 2004 for $250,000 (the
note). There was no interest payable associated with the note and it
was secured by the future Managing Owner's, General Partner's or
Sponsor's fees of the acquired commodity pools as described in Note
2. The note was fully repaid on March 30, 2005.
Note 6. REVOLVING CREDIT AGREEMENT
--------------------------
On April 11, 2005, the Company entered into a revolving credit
agreement with a financial institution under which a series of
secured notes may be executed to fund specific selling commissions
incurred by the Company as sponsor of International Futures Fund B
PLC, International Futures Fund C PLC and International Futures Fund
F PLC (the International Funds). Each note executed under the
agreement is payable on demand and matures and becomes payable no
later than one year after the date the note is executed. Interest is
payable monthly at a floating rate of LIBOR plus 2%.
Amounts outstanding under the agreement are secured by fees due to
the Company from the International Funds.
The Company did not borrow against the revolving credit agreement,
which terminated on April 11, 2006.
-240-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 7. OBLIGATIONS UNDER LEASES
------------------------
The Company leases office equipment under noncancelable capital
leases which expire at various dates through 2007. The future minimum
lease payments required by these capital leases are as follows:
Year Ending December 31
-----------------------
2006 $ 87,373
2007 13,892
---------
Total minimum lease payments 101,265
Less: Amounts representing interest and execution costs (7,789)
---------
Present value of net minimum
lease payments $ 93,476
=========
In October 2004, the Company entered into a lease at an office
facility in Greenwich, Connecticut, which expired on December 31,
2005. See Note 8. with regards to the lease arrangement entered into
by the Parent effective December 31, 2005.
The Company leases office equipment under operating leases which
expire at various dates through 2009. The future minimum lease
payments required by these operating leases are as follows:
Year Ending December 31
-----------------------
2006 $ 12,852
2007 10,644
2008 4,020
2009 1,340
---------
$ 28,856
=========
Note 8. RELATED PARTY TRANSACTIONS
--------------------------
The Company has extensive transactions and relationships with
members of a group of affiliated companies that result in advances to
and from such affiliates. The Company provides administrative,
accounting, research, marketing and other services to its affiliates
and also pays certain expenses on behalf of the group. The Company,
in turn, charges the appropriate portion of such expenses, at cost,
to its affiliates.
Kenmar Greenwich Holdings LLC (KGH), an affiliated entity, together
with a non-affiliated entity, are the co-owners of Kenmar-Nihon Fund
Management LLC (Kenmar-Nihon) and Kenmar-Nihon Venture Capital LLC
(Kenmar-Nihon Venture Capital).
The Company has agreed to share certain net revenues of specified
funds with Kenmar-Nihon in return for being reimbursed by
Kenmar-Nihon and Kenmar-Nihon Venture Capital for specified expenses.
In the event the net revenues from the businesses of Kenmar-Nihon and
Kenmar-Nihon Venture Capital are insufficient to cover the
reimbursable expenses, the Company and its affiliates will not be
liable for such shortfalls.
-241-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 8. RELATED PARTY TRANSACTIONS (CONTINUED)
--------------------------------------
Kenmar-Nihon has agreed upon a baseline cost for the total costs
incurred by the Company and other affiliates of the Company. The
actual costs incurred by the Company and its affiliates will be
compared to the baseline costs, and if the actual costs are greater
than the baseline costs, Kenmar-Nihon will reimburse the Company and
its affiliates for the difference. If the actual costs are less than
the baseline costs, the shortfall will be applied to the next
period's baseline analysis. Kenmar-Nihon will also reimburse the
Company for any expenses paid by the Company which relate to the
operations of Kenmar-Nihon.
Kenmar-Nihon Venture Capital will reimburse the Company for any
expenses paid by the Company, which relate to the operations of
Kenmar-Nihon Venture Capital.
Kenmar-Nihon is responsible for reimbursing the Company for initial
organizational and offering costs incurred by the Company as the
Managing Owner, in the start up of the World Monitor Trust III funds
(the Funds), as well as ongoing organizational and offering costs
associated with the Funds. As the Company receives reimbursement from
the Funds for the initial and ongoing organization and offering costs
incurred, it will pass the reimbursement to Kenmar-Nihon in payment
of the amounts originally reimbursed. In the event the amounts
recovered by the Company from the Funds for initial and ongoing
organizational and offering costs are insufficient to cover the
initial reimbursement from Kenmar-Nihon, the Company will not be
liable for such shortfall.
Kenmar-Nihon will share in the net fees earned by the Company and an
affiliate with respect to the Funds.
Due to the large percentage of expenses incurred on behalf of
affiliated companies, the Company is dependent on the financial
condition of its affiliates and their ability to continue to generate
sufficient revenue in order to reimburse the Company for the expenses
incurred on behalf of the group.
Kenmar Securities Inc. (KSEC), another subsidiary of the Parent,
offers and sells securities of certain commodity pools operated by
affiliated companies. The majority of KSEC's income is earned from
the Company.
During the year ended December 31, 2005, the Parent contributed
$1,024,521 of additional paid-in capital to the Company.
-242-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 8. RELATED PARTY TRANSACTIONS (CONTINUED)
--------------------------------------
The following amounts are due (to) from affiliates at
December 31, 2005:
Members of the Parent group, net $ 125,229
MKL Limited (224,367)
Kenmar Global Investment Management Inc. (37,248)
Kenmar Global Strategies Inc. (39,567)
Kenmar-Nihon Fund Management LLC 1,765,081
Kenmar-Nihon Venture Capital LLC 396,701
Kenmar Investment Partners 44,768
Advance from officer (230,000)
Advance to officer 118,359
Other 49,263
----------
$1,968,219
==========
On March 7, 2005, MKL Limited was issued a $1.3 million letter of
credit from Brown Brothers Harriman & Co. naming the Company as the
beneficiary. Fitch Ratings, a global rating agency, has issued Brown
Brothers Harriman & Co. a long-term rating of A+ and a short-term
rating of F1. This letter of credit guarantees the payment of any
receivables due from MKL Limited to the Company. In the event MKL
Limited is unable to keep its intercompany balance with the Company
current, the Company can draw upon the letter of credit to satisfy
the intercompany balance. There were no drawings on the letter of
credit and the letter of credit expired on February 28, 2006.
The advance from officer represents advances to the Company to assist
with working capital requirements. Interest is charged at 3.63% on
the outstanding balance. There was no interest payable at December
31, 2005. The total advance was repaid to the officer on March 31,
2006. The advance to officer has no associated interest for the year
ended December 31, 2005.
No specific terms apply to the liquidation of amounts due (to) 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.
On July 29, 2005, the Company entered into a lease agreement to lease
office space effective January 1, 2006. Effective December 31, 2005,
the lease was assigned to the Parent. The lease term is 11 years and
expires on December 31, 2016. The Company and its affiliates will be
responsible for 23/30ths and a non-affiliated entity is responsible
for 7/30ths of occupancy costs and furniture and equipment leasing
costs related to this office space. Upon lease execution, the
non-affiliated entity provided a security deposit in the amount of
$861,894. The Company and its affiliates are responsible for paying
back 23/30ths of this security deposit, with the non-affiliated
entity being responsible for the other 7/30ths. Interest is payable
monthly, on the security deposit advanced, at the Prime Rate per the
Wall Street Journal and the security deposit is repayable on December
31, 2006.
-243-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 8. RELATED PARTY TRANSACTIONS (CONTINUED)
--------------------------------------
The total future minimum lease payments under the non cancelable
operating lease, for which the Company and its affiliates are
responsible for 23/30ths of, are:
December 31
-----------
2006 $ 0
2007 814,011
2008 814,011
2009 814,011
2010 893,816
Thereafter 5,745,960
----------
$9,081,809
==========
Additionally, the non-affiliated entity will provide an advance for
tenant improvements to the office space. Interest will be payable
monthly on the advance at the Prime Rate per the Wall Street Journal.
The advance will be repayable over a one year period, with the
Company and its affiliates making monthly payments of 23/30ths of the
outstanding amount, commencing one month after the advance is made,
with the non-affiliated entity being responsible for the other
7/30ths. No advances for tenant improvements to the office space were
made during the year ended December 31, 2005. For the period January
1, 2006 through the date of this report, approximately $789,000 of
advances have been made by the non-affiliated entity for tenant
improvements to the office space.
Effective January 1, 2006, KGI will be responsible for providing
administrative, accounting, research, marketing and other services to
its affiliates as well as paying certain expenses on behalf of the
group. KGI, in turn, will charge the appropriate portion of such
expenses, at cost to its affiliates, including the Company. Prior to
January 1, 2006, the Company was responsible for providing such
services.
Effective December 7, 2005, KGI entered into a master lease agreement
to lease office furniture and computer equipment, whereby the Company
and its affiliates will be responsible for 23/30ths of the lease
payments and the non-affiliated entity will be responsible for
7/30ths, as previously described. The lease payments are guaranteed
by the Company, the Parent, KSEC and Kenmar Investment Adviser Corp.
The total guaranteed future minimum lease payments required by this
capital lease are as follows:
Year ending December 31
-----------------------
2006 $199,203
2007 223,562
2008 223,562
2009 167,235
2010 167,235
Thereafter 11,458
--------
$992,255
========
-244-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 8. RELATED PARTY TRANSACTIONS (CONTINUED)
--------------------------------------
During the year ended December 31, 2005, the Company has made
approximately $17,500 in advance lease payments on behalf of KGI and
the non-affiliated entity. At December 31, 2005, 23/30ths of such
amount, approximately $13,417, is due from KGI and is included in
"Due from affiliates, net" in the statement of financial condition,
and 7/30ths of such amount, $4,083, is due from the non-affiliated
entity and is included in "Other assets" in the statement of
financial condition.
Additionally, effective November 22, 2005, KGI entered into a lease
agreement for the purchase of a phone system, whereby the Company and
its affiliates will be responsible for 23/30ths of the lease payments
and the non-affiliated entity will be responsible for 7/30ths, as
previously described. The lease payments are guaranteed by the
Company. The total guaranteed future minimum lease payments required
under this capital lease are as follows:
Year ending December 31
-----------------------
2006 $ 20,762
2007 20,762
2008 20,762
2009 20,762
2010 20,762
--------
$103,810
========
Effective January 1, 2006, the Company, a Connecticut corporation,
merged with and into Preferred Investment Solutions Corp., a Delaware
corporation (Preferred DE) in a tax free reorganization. The Company
cancelled each share of common stock and Preferred DE became the
surviving company. The merger was effectuated pursuant to a Plan and
Agreement of Merger between the Company and Preferred DE dated as of
January 1, 2006. The Company and Preferred DE share the same
stockholder, board of directors and officers. The Board of Directors
and the ultimate sole owners of the Company and Preferred DE
unanimously approved the Plan and Agreement of Merger.
Note 9. INDEMNIFICATIONS
----------------
As a Managing Owner, General Partner or Sponsor, the Company may be
contingently liable for costs and liabilities incurred by the Trust.
In the normal course of business the Company enters into contracts
and agreements that contain a variety of representations and
warranties and which provide general indemnifications. The Company's
maximum exposure under those arrangements is unknown as this would
involve future claims that may be made against the Company that have
not yet occurred. The Company expects the risk of any future
obligation under these indemnifications to be remote.
-245-
PREFERRED INVESTMENT SOLUTIONS CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
_______________
Note 10. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The commodity pools in which the Company either serves as Managing
Owner, General Partner or Sponsor or invests, engage primarily in the
speculative trading of futures contracts, options on futures
contracts and forward contracts (collectively, "derivatives") in U.S.
and foreign markets. The commodity pools, and therefore, the Company
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).
Theoretically, the commodity pools are exposed to market risk equal
to the notional contract value of futures and forward contracts
purchased and unlimited liability on such contracts sold short.
Additionally, 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 their
trading and cash management activities. In the event of a financial
institution's insolvency, recovery of partnership or trust assets on
deposit may be limited to account insurance or other protection
afforded such deposits.
The Company, as Managing Owner, General Partner or Sponsor has
established procedures to actively monitor market risk and to
minimize credit risk of its affiliated commodity pools, although
there can be no assurance that it will, in fact, succeed in doing so.
-246-
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
WORLD MONITOR TRUST III
Units of Beneficial Interest
_______________________
This is a speculative and leveraged investment which involves the risk of loss.
Past performance is not necessarily indicative of future results.
See "The Risks You Face" beginning at page 18 in Part One.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE
DOCUMENT AND A STATEMENT OF ADDITIONAL
INFORMATION. THESE PARTS ARE BOUND
TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION
_______________________
Preferred Investment Solutions Corp.
Managing Owner
-247-
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
The Futures and Forward Markets...................248
Futures and Forward Contracts................248
Hedgers and Speculators......................248
Commodity Exchanges..........................248
Speculative Position and Daily Price
Fluctuation Limits.......................248
Margins......................................249
Investment Factors ...............................250
Trading Programs of the Trust and
Pro-Forma Performance..........................258
Proprietary Trading of Advisors with Respect
to Offered Programs............................261
Exhibit A--Form of Second Amended and Restated Declaration of Trust
and Trust Agreement...........................TA-1
Annex--Request for Redemption
Annex--Exchange Request for Class I Units of Beneficial Ownership
Annex--Exchange Request for Class II Units of Beneficial Ownership
Exhibit B--Subscription Requirements..............SR-1
Exhibit C--Subscription Instructions,
Subscription Agreement and
Power of Attorney.............................SA-1
Exhibit D--Privacy Notice.........................P-1
-248-
THE FUTURES AND FORWARD MARKETS
Futures and Forward Contracts
Commodity futures contracts in the United States are required to be made
on approved commodity exchanges and call for the future delivery of various
commodities at a specified time, place and price. These contractual
obligations, depending on whether one is a buyer or a seller, may be satisfied
either by taking or making physical delivery of an approved grade of the
particular commodity (or, in the case of some contracts, by cash settlement)
or by making an offsetting sale or purchase of an equivalent commodity futures
contract on the same exchange prior to the designated date of delivery.
Certain futures contracts call for cash settlement rather than settlement by
delivery, and the Trust will, in any event, offset virtually all of its
futures contracts prior to any actual delivery occurring.
Currencies may be purchased or sold for future delivery through banks or
dealers pursuant to what are commonly referred to as "spot" or "forward"
contracts. Spot contracts settle two days after the trade date; forward
contracts have more delayed settlements. Spot and forward contracts are
commonly referred to collectively as "cash" contracts. In trading cash
currency contracts for the Trust, banks or dealers act as principals and
include their anticipated profit and costs in the prices they quote; such
mark-ups are known as "bid-ask" spreads. Brokerage commissions are typically
not charged in cash trading.
Hedgers and Speculators
The two broad classifications of persons who trade in commodity futures
are "hedgers" and "speculators." Commercial interests, including farmers, that
market or process commodities use the futures markets to a significant extent
for hedging. Hedging is a protective procedure designed to minimize losses
that may occur because of price fluctuations, for example, between the time a
merchandiser or processor makes a contract to sell a raw or processed
commodity and the time he must perform the contract. The commodity markets
enable the hedger to shift the risk of price fluctuations to the speculator.
The speculator, unlike the hedger, generally expects neither to deliver nor
receive the physical commodity; rather, the speculator risks his or her
capital with the hope of making profits from price fluctuations in commodity
futures contracts. Speculators, such as the Trust, rarely take or make
delivery of the physical commodity but rather close out their futures
positions by entering into offsetting purchases or sales of futures contracts.
The Trust does not anticipate taking or making delivery of any physical
commodities.
Commodity Exchanges
Commodity exchanges provide centralized market facilities for trading in
futures contracts relating to specified commodities. Each of the commodity
exchanges in the United States has an associated "clearinghouse." Once trades
made between members of an exchange have been confirmed, the clearinghouse
becomes substituted for the clearing member acting on behalf of each buyer and
each seller of contracts traded on the exchange and in effect becomes the
other party to the trade. Thereafter, each clearing member firm party to the
trade looks only to the clearinghouse for performance. Clearinghouses do not
deal with customers, but only with member firms, and the "guarantee" of
performance under open positions provided by the clearinghouse does not run to
customers. If a customer's commodity broker becomes bankrupt or insolvent, or
otherwise defaults on such broker's obligations to such customer, the customer
in question may not receive all amounts owing to such customer in respect of
his trading, despite the clearinghouse fully discharging all of its
obligations.
The Advisors retained by the Trust trade on a number of foreign
commodity exchanges. Foreign commodity exchanges differ in certain respects
from their United States counterparts and are not subject to regulation by any
United States governmental agency. Accordingly, the protections afforded by
such regulation are not available to the Trust to the extent that it trades on
such exchanges. In contrast to United States exchanges, many foreign exchanges
are "principals' markets," where trades remain the liability of the traders
involved and the there is no clearinghouse to become substituted for any
party. Many foreign exchanges also have no position limits, with each dealer
establishing the size of the positions it will permit individual traders to
hold.
To the extent that the Trust engages in transactions on foreign
exchanges, it is subject to the risk of fluctuations in the exchange rate
between the currencies in which the contracts traded on such foreign exchanges
are denominated and United States dollars, as well as the possibility that
exchange controls could be imposed in the future.
Speculative Position and Daily Price Fluctuation Limits
The CFTC and the United States exchanges have established limits,
referred to as "speculative position limits," on the maximum net long or net
short position that any person (other than a hedger) may hold or control in
futures contracts or options on futures contracts in particular commodities.
The principal purpose of speculative position limits is to prevent a "corner"
on the market or undue influence on prices by any single trader or group of
traders. A number of financial markets have replaced "position limits" with
"position accountability," and the cash currency markets are not subject to
such limits. However, speculative position limits continue to be applicable in
a number of important markets. These limits may restrict an Advisor's ability
to acquire potentially profitable positions which such Advisor otherwise would
acquire on behalf of the Trust.
Most United States exchanges limit by regulations the maximum
permissible fluctuation in commodity futures contract prices during a single
trading day. These regulations establish what are commonly referred to as
"daily limits." Daily limits restrict the maximum amount by which the price of
a futures contract may vary either up or down from the previous day's
settlement price. Because these limits apply on a day-to-day basis, they do
not limit ultimate losses, but may reduce or eliminate liquidity. Daily limits
are generally not applicable to currency futures or to forward contracts.
-249-
Margins
Margins represent a security deposit to assure futures traders'
performance under their open positions. When a position is established,
"margin" is deposited and at the close of each trading day "variation margin"
is either credited or debited from a trader's account, representing the
unrealized gain or loss on open positions during the day. If "variation
margin" payments cause a trader's "margin" to fall below "maintenance margin"
levels, a "margin call" will be made requiring the trader to deposit
additional margin or have his position closed out.
[Remainder of page left blank intentionally.]
-250-
INVESTMENT FACTORS
Investment Factors
Managed Futures is a sector of the futures industry made up of
professionals, or commodity trading advisors ("CTAs"), who on behalf of their
clients manage portfolios made up of futures and forward contracts and related
instruments traded around the world. Utilizing extensive resources, markets
can be accessed and monitored around the world, 24 hours a day.
For over 20 years institutions and individuals have made Managed Futures
part of their well-diversified portfolios. In that time period, the industry
has grown to approximately $86 billion in assets under management.*
As the industry has grown, so has the number, liquidity and efficiency
of the futures markets globally. Since 1974 the U.S. futures markets have
grown from consisting primarily of agricultural contracts to include financial
contracts, providing greater diversification and flexibility. The pie charts
below demonstrate this growth of diversity within the futures industry. In
1974 the agricultural sector dominated the trading volume of the industry. By
2004 the agricultural sector represented only 5% of trading while interest
rate, currencies and stock indices contracts represented 91%. These interest
rate contracts include contracts on U.S. debt instruments, European debt
instruments, and bonds in Asia and Australia.
Dramatic Changes in Futures Industry
1974(1)
[Data below represents pie chart in the printed prospectus.]
Agriculturals 82%
Currencies 2%
Metals 14%
Lumber & Energy 2%
2004(2)
[Data below represents pie chart in the printed prospectus.]
Agriculturals 5%
Interest Rates 33%
Currencies 2%
Metals 2%
Equity Indices 54%
Energy 4%
Source: Futures Industry Association, Washington, D.C.
* Managed Futures encompass over 50 markets worldwide, and as a result
investors can gain global market exposure in their portfolios as well as add
non-financial investments. Thus, investing in a managed futures fund can be an
effective way to globally diversify a portfolio.
______________
(1) Represented by the percentage of the number of contracts traded per year.
(2) Based on average volume of contracts as of December 2004.
-251-
Value of Diversifying into Managed Futures
------------------------------------------
Allocating a portion of the risk segment of a portfolio to a managed
futures investment, such as the Trust, may add a potentially valuable element
of diversification to a traditionally-structured portfolio. Historically over
the long term, the returns recognized on managed futures investments have been
non-correlated with the performance of stocks and bonds, suggesting that a
successful managed futures investment may be a valuable complement to a
portfolio of stocks and bonds. Diversifying assets among different investments
that generate positive but non-correlated returns has the potential to
decrease risk without a corresponding decrease in returns--enhancing the
risk/reward profile and overall "efficiency" of a portfolio. Non-correlation
is not negative correlation. The performance of the Trust is anticipated to be
generally unrelated, but may frequently be similar, to the performance of the
general equity markets.
The following discussion and charts, which include the Barclay CTA
Index, are intended to explain managed futures as an asset category, and to
demonstrate the potential value of allocating a small portion of a portfolio
to a managed futures investment, such as the Trust. The Barclay CTA Index is
utilized as a broad measure of overall managed futures returns, as compared to
other indices that measure the overall returns of stocks and bonds as separate
asset classes. The Barclay CTA Index is not the same as an investment in the
Trust, and the Trust may perform quite differently than the Index, just as an
individual stock may perform quite differently from the S&P 500 Index.
The black area of the chart below shows the benefit of adding 10%
Barclay CTA Index (Managed Futures) to a hypothetical portfolio made up of 60%
S&P 500 (US Stocks) and 40% Lehman Gov't (US Bonds), assuming an initial
investment of $1,000. The combined portfolio showed improved returns over the
last twenty-two years and lower volatility (a common measure of risk) than a
portfolio made up of stocks and bonds alone.
DIVERSIFYING INTO MANAGED FUTURES
JANUARY 1980-FEB. 2006
[Data below represents new chart.]
$20,390
60% S&P 500 (US STOCKS)/30% LEHMAN GOV'T (US
BONDS)/10% Barclay CTA (MANAGED FUTURES)
$19,042
60% S&P 500 (US STOCKS)/40% LEHMAN GOV'T
(US BONDS)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The graph
depicts the actual performance of the Barclay CTA Index, in combination with
stocks and bonds. Portfolios rebalanced annually. The "Stocks" portion is
represented by the S&P 500 Index and the "Bonds" portion by the Lehman
Brothers Government Corporate Bond Index. These are passive indices of equity
and debt securities which are generally purchased by investors with an
investment objective of capital preservation, growth or income.
Barclay CTA Index* (Managed Futures) - The Barclay CTA Index is a leading
industry benchmark of representative performance of commodity trading
advisors. There are currently 396 programs included in the calculation of the
Barclay CTA Index for the year 2005, which is unweighted and rebalanced at the
beginning of each year.
To qualify for inclusion in the CTA Index, an advisor must have four years of
prior performance history. Additional programs introduced by qualified
advisors are not added to the Index until after their second year. These
restrictions, which offset the high turnover rates of trading advisors as well
as their artificially high short-term performance records, ensure the accuracy
and reliability of the Barclay CTA Index. The current year of performance for
the Barclay CTA Index is estimated.
-252-
Performance is finalized after year-end. (Source: Barclay's Website) The
performance for all indices was calculated using compounded monthly returns. A
prospective investor is advised that neither the above graph nor the
performance tables in this prospectus should be interpreted to mean that the
Trust will obtain similar results or generate any profits whatsoever in the
future. The current year of performance for the Barclay CTA Index is
estimated. Performance is finalized after year-end.
A Managed Futures fund provides these benefits to an investor's overall
portfolio:
o Profit potential in any market environment
o Access to global financial and non-financial futures markets
o Potential for both reduced volatility and/or enhanced returns
Futures and forwards contracts exhibit more risk than stocks or bonds.
However, adding a Managed Futures fund to a stock-and-bond-only portfolio has
the potential to reduce overall portfolio volatility and enhance returns.
This potential benefit was initially demonstrated in two key academic
works. First, Modern Portfolio Theory, developed by the Nobel Prize Laureate
economists Drs. Harry M. Markowitz and William Sharpe, asserts that
investments having positive returns and low to non-correlation with each other
can improve the risk/reward characteristics of the combined holdings. In other
words, a portfolio of different investments with positive returns independent
of each other (i.e. non-correlated) can improve the risk profile of an
investor's entire portfolio.
Modern Portfolio Theory suggests that a portfolio manager should
diversify into asset categories that have little or no correlation with the
other asset categories in the portfolio. The Nobel Prize for Economics in 1990
was awarded to Dr. Harry Markowitz for demonstrating that the total return can
increase, and/or risks can be reduced, when portfolios have positively
performing asset categories that are essentially non-correlated. Even an
investor who diversifies into international stocks and bonds may not obtain
enough non-correlation. Over time, alternative investment classes such as real
estate and international stocks and bonds may correlate closely with domestic
equities as the global economy expands and contracts. The logical question
that then arises is: "What investment can add value to a portfolio by
enhancing returns and reducing portfolio volatility?"
Historically, managed futures investments have had very little
correlation to the stock and bond markets. The Managing Owner believes that
the performance of the Trust should also exhibit a substantial degree of
non-correlation (not, however, necessarily negative correlation) with the
performance of traditional equity and debt portfolio components. Unlike short
selling in the securities markets, selling futures short is no more difficult
than establishing a long position. The profit and loss potential of futures
trading is not dependent upon economic prosperity or interest rate or currency
stability. Diversifying assets among different investments that generate
positive but non-correlated returns has the potential to decrease risk without
a corresponding decrease in returns -- enhancing the reward/risk profile of a
portfolio, as demonstrated in the graphs below. Non-correlation will not
provide any diversification advantages unless the non-correlated assets are
outperforming other portfolio assets, and there is no guarantee that the Trust
will outperform other sectors of the portfolio (or not produce losses).
Additionally, although adding managed futures funds to a portfolio may provide
diversification, managed futures funds are not a hedging mechanism and there
is no guarantee that managed futures funds will appreciate during periods of
inflation or stock and bond market declines.
VALUE OF INITIAL $10,000 PORTFOLIO WITH A 10% ALLOCATION TO THE BARCLAY CTA
INDEX VS. A STOCKS AND BONDS PORTFOLIO:
JANUARY 1980 - FEBRUARY 2006
Growth of Initial $10,000 Investment
[Data below represents new bar chart.]
60% S&P 500 (US STOCKS)/
60% S&P 500 (US STOCKS)/ 30% LEHMAN GOV'T (US BONDS)/
40% LEHMAN GOV'T (US BONDS) 10% BARCLAY CTA (MANAGED FUTURES)
$190,423.60 $203,895.30
Risk as Measured by Standard Deviation of Annual Returns
[Data below represents new bar chart.]
60% S&P 500 (US STOCKS)/
60% S&P 500 (US STOCKS)/ 30% LEHMAN GOV'T (US BONDS)/
40% LEHMAN GOV'T (US BONDS) 10% BARCLAY CTA (MANAGED FUTURES)
11.41 10.75
Risk as Measured by
Growth of Initial $10,000 Investment Standard Deviation of Annual Returns
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The graph
depicts the actual performance of the Barclay CTA Index, in combination with
stocks and bonds. The "Stocks" portion is represented by the S&P 500 Index and
the "Bonds" portion by the Lehman Brothers Government Corporate Bond Index.
These are passive
-253-
indices of equity and debt securities which are generally purchased by
investors with an investment objective of capital preservation, growth or
income.
Barclay CTA Index* (Managed Futures) - The Barclay CTA Index is a leading
industry benchmark of representative performance of commodity trading
advisors. There are currently 396 programs included in the calculation of the
Barclay CTA Index for the year 2005, which is unweighted and rebalanced at the
beginning of each year.
To qualify for inclusion in the CTA Index, an advisor must have four years of
prior performance history. Additional programs introduced by qualified
advisors are not added to the Index until after their second year. These
restrictions, which offset the high turnover rates of trading advisors as well
as their artificially high short-term performance records, ensure the accuracy
and reliability of the Barclay CTA Index. The current year of performance for
the Barclay CTA Index is estimated. Performance is finalized after year-end.
Source: Barclay's Website
Correlation of Managed Futures
January 1980 - February 2006
Barclay CTA Index*
(Managed S&P 500* MSCI EAFE* Lehman Gov't*
Futures) (US Stocks) (Int'l Stocks) (US Bonds)
Barclay CTA Index 1.00
(Managed Futures)
S&P 500 0.01 1.00
(US Stocks)
MSCI EAFE -0.02 0.57 1.00
(Int'l Stocks)
Lehman Gov't 0.04 0.18 0.13 1.00
(US Bonds)
Non-correlation is not negative correlation. The performance of a Managed
Futures investment such as the Trust can be anticipated to be generally
unrelated, but may frequently be similar, to the performance of the general
equity and debt markets.
* See "Notes To Comparative Performance And Correlation Charts" at the end of
this section.
Correlation is a statistical measure of the degree to which two
variables are related. It is expressed as a number between -1 and 1, with a
negative number implying the variables tend to move in opposite directions,
while a positive number implies the variables move in the same direction.
Non-correlated performance is not negatively correlated performance.
Managing Owner has no expectation that the performance of the Trust will be
inversely related to that of the general debt and equity markets, i.e., likely
to be profitable when the latter are unprofitable or vice-versa.
Non-correlation means only that the performance of the Trust has, in Managing
Owner's judgment, a substantial likelihood of being unrelated to the
performance of equities and debt instruments, reflecting Managing Owner's
belief that certain factors which affect equity and debt prices may affect the
Trust differently and that certain factors which affect the former may not
affect the latter. The Net Asset Value per Unit may decline or increase more
or less than equity and debt instruments during both bear and bull markets.
In his landmark study, Dr. John Lintner of Harvard University was the
first of many to demonstrate specifically that adding a Managed Futures
component to a portfolio can enhance returns.
Dr. Lintner concluded that a portfolio of judicious investments in
stocks, bonds and Managed Futures ". . . show(s) substantially less risk at
every possible level of expected return than portfolios of stocks (or stocks
and bonds) alone."(1)
This diversification effect of Managed Futures is also demonstrated by
looking at the performance of Managed Futures compared to that of U.S. stocks,
U.S. bonds and international stocks during a major decline. When measured
against a decline in the stock and bond markets, Managed Futures has the
ability to provide portfolio diversification due to its non-correlation to
stocks and bonds. This does not mean that the returns of Managed Futures are
negatively correlated (i.e. perform opposite) to those of stocks and bonds.
Although adding a Managed Futures investment such as the Trust may
provide diversification to a portfolio, the Trust is not a hedging mechanism;
there is no guarantee the Trust will appreciate during periods of stock market
declines. In addition, the performance of a Managed Futures investment such as
the Trust can be anticipated to be generally unrelated, but may frequently be
similar to the performance of general equity markets.
(1) Lintner, John, "The Potential Role of Managed Commodity Financial Futures
Accounts (and/or Funds) in Portfolios of Stocks and Bonds." Annual Conference
of Financial Analysts Federation, May 1983.
-254-
Market Comparisons
Four Largest S&P 500 Declines Since 1980 and
Corresponding Managed Futures Performance
[Data below represents new bar chart.]
Dec 1980 to Jul 1982 Sep 1987 to Nov 1987 Jul 1998 to Aug 1998 Sep 2000 to Sep 2002
-------------------- -------------------- -------------------- --------------------
S&P 500 -16.5% -29.6% -15.4% -44.7%
(U.S. Stocks)
BARCLAY CTA 38.8% 9.7% 5.6% 23.1%
(Managed Futures)
Four Largest Managed Futures Declines Since 1980
and Corresponding S&P 500 Performance
[Data below represents new bar chart.]
Aug 1984 to Nov 1984 Apr 1986 to Dec 1986 Jul 1989 to Oct 1989 Jan 1992 to May 1992
-------------------- -------------------- -------------------- --------------------
S&P 500 10.3% 4.0% 8.1% 0.8%
(U.S. Stocks)
BARCLAY CTA -11.1% -15.5% -15.7% -10.1%
(Managed Futures)
The Trust offers investors the potential to earn significant profits
over time, although not without significant risk.
The Trust offers the potential for diversification from traditional
investments. Investors have the opportunity to participate in a large number
of global markets and sectors that are typically not represented in
traditional portfolios, and which offer potential profit (or loss) in both
rising and falling markets.
Managed futures investments may perform differently than stocks and
bonds. In addition, different types of alternative investments are frequently
non-correlated with each other. This creates the potential to assemble a
combination of alternative investments able to profit in different economic
cycles and international markets, while reducing the portfolio concentration
of traditional long equity and debt holdings. (Non-correlation is not negative
correlation; managed futures' performance is not expected to be generally
opposite, but rather unrelated, to stocks and bonds.)
-255-
Comparative Performance and Correlation Charts: The table below
demonstrates the differences in performance of stocks, bonds and Managed
Futures during each year from January 1980 through February 2006. The chart
below the table shows the worst peak-to-valley losses of the four asset
classes for the same period.
- ------------------------------------------------------------------------
MSCI
Barclay EAFE Lehman
CTA S&P 500 (Int'l Gov't
Year Index (US Stocks) Stocks) (US Bonds)
---- ----- --------- ------ --------
- ------------------------------------------------------------------------
1980 63.7% 32.5% 24.4% 6.4%
- ------------------------------------------------------------------------
1981 23.9 -4.9 -1.0 10.5
- ------------------------------------------------------------------------
1982 16.7 21.5 -0.9 26.1
- ------------------------------------------------------------------------
1983 23.7 22.6 24.6 8.6
- ------------------------------------------------------------------------
1984 8.7 6.3 7.9 14.4
- ------------------------------------------------------------------------
1985 25.5 31.7 56.7 18.1
- ------------------------------------------------------------------------
1986 3.8 18.7 69.9 13.1
- ------------------------------------------------------------------------
1987 57.3 5.3 24.9 3.7
- ------------------------------------------------------------------------
1988 21.8 16.6 28.6 6.7
- ------------------------------------------------------------------------
1989 1.8 31.7 10.8 12.8
- ------------------------------------------------------------------------
1990 21.0 -3.1 -23.2 9.2
- ------------------------------------------------------------------------
1991 3.7 30.5 12.5 14.6
- ------------------------------------------------------------------------
1992 -0.9 7.6 -11.8 7.2
- ------------------------------------------------------------------------
1993 10.4 10.1 32.9 8.8
- ------------------------------------------------------------------------
1994 -0.7 1.3 8.1 -1.9
- ------------------------------------------------------------------------
1995 13.6 37.6 11.6 15.3
- ------------------------------------------------------------------------
1996 9.1 23.0 6.4 4.1
- ------------------------------------------------------------------------
1997 10.9 33.4 2.1 7.9
- ------------------------------------------------------------------------
1998 7.0 28.6 20.3 8.4
- ------------------------------------------------------------------------
1999 -1.2 21.0 27.3 0.4
- ------------------------------------------------------------------------
2000 7.9 -9.1 -14.0 10.1
- ------------------------------------------------------------------------
2001 0.8 -11.9 -21.2 9.0
- ------------------------------------------------------------------------
2002 12.4 -22.1 -15.7 9.8
- ------------------------------------------------------------------------
2003 8.7 28.7 39.2 4.3
- ------------------------------------------------------------------------
2004 3.3 10.9 20.7 3.0
- ------------------------------------------------------------------------
2005 1.7 4.9 14.0 1.6
- ------------------------------------------------------------------------
2006 -0.3 2.9 5.9 0.1
- ------------------------------------------------------------------------
* See "Notes to Comparative Performance and
Correlation Charts" at end of this Section.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-256-
Worst Peak-to-Valley Loss from January 1980 through February 2006
BARCLAY CTA S&P 500 MSCI EAFE LEHMAN GOV'T
(MANAGED FUTURES) (US STOCK) (INT'L STOCKS) (US BONDS)
-15.66% -44.73% -47.47% -5.51%
Jul 89-Oct 89 Sep 00-Sep 02 Jan 00-Mar 03 Jan 80-Feb 80
Notes to Comparative Performance and Correlation Charts
S&P 500* (U.S. Stocks) - The S&P 500 Index is a market-capitalization-weighted
index of 500 publicly-traded stocks, with dividends reinvested. Source:
Economagic website.
MSCI EAFE* (International Stocks) - The MSCI EAFE Index is an unmanaged index
generally considered representative of the international stock market. It is
based on companies representing stock markets of Europe, Australia, New
Zealand and the Far East. Market values are converted into U.S. Dollars at
current exchange rates. Source: Morgan Stanley Capital International website.
Lehman Gov't* (U.S. Bonds) -The Lehman Intermediate Government/Credit Bond
Index is a subgroup of the Lehman Government/Corporate Bond Index and includes
securities in the Government and Corporate Indices. Source: Lehman Brothers
website.
Barclay CTA Index* (Managed Futures) - The Barclay CTA Index is a leading
industry benchmark of representative performance of commodity trading
advisors. There are currently 396 programs included in the calculation of the
Barclay CTA Index for the year 2005, which is unweighted and rebalanced at the
beginning of each year.
To qualify for inclusion in the CTA Index, an advisor must have four years of
prior performance history. Additional programs introduced by qualified
advisors are not added to the Index until after their second year. These
restrictions, which offset the high turnover rates of trading advisors as well
as their artificially high short-term performance records, ensure the accuracy
and reliability of the Barclay CTA Index. The current year of performance for
the Barclay CTA Index is estimated. Performance is finalized after year-end.
Standard Deviation - Standard Deviation measures the dispersal or uncertainty
in investment returns. It measures the degree of variation of returns around
the mean (average) return. The higher the volatility of the investment
returns, the higher the standard deviation will be. For this reason, standard
deviation is often used as a measure of investment risk.
Maximum Drawdown - Maximum Drawdown is any losing period during an investment
record. The maximum drawdown is the largest percentage drawdown that has
occurred in any investment data record.
* These indices are representative of equity and debt securities and are not
to be construed as an actively managed portfolio.
Investors should be aware that stocks, bonds and managed futures are very
different types of investments, each involving different investment
considerations and risks, including but not limited to liquidity, safety,
guarantees, insurance, fluctuation of principal and/or return, tax features,
leverage and volatility.
For example, trading in futures, forwards and options may involve a greater
degree of risk than investing in stocks and bonds due to, among other things,
a greater degree of leverage and volatility. Also, U.S. government bonds are
guaranteed by the U.S. government and, if held to maturity, offer both a fixed
rate of interest and return of principal.
-257-
Additional Advantages of Managed Futures Investments
----------------------------------------------------
100% Interest Credit. Unlike some "alternative investment" funds, the
Trust will not be required to borrow money in order to obtain the leverage
used in its trading strategy. Accordingly, the Trust does not anticipate that
it will incur any interest expense. The Trust's margin deposits will be
maintained in cash equivalents, such as U.S. Treasury bills. Interest is
earned on 100% of the Trust's available assets (which include unrealized
profits credited to the Trust's accounts).
Liquidity. In most cases the underlying markets have liquidity. Some
markets trade 24 hours on business days. There can be exceptional cases where
there may be no buyer or seller for a particular market. However, one of the
selection criteria for a market to be included in the Trust is good liquidity,
and historically "lock limit" situations have not been common. Investors may
redeem all or a portion of their Units on a monthly basis --beginning with the
end of the first month following purchase of such Units -- subject to a
declining redemption fee during the first twelve months of ownership.
Convenience. The Trust provides a convenient means to participate in
global markets and opportunities without the time required to master complex
trading strategies and monitor multiple international markets.
Limited Liability. The liability of investors in the Trust is limited to
the amount of their investment in the Trust. Unitholders will never be
required to contribute additional capital to the Trust.
Profit potential in any market environment. With stocks and bonds,
investors typically buy securities that they believe will increase in value,
and they may have no strategy when markets fall. Futures contracts, on the
other hand, can be easily sold short on the prospect that a market will go
down. As a result, declining markets represent opportunities for Managed
Futures.
Access to global financial and non-financial markets. Finally, over the
years the futures markets have expanded globally to include investments in
stock indices and bonds, currencies, precious and base metals, agricultural
products and so forth. Investors can gain access to over 50 financial and
non-financial markets around the globe.
Small Minimum Investment; Smaller Minimum Additional Investment
---------------------------------------------------------------
Many of the Advisors are only available to manage individual accounts
of substantial size ranging from $500,000 to $5,000,000. Investors in the
Trust are able to gain access to each of these Advisors, and to the
diversification benefits of placing assets with all of them, for a minimum
investment of $5,000 (or $2,000 in the case of trustees or custodians of
eligible employee benefit plans and individual retirement accounts). Existing
Unitholders making additional investments may do so in minimums of $2,000.
[Remainder of page left blank intentionally.]
-258-
TRADING PROGRAMS FOR THE TRUST AND PRO-FORMA PERFORMANCE
The following section discloses the actual track record of Graham Capital
Management, L.P., Bridgewater Associates, Inc. and Eagle Trading Systems Inc.
with respect to the programs that the Trust offers via Series G, H, I and J,
but, such track records are pro-forma records which are adjusted to reflect
WMT-III fees, as disclosed below.
WMT III Series G/J Trading Vehicle LLC
Series G:
Graham Capital Management, L.P.
Global Diversified Program at 150% Leverage
Graham's Global Diversified Program at 150% Leverage utilizes multiple
computerized trading models designed to capture profit opportunities during
sustained price trends in approximately 65 global markets. This program
features broad diversification in both financial and non-financial markets.
The trading strategies are primarily long-term in nature and are intended to
generate significant returns over time with an acceptable degree of risk and
volatility.
The Global Diversified Program at 150% Leverage began trading customer assets
in May 1997. Graham was formed in May 1994, and has been managing customer
assets in a variety of different trading programs since February 1995. As of
February 28, 2006, assets under management in all programs was a total of
approximately $5.1 billion (including "notional" equity) and $478 million
(including "notional" equity) in the program selected for WMT III Series G/J
Trading Vehicle LLC.
Pro-forma Performance of Global Diversified Program at 150% Leverage (to be
traded on behalf of WMT III Series G/J Trading Vehicle LLC)
- ---------------------------------------------------------------------------------------------------------------------
Series G 1997 1998 1999 2000 2001 2002 2003 2004 2005*
- -------------- -------------- ----------- --------- ---------- --------- ---------- ---------- ---------- -----------
Class I 7.57% 11.12% 0.95% 18.29% 6.68% 25.92% 12.13% 7.22% (11.96)%
(8 months)
- -------------- -------------- ----------- --------- ---------- --------- ---------- ---------- ---------- -----------
Class II 9.02% 13.39% 3.03% 20.69% 8.86% 28.44% 14.38% 9.37% (10.30)%
(8 months)
- ---------------------------------------------------------------------------------------------------------------------
*through November 30, 2005
Performance shown is the actual track record of the advisor adjusted to
reflect pro forma fees payable by Series G, including the Managing Owner's
Management Fee at 0.50%, Service Fee Reimbursement at 2.00% (Class I, only),
Sales Commission at 1.00% and Administrative Expense at 1.50% (based on Series
G only). Brokerage Commissions, the Advisor's Base Fee and Incentive Fee have
been calculated in the underlying actual performance result. Additionally, for
the first twelve months of the track record above, pro forma annualized
Organization and Offering expenses of 0.50% are reflected.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[Remainder of page left blank intentionally.]
-259-
WMT III Series H/J Trading Vehicle LLC
Series H:
Bridgewater Associates, Inc.
Aggressive Pure Alpha Futures Only - A, No Benchmark Program
Bridgewater's Aggressive Pure Alpha Futures Only - A, No Benchmark Program
employs a systematic decision making process and relies heavily on economic
statistics as leading indicators of market movements. The Program attempts to
identify and capitalize on changing macroeconomic conditions within the global
marketplace by employing a top down, fundamental and quantitative approach to
trading. The strategy blends fundamental and inter-market indicators. The
fundamental indicators analyze economic conditions and the inter-market
indicators focus on market prices to gauge future activity in related markets.
Bridgewater was founded in April 1973 and has been trading customer assets
since June 1985. As of December 31, 2005, the firm managed $79.8 billion
(including "notional" equity) across all of its commodities programs ($145
billion overall, including equities and other instruments, as applicable),
and, as of December 31, 2005, with $32 million in the program selected for WMT
III Series H/J Trading Vehicle LLC.
Pro-forma Performance of Aggressive Pure Alpha Futures Only - A, No Benchmark
Program (to be traded on behalf of WMT III Series H/J Trading Vehicle LLC)
- ---------------------------------------------------------------------------------------------------------------------------
Series H 1998 1999 2000 2001 2002 2003 2004 2005*
- -------------- ------------- -------------- ------------- ------------ ------------- ------------- ----------- ------------
Class I 19.11% (8.38)% (15.49)% (6.61)% 13.92% 25.79% 1.17% (7.23)%
(5 months)
- -------------- ------------- -------------- ------------- ------------ ------------- ------------- ----------- ------------
Class II 20.09% (6.47)% (13.73)% (4.67)% 16.25% 28.33% 3.25% (5.56)%
(5 months)
- ---------------------------------------------------------------------------------------------------------------------------
*through November 30, 2005
Performance shown is the actual track record of the advisor adjusted to
reflect pro forma fees payable by H, including the Managing Owner's Management
Fee at 0.50%, Service Fee Reimbursement at 2.00% (Class I, only), Sales
Commission at 1.00% and Administrative Expense at 1.50% (based on Series H
only). Brokerage Commissions, the Advisor's Base Fee and Incentive Fee have
been calculated in the underlying actual performance result. Additionally, for
the first twelve months of the track record above, pro forma annualized
Organization and Offering expenses of 0.50% are reflected.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[Remainder of page left blank intentionally.]
-260-
WMT III Series I/J Trading Vehicle LLC
Series I:
Eagle Trading Systems Inc.
Eagle Momentum Program
The Eagle Momentum Program is a computerized, technical trading system
developed to capture short and intermediate term trading opportunities in
markets that exhibit strong price momentum. The adoption of the trading
philosophy to a computerized trading system was done by applying rule-based
techniques to confirm the trading concept over an extensive body of historical
market data and by constantly monitoring and reevaluating the rules in actual
trading. The program currently covers 30 commodities, currencies, stock
indices and global fixed income markets.
Eagle was founded in May 1993 and has managed customer assets since August
1993. The firm has developed various trading programs, and managed a total of
approximately $1 billion (including "notional" equity) assets as of February
28, 2006. The program selected for WMT-III first began trading customer assets
in October 2003, but traded its proprietary assets in the same program from
February 2001 to September 2003. Eagle manages approximately $43 million
(including "notional" equity) in the program selected for WMT III Series I/J
Trading Vehicle LLC as of February 28, 2006.
Pro-forma Performance of Eagle Momentum Program (to be traded on behalf of WMT
III Series I/J Trading Vehicle LLC).
--------------------------------------------------------------------
Series I 2003 2004 2005*
--------------------------- ------------ ------------ --------------
Class I 3.78% (0.54)% (9.86%)
(3 months)
--------------------------- ------------ ------------ --------------
Class II 4.30% 1.51% (8.15)%
(3 months)
--------------------------------------------------------------------
*through November 30, 2005
Pro-forma Performance of Eagle Momentum Program (proprietary trading only)
------------------------------------------------------------------------
Series I 2001 2002 2003
-------------------------- -------------- ---------- -------------------
Class I 12.67% 17.55% 20.31% (9 months)
(11 months)
-------------------------- -------------- ---------- -------------------
Class II 14.78% 19.94% 22.12% (9 months)
(11 months)
------------------------------------------------------------------------
Performance shown is the actual track record of the advisor adjusted to
reflect pro forma fees payable by Series I, including the Managing Owner's
Management Fee at 0.50%, Service Fee Reimbursement at 2.00% (Class I, only),
Sales Commission at 1.00% and Administrative Expense at 1.50% (based on Series
I only). Brokerage Commissions, the Advisor's Base Fee and Incentive Fee have
been calculated in the underlying actual performance result. Additionally, for
the first twelve months of the track record above, pro forma annualized
Organization and Offering expenses of 0.50% are reflected.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[Remainder of page left blank intentionally.]
-261-
PROPRIETARY TRADING OF ADVISORS WITH RESPECT TO OFFERED PROGRAMS
World Monitor Trust III
Performance of Series G, Class I
Name of Pool: World Monitor Trust III
Name of Series: Series G
Type of Pool: Multi Advisor Pool; Single Advisor Series
Inception of Trading: December 2005
Aggregate Subscriptions: $525,000
Current Net Asset Value: $509,576
Worst Monthly Percentage Drawdown: (3.49)% (12/05)
Worst Peak-to-Valley Drawdown: (3.49)% (12/05)
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
January 1.44%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
February (0.86)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
March
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
April
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
May
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
June
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
July
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
August
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
September
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
October
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
November
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
December (3.49)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
Compound Rate of (3.49)% 0.57%
Return (1 month) (2 months)
- ---------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See Notes to Performance Information on page 263.
[Remainder of page left blank intentionally.]
-262-
PROPRIETARY TRADING OF ADVISORS WITH RESPECT TO OFFERED PROGRAMS
World Monitor Trust III
Performance of Series H, Class I
Name of Pool: World Monitor Trust III
Name of Series: Series H
Type of Pool: Multi Advisor Pool; Single Advisor Series
Inception of Trading: December 2005
Aggregate Subscriptions: $1,098,607
Current Net Asset Value: $1,121,921
Worst Monthly Percentage Drawdown: (2.33)% (12/05)
Worst Peak-to-Valley Drawdown: (2.33)% (12/05)
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
January 2.99%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
February 1.84%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
March
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
April
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
May
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
June
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
July
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
August
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
September
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
October
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
November
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
December (2.33)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
Compound Rate of (2.33)% 4.88%
Return (1 month) (2 months)
- ---------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
See Notes to Performance Information on page 263.
[Remainder of page left blank intentionally.]
-263-
PROPRIETARY TRADING OF ADVISORS WITH RESPECT TO OFFERED PROGRAMS
World Monitor Trust III
Performance of Series I, Class I
Name of Pool: World Monitor Trust III
Name of Series: Series I
Type of Pool: Multi Advisor Pool; Single Advisor Series
Inception of Trading: December 2005
Aggregate Subscriptions: $525,000
Current Net Asset Value: $448,598
Worst Monthly Percentage Drawdown: (8.69)% (01/06)
Worst Peak-to-Valley Drawdown: (14.55)% (12/05 to 02/06)
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
January (8.69)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
February (2.96)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
March
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
April
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
May
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
June
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
July
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
August
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
September
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
October
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
November
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
December (3.57)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
Compound Rate of (3.57)% (11.39)%
Return (1 month) (2 months)
- ---------------------------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Notes to Performance Information
In reviewing the descriptions of the Series' performance, prospective
investors should understand that such performance is "net" of all fees and
charges, and includes interest income.
1. Worst Monthly Percentage Drawdown is the largest monthly percentage loss
experienced by the Series in any calendar month covered by the
performance summary. "Loss" for these purposes is calculated on the
basis of the loss experienced by the Series, expressed as a percentage
of the total equity (including "notional" equity) of the Series. Worst
Monthly Percentage Drawdown information includes the month and year of
such drawdown, and as of February 28, 2006.
2. Worst Peak-to-Valley Drawdown is the largest percentage decline (after
eliminating the effect of subscriptions and redemptions) experienced by
the Series during the period covered by the performance summary from any
month-end net asset value, without such month-end net asset value being
equaled or exceeded as of a subsequent month-end. Worst Peak-to-Valley
Drawdown is calculated on the basis of the loss experienced by the
Series, expressed as a percentage of the total equity (including
"notional" equity) in such Series, and is as of February 28, 2006.
[Remainder of page left blank intentionally.]
Bridgewater Associates, Inc. does not trade proprietary monies pursuant
to the Aggressive Pure Alpha Futures Only - A, No Benchmark program.
Eagle Trading Systems, Inc. trades proprietary monies pursuant to the
Eagle Momentum Program. The Actual Performance and Pro forma Proprietary
Performance Capsule of the Eagle Momentum Program is disclosed on the
following page.
-264-
Eagle Trading Systems, Inc.
Eagle Momentum Program Actual Performance and Pro forma Proprietary
Performance Capsule
The following capsule discloses both (i) actual client trading
performance from October 2003 to February 2006 (in boldfaced text) and (ii)
pro forma proprietary trading from February 2001 to September 2003 with
respect to the Eagle Momentum Program. The pro forma proprietary performance
portion of the following capsule sets forth the actual trading of a
proprietary account and is based on the following pro forma adjustments: a
monthly management fee equal to one sixth of one percent (1/6%) (approximately
2% annually) of the account value under management at the end of each month, a
quarterly incentive fee equal to twenty percent (20%) of new high profit of
the account(s) for each quarter, and no interest income. These pro forma
adjustments generally reflect the structure of accounts for which these
programs generally are intended. The structure of an actual client account may
be different.
Name of CTA: Eagle Trading Systems, Inc.
Name of program: Eagle Momentum Program
Inception of client account trading by CTA: August 1993
Inception of client account trading in program: October 2003
Number of open accounts: 5
Aggregate assets overall excluding "notional" equity: $625,275,841
Aggregate assets overall including "notional" equity: $938,437,141
Aggregate assets in program excluding "notional" equity: $30,945,728
Aggregate assets in program including "notional" equity: $43,560,551
Largest monthly drawdown (for an account): (9.96)% (01/05)
Largest peak-to-valley drawdown (for an account): (20.40)% (12/04 to 04/05)
Number of profitable accounts that have opened and closed: 1
Range of returns experienced by profitable accounts: 11.43%
Number of unprofitable accounts that have opened and closed: 3
Range of returns experienced by unprofitable accounts: (3.76)% to (12.12)%
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Rate of Return 2001(%) 2002(%) 2003(%) 2004(%) 2005(%) 2006(%)
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
January -- (4.64)% 8.07% (0.64)% (9.32)% (7.07)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
February (2.41)% (4.50)% 7.92% 3.12% (5.22)% (2.51)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
March 5.38% 6.04% (3.30)% (1.40)% 2.09%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
April 1.64% (10.04)% 1.92% (2.57)% (6.48)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
May 3.56% 10.32% 8.20% (0.59)% 3.09%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
June (4.85)% 15.50% (0.13)% (5.82)% 0.38%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
July (4.83)% 6.87% 0.92% 0.74% 7.40%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
August 9.93% 6.00% 1.49% 1.19% 8.78%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
September 11.40% 5.81% (1.87%) 6.90% (8.43)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
October 1.49% (7.70)% 1.56% (4.41)% 4.02%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
November (2.54)% 1.30% (0.43)% 11.37% (0.06)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
December (0.24)% (0.37)% 3.91% (2.16%) (2.52)%
- ----------------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
Compound Rate of 18.47% 23.62% 31.21% 4.60% (7.94)% (9.41)%
Return (11 months) (2 months)
- ---------------------------------------------------------------------------------------------------------------------------
-265-
*The Compound Rate of Return of 31.21% for the year ended 2003 reflects
the combined performance results of both proprietary trading and actual client
trading. The Program gained 5.08% during the three month period from October
2003 to December 2003 during which Eagle traded client assets. Proprietary
trading results from January 2003 to September 2003 was a gain of 24.84%.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
PROSPECTIVE INVESTORS MUST BE AWARE THAT PRO FORMA RATES OF RETURN HAVE
CERTAIN INHERENT LIMITATIONS: (A) PRO FORMA ADJUSTMENTS ARE ONLY AN
APPROXIMATE MEANS OF MODIFYING HISTORICAL RECORDS TO REFLECT ASPECTS OF THE
ECONOMIC TERMS OF A NEW COMMODITY ACCOUNT, CONSTITUTE NO MORE THAN ECONOMIC
TERMS OF A NEW COMMODITY ACCOUNT, CONSTITUTE NO MORE
-266-
THAN MATHEMATICAL ADJUSTMENTS TO ACTUAL PERFORMANCE NUMBERS, AND GIVE NO
EFFECT WHATSOEVER TO SUCH FACTORS AS POSSIBLE CHANGES IN TRADING APPROACH THAT
MIGHT HAVE RESULTED FROM THE DIFFERENT FEE STRUCTURE, INTEREST INCOME,
LEVERAGE, AND OTHER FACTORS APPLICABLE TO A NEW COMMODITY ACCOUNT AS COMPARED
TO EAGLE'S ACTUAL PROPRIETARY TRADING; AND (B) THERE ARE DIFFERENT MEANS BY
WHICH THE PRO FORMA ADJUSTMENTS COULD HAVE BEEN MADE. WHILE EAGLE BELIEVES
THAT THE INFORMATION HEREIN IS RELEVANT TO EVALUATING AN INVESTMENT BY A
CLIENT, NO REPRESENTATION IS OR COULD BE MADE THAT THE CAPSULE HEREIN PRESENTS
WHAT THE RESULTS OF EAGLE'S ACTUAL PROPRIETARY TRADING WOULD HAVE BEEN IN THE
PAST OR ARE LIKELY TO BE IN THE FUTURE.
[Remainder of page left blank intentionally]
-267-
EXHIBIT A
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST III
TA-1
EXHIBIT A
SECOND
AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST III
Dated as of September 27, 2005
By and Among
PREFERRED INVESTMENT SOLUTIONS CORP.
WILMINGTON TRUST COMPANY
and
THE UNITHOLDERS
from time to time hereunder
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; THE TRUST.......................................................................1
SECTION 1.1. Definitions...........................................................1
SECTION 1.2. Name..................................................................7
SECTION 1.3. Delaware Trustee; Business Offices....................................8
SECTION 1.4. Declaration of Trust..................................................8
SECTION 1.5. Purposes and Powers...................................................8
SECTION 1.6. Tax Treatment.........................................................9
SECTION 1.7. General Liability of the Managing Owner...............................9
SECTION 1.8. Legal Title..........................................................10
SECTION 1.9. Series Trust.........................................................10
ARTICLE II
THE TRUSTEE.................................................................................10
SECTION 2.1. Term; Resignation....................................................10
SECTION 2.2. Powers...............................................................11
SECTION 2.3. Compensation and Expenses of the Trustee.............................11
SECTION 2.4. Indemnification......................................................11
SECTION 2.5. Successor Trustee....................................................11
SECTION 2.6. Liability of Trustee.................................................12
SECTION 2.7. Reliance; Advice of Counsel..........................................13
ARTICLE III
UNITS; CAPITAL CONTRIBUTIONS................................................................14
SECTION 3.1. General..............................................................14
SECTION 3.2. Establishment of Series of Units.....................................15
SECTION 3.3. Establishment of Classes and Sub-Classes.............................15
SECTION 3.4. Limited Units........................................................16
SECTION 3.5. Assets of Series.....................................................26
SECTION 3.6. Liabilities of Series................................................27
SECTION 3.7. Dividends and Distributions..........................................28
SECTION 3.8. Voting Rights........................................................29
SECTION 3.9. Equality.............................................................29
SECTION 3.10. Exchange of Units...................................................29
ARTICLE IV
THE MANAGING OWNER..........................................................................30
i
SECTION 4.1. Management of the Trust..............................................30
SECTION 4.2. Authority of Managing Owner..........................................30
SECTION 4.3. Obligations of the Managing Owner....................................32
SECTION 4.4. General Prohibitions.................................................34
SECTION 4.5. Liability of Covered Persons.........................................35
SECTION 4.6. Fiduciary Duty.......................................................35
SECTION 4.7. Indemnification of the Managing Owner................................36
SECTION 4.8. Expenses and Limitations Thereon.....................................38
SECTION 4.9. Compensation to the Managing Owner...................................40
SECTION 4.10. Other Business of Unitholders.......................................40
SECTION 4.11. Voluntary Withdrawal of the Managing Owner..........................40
SECTION 4.12. Authorization of Registration Statements............................40
SECTION 4.13. Litigation..........................................................40
ARTICLE V
TRANSFERS OF UNITS..........................................................................41
SECTION 5.1. General Prohibition..................................................41
SECTION 5.2. Transfer of Managing Owner's General Units...........................41
SECTION 5.3. Transfer of Limited Units............................................41
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS................................................................45
SECTION 6.1. Capital Accounts.....................................................45
SECTION 6.2. Monthly Allocations..................................................45
SECTION 6.3. Allocation of Profit and Loss for Federal Income Tax Purposes........45
SECTION 6.4. Allocation of Distributions..........................................47
SECTION 6.5. Admissions of Unitholders; Transfers.................................47
SECTION 6.6. Liability for State and Local and Other Taxes........................47
ARTICLE VII
REDEMPTIONS.................................................................................48
SECTION 7.1. Redemption of Units..................................................48
SECTION 7.2. Redemption by the Managing Owner.....................................49
SECTION 7.3. Redemption Charge....................................................50
SECTION 7.4. Exchange of Units....................................................50
SECTION 7.5. Special Redemption Date..............................................50
ARTICLE VIII
THE LIMITED OWNERS..........................................................................50
SECTION 8.1. No Management or Control; Limited Liability..........................50
ii
SECTION 8.2. Rights and Duties....................................................51
SECTION 8.3. Limitation on Liability..............................................52
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS................................................................53
SECTION 9.1. Books of Account.....................................................53
SECTION 9.2. Annual Reports and Monthly Statements................................53
SECTION 9.3. Tax Information......................................................53
SECTION 9.4. Calculation of Net Asset Value.......................................53
SECTION 9.5. Other Reports........................................................53
SECTION 9.6. Maintenance of Records...............................................54
SECTION 9.7. Certificate of Trust.................................................54
SECTION 9.8. Registration of Units................................................54
ARTICLE X
FISCAL YEAR.................................................................................54
SECTION 10.1. Fiscal Year.........................................................54
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS......................................................55
SECTION 11.1. Amendments to the Trust Agreement...................................55
SECTION 11.2. Meetings of the Trust...............................................56
SECTION 11.3. Action Without a Meeting............................................57
ARTICLE XII
TERM........................................................................................57
SECTION 12.1. Term................................................................57
ARTICLE XIII
TERMINATION.................................................................................57
SECTION 13.1. Events Requiring Dissolution of the Trust or any Series.............57
SECTION 13.2. Distributions on Dissolution........................................59
SECTION 13.3. Termination; Certificate of Cancellation............................59
iii
ARTICLE XIV
POWER OF ATTORNEY...........................................................................60
SECTION 14.1. Power of Attorney Executed Concurrently.............................60
SECTION 14.2. Effect of Power of Attorney.........................................60
SECTION 14.3. Limitation on Power of Attorney.....................................61
ARTICLE XV
MISCELLANEOUS...............................................................................61
SECTION 15.1. Governing Law.......................................................61
SECTION 15.2. Provisions In Conflict With Law or Regulations......................62
SECTION 15.3. Construction........................................................62
SECTION 15.4. Notices.............................................................62
SECTION 15.5. Counterparts........................................................62
SECTION 15.6. Binding Nature of Trust Agreement...................................62
SECTION 15.7. No Legal Title to Trust Estate......................................63
SECTION 15.8. Creditors...........................................................63
SECTION 15.9. Integration.........................................................63
EXHIBIT A
Certificate Of Trust Of World Monitor Trust III....................................65
iv
WORLD MONITOR TRUST III
SECOND
AMENDED AND RESTATED
DECLARATION OF TRUST
AND TRUST AGREEMENT
This SECOND AMENDED AND RESTATED DECLARATION OF TRUST AND TRUST
AGREEMENT of WORLD MONITOR TRUST III is made and entered into as of the 27th
day of September, 2005, by and among PREFERRED INVESTMENT SOLUTIONS CORP., a
Connecticut corporation (the "Managing Owner"), WILMINGTON TRUST COMPANY, a
Delaware banking company, as trustee (the "Trustee"), and the UNITHOLDERS from
time to time hereunder.
* * *
RECITALS
WHEREAS, the Trust was formed on September 28, 2004 in separate
Series pursuant to the execution and filing by the Trustee of the Certificate
of Trust on September 28th, 2004 and the execution and delivery by each of the
Trustee and the Managing Owner of a Declaration of Trust and Trust Agreement
dated as of September 28th, 2004 (the "Original Agreement");
WHEREAS, the Trustee and the Managing Owner amended the Original
Agreement on March 11, 2005;
WHEREAS, the Original Agreement, as amended, was amended and
restated in its entirety as of March 29, 2005 (the "Restated Agreement");
WHEREAS, currently, there are and have been no Limited Owners; and
WHEREAS, the Restated Agreement, as amended, was amended and
restated in its entirety as of September 21, 2005 (the "Second Restated
Agreement");
NOW, THEREFORE, pursuant to Article XI, the Managing Owner hereby
amends and restates the Second Restated Agreement in its entirety as set forth
below.
ARTICLE I
DEFINITIONS; THE TRUST
SECTION 1.1. Definitions. These definitions contain certain provisions
required by the NASAA Guidelines and, except for minor exceptions, are
included verbatim from such Guidelines, and, accordingly, may not, in all
cases, be relevant. As used in this Trust Agreement, the following terms shall
have the following meanings unless the context otherwise requires:
TA-1
"Administrator" means the official or agency administering the securities
laws of a state.
"Advisor" - see the definition of "Trading Advisor."
"Affiliate" - An "Affiliate" of a "Person" means (i) any Person directly
or indirectly owning, controlling or holding with power to vote 10% or more of
the outstanding voting securities of such Person, (ii) any Person 10% or more
of whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Person, (iii) any Person,
directly or indirectly, controlling, controlled by or under common control of
such Person, (iv) any officer, director or partner of such Person, or (v) if
such Person is an officer, director or partner, any Person for which such
Person acts in any such capacity.
"Benefit Plan Investor" means any entity described in DOL Regulation
2510.3-101(f)(2).
"Business Day" means a day other than Saturday, Sunday or other day when
banks and/or securities exchanges in the City of New York or the City of
Wilmington are authorized or obligated by law or executive order to close.
"Capital Contributions" means the total investment in a Program by a
Participant or by all Participants, as the context may require. More
specifically, the term Capital Contribution refers to the amount contributed
and agreed to be contributed to the Trust or any Series in the Trust by any
subscriber or by the Managing Owner, as applicable, in accordance with Article
III hereof.
"CE Act" means the Commodity Exchange Act, as amended.
"Certificate of Trust" means the Certificate of Trust of the Trust in the
form attached hereto as Exhibit A, filed with the Secretary of State of the
State of Delaware pursuant to Section 3810 of the Delaware Trust Statute.
"CFTC" means the Commodity Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodities" means positions in Commodity Contracts, forward contracts,
foreign exchange positions and traded physical commodities, as well as cash
commodities resulting from any of the foregoing positions.
"Commodity Broker" means any person who engages in the business of
effecting transactions in Commodity Contracts for the account of others or for
his or her own account.
"Commodity Contract" means any futures contract or option thereon
providing for the delivery or receipt at a future date of a specified amount
and grade of a traded commodity at a specified price and delivery point, or
any other futures contract or option thereon approved for trading for U.S.
persons.
"Continuous Offering Period" means the period following the conclusion of
the Initial Offering Period, during which additional Units may be sold
pursuant to this Agreement.
TA-2
"Corporate Trust Office" means the principal office at which at any
particular time the corporate trust business of the Trustee is administered,
which office at the date hereof is located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
"Delaware Trust Statute" means the Delaware Statutory Trust Act, Chapter
38 of Title 12 of the Delaware Code, 12 Del. C. ss. 3801 et seq., as the same
may be amended from time to time.
"Disposition Gain" means, in respect of each Series for each Fiscal Year
of the Trust, such Series' aggregate recognized gain (including the portion
thereof, if any, treated as ordinary income) resulting from each disposition
of Series assets during such Fiscal Year with respect to which gain or loss is
recognized for Federal income tax purposes, including, without limitation, any
gain or loss required to be recognized by such Series for Federal income tax
purposes pursuant to Section 988 or 1256 (or any successor provisions) of the
Code.
"Disposition Loss" means, in respect of each Series for each Fiscal Year
of the Trust, such Series' aggregate recognized loss (including the portion
thereof, if any, treated as ordinary loss) resulting from each disposition of
Series assets during such Fiscal Year with respect to which gain or loss is
recognized for Federal income tax purposes, including, without limitation, any
gain or loss required to be recognized by such Series for Federal income tax
purposes pursuant to Sections 988 or 1256 (or any successor provisions) of the
Code.
"DOL" means the United States Department of Labor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Fiscal Quarter" shall mean each period ending on the last day of each
March, June, September and December of each Fiscal Year.
"Fiscal Year" shall have the meaning set forth in Article X hereof.
"Incentive Fee" shall have the meaning set forth in the Prospectus.
"Initial Offering Period" means the period with respect to a Series
commencing with the initial effective date of the Prospectus and terminating
no later than December 27, 2005.
"Limited Owner" means any person or entity who becomes a holder of
Limited Units and who is listed as such on the books and records of the Trust,
and may include the Managing Owner with respect to the Limited Units purchased
by it.
"Losses" means, in respect of each Series for each Fiscal Year of the
Trust, losses of such Series as determined for Federal income tax purposes,
and each item of income, gain, loss or deduction entering into the computation
thereof, except that any gain or loss taken into account in determining the
Disposition Gain or the Disposition Loss of such Series for such Fiscal Year
shall not enter into such computations.
TA-3
"Managing Owner" means Preferred Investment Solutions Corp. (formerly
known as Kenmar Advisory Corp.), or any substitute therefor as provided
herein, or any successor thereto by merger or operation of law.
"Management Fee" means the management fee set forth in Section 4.9.
"Margin Call" means a demand for additional funds after the initial good
faith deposit required to maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a commodity broker.
"NASAA Guidelines" means the North American Securities Administrators
Association, Inc. Guidelines for the Registration of Commodity Pool Programs
as last amended and restated.
"Net Assets" means the total assets less total liabilities of the
Program, determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open positions
and any fee or expense including Net Asset fees accruing to the Program.
"Net Asset Value of a Series" means the total assets in the Trust Estate
of a Series including, but not limited to, all cash and cash equivalents
(valued at cost plus accrued interest and amortization of original issue
discount) less total liabilities of the Series, each determined on the basis
of generally accepted accounting principles in the United States, consistently
applied under the accrual method of accounting, including, but not limited to,
the extent specifically set forth below:
(a) Net Asset Value of a Series shall include any unrealized profit
or loss on open Commodities positions, and any other credit or debit
accruing to the Series but unpaid or not received by the Series.
(b) All open commodity futures contracts and options traded on a
United States exchange are calculated at their then current market value,
which shall be based upon the settlement price for that particular
commodity futures contract and option traded on the applicable United
States exchange on the date with respect to which Net Asset Value of a
Series is being determined; provided, that if a commodity futures
contract or option traded on a United States exchange could not be
liquidated on such day, due to the operation of daily limits or other
rules of the exchange upon which that position is traded or otherwise,
the settlement price on the first subsequent day on which the position
could be liquidated shall be the basis for determining the market value
of such position for such day. The current market value of
TA-4
all open commodity futures contracts and options traded on a non-United
States exchange shall be based upon the liquidating value for that
particular commodity futures contract and option traded on the applicable
non-United States exchange on the date with respect to which Net Asset
Value of a Series is being determined; provided, that if a commodity
futures contract or option traded on a non-United States exchange could
not be liquidated on such day, due to the operation of rules of the
exchange upon which that position is traded or otherwise, the liquidating
value on the first subsequent day on which the position could be
liquidated shall be the basis for determining the market value of such
position for such day. The current market value of all open forward
contracts entered into by a Series shall be the mean between the last bid
and last asked prices quoted by the bank or financial institution which
is a party to the contract on the date with respect to which Net Asset
Value of a Series is being determined; provided, that if such quotations
are not available on such date, the mean between the last bid and asked
prices on the first subsequent day on which such quotations are available
shall be the basis for determining the market value of such forward
contract for such day. The Managing Owner may in its discretion value any
of the Trust Estate pursuant to such other principles as it may deem fair
and equitable so long as such principles are consistent with normal
industry standards.
(c) Interest earned on a Series' commodity brokerage account shall
be accrued at least monthly.
(d) The amount of any distribution made pursuant to Article VI
hereof shall be a liability of the Series from the day when the
distribution is declared until it is paid.
"Net Asset Value Per Program Unit" - see the definition of "Series Net
Asset Value per Unit."
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
"NFA" means the National Futures Association.
"Organization and Offering Expenses" means all expenses incurred by the
Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders,
depositories, experts, expenses of qualification of the sale of its Program
Interest under Federal and state law, including taxes and fees, accountants'
and attorneys' fees. More specifically, Organization and Offering Expenses
shall have the meaning set forth in Section 4.8 of this Trust Agreement.
"Participant" means the holder of a Program Interest.
"Person" means any natural person, partnership, limited liability
company, statutory trust, corporation, association, Benefit Plan Investor or
other legal entity.
"Pit Brokerage Fee" shall include floor brokerage, clearing fees,
National Futures Association fees and exchange fees.
"Program" means a limited partnership, limited liability company, joint
venture, corporation, trust or other entity formed and operated for the
purpose of investing in Commodity Contracts. More specifically, see the
definition of "Trust."
TA-5
"Program Broker" means a Commodity Broker that effects trades in
Commodity Contracts for the account of a Program.
"Program Interest" means a security representing ownership in a Program.
More specifically, see the definition of "Units."
"Profits" means, in respect of each Series for each Fiscal Year of the
Trust, profits of such series as determined for Federal income tax purposes,
and each item of income, gain, loss or deduction entering into the computation
thereof, except that any gain or loss taken into account in determining the
Disposition Gain or the Disposition Loss of such Series for such Fiscal Year
shall not enter into such computations.
"Prospectus" means the final prospectus and disclosure document of the
Trust and each Series thereof, constituting a part of a Registration
Statement, as filed with the Securities and Exchange Commission and declared
effective thereby, as the same may at any time and from time to time be
amended or supplemented.
"Pyramiding" means the use of unrealized profits on existing Commodities
positions to provide margin for additional Commodities positions of the same
or a related commodity.
"Redemption Date" means the date upon which Units may be redeemed in
accordance with the provisions of Article VII hereof.
"Registration Statement" means a registration statement on Form S-1, as
it may be amended from time to time, filed with the Securities and Exchange
Commission pursuant to which the Trust registered the Limited Units, as the
same may at any time and from time to time be further amended or supplemented.
"Series" means a separate series of the Trust as provided in Sections
3806(b)(2) and 3804 of the Delaware Trust Statute, the Units of which shall be
units of beneficial interest in the Trust Estate separately identified with
and belonging to such Series.
"Series Net Asset Value per Unit" means the Net Asset Value of a Series
divided by the number of Units of a Series outstanding on the date of
calculation.
"Special Redemption Date" shall have the meaning as provided under
Section 7.5.
"Sponsor" means any person directly or indirectly instrumental in
organizing the Trust or any person who will manage or participate in the
management of the Trust, including the Managing Owner or an Affiliate of the
Managing Owner, who pays any portion of the Organizational Expenses of the
Trust and any other person who regularly performs or selects the persons who
perform services for the Trust. Sponsor does not include wholly independent
third parties such as attorneys, accountants and underwriters whose only
compensation is for professional services rendered in connection with the
offering of the Units. The term "Sponsor" shall be deemed to include its
Affiliates.
"Subscription Agreement" means the agreement included as an exhibit to
the Prospectus pursuant to which subscribers may subscribe for the purchase of
the Limited Units.
TA-6
"Trading Advisor" means Graham Capital Management, L.P. for the Series G
Units, Bridgewater Associates, Inc. for the Series H Units, Eagle Trading
Systems Inc. for the Series I Units and each of them for the Series J Units
and any other entity or entities, acting in its capacity as a commodity
trading advisor (i.e., any person who for any consideration engages in the
business of advising others, either directly or indirectly, as to the value,
purchase, or sale of Commodity Contracts or commodity options) to a Series,
and any substitute(s) therefor as provided herein.
"Trust" means World Monitor Trust III, the Delaware statutory trust
formed pursuant to the Certificate of Trust and this Trust Agreement.
"Trust Agreement" means this Declaration of Trust and Trust Agreement as
the same may at any time or from time to time be amended.
"Trustee" means Wilmington Trust Company or any substitute therefor as
provided herein, acting not in its individual capacity but solely as trustee
of the Trust.
"Trust Estate" means, with respect to a Series, any cash, commodity
futures, forward and option contracts, all funds on deposit in the Series'
accounts, and any other property held by the Series, and all proceeds
therefrom, including any rights of the Series pursuant to any Subscription
Agreement and any other agreements to which the Trust or a Series thereof is a
party.
"Unitholders" means the Managing Owner and all Limited Owners, as holders
of Units of a Series, where no distinction is required by the context in which
the term is used.
"Units" means the units of beneficial interest in the profits, losses,
distributions, capital and assets of a Series of the Trust. The Managing
Owner's Capital Contributions shall be represented by "General" Units and a
Limited Owner's Capital Contributions shall be represented by "Limited" Units.
Units need not be represented by certificates.
"Valuation Date" means the date as of which the Net Assets of the Trust
are determined or the date as of which the Net Asset Value of a Series is
determined.
"Valuation Period" means a regular period of time between Valuation
Dates.
"Valuation Point" means the close of business on the last Business Day of
each Month or such other day as may be determined by the Managing Owner.
SECTION 1.2. Name.
(a) The name of the Trust is "World Monitor Trust III" in which name
the Trustee and the Managing Owner may engage in the business of the Trust,
make and execute contracts and other instruments on behalf of the Trust and
sue and be sued on behalf of the Trust.
TA-7
SECTION 1.3. Delaware Trustee; Business Offices.
(a) The sole Trustee of the Trust is Wilmington Trust Company, which
is located at the Corporate Trust Office or at such other address in the State
of Delaware as the Trustee may designate in writing to the Unitholders. The
Trustee shall receive service of process on the Trust in the State of Delaware
at the foregoing address. In the event Wilmington Trust Company resigns or is
removed as the Trustee, the Trustee of the Trust in the State of Delaware
shall be the successor Trustee.
(b) The principal office of the Trust, and such additional offices
as the Managing Owner may establish, shall be located at such place or places
inside or outside the State of Delaware as the Managing Owner may designate
from time to time in writing to the Trustee and the Unitholders. The principal
office of the Trust shall be at 2 American Lane, Greenwich, CT, 06831.
SECTION 1.4. Declaration of Trust. The Trustee hereby acknowledges that
the Trust has received the sum of $1,000 per Series in bank accounts in the
name of each Series of the Trust controlled by the Managing Owner from the
Managing Owner as grantor of the Trust, and hereby declares that it shall hold
such sum in trust, upon and subject to the conditions set forth herein for the
use and benefit of the Unitholders. It is the intention of the parties hereto
that the Trust shall be a statutory trust under the Delaware Trust Statute and
that this Trust Agreement shall constitute the governing instrument of the
Trust. It is not the intention of the parties hereto to create a general
partnership, limited partnership, limited liability company, joint stock
association, corporation, bailment or any form of legal relationship other
than a Delaware statutory trust except to the extent that each Series in such
Trust is deemed to constitute a partnership under the Code and applicable
state and local tax laws. Nothing in this Trust Agreement shall be construed
to make the Unitholders partners or members of a joint stock association
except to the extent such Unitholders are deemed to be partners under the Code
and applicable state and local tax laws. Notwithstanding the foregoing, it is
the intention of the parties thereto to create a partnership among the
Unitholders of each Series for purposes of taxation under the Code and
applicable state and local tax laws. Effective as of the date hereof, the
Trustee and the Managing Owner shall have all of the rights, powers and duties
set forth herein and in the Delaware Trust Statute with respect to
accomplishing the purposes of the Trust. The Trustee has filed the certificate
of trust required by Section 3810 of the Delaware Trust Statute in connection
with the formation of the Trust under the Delaware Trust Statute.
SECTION 1.5. Purposes and Powers. The purposes of the Trust and each
Series shall be (a) directly or indirectly to trade, buy, sell, spread or
otherwise acquire, hold or dispose of commodity futures, forward and option
contracts, including foreign futures, forward contracts and foreign exchange
positions worldwide; (b) to enter into any lawful transaction and engage in
any lawful activities in furtherance of or incidental to the foregoing
purposes (including the establishment of the Trading Vehicles described in the
Prospectus); and (c) as determined from time to time by the Managing Owner, to
engage in any other lawful business or activity for which a statutory trust
may be organized under the Delaware Trust Statute. The Trust shall have all of
the powers specified in Section 15.1 hereof, including, without limitation,
all of the powers which may be exercised by a Managing Owner on behalf of the
Trust under this Trust Agreement.
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SECTION 1.6. Tax Treatment.
(a) Each of the parties hereto, by entering into this Trust
Agreement, (i) expresses its intention that the Units of each Series will
qualify under applicable tax law as interests in a partnership which holds the
Trust Estate of each Series for their benefit, (ii) agrees that it will file
its own Federal, state and local income, franchise and other tax returns in a
manner that is consistent with the treatment of each Series as a partnership
in which each of the Unitholders thereof is a partner and (iii) agrees to use
reasonable efforts to notify the Managing Owner promptly upon a receipt of any
notice from any taxing authority having jurisdiction over such holders of
Units of such Series with respect to the treatment of the Units as anything
other than interests in a partnership.
(b) The Tax Matters Partner (as defined in Section 6231 of the Code
and any corresponding state and local tax law) of each Series initially shall
be the Managing Owner. The Tax Matters Partner, at the expense of each Series,
shall prepare or cause to be prepared and filed each Series' tax returns as a
partnership for Federal, state and local tax purposes and (ii) shall be
authorized to perform all duties imposed by ss. 6221 et seq. of the Code,
including, without limitation, (A) the power to conduct all audits and other
administrative proceedings with respect to each Series' tax items; (B) the
power to extend the statute of limitations for all Unitholders with respect to
each Series' tax items; (C) the power to file a petition with an appropriate
Federal court for review of a final administrative adjustment of any Series;
and (D) the power to enter into a settlement with the IRS on behalf of, and
binding upon, those Limited Owners having less than 1% interest in any Series,
unless a Limited Owner shall have notified the IRS and the Managing Owner that
the Managing Owner shall not act on such Limited Owner's behalf. The
designation made by each Unitholder of a Series in this Section 1.6(b) is
hereby approved by each Unitholder of such Series as an express condition to
becoming a Unitholder. Each Unitholder agrees to take any further action as
may be required by regulation or otherwise to effectuate such designation.
Subject to Section 4.7, each Series hereby indemnifies, to the full extent
permitted by law, the Managing Owner from and against any damages or losses
(including attorneys' fees) arising out of or incurred in connection with any
action taken or omitted to be taken by it in carrying out its responsibilities
as Tax Matters Partner, provided such action taken or omitted to be taken does
not constitute fraud, negligence or misconduct.
(c) Each Unitholder shall furnish the Managing Owner and the Trustee
with information necessary to enable the Managing Owner to comply with Federal
income tax information reporting requirements in respect of such Unitholder's
Units.
SECTION 1.7. General Liability of the Managing Owner.
(a) The Managing Owner shall be liable for the acts, omissions,
obligations and expenses of each Series of the Trust, to the extent not paid
out of the assets of the Series, to the same extent the Managing Owner would
be so liable if each Series were a partnership under the Delaware Revised
Uniform Limited Partnership Act and the Managing Owner were a general partner
of such partnership. The foregoing provision shall not, however, limit the
ability of the Managing Owner to limit its liability by contract. The
obligations of the Managing Owner under this Section 1.7 shall be evidenced by
its ownership of the General Units which, solely for
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purposes of the Delaware Trust Statute, will be deemed to be a separate class
of Units in each Series. Without limiting or affecting the liability of the
Managing Owner as set forth in this Section 1.7, notwithstanding anything in
this Trust Agreement to the contrary, Persons having any claim against the
Trust or any Series by reason of the transactions contemplated by this Trust
Agreement and any other agreement, instrument, obligation or other undertaking
to which the Trust or any Series is a party, shall look only to the
appropriate Trust Estate in accordance with Section 3.6 hereof for payment or
satisfaction thereof.
(b) Subject to Sections 8.1 and 8.3 hereof, no Unitholder, other
than the Managing Owner, to the extent set forth above, shall have any
personal liability for any liability or obligation of the Trust or any Series
thereof.
SECTION 1.8. Legal Title. Legal title to all of each Trust Estate
shall be vested in the Trust as a separate legal entity; except where
applicable law in any jurisdiction requires any part of the Trust Estate to be
vested otherwise, the Managing Owner may cause legal title to the Trust Estate
or any portion thereof to be held by or in the name of the Managing Owner or
any other Person as nominee.
SECTION 1.9. Series Trust. The Units of the Trust shall be divided
into Series as provided in Section 3806(b)(2) of the Delaware Trust Statute.
Accordingly, it is the intent of the parties hereto that Articles IV, V, VII,
VIII, IX and X of this Trust Agreement shall apply also with respect to each
such Series as if each such Series were a separate statutory trust under the
Delaware Trust Act, and each reference to the term "Trust" in such Articles
shall be deemed to be a reference to each Series separately to the extent
necessary to give effect to the foregoing intent, as the context may require.
The use of the terms "Trust" or "Series" in this Agreement shall in no event
alter the intent of the parties hereto that the Trust receive the full benefit
of the limitation on interseries liability as set forth in Section 3804 of the
Delaware Trust Statute.
ARTICLE II
THE TRUSTEE
SECTION 2.1. Term; Resignation.
(a) Wilmington Trust Company has been appointed and hereby agrees to
serve as the Trustee of the Trust. The Trust shall have only one trustee
unless otherwise determined by the Managing Owner. The Trustee shall serve
until such time as the Managing Owner removes the Trustee or the Trustee
resigns and a successor Trustee is appointed by the Managing Owner in
accordance with the terms of Section 2.5 hereof.
(b) The Trustee may resign at any time upon the giving of at least
60 days' advance written notice to the Trust; provided, that such resignation
shall not become effective unless and until a successor Trustee shall have
been appointed by the Managing Owner in accordance with Section 2.5 hereof. If
the Managing Owner does not act within such sixty (60) day period, the Trustee
may apply to the Court of Chancery of the State of Delaware for the
appointment of a successor Trustee.
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SECTION 2.2. Powers. Except to the extent expressly set forth in
Section 1.3 and this Article II, the duty and authority of the Trustee to
manage the business and affairs of the Trust is hereby delegated to the
Managing Owner, which duty and authority the Managing Owner may further
delegate as provided herein, all pursuant to Section 3806(b)(7) of the
Delaware Trust Statute. The Trustee shall have only the rights, obligations
and liabilities specifically provided for herein and shall have no implied
rights, obligations and liabilities with respect to the business and affairs
of the Trust or any Series. The Trustee shall have the power and authority to
execute and file certificates as required by the Delaware Trust Statute and to
accept service of process on the Trust in the State of Delaware. The Trustee
shall provide prompt notice to the Managing Owner of its performance of any of
the foregoing. The Managing Owner shall reasonably keep the Trustee informed
of any actions taken by the Managing Owner with respect to the Trust that
affect the rights, obligations or liabilities of the Trustee hereunder or
under the Delaware Trust Statute.
SECTION 2.3. Compensation and Expenses of the Trustee. The Trustee
shall be entitled to receive from the Managing Owner or an Affiliate of the
Managing Owner (other than the Trust) reasonable compensation for its services
hereunder as set forth in a separate fee agreement and shall be entitled to be
reimbursed by the Managing Owner or an Affiliate of the Managing Owner for
reasonable out-of-pocket expenses incurred by it in the performance of its
duties hereunder, including without limitation, the reasonable compensation,
out-of-pocket expenses and disbursements of counsel and such other agents as
the Trustee may employ in connection with the exercise and performance of its
rights and duties hereunder.
SECTION 2.4. Indemnification. The Managing Owner agrees, whether or
not any of the transactions contemplated hereby shall be consummated, to
assume liability for, and does hereby indemnify, protect, save and keep
harmless the Trustee and its successors, assigns, legal representatives,
officers, directors, agents and servants (the "Indemnified Parties") from and
against any and all liabilities, obligations, losses, damages, penalties,
taxes (excluding any taxes payable by the Trustee on or measured by any
compensation received by the Trustee for its services hereunder or any
indemnity payments received by the Trustee pursuant to this Section 2.4),
claims, actions, suits, costs, expenses or disbursements (including legal fees
and expenses) of any kind and nature whatsoever (collectively, "Expenses"),
which may be imposed on, incurred by or asserted against the Indemnified
Parties in any way relating to or arising out of the formation, operation or
termination of the Trust, the execution, delivery and performance of any other
agreements to which the Trust is a party or the action or inaction of the
Trustee hereunder or thereunder, except for Expenses resulting from the gross
negligence or willful misconduct of the Indemnified Parties. The indemnities
contained in this Section 2.4 shall survive the termination of this Trust
Agreement or the removal or resignation of the Trustee. The Indemnified
Parties shall not be entitled to indemnification from any Trust Estate.
SECTION 2.5. Successor Trustee. Upon the resignation or removal of
the Trustee, the Managing Owner shall appoint a successor Trustee by
delivering a written instrument to the outgoing Trustee. Any successor Trustee
must satisfy the requirements of Section 3807 of the Delaware Trust Statute.
Any resignation or removal of the Trustee and appointment of a successor
Trustee shall not become effective until a written acceptance of appointment
is delivered by the successor Trustee to the outgoing Trustee and the Managing
Owner and any fees and expenses due to the outgoing Trustee are paid.
Following compliance with the
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preceding sentence, the successor Trustee shall become fully vested with all
of the rights, powers, duties and obligations of the outgoing Trustee under
this Trust Agreement, with like effect as if originally named as Trustee, and
the outgoing Trustee shall be discharged of its duties and obligations under
this Trust Agreement.
SECTION 2.6. Liability of Trustee. Except as otherwise provided in
this Article II, in accepting the trust created hereby, Wilmington Trust
Company acts solely as Trustee hereunder and not in its individual capacity,
and all Persons having any claim against the Trustee by reason of the
transactions contemplated by this Trust Agreement and any other agreement to
which the Trust or any Series is a party shall look only to the appropriate
Trust Estate in accordance with Section 3.6 hereof for payment or satisfaction
thereof; provided, however, that in no event is the foregoing intended to
affect or limit the liability of the Managing Owner as set forth in Section
1.7 hereof. The Trustee shall not be liable or accountable hereunder or under
any other agreement to which the Trust is a party, except for its own gross
negligence or willful misconduct. In particular, but not by way of limitation:
(a) The Trustee shall have no liability or responsibility for the
validity or sufficiency of this Trust Agreement or for the form, character,
genuineness, sufficiency, value or validity of any Trust Estate;
(b) The Trustee shall not be liable for any actions taken or omitted
to be taken by it in accordance with the instructions of the Managing Owner;
(c) The Trustee shall not have any liability for the acts or
omissions of the Managing Owner;
(d) The Trustee shall not be liable for its failure to supervise the
performance of any obligations of the Managing Owner, any commodity broker,
selling agent or any Trading Advisor(s);
(e) No provision of this Trust Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its rights or powers hereunder if the Trustee shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or provided
to it;
(f) Under no circumstances shall the Trustee be liable for
indebtedness evidenced by or other obligations of the Trust or any Series
arising under this Trust Agreement or any other agreements to which the Trust
or any Series is a party;
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust Agreement, or to institute,
conduct or defend any litigation under this Trust Agreement or any other
agreements to which the Trust or any Series is a party, at the request, order
or direction of the Managing Owner or any Unitholders unless the Managing
Owner or such Unitholders have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Trustee (including, without limitation, the reasonable fees
and expenses of its counsel) therein or thereby;
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(h) Notwithstanding anything contained herein to the contrary, the
Trustee shall not be required to take any action in any jurisdiction other
than in the State of Delaware if the taking of such action will require the
consent or approval or authorization or order of or the giving of notice to,
or the registration with or taking of any action in respect of, any state or
other governmental authority or agency of any jurisdiction other than the
State of Delaware, (ii) result in any fee, tax or other governmental charge
under the laws of any jurisdiction or any political subdivision thereof in
existence as of the date hereof other than the State of Delaware becoming
payable by the Trustee or (iii) subject the Trustee to personal jurisdiction,
other than in the State of Delaware, for causes of action arising from
personal acts unrelated to the consummation of the transactions by the
Trustee, as the case may be, contemplated hereby; and
(i) To the extent that, at law or in equity, the Trustee has duties
(including fiduciary duties) and liabilities relating thereto to the Trust,
the Unitholders or to any other Person, the Trustee acting under this
Agreement shall not be liable to the Trust, the Unitholders or to any other
Person for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the duties and
liabilities of the Trustee otherwise existing at law or in equity are agreed
by the parties hereto to replace such other duties and liabilities of the
Trustee.
SECTION 2.7. Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may conclusively rely
upon certificates or opinions furnished to the Trustee and conforming to the
requirements of this Trust Agreement in determining the truth of the
statements and the correctness of the opinions contained therein, and shall
incur no liability to anyone in acting on any signature, instrument, notice,
resolutions, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties and need not investigate any fact or
matter pertaining to or in any such document; provided, however, that the
Trustee shall have examined any certificates or opinions so as to determine
compliance of the same with the requirements of this Trust Agreement. The
Trustee may accept a certified copy of a resolution of the board of directors
or other governing body of any corporate party as conclusive evidence that
such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the
determination of which is not specifically prescribed herein, the Trustee may
for all purposes hereof rely on a certificate, signed by the president or any
vice president or by the treasurer or other authorized officers of the
relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Trustee for any action taken or omitted to
be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the Trust hereunder and in
the performance of its duties and obligations under this Trust Agreement, the
Trustee, at the expense of the Managing Owner or an Affiliate of the Managing
Owner (other than the Trust) may act directly or through its agents,
attorneys, custodians or nominees pursuant to agreements entered into with any
of them, and the Trustee shall not be liable for the conduct or misconduct of
such agents, attorneys, custodians or nominees if such agents, attorneys,
custodians or nominees shall have been selected by the Trustee with reasonable
care and (ii) may consult with counsel, accountants and other skilled
professionals to be selected with reasonable care by it. The Trustee
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shall not be liable for anything done, suffered or omitted in good faith by it
in accordance with the opinion or advice of any such counsel, accountant or
other such Persons.
ARTICLE III
UNITS; CAPITAL CONTRIBUTIONS
SECTION 3.1. General.
(a) The Managing Owner shall have the power and authority, without
Limited Owner approval, to issue Units in one or more Series from time to time
as it deems necessary or desirable. Each Series shall be separate from all
other Series in respect of the assets and liabilities allocated to that Series
and shall represent a separate investment portfolio of the Trust. The Managing
Owner shall have exclusive power without the requirement of Limited Owner
approval to establish and designate such separate and distinct Series, as set
forth in Section 3.2, and to fix and determine the relative rights and
preferences as between the Units of the separate Series as to right of
redemption, special and relative rights as to dividends and other
distributions and on liquidation, conversion rights, and conditions under
which the Series shall have separate voting rights or no voting rights.
(b) The Managing Owner may, without Limited Owner approval, divide
or subdivide Units of any Series into two or more classes or subclasses, Units
of each such class or subclass having such preferences and special or relative
rights and privileges (including exchange rights, if any) as the Managing
Owner may determine as provided in Section 3.3. The fact that a Series shall
have been initially established and designated without any specific
establishment or designation of classes or subclasses, shall not limit the
authority of the Managing Owner to divide a Series and establish and designate
separate classes or subclasses thereof.
(c) The number of Units authorized shall be unlimited, and the Units
so authorized may be represented in part by fractional Units, calculated to
four decimal places. From time to time, the Managing Owner may divide or
combine the Units of any Series or class into a greater or lesser number
without thereby changing the proportionate beneficial interests in the Series
or class. The Managing Owner may issue Units of any Series or class thereof
for such consideration and on such terms as it may determine (or for no
consideration if pursuant to a Unit dividend or split-up), all without action
or approval of the Limited Owners. All Units when so issued on the terms
determined by the Managing Owner shall be fully paid and non-assessable. The
Managing Owner may classify or reclassify any unissued Units or any Units
previously issued and reacquired of any Series or class thereof into one or
more Series or classes thereof that may be established and designated from
time to time. The Managing Owner may hold as treasury Units, reissue for such
consideration and on such terms as it may determine, or cancel, at its
discretion from time to time, any Units of any Series or class thereof
reacquired by the Trust. Unless otherwise determined by the Managing Owner,
treasury Units shall not be deemed cancelled. The Units of each Series shall
initially be divided into two classes: General Units and Limited Units.
Furthermore, the Limited Units of each Class initially shall be divided into
two sub-classes: the Class I Units and the Class II Units. The Class I Units
and the Class II Units shall be identical in every respect except for the
service fees applicable to each of them,
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which service fees shall be as set forth in any applicable selling agent
agreement in effect from time-to-time with respect thereto and as described in
the Prospectus.
(d) The Managing Owner and/or its Affiliates will make and maintain
a permanent investment in each Series as more specifically set forth in
Section 3.4.
(e) No certificates or other evidence of beneficial ownership of the
Units will be issued.
(f) Every Unitholder, by virtue of having purchased or otherwise
acquired a Unit, shall be deemed to have expressly consented and agreed to be
bound by the terms of this Trust Agreement.
SECTION 3.2. Establishment of Series of Units.
(a) Without limiting the authority of the Managing Owner set forth
in Section 3.2(b) to establish and designate any further Series, the Managing
Owner hereby establishes and designates four initial Series, as follows:
Series G, Series H, Series I and Series J
The provisions of this Article III shall be applicable to the above-designated
Series and any further Series that may from time to time be established and
designated by the Managing Owner as provided in Section 3.2(b); provided,
however, that such provisions may be amended, varied or abrogated by the
Managing Owner with respect to any Series created after the initial formation
of the Trust in the written instrument creating such Series.
(b) The establishment and designation of any Series of Units other
than those set forth above shall be effective upon the execution by the
Managing Owner of an instrument setting forth such establishment and
designation and the relative rights and preferences of such Series, or as
otherwise provided in such instrument. At any time that there are no Units
outstanding of any particular Series previously established and designated,
the Managing Owner may by an instrument executed by it abolish that Series and
the establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Trust Agreement.
SECTION 3.3. Establishment of Classes and Sub-Classes. The division
of any Series into two or more classes or sub-classes and the establishment
and designation of such classes or sub-classes shall be effective upon the
execution by the Managing Owner of an instrument setting forth such division,
and the establishment, designation, and relative rights and preferences of
such classes, or as otherwise provided in such instrument. The relative rights
and preferences of the classes or sub-classes of any Series may differ in such
respects as the Managing Owner may determine to be appropriate, provided that
such differences are set forth in the aforementioned instrument. At any time
that there are no Units outstanding of any particular class or sub-class
previously established and designated, the Managing Owner may by an instrument
executed by it abolish that class or sub-class and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Trust Agreement.
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SECTION 3.4. Limited Units.
(a) Offer of Series G Limited Units.
(i) Series G Initial Offering Period. During the Initial Offering
Period, the Trust shall offer pursuant to Securities and Exchange
Commission Rule 415, at an offering price of $100 per Series G Limited
Unit, a maximum of 150,000 Limited Units ($15 million). The offering
shall be made pursuant to and on the terms and conditions set forth in
the Prospectus. The Managing Owner shall make such arrangements for the
sale of the Limited Units as it deems appropriate.
(ii) Effect of the Sale of at least 5,000 Series G Units. In the
event that at least 5,000 Series G Limited Units are sold during the
Initial Offering Period for the Series G Units, subject to Section 3.4(e)
and Section 3.4(f), the Managing Owner shall admit all accepted
subscribers pursuant to the Prospectus into the Trust as Series G Limited
Owners, by causing such Limited Owners to execute this Trust Agreement,
pursuant to the Power of Attorney set forth in the Subscription
Agreement, and by making an entry on the books and records of Series G of
the Trust reflecting that such subscribers have been admitted as Limited
Owners of Series G Units, as soon as practicable after the termination of
the Series G Initial Offering Period. Such accepted subscribers will be
deemed Series G Limited Owners at such time as such admission is
reflected on the books and records of Series G of the Trust.
(iii) Paid-In Capital if at least 5,000 Series G Units Are Sold.
In the event that at least 5,000 Series G Limited Units are sold during
the Initial Offering Period, Series G shall have paid-in capital of not
less than $525,000 (including the Managing Owner's contribution for the
General Units as provided in Section 3.1(d) and in Section 3.4(a)(v)
hereof).
(iv) Effect of the Sale of Less than 5,000 Series G Units. In
the event that at least 5,000 Series G Limited Units are not sold during
the Initial Offering Period for the Series G Units, all proceeds of the
sale of Series G Limited Units, together with any interest earned
thereon, will be returned to the subscribers on a pro rata basis (taking
into account the amount and time of deposit), as promptly as practicable
but in no even more than seven days after the conclusion of the Initial
Offering Period for the Series G Units. Such action will not terminate
Series G.
(v) Required Contribution of Managing Owner. In the event that
5,000 or more of the Series G Limited Units offered pursuant to the
Prospectus are sold during the Initial Offering Period for the Series G
Units and 300,000 or more of the Series J Limited Units offered pursuant
to the Prospectus are sold during the Initial Offering Period for the
Series J Units, the Managing Owner and/or its Affiliates shall be
required to contribute in cash to the capital of Series G an amount,
which, when added to the total contributions to Series G by all Series G
Unitholders, will be not less than 1% of such total contributions, and in
no event shall such contribution be less than $25,000 (including the
Managing Owner's and/or its Affiliates' Capital Contributions).
Thereafter, the Managing Owner and/or its Affiliates shall maintain an
investment in
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Series G Units in an aggregate amount equal to not less than 1.01% of the
Net Asset Value of Series G or $25,000, whichever is greater. The
Managing Owner and/or its Affiliates may, but are not obligated to, make
additional Capital Contributions at any time during the Series G Initial
or Continuous Offering Periods. The Managing Owner and/or its Affiliates
will receive Series G General Units. The Managing Owner and/or its
Affiliates shall, with respect to any Series G Units owned by them, enjoy
all of the rights and privileges and be subject to all of the obligations
and duties of a Series G Limited Owner, in addition to rights and
privileges the Managing Owner has as Managing Owner, except as otherwise
provided herein. Notwithstanding anything to the contrary in this Trust
Agreement, the interest of the Managing Owner and/or its Affiliates
(without regard to any Limited Units of the Managing Owner and/or its
Affiliates in Series G) in each material item of Series G income, gain,
loss and deduction shall be equal, in the aggregate, to at least 1% of
each such item at all times during the term of this Trust Agreement.
(vi) Offer of Series G Limited Units After Initial Offering
Period. In the event that 5,000 or more of the Series G Limited Units are
sold during the Initial Offering Period for the Series G Units and
300,000 or more of the Series J Limited Units are sold during the Initial
Offering Period for the Series J Units, the Trust may continue to offer
Series G Limited Units and admit additional Series G Limited Owners
and/or accept additional contributions from existing Series G Limited
Owners pursuant to the Prospectus.
Each additional Capital Contribution to Series G during the Series G
Continuous Offering Period by an existing Series G Limited Owner must be
in a denomination which is an even multiple of $100. During the Series G
Continuous Offering Period, each newly admitted Series G Limited Owner,
and each existing Series G Limited Owner that makes an additional Capital
Contribution to Series G, shall receive Series G Limited Units in an
amount equal to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the Series G Net Asset Value
per Series per Unit calculated as of the Valuation Point immediately
prior to the date on which such Capital Contribution will become
effective.
A Subscriber (including existing Series G Limited Owners
contributing additional sums) whose subscription is received and accepted
by the Managing Owner after the termination of the Initial Offering
Period for Series G Units shall be admitted to the Trust and deemed a
Series G Limited Owner with respect to that subscription on the first
Business Day of the first month which commences at least five Business
Days after the Subscriber's Subscription Agreement or Exchange Request is
received by the Trust's selling agent, counting the day of receipt by
such selling agent as one Business Day.
(vii) Subscription Agreement. Each Series G Limited Owner who
purchases any Limited Units offered pursuant to the Prospectus shall
contribute to the capital of Series G such amount as he shall state in
the Subscription Agreement which he shall execute (as required therein),
acknowledge and, together with the Power of Attorney set forth therein,
deliver to the Managing Owner as a counterpart of this Trust Agreement.
All subscription amounts shall be paid in such form as may be acceptable
to
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the Managing Owner at the time of the execution and delivery of such
Subscription Agreement by United States subscribers, and in accordance
with local practice and procedure by non-United States subscribers. If
the Managing Owner determines to accept subscription funds by check, such
funds shall be subject to prompt collection. All subscriptions are
subject to acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds from the sale of Series G
Limited Units offered pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at JPMorgan Chase Bank until the
conclusion of the Initial Offering Period for the Series G Units. In the
event subscriptions for at least (i) 5,000 Series G Units are received
and accepted during the Initial Offering for the Series G Units and (ii)
300,000 Series J Limited Units are received and accepted during the
Initial Offering for the Series J Units, all interest earned on the
proceeds of subscriptions from accepted subscribers for Series G Limited
Units during its Initial Offering Period will be contributed to Series G,
for which the Series G Limited Owners will receive additional Series G
Units on a pro rata basis (taking into account time and amount of
deposit).
(ix) Optional Purchase of Series G Limited Units. Subject to
approval by the Managing Owner, any commodity broker, any Trading Advisor
and any principals, stockholders, directors, officers, employees and
affiliates of the Managing Owner and/or its Affiliates, any commodity
broker, and any Trading Advisor, may purchase any number of Series G
Limited Units and will be treated as Series G Limited Owners with respect
to such Units. In addition to the Series G Units required to be purchased
by the Managing Owner and/or its Affiliates under Section 3.4(a)(v), the
Managing Owner and/or its Affiliates also may purchase any number of
Series G Limited Units as it or they determine in its or their
discretion.
(b) Offer of Series H Limited Units.
(i) Series H Initial Offering Period. During the Initial Offering
Period, the Trust shall offer pursuant to Securities and Exchange
Commission Rule 415, at an offering price of $100 per Series H Limited
Unit, a maximum of 150,000 Series H Limited Units ($15 million). The
offering shall be made pursuant to and on the terms and conditions set
forth in the Prospectus. The Managing Owner shall make such arrangements
for the sale of the Series H Limited Units as it deems appropriate.
(ii) Effect of the Sale of at least 5,000 Series H Units. In the
event that at least 5,000 Series H Limited Units are sold during the
Initial Offering Period for the Series H Units, subject to Section 3.4(e)
and Section 3.4(f), the Managing Owner shall admit all accepted
subscribers pursuant to the Prospectus into the Trust as Series H Limited
Owners, by causing such Limited Owners to execute this Trust Agreement,
pursuant to the Power of Attorney set forth in the Subscription
Agreement, and by making an entry on the books and records of Series H of
the Trust reflecting that such subscribers have been admitted as Limited
Owners of Series H Units, as soon as practicable after the termination of
the Series H Initial Offering Period. Such accepted subscribers will be
deemed Series H Limited Owners at such time as such admission is
reflected on the books and records of Series H of the Trust.
TA-18
(iii) Paid-In Capital if at least 5,000 Series H Units Are Sold.
In the event that at least 5,000 Series H Limited Units are sold during
the Initial Offering Period, Series H shall have paid-in capital of not
less than $525,000 (including the Managing Owner's contribution for the
General Units as provided in Section 3.1(d) and in Section 3.4(b)(v)
hereof).
(iv) Effect of the Sale of Less than 5,000 Series H Units. In the
event that at least 5,000 Series H Limited Units are not sold during the
Initial Offering Period for the Series H Units, all proceeds of the sale
of Series H Limited Units, together with any interest earned thereon,
will be returned to the subscribers on a pro rata basis (taking into
account the amount and time of deposit), as promptly as practicable but
in no event more than seven days after the conclusion of the Initial
Offering Period for the Series H Units. Such action will not terminate
Series H.
(v) Required Contribution of Managing Owner. In the event that
5,000 or more of the Series H Limited Units offered pursuant to the
Prospectus are sold during the Initial Offering Period for the Series H
Units and 300,000 or more of the Series J Limited Units offered pursuant
to the Prospectus are sold during the Initial Offering Period for the
Series J Units, the Managing Owner and/or its Affiliates shall be
required to contribute in cash to the capital of Series H an amount,
which, when added to the total contributions to Series H by all Series H
Unitholders, will be not less than 1% of such total contributions, and in
no event shall such contribution be less than $25,000 (including the
Managing Owner's and/or its Affiliates' Capital Contributions).
Thereafter, the Managing Owner and/or its Affiliates shall maintain an
investment in Series H Units in an aggregate amount equal to not less
than 1.01% of the Net Asset Value of Series H or $25,000, whichever is
greater. The Managing Owner and/or its Affiliates may, but are not
obligated to, make additional Capital Contributions at any time during
the Series H Initial or Continuous Offering Periods. The Managing Owner
and/or its Affiliates will receive Series H General Units. The Managing
Owner and/or its Affiliates shall, with respect to any Series H Units
owned by them, enjoy all of the rights and privileges and be subject to
all of the obligations and duties of a Series H Limited Owner, in
addition to rights and privileges the Managing Owner has as Managing
Owner, except as otherwise provided herein. Notwithstanding anything to
the contrary in this Trust Agreement, the interest of the Managing Owner
and/or its Affiliates (without regard to any Limited Units of the
Managing Owner and/or its Affiliates in Series H) in each material item
of Series H income, gain, loss and deduction shall be equal, in the
aggregate, to at least 1% of each such item at all times during the term
of this Trust Agreement.
(vi) Offer of Series H Limited Units After Initial Offering
Period. In the event that 5,000 or more of the Series H Limited Units are
sold during the Initial Offering Period for the Series H Units and
300,000 or more of the Series J Limited Units offered pursuant to the
Prospectus are sold during the Initial Offering Period for the Series J
Units, the Trust may continue to offer Series H Limited Units and admit
additional Series H Limited Owners and/or accept additional contributions
from existing Series H Limited Owners pursuant to the Prospectus as
amended or supplemented from time to time.
TA-19
Each additional Capital Contribution to Series H during the Series H
Continuous Offering Period by an existing Series H Limited Owner must be
in a denomination which is an even multiple of $100. During Series H
Continuous Offering Period, each newly admitted Series H Limited Owner,
and each existing Series H Limited Owner that makes an additional Capital
Contribution to Series H, shall receive Series H Limited Units in an
amount equal to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the Series H Net Asset Value
per Unit calculated as of the Valuation Point immediately prior to the
date on which such Capital Contribution will become effective.
A Subscriber (including existing Series H Limited Owners
contributing additional sums) whose subscription is received and accepted
by the Managing Owner after the termination of the Initial Offering
Period for Series H Units shall be admitted to the Trust and deemed a
Series H Limited Owner with respect to that subscription on the first
Business Day of the first month which commences at least five Business
Days after the Subscriber's Subscription Agreement or Exchange Request is
received by the Trust's selling agent, counting the day of receipt by
such selling agent as one Business Day.
(vii) Subscription Agreement. Each Series H Limited Owner who
purchases any Limited Units offered pursuant to the Prospectus shall
contribute to the capital of Series H such amount as he shall state in
the Subscription Agreement which he shall execute (as required therein),
acknowledge and, together with the Power of Attorney set forth therein,
deliver to the Managing Owner as a counterpart of this Trust Agreement.
All subscription amounts shall be paid in such form as may be acceptable
to the Managing Owner at the time of the execution and delivery of such
Subscription Agreement by United States subscribers, and in accordance
with local practice and procedure by non-United States subscribers. To
the extent that the Managing Owner determines to accept a subscription
check, it shall be subject to prompt collection. All subscriptions are
subject to acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds from the sale of Series H
Limited Units offered pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at JPMorgan Chase Bank until the
conclusion of the Initial Offering Period for the Series H Units. In the
event subscriptions for at least (i) 5,000 Series H Units are received
and accepted during the Initial Offering for the Series H Units and (ii)
300,000 Series J Limited Units are received and accepted during the
Initial Offering for the Series J Units, all interest earned on the
proceeds of subscriptions from accepted subscribers for Series H Limited
Units during its Initial Offering Period will be contributed to Series H,
for which the Series H Limited Owners will receive additional Series H
Units on a pro rata basis (taking into account time and amount of
deposit).
(ix) Optional Purchase of Series H Limited Units. Subject to
approval by the Managing Owner, any commodity broker, any Trading Advisor
and any principals, stockholders, directors, officers, employees and
affiliates of the Managing Owner and/or its Affiliates, any commodity
broker, and any Trading Advisor, may purchase any number of Series H
Limited Units and will be treated as Series H Limited Owners with respect
to such Units. In addition to the Series H Units required to be
TA-20
purchased by the Managing Owner and/or its Affiliates under Section
3.4(b)(v), the Managing Owner and/or its Affiliates also may purchase any
number of Series H Limited Units as it or they determine in its or their
discretion.
(c) Offer of Series I Limited Units.
(i) Series I Initial Offering Period. During the Initial Offering
Period, the Trust shall offer pursuant to Securities and Exchange
Commission Rule 415, at an offering price of $100 per Series I Limited
Unit, a maximum of 75,000 Series I Limited Units $7.5 million). No
fractional Limited Units shall be issued during the Initial Offering
Period. The offering shall be made pursuant to and on the terms and
conditions set forth in the Prospectus. The Managing Owner shall make
such arrangements for the sale of the Limited Units as it deems
appropriate.
(ii) Effect of the Sale of at least 5,000 Series I Units. In the
event that at least 5,000 Series I Limited Units are sold during the
Initial Offering Period for the Series I Units, subject to Section 3.4(e)
and Section 3.4(f), the Managing Owner shall admit all accepted
subscribers pursuant to the Prospectus into the Trust as Series I Limited
Owners, by causing such Limited Owners to execute this Trust Agreement,
pursuant to the Power of Attorney set forth in the Subscription
Agreement, and by making an entry on the books and records of Series I of
the Trust reflecting that such subscribers have been admitted as Limited
Owners of Series I Units, as soon as practicable after the termination of
the Series I Initial Offering Period. Such accepted subscribers will be
deemed Series I Limited Owners at such time as such admission is
reflected on the books and records of Series I of the Trust.
(iii) Paid-In Capital if at least 5,000 Series I Units Are Sold.
In the event that at least 5,000 Series I Limited Units are sold during
the Initial Offering Period, Series I shall have paid-in capital of not
less than $525,000 (including the Managing Owner's contribution for the
General Units as provided in Section 3.1(d) and in Section 3.4(c)(v)
hereof).
(iv) Effect of the Sale of Less than 5,000 Series I Units. In the
event that at least 5,000 Series I Limited Units are not sold during the
Initial Offering Period for the Series I Units, all proceeds of the sale
of Series I Limited Units, together with any interest earned thereon,
will be returned to the subscribers on a pro rata basis (taking into
account the amount and time of deposit), as promptly as practicable but
in no even more than seven days after the conclusion of the Initial
Offering Period for the Series I Units. Such action will not terminate
Series I.
(v) Required Contribution of Managing Owner. In the event that
5,000 or more of the Series I Limited Units offered pursuant to the
Prospectus are sold during the Initial Offering Period for the Series I
Units and 300,000 or more of the Series J Limited Units offered pursuant
to the Prospectus are sold during the Initial Offering Period for the
Series J Units, the Managing Owner and/or its Affiliates shall be
required to contribute in cash to the capital of Series I an amount,
which, when added to the total contributions to Series I by all Series I
Unitholders, will be not less than 1% of such total
TA-21
contributions, and in no event shall such contribution be less than
$25,000 (including the Managing Owner's and its Affiliates' Capital
Contributions). Thereafter, the Managing Owner and/or its Affiliates
shall maintain an investment in Series I Units in an aggregate amount
equal to not less than 1.01% of the Net Asset Value of Series I or
$25,000, whichever is greater. The Managing Owner and/or its Affiliates
may, but are not obligated to, make additional Capital Contributions at
any time during the Series I Initial or Continuous Offering Periods. The
Managing Owner and/or its Affiliates will receive Series I General Units.
The Managing Owner and/or its Affiliates shall, with respect to any
Series I Units owned by them, enjoy all of the rights and privileges and
be subject to all of the obligations and duties of a Series I Limited
Owner, in addition to rights and privileges the Managing Owner has as
Managing Owner, except as otherwise provided herein. Notwithstanding
anything to the contrary in this Trust Agreement, the interest of the
Managing Owner and/or its Affiliates (without regard to any Limited Units
of the Managing Owner and/or its Affiliates in Series I) in each material
item of Series I income, gain, loss and deduction shall be equal, in the
aggregate, to at least 1% of each such item at all times during the term
of this Trust Agreement.
(vi) Offer of Series I Limited Units After Initial Offering
Period. In the event that 5,000 or more of the Series I Limited Units are
sold during the Initial Offering Period for the Series I Units and
300,000 or more of the Series J Limited Units offered pursuant to the
Prospectus are sold during the Initial Offering Period for the Series J
Units, the Trust may continue to offer Series I Limited Units and admit
additional Series I Limited Owners and/or accept additional contributions
from existing Series I Limited Owners pursuant to the Prospectus as
amended or supplemented from time to time.
Each additional Capital Contribution to Series I during the Series I
Continuous Offering Period by an existing Series I Limited Owner must be
in a denomination which is an even multiple of $100. During Series I
Continuous Offering Period, each newly admitted Series I Limited Owner,
and each existing Series I Limited Owner that makes an additional Capital
Contribution to Series I, shall receive Series I Limited Units in an
amount equal to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the Series I Net Asset Value
per Unit calculated as of the Valuation Point immediately prior to the
date on which such Capital Contribution will become effective.
A Subscriber (including existing Series I Limited Owners
contributing additional sums) whose subscription is received and accepted by
the Managing Owner after the termination of the Initial Offering Period for
Series I Units shall be admitted to the Trust and deemed a Series I Limited
Owner with respect to that subscription on the first Business Day of the first
month which commences at least five Business Days after the Subscriber's
Subscription Agreement or Exchange Request is received by the Trust's selling
agent, counting the day of receipt by such selling agent as one Business Day.
(vii) Subscription Agreement. Each Series I Limited Owner who
purchases any Limited Units offered pursuant to the Prospectus shall
contribute to the capital of Series I such amount as he shall state in
the Subscription Agreement which he shall execute (as required therein),
acknowledge and, together with the Power of Attorney
TA-22
set forth therein, deliver to the Managing Owner as a counterpart of this
Trust Agreement. All subscription amounts shall be paid in such form as
may be acceptable to the Managing Owner at the time of the execution and
delivery of such Subscription Agreement by United States subscribers, and
in accordance with local practice and procedure by non-United States
subscribers. To the extent that the Managing Owner determines to accept a
subscription check, it shall be subject to prompt collection. All
subscriptions are subject to acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds from the sale of Series I
Limited Units offered pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at JPMorgan Chase Bank until the
conclusion of the Initial Offering Period for the Series I Units. In the
event subscriptions for at least (i) 5,000 Series I Units are received
and accepted during the Initial Offering for the Series I Units and (ii)
300,000 Series J Limited Units are received and accepted during the
Initial Offering for the Series J Units, all interest earned on the
proceeds of subscriptions from accepted subscribers for Series I Limited
Units during its Initial Offering Period will be contributed to the
Series I, for which the Series I Limited Owners will receive additional
Series I Units on a pro rata basis (taking into account time and amount
of deposit).
(ix) Optional Purchase of Series I Limited Units. Subject to
approval by the Managing Owner, any commodity broker, any Trading Advisor
and any principals, stockholders, directors, officers, employees and
affiliates of the Managing Owner and/or its Affiliates, any commodity
broker, and any Trading Advisor, may purchase any number of Series I
Limited Units and will be treated as Series I Limited Owners with respect
to such Units. In addition to the Series I Units required to be purchased
by the Managing Owner and/or its Affiliates under Section 3.4(c)(v), the
Managing Owner and/or its Affiliates also may purchase any number of
Series I Limited Units as it or they determine in its or their
discretion.
(d) Offer of Series J Limited Units.
(i) Series J Initial Offering Period. During the Initial Offering
Period, the Trust shall offer pursuant to Securities and Exchange
Commission Rule 415, at an offering price of $100 per Series J Limited
Unit, a maximum of 500,000 Series J Limited Units $50 million). No
fractional Limited Units shall be issued during the Initial Offering
Period. The offering shall be made pursuant to and on the terms and
conditions set forth in the Prospectus. The Managing Owner shall make
such arrangements for the sale of the Limited Units as it deems
appropriate.
(ii) Effect of the Sale of at least 300,000 Series J Units. In the
event that at least 300,000 Series J Limited Units are sold during the
Initial Offering Period for the Series J Units, subject to Section
3.4(e), the Managing Owner shall admit all accepted subscribers pursuant
to the Prospectus into the Trust as Series J Limited Owners, by causing
such Limited Owners to execute this Trust Agreement, pursuant to the
Power of Attorney set forth in the Subscription Agreement, and by making
an entry on the books and records of Series J of the Trust reflecting
that such subscribers have been admitted as Limited Owners of Series J
Units, as soon as practicable after the termination of the
TA-23
Series J Initial Offering Period. Such accepted subscribers will be
deemed Series J Limited Owners at such time as such admission is
reflected on the books and records of Series J of the Trust.
(iii) Paid-In Capital if at least 300,000 Series J Units Are Sold.
In the event that at least 300,000 Series J Limited Units are sold during
the Initial Offering Period, Series J shall have paid-in capital of not
less than $30,300,000 (including the Managing Owner's contribution for
the General Units as provided in Section 3.1(d) and in Section 3.4(d)(v)
hereof).
(iv) Effect of the Sale of Less than 300,000 Series J Units. In
the event that at least 300,000 Series J Limited Units are not sold
during the Initial Offering Period for the Series J Units, all proceeds
of the sale of Series J Limited Units, together with any interest earned
thereon, will be returned to the subscribers on a pro rata basis (taking
into account the amount and time of deposit), as promptly as practicable
but in no event more than seven days after the conclusion of the Initial
Offering Period for the Series J Units. Such action will not terminate
Series J.
(v) Required Contribution of Managing Owner. In the event that
300,000 or more of the Series J Limited Units offered pursuant to the
Prospectus are sold during the Initial Offering Period for the Series J
Units, the Managing Owner and/or its Affiliates shall be required to
contribute in cash to the capital of Series J an amount, which, when
added to the total contributions to Series J by all Series J Unitholders,
will be not less than 1% of such total contributions, and in no event
shall such contribution be less than $300,000 (including the Managing
Owner's and its Affiliates' Capital Contributions. Thereafter, the
Managing Owner and/or its Affiliates shall maintain an investment in
Series J Units in an aggregate amount equal to not less than 1.01% of the
Net Asset Value of Series J or $300,000, whichever is greater. The
Managing Owner and/or its Affiliates may, but are not obligated to, make
additional Capital Contributions at any time during the Series J Initial
or Continuous Offering Periods. The Managing Owner and/or its Affiliates
will receive Series J General Units. The Managing Owner and/or its
Affiliates shall, with respect to any Series J Units owned by them, enjoy
all of the rights and privileges and be subject to all of the obligations
and duties of a Series J Limited Owner, in addition to rights and
privileges the Managing Owner has as Managing Owner, except as otherwise
provided herein. Notwithstanding anything to the contrary in this Trust
Agreement, the interest of the Managing Owner and/or its Affiliates
(without regard to any Limited Units of the Managing Owner and/or its
Affiliates in Series J) in each material item of Series J income, gain,
loss and deduction shall be equal, in the aggregate, to at least 1% of
each such item at all times during the term of this Trust Agreement.
(vi) Offer of Series J Limited Units After Initial Offering
Period. In the event that 300,000 or more of the Series J Limited Units
are sold during the Initial Offering Period for the Series J Units, the
Trust may continue to offer Series J Limited Units and admit additional
Series J Limited Owners and/or accept additional contributions from
existing Series J Limited Owners pursuant to the Prospectus as amended or
supplemented from time to time.
TA-24
Each additional Capital Contribution to Series J during the Series J
Continuous Offering Period by an existing Series J Limited Owner must be
in a denomination which is an even multiple of $100. During Series J
Continuous Offering Period, each newly admitted Series J Limited Owner,
and each existing Series J Limited Owner that makes an additional Capital
Contribution to Series J, shall receive Series J Limited Units in an
amount equal to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the Series J Net Asset Value
per Unit calculated as of the Valuation Point immediately prior to the
date on which such Capital Contribution will become effective.
A Subscriber (including existing Series J Limited Owners
contributing additional sums) whose subscription is received and accepted by
the Managing Owner after the termination of the Initial Offering Period for
Series J Units shall be admitted to the Trust and deemed a Series J Limited
Owner with respect to that subscription on the first Business Day of the first
month which commences at least five Business Days after the Subscriber's
Subscription Agreement or Exchange Request is received by the Trust's selling
agent, counting the day of receipt by such selling agent as one Business Day.
(vii) Subscription Agreement. Each Series J Limited Owner who
purchases any Limited Units offered pursuant to the Prospectus shall
contribute to the capital of Series J such amount as he shall state in
the Subscription Agreement which he shall execute (as required therein),
acknowledge and, together with the Power of Attorney set forth therein,
deliver to the Managing Owner as a counterpart of this Trust Agreement.
All subscription amounts shall be paid in such form as may be acceptable
to the Managing Owner at the time of the execution and delivery of such
Subscription Agreement by United States subscribers, and in accordance
with local practice and procedure by non-United States subscribers. To
the extent that the Managing Owner determines to accept a subscription
check, it shall be subject to prompt collection. All subscriptions are
subject to acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds from the sale of Series J
Limited Units offered pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at JPMorgan Chase Bank until the
conclusion of the Initial Offering Period for the Series J Units. In the
event subscriptions for at least 300,000 Series J Units are received and
accepted during the Initial Offering for the Series J Units, all interest
earned on the proceeds of subscriptions from accepted subscribers for
Series J Limited Units during its Initial Offering Period will be
contributed to the Series J, for which the Series J Limited Owners will
receive additional Series J Units on a pro rata basis (taking into
account time and amount of deposit).
(ix) Optional Purchase of Series J Limited Units. Subject to
approval by the Managing Owner, any commodity broker, any Trading Advisor
and any principals, stockholders, directors, officers, employees and
affiliates of the Managing Owner and/or its Affiliates, any commodity
broker, and any Trading Advisor, may purchase any number of Series J
Limited Units and will be treated as Series J Limited Owners with respect
to such Units. In addition to the Series J Units required to be purchased
by the Managing Owner and/or its Affiliates under Section 3.4(d)(v), the
TA-25
Managing Owner and/or its Affiliates also may purchase any number of
Series J Limited Units as it or they determine in its or their
discretion.
(e) ERISA Considerations. The Managing Owner shall, with respect to
each Series, restrict the aggregate investment by Benefit Plan Investors to
less than 25% of the total capital of each class of equity interests of such
Series (not including the investments of the Trustee, the Managing Owner, any
of the Advisors, any person who provides investment advice for a fee (direct
or indirect) with respect to the assets of such Series, and any entity that is
directly or indirectly through one or more intermediaries controlling,
controlled by or under common control with any of such entities (including a
partnership or any other similar entity for which the Managing Owner is the
general partner (or the functional equivalent thereof) or provides investment
advice), and each of the principals, officers and employees of any of the
foregoing entities who has the power to exercise a controlling influence over
the management or policies of such entity or of the Trust) until such time as
the equity interests of the Trust are "publicly offered securities" as that
term is defined in DOL Regulation 2510.3-101(b). Notwithstanding anything to
the contrary herein, in no event shall the Managing Owner or the Trust be
obliged to accept any subscription for Units of any Series if to accept such
subscription could reasonably be expected to cause the assets of such Series
to be deemed to be the assets of any "employee benefit plan" as defined in and
subject to ERISA, or "plan" as defined in and subject to Section 4975 of the
Code.
(f) Closing of Series G, H and I are Contingent upon the Initial
Closing of Series J; Termination of the Trust. Each of Series G, H and I shall
not close during the Initial Offering Period unless Series J has first sold at
least 300,000 Limited Units during the Initial Offering Period. Failure to
sell at least 300,000 Series J Limited Units shall cause the Trust to be
terminated, and the Managing Owner shall cause the certificate of cancellation
required by Section 3810 of the Delaware Trust Statute to be filed.
SECTION 3.5. Assets of Series. All consideration received by the
Trust for the issue or sale of Units of a particular Series together with all
of the Trust Estate in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors of such Series and except as may
otherwise be required by applicable tax laws, and shall be so recorded upon
the books of account of the Trust. Separate and distinct records shall be
maintained for each Series and the assets associated with a Series shall be
held and accounted for separately from the other assets of the Trust, or any
other Series. In the event that there is any Trust Estate, or any income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Series, the Managing Owner
shall allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as the Managing
Owner, in its sole discretion, deems fair and equitable. Each such allocation
by the Managing Owner shall be conclusive and binding upon all Unitholders for
all purposes.
TA-26
SECTION 3.6. Liabilities of Series.
(a) The Trust Estate belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that Series and only
that Series; and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any particular
Series, shall be allocated and charged by the Managing Owner to and among any
one or more of the Series established and designated from time to time in such
manner and on such basis as the Managing Owner in its sole discretion deems
fair and equitable. Each allocation of liabilities, expenses, costs, charges
and reserves by the Managing Owner shall be conclusive and binding upon all
Unitholders for all purposes. The Managing Owner shall have full discretion,
to the extent not inconsistent with applicable law, to determine which items
shall be treated as income and which items as capital, and each such
determination and allocation shall be conclusive and binding upon the
Unitholders. Every written agreement, instrument or other undertaking made or
issued by or on behalf of a particular Series shall include a recitation
limiting the obligation or claim represented thereby to that Series and its
assets.
(b) Without limitation of the foregoing provisions of this Section,
but subject to the right of the Managing Owner in its discretion to allocate
general liabilities, expenses, costs, charges or reserves as herein provided,
the debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular Series shall be enforceable
against the assets of such Series only and against the Managing Owner, and not
against the assets of the Trust generally or of any other Series. Notice of
this limitation on interseries liabilities shall be set forth in the
Certificate of Trust of the Trust (whether originally or by amendment) as
filed or to be filed in the Office of the Secretary of State of the State of
Delaware pursuant to the Delaware Trust Statute, and upon the giving of such
notice in the Certificate of Trust, the statutory provisions of Section 3804
of the Delaware Trust Statute relating to limitations on interseries
liabilities (and the statutory effect under Section 3804 of setting forth such
notice in the Certificate of Trust) shall become applicable to the Trust and
each Series. Every Unit, note, bond, contract, instrument, certificate or
other undertaking made or issued by or on behalf of a particular Series shall
include a recitation limiting the obligation on Units represented thereby to
that Series and its assets.
(i) Except as set forth below, any debts, liabilities,
obligations, indebtedness, expenses, interests and claims of any nature
and all kinds and descriptions, if any, of the Managing Owner and the
Trustee (the "Subordinated Claims") incurred, contracted for or otherwise
existing, arising from, related to or in connection with all Series, any
combination of Series or one particular Series and their respective
assets (the "Applicable Series") and the assets of the Trust shall be
expressly subordinate and junior in right of payment to any and all other
Claims against the Trust and any Series thereof, and any of their
respective assets, which may arise as a matter of law or pursuant to any
contract, provided, however, that the Claims of each of the Managing
Owner and the Trustee (if any) against the Applicable Series shall not be
considered Subordinated Claims with respect to enforcement against and
distribution and repayment from the Applicable Series, the Applicable
Series' assets and the Managing Owner and its assets; and provided
further that the valid Claims of either the Managing Owner or the
Trustee,
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if any, against the Applicable Series shall be pari passu and equal in
right of repayment and distribution with all other valid Claims against
the Applicable Series;
(ii) the Managing Owner and the Trustee will not take, demand or
receive from any Series or the Trust or any of their respective assets
(other than the Applicable Series, the Applicable Series' assets and the
Managing Owner and its assets) any payment for the Subordinated Claims;
(iii) The Claims of each of the Managing Owner and the Trustee
with respect to the Applicable Series shall only be asserted and
enforceable against the Applicable Series, the Applicable Series' assets
and the Managing Owner and its assets; and such Claims shall not be
asserted or enforceable for any reason whatsoever against any other
Series, the Trust generally, or any of their respective assets;
(iv) If the Claims of the Managing Owner or the Trustee against
the Applicable Series or the Trust are secured in whole or in part, each
of the Managing Owner and the Trustee hereby waives (under section
1111(b) of the Bankruptcy Code (11 U.S.C. ss. 1111(b)) any right to have
any deficiency Claims (which deficiency Claims may arise in the event
such security is inadequate to satisfy such Claims) treated as unsecured
Claims against the Trust or any Series (other than the Applicable
Series), as the case may be;
(v) In furtherance of the foregoing, if and to the extent that
the Managing Owner and the Trustee receive monies in connection with the
Subordinated Claims from a Series or the Trust (or their respective
assets), other than the Applicable Series, the Applicable Series' assets
and the Managing Owner and its assets, the Managing Owner and the Trustee
shall be deemed to hold such monies in trust and shall promptly remit
such monies to the Series or the Trust that paid such amounts for
distribution by the Series or the Trust in accordance with the terms
hereof; and
(vi) The foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied, and notwithstanding that
the agreements in respect of such Claims are terminated, rescinded or
canceled.
(c) Any agreement entered into by the Trust, any Series, or the
Managing Owner, on behalf of the Trust generally or any Series, including,
without limitation, the Subscription Agreement entered into with each
Unitholder, will include language substantially similar to the language set
forth in Section 3.6(b).
SECTION 3.7. Dividends and Distributions.
(a) Dividends and distributions on Units of a particular Series or
any class thereof may be paid with such frequency as the Managing Owner may
determine, which may be daily or otherwise, to the Unitholders in that Series
or class, from such of the income and capital gains, accrued or realized, from
the Trust Estate belonging to that Series, or in the case of a class,
belonging to that Series and allocable to that class, as the Managing Owner
may determine, after providing for actual and accrued liabilities belonging to
that Series. All dividends and distributions on Units in a particular Series
or class thereof shall be distributed pro rata to the
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Unitholders in that Series or class in proportion to the total outstanding
Units in that Series or class held by such Unitholders at the date and time of
record established for the payment of such dividends or distribution, except
to the extent otherwise required or permitted by the preferences and special
or relative rights and privileges of any Series or class. Such dividends and
distributions may be made in cash or Units of that Series or class or a
combination thereof as determined by the Managing Owner or pursuant to any
program that the Managing Owner may have in effect at the time for the
election by each Unitholder of the mode of the making of such dividend or
distribution to that Unitholder.
(b) The Units in a Series or a class of the Trust shall represent
units of beneficial interest in the Trust Estate belonging to such Series or
in the case of a class, belonging to such Series and allocable to such class.
Each Unitholder in a Series or a class shall be entitled to receive its pro
rata share of distributions of income and capital gains made with respect to
such Series or such class. Upon reduction or withdrawal of its Units or
indemnification for liabilities incurred by reason of being or having been a
holder of Units in a Series or a class, such Unitholder shall be paid solely
out of the funds and property of such Series or in the case of a class, the
funds and property of such Series and allocable to such class of the Trust.
Upon liquidation or termination of a Series of the Trust, Unitholders in such
Series or class shall be entitled to receive a pro rata share of the Trust
Estate belonging to such Series or in the case of a class, belonging to such
Series and allocable to such class.
SECTION 3.8. Voting Rights. Notwithstanding any other provision
hereof, on each matter submitted to a vote of the Unitholders of a Series,
each Unitholder shall be entitled to a proportionate vote based upon the
product of the Series Net Asset Value per Unit multiplied by the number of
Units, or fraction thereof, standing in its name on the books of such Series.
As to any matter which affects the Units of more than one Series, the
Unitholders of each affected Series shall be entitled to vote, and each such
Series shall vote as a separate class.
SECTION 3.9. Equality. Except as provided herein or in the
instrument designating and establishing any class or Series, all Units of each
particular Series shall represent an equal proportionate beneficial interest
in the assets belonging to that Series subject to the liabilities belonging to
that Series, and each Unit of any particular Series or class shall be equal to
each other Unit of that Series or class; but the provisions of this sentence
shall not restrict any distinctions permissible under Section 3.7 that may
exist with respect to dividends and distributions on Units of the same Series
or class. The Managing Owner may from time to time divide or combine the Units
of any particular Series or class into a greater or lesser number of Units of
that Series or class without thereby changing the proportionate beneficial
interest in the assets belonging to that Series or in any way affecting the
rights of Unitholders of any other Series or class.
SECTION 3.10. Exchange of Units. Subject to compliance with the
requirements of applicable law, the Managing Owner shall have the authority to
provide that Unitholders of any Series shall have the right to exchange said
Units into one or more other Series in accordance with such requirements and
procedures as may be established by the Managing Owner. The Managing Owner
shall also have the authority to provide that Unitholders of any class of a
particular Series shall have the right to exchange said Units into one or more
other classes of that
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particular Series or any other Series in accordance with such requirements and
procedures as may be established by the Managing Owner.
ARTICLE IV
THE MANAGING OWNER
SECTION 4.1. Management of the Trust. Pursuant to Section 3806(b)(7)
of the Delaware Trust Statute, the Trust shall be managed by the Managing
Owner and the conduct of the Trust's business shall be controlled and
conducted solely by the Managing Owner in accordance with this Trust
Agreement.
SECTION 4.2. Authority of Managing Owner. In addition to and not in
limitation of any rights and powers conferred by law or other provisions of
this Trust Agreement, and except as limited, restricted or prohibited by the
express provisions of this Trust Agreement or the Delaware Trust Statute, the
Managing Owner shall have and may exercise on behalf of the Trust, all powers
and rights necessary, proper, convenient or advisable to effectuate and carry
out the purposes, business and objectives of the Trust, which shall include,
without limitation, the following:
(a) To enter into, execute, deliver and maintain, and to cause the
Trust to perform its obligations under, contracts, agreements and any or all
other documents and instruments, and to do and perform all such things as may
be in furtherance of Trust purposes or necessary or appropriate for the offer
and sale of the Units and the conduct of Trust activities, including, but not
limited to, contracts with third parties for:
(i) commodity brokerage services and/or administrative services,
provided, however, that in no event shall the fees payable by the Trust
for such services exceed any limitations imposed by the NASAA Guidelines,
as they may be amended from time-to-time; and provided further, that such
services may be performed by an Affiliate or Affiliates of the Managing
Owner so long as the Managing Owner has made a good faith determination
that: (A) the Affiliate which it proposes to engage to perform such
services is qualified to do so (considering the prior experience of the
Affiliate or the individuals employed thereby); (B) the terms and
conditions of the agreement pursuant to which such Affiliate is to
perform services for the Trust are no less favorable to the Trust than
could be obtained from equally-qualified unaffiliated third parties; and
(C) the maximum period covered by the agreement pursuant to which such
affiliate is to perform services for the Trust shall not exceed one year,
and such agreement shall be terminable without penalty upon sixty (60)
days' prior written notice by the Trust; and
(ii) (A) commodity trading advisory services relating to the
purchase and sale of all Commodities positions on behalf of the Trust,
provided, however, that in no event shall the fees payable by the Trust
for such services exceed any limitations imposed by the NASAA Guidelines,
as they may be amended from time-to-time. All advisory services shall be
performed by persons who can demonstrate to the satisfaction of the
Managing Owner in its sole and absolute discretion that they have
sufficient knowledge and experience to carry out the trading in commodity
contracts for the Trust
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and who are also appropriately registered as may be required under
Federal and/or state law (e.g., all advice with respect to futures
related transactions shall be required to be given by persons who are
registered with the CFTC as a commodity trading advisor and are members
of the NFA as a commodity trading advisor) and satisfy the relevant
experience requirements under the NASAA guidelines, as they may be
amended from time to time;
(b) To establish, maintain, deposit into, sign checks and/or
otherwise draw upon accounts on behalf of the Trust with appropriate banking
and savings institutions, and execute and/or accept any instrument or
agreement incidental to the Trust's business and in furtherance of its
purposes, any such instrument or agreement so executed or accepted by the
Managing Owner in the Managing Owner's name shall be deemed executed and
accepted on behalf of the Trust by the Managing Owner;
(c) To deposit, withdraw, pay, retain and distribute the Trust
Estate or any portion thereof in any manner consistent with the provisions of
this Trust Agreement;
(d) To supervise the preparation and filing of the Registration
Statement and supplements and amendments thereto, and the Prospectus;
(e) To pay or authorize the payment of distributions to the
Unitholders and expenses of each Series;
(f) To invest or direct the investment of funds of any Series not
then delegated to a Trading Advisor(s);
(g) To prohibit any transactions contemplated hereunder which may
constitute prohibited transactions under ERISA or the Code;
(h) To make any elections on behalf of the Trust under the Code, or
any other applicable Federal or state tax law as the Managing Owner shall
determine to be in the best interests of the Trust;
(i) To redeem mandatorily any Limited Units if (i) the Managing
Owner determines that the continued participation of such Limited Owner in the
Trust might cause the Trust or any Unitholder to be deemed to be managing the
assets of any "employee benefit plan" as defined in and subject to ERISA or
"plan" as defined in and subject to Section 4975 of the Code, (ii) there is an
unauthorized assignment pursuant to the provisions of Article V, (iii) any
transaction to be entered into by the Trust that would or might violate any
law or (iv) any transaction to be entered into by the Trust that would or
might constitute a prohibited transaction under ERISA or the Code and a
statutory, class or individual exemption from the prohibited transaction
provisions of ERISA and Section 4975 of the Code for such transaction or
transactions does not apply or cannot be obtained from the DOL (or the
Managing Owner determines not to seek such an exemption). In the case of
mandatory redemptions, the Redemption Date shall be the close of business on
the date written notice of intent to redeem is sent by the Managing Owner to a
Limited Owner. A notice may be revoked prior to the payment date by written
notice from the Managing Owner to a Limited Owner;
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(j) In the sole discretion of the Managing Owner, to admit an
Affiliate or Affiliates of the Managing Owner as additional Managing Owners.
Notwithstanding the foregoing, the Managing Owner may not admit Affiliate(s)
of the Managing Owner as an additional Managing Owner if it has received
notice of its removal as a Managing Owner, pursuant to Section 8.2(d) hereof,
or if the concurrence of at least a majority in interest (over 50%) of the
outstanding Units of all Series (not including Units owned by the Managing
Owner) is not obtained; and
(k) To override any trading instructions: (i) that the Managing
Owner, in its sole discretion, determines in good faith to be in violation of
any trading policy or limitation of the Trust; (ii) as and to the extent
necessary, upon the failure of any Trading Advisor to comply with a request to
make the necessary amount of funds available to the Trust within five (5) days
of such request, to fund distributions, redemptions (including special
redemptions), or reapportionments among Trading Advisors or to pay the
expenses of the Trust; provided that the Managing Owner may make Commodities
trading decisions at any time at which any Trading Advisor shall become
incapacitated or some other emergency shall arise as a result of which such
Trading Advisor shall be unable or unwilling to act and a successor Trading
Advisor has not yet been retained.
SECTION 4.3. Obligations of the Managing Owner. In addition to the
obligations expressly provided by the Delaware Trust Statute or this Trust
Agreement, the Managing Owner shall:
(a) Devote such of its time to the business and affairs of the Trust
as it shall, in its discretion exercised in good faith, determine to be
necessary to conduct the business and affairs of the Trust for the benefit of
the Trust and the Limited Owners;
(b) Execute, file, record and/or publish all certificates,
statements and other documents and do any and all other things as may be
appropriate for the formation, qualification and operation of the Trust and
for the conduct of its business in all appropriate jurisdictions;
(c) Retain independent public accountants to audit the accounts of
the Trust;
(d) Employ attorneys to represent the Trust;
(e) Use its best efforts to maintain the status of the Trust as a
"statutory trust" for state law purposes, and as a "partnership" for Federal
income tax purposes;
(f) Monitor the trading policies and limitations of the Trust, as
set forth in the Prospectus, and the activities of the Trust's Trading
Advisor(s) in carrying out those policies in compliance with the Prospectus;
(g) Monitor the brokerage fees charged to the Trust, and the
services rendered by futures commission merchants to the Trust, to determine
whether the fees paid by, and the services rendered to, the Trust for futures
brokerage are at competitive rates and are the best price and services
available under the circumstances, and if necessary, renegotiate the brokerage
fee structure to obtain such rates and services for the Trust. No material
change related to brokerage fees shall be made except upon 60 Business Days'
prior notice to the Limited Owners,
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which notice shall include a description of the Limited Owners' voting rights
as set forth in Section 8.2 hereof and a description of the Limited Owners'
redemption rights as set forth in Section 7.1 hereof.
(h) Have fiduciary responsibility for the safekeeping and use of
each Trust Estate, whether or not in the Managing Owner's immediate possession
or control, and the Managing Owner will not employ or permit others to employ
such funds or assets (including any interest earned thereon as provided for in
the Prospectus) in any manner except as and to the extent permitted by the
NASAA Guidelines for the benefit of the Trust, including, among other things,
the utilization of any portion of the Trust Estate as compensating balances
for the exclusive benefit of the Managing Owner. The Managing Owner shall at
all times act with integrity and good faith and exercise due diligence in all
activities relating to the conduct of the business of the Trust and in
resolving conflicts of interest.
(i) Agree that, at all times from and after the sale of at least the
Subscription Minimum (as defined in the Prospectus), for so long as it remains
a Managing Owner of the Trust, it shall have a minimum "net worth" (as defined
below) of, and not take any affirmative action to reduce its "net worth"
below, such amount as may be required under the NASAA Guidelines as they may
be amended from time to time. The NASAA Guidelines define "net worth" as the
excess of total assets over total liabilities as determined by generally
accepted accounting principles;
(j) Admit substituted Limited Owners in accordance with this Trust
Agreement;
(k) Refuse to recognize any attempted transfer or assignment of a
Unit that is not made in accordance with the provisions of Article V; and
(l) Maintain a current list in alphabetical order, of the names and
last known addresses and, if available, business telephone numbers of, and
number of Units owned by, each Unitholder (as provided in Section 3.4 hereof)
and the other Trust documents described in Section 9.6 at the Trust's
principal place of business, which documents shall be made available thereat
at reasonable times during ordinary business hours for inspection by any
Limited Owner or his representative for any purpose reasonably related to the
Limited Owner's interest as a beneficial owner of the Trust. Upon request, for
any purpose reasonably related to the Limited Owner's interest as a beneficial
owner of the Trust, including without limitation, matters relating to a
Unitholder's voting rights hereunder or the exercise of a Limited Owner's
rights under Federal proxy law, either in person or by mail, the Managing
Owner will furnish a copy of such list to a Limited Owner or his
representative within ten days of a request therefor, upon payment of the cost
of reproduction and mailing; provided, however, that the Limited Owner
requesting such list shall give written assurance that the list will not, in
any event, be used for commercial purposes. Subject to applicable law, a
Limited Owner shall give the Managing Owner at least ten Business Days' prior
written notice for any inspection and copying permitted pursuant to this
Section 4.3(l) by the Limited Owner or his authorized attorney or agent.
(m) Notify the Unitholders within seven days from the date of:
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(i) any material change in contracts with any Trading Advisor;
(ii) any material modification made in the calculation of any
incentive fee paid to any Trading Advisor; and
(iii) any material change affecting the compensation of any
person.
SECTION 4.4. General Prohibitions. The Trust shall not:
(a) Borrow money from or loan money to any Unitholder (including the
Managing Owner) or other Person, except that the foregoing is not intended to
prohibit (i) the deposit on margin with respect to the initiation and
maintenance of Commodities positions or (ii) obtaining lines of credit for the
trading of forward contracts; provided, however, that the Trust is prohibited
from incurring any indebtedness on a non-recourse basis;
(b) Create, incur, assume or suffer to exist any lien, mortgage,
pledge conditional sales or other title retention agreement, charge, security
interest or encumbrance, except (i) the right and/or obligation of a commodity
broker to close out sufficient commodities positions of the Trust so as to
restore the Trust's account to proper margin status in the event that the
Trust fails to meet a Margin Call, (ii) liens for taxes not delinquent or
being contested in good faith and by appropriate proceedings and for which
appropriate reserves have been established, (iii) deposits or pledges to
secure obligations under workmen's compensation, social security or similar
laws or under unemployment insurance, (iv) deposits or pledges to secure
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of business, or (v) mechanic's, warehousemen's,
carrier's, workmen's, materialmen's or other like liens arising in the
ordinary course of business with respect to obligations which are not due or
which are being contested in good faith, and for which appropriate reserves
have been established if required by generally accepted accounting principles,
and liens arising under ERISA;
(c) Commingle its assets with those of any other Person, except to
the extent permitted under the CE Act and the regulations promulgated
thereunder, or with those of any other Series (for the avoidance of doubt,
establishment of the Trading Vehicles shall not constitute a "commingling");
(d) Directly or indirectly pay or award any finder's fees,
commissions or other compensation to any Persons engaged by a potential
Limited Owner for investment advice as an inducement to such advisor to advise
the potential Limited Owner to purchase Limited Units in the Trust;
(e) Engage in Pyramiding of its Commodities positions; provided,
however, that a Trading Advisor(s) may take into account open trade equity on
existing positions in determining generally whether to acquire additional
Commodities positions;
(f) Permit rebates to be received by the Managing Owner or any
Affiliate of the Managing Owner, or permit the Managing Owner or any Affiliate
of the Managing Owner to engage in any reciprocal business arrangements which
would circumvent the foregoing prohibition;
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(g) Permit the Trading Advisor(s) to share in any portion of
brokerage fees related to commodity brokerage services paid with respect to
commodity trading activities;
(h) Enter into any contract with the Managing Owner or an Affiliate
of the Managing Owner (except for selling agreements for the sale of Units)
which has a term of more than one year and which does not provide that it may
be canceled by the Trust without penalty on sixty (60) days prior written
notice or for the provision of goods and services, except at rates and terms
at least as favorable as those which may be obtained from third parties in
arms-length negotiations;
(i) Permit churning of its Commodity trading account(s) for the
purpose of generating excess brokerage commissions;
(j) Enter into any exclusive brokerage contract;
(k) Operate the Trust in any manner so as to contravene the
requirements to preserve the limitation on interseries liability set forth in
section 3804 of the Delaware Trust Statute; and
(l) Cause the Trust to elect to be treated as an association taxable
as a corporation for Federal income tax purposes.
SECTION 4.5. Liability of Covered Persons. A Covered Person shall
have no liability to the Trust or to any Unitholder or other Covered Person
for any loss suffered by the Trust which arises out of any action or inaction
of such Covered Person if such Covered Person, in good faith, determined that
such course of conduct was in the best interest of the Trust and such course
of conduct did not constitute negligence or misconduct of such Covered Person.
Subject to the foregoing, neither the Managing Owner nor any other Covered
Person shall be personally liable for the return or repayment of all or any
portion of the capital or profits of any Limited Owner or assignee thereof, it
being expressly agreed that any such return of capital or profits made
pursuant to this Trust Agreement shall be made solely from the assets of the
Trust without any rights of contribution from the Managing Owner or any other
Covered Person.
SECTION 4.6. Fiduciary Duty.
(a) To the extent that, at law or in equity, the Managing Owner has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust, the Unitholders or to any other Person, the Managing Owner acting under
this Agreement shall not be liable to the Trust, the Unitholders or to any
other Person for its good faith reliance on the provisions of this Agreement
subject to the standard of care in Section 4.5 herein. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of the
Managing Owner otherwise existing at law or in equity are agreed by the
parties hereto to replace such other duties and liabilities of the Managing
Owner. Any material changes in the Trust's basic investment policies or
structure shall occur only upon the written approval or affirmative vote of
Limited Owners holding Units equal to at least a majority (over 50%) of the
Net Asset Value of a Series (excluding Units held by the Managing Owner and
its Affiliates) of the Trust pursuant to Section 11.1(a) below.
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(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between the
Managing Owner or any of its Affiliates, on the one hand, and the Trust
or any Unitholder or any other Person, on the other hand; or
(ii) whenever this Agreement or any other agreement contemplated
herein or therein provides that the Managing Owner shall act in a manner
that is, or provides terms that are, fair and reasonable to the Trust,
any Unitholder or any other Person,
the Managing Owner shall resolve such conflict of interest, take such action or
provide such terms, considering in each case the relative interest of each party
(including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Managing Owner, the
resolution, action or terms so made, taken or provided by the Managing Owner
shall not constitute a breach of this Agreement or any other agreement
contemplated herein or of any duty or obligation of the Managing Owner at law or
in equity or otherwise.
(c) The Managing Owner and any Affiliate of the Managing Owner may
engage in or possess an interest in other profit-seeking or business ventures
of any nature or description, independently or with others, whether or not
such ventures are competitive with the Trust and the doctrine of corporate
opportunity, or any analogous doctrine, shall not apply to the Managing Owner.
If the Managing Owner acquires knowledge of a potential transaction,
agreement, arrangement or other matter that may be an opportunity for the
Trust, it shall have no duty to communicate or offer such opportunity to the
Trust, and the Managing Owner shall not be liable to the Trust or to the
Unitholders for breach of any fiduciary or other duty by reason of the fact
that the Managing Owner pursues or acquires for, or directs such opportunity
to another Person or does not communicate such opportunity or information to
the Trust. Neither the Trust nor any Unitholder shall have any rights or
obligations by virtue of this Agreement or the trust relationship created
hereby in or to such independent ventures or the income or profits or losses
derived therefrom, and the pursuit of such ventures, even if competitive with
the activities of the Trust, shall not be deemed wrongful or improper. Except
to the extent expressly provided herein, the Managing Owner may engage or be
interested in any financial or other transaction with the Trust, the
Unitholders or any Affiliate of the Trust or the Unitholders.
SECTION 4.7. Indemnification of the Managing Owner.
(a) The Managing Owner shall be indemnified by the Trust against any
losses, judgments, liabilities, expenses and amounts paid in settlement of any
claims sustained by it in connection with its activities for the Trust,
provided that the Managing Owner was acting on behalf of or performing
services for the Trust and has determined, in good faith, that such course of
conduct was in the best interests of the Trust and such liability or loss was
not the result of negligence, misconduct, or a breach of this Trust Agreement
on the part of the Managing Owner and (ii) any such indemnification will only
be recoverable from the Trust Estate. All rights to indemnification permitted
herein and payment of associated expenses shall not be affected by the
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dissolution or other cessation to exist of the Managing Owner, or the
withdrawal, adjudication of bankruptcy or insolvency of the Managing Owner, or
the filing of a voluntary or involuntary petition in bankruptcy under Title 11
of the U.S. Code by or against the Managing Owner. The source of payments made
in respect of indemnification under this Trust Agreement shall be the assets
of each Series on a pro rata basis, as the case may be.
(b) Notwithstanding the provisions of Section 4.7(a) above, the
Managing Owner and any Person acting as broker-dealer for the Trust shall not
be indemnified for any losses, liabilities or expenses arising from or out of
an alleged violation of Federal or state securities laws unless there has been
a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court
approves the indemnification of such expenses (including, without limitation,
litigation costs), (ii) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the particular indemnitee
and the court approves the indemnification of such expenses (including,
without limitation, litigation costs) or (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular
indemnitee and finds that indemnification of the settlement and related costs
should be made.
(c) In any claim for indemnification for Federal or state securities
law violations, the party seeking indemnification shall place before the court
the position of the Securities and Exchange Commission, the position of the
Massachusetts Securities Division, the Pennsylvania Securities Commission, the
Tennessee Securities Division and the position of any other applicable state
securities division which requires disclosure with respect to the issue of
indemnification for securities law violations.
(d) The Trust shall not incur the cost of that portion of any
insurance which insures any party against any liability, the indemnification
of which is herein prohibited.
(e) Expenses incurred in defending a threatened or pending civil,
administrative or criminal action suit or proceeding against the Managing
Owner shall be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, if the legal action relates to the performance of
duties or services by the Managing Owner on behalf of the Trust; (ii) the
legal action is initiated by a third party who is not a Limited Owner or the
legal action is initiated by a Limited Owner and a court of competent
jurisdiction specifically approves such advance; and (iii) the Managing Owner
undertakes to repay the advanced funds with interest to the Trust in cases in
which it is not entitled to indemnification under this Section 4.7.
(f) The term "Managing Owner" as used only in this Section 4.7 shall
include, in addition to the Managing Owner, any other Covered Person
performing services on behalf of the Trust and acting within the scope of the
Managing Owner's authority as set forth in this Trust Agreement.
(g) In the event the Trust is made a party to any claim, dispute,
demand or litigation or otherwise incurs any loss, liability, damage, cost or
expense as a result of or in connection with any Limited Owner's (or
assignee's) obligations or liabilities unrelated to Trust business, such
Limited Owner (or assignees cumulatively) shall indemnify, defend, hold
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harmless, and reimburse the Trust for all such loss, liability, damage, cost
and expense incurred, including attorneys' and accountants' fees.
(h) The payment of any amount pursuant to this Section shall be
subject to Section 3.6 with respect to the allocation of liabilities and other
amounts, as appropriate, among the Series of the Trust.
SECTION 4.8. Expenses and Limitations Thereon.
(a)
(i) The Managing Owner or an Affiliate of the Managing Owner shall
be responsible for the payment of all Organization and Offering Expenses
incurred in connection with the creation of the Trust and sale of Units
during or prior to the Initial Offering Period other than any initial
service fee; provided, however, that the amount of such Organization and
Offering Expenses paid by the Managing Owner shall be subject to
reimbursement by the Trust to the Managing Owner, without interest, in up
to 36 monthly payments during each of the first 36 months of the
Continuous Offering Period. In the event that the amount of the
Organization and Offering Expenses incurred in connection with the
creation of the Trust and sale of Units during the Initial Offering
Period and paid by the Managing Owner is not fully reimbursed by the end
of the 36th month of the Continuous Offering Period, the Managing Owner
shall not be entitled to receive, and the Trust shall not be required to
pay, any unreimbursed portion of such expenses outstanding as of such
date. In the event the Trust terminates prior to the completion of any
reimbursement contemplated by this Section 4.8(a)(i), the Managing Owner
shall not be entitled to receive, and the Trust shall not be required to
pay, any unreimbursed portion of such expenses outstanding as of the date
of such termination.
(ii) The Managing Owner or an Affiliate of the Managing Owner also
shall be responsible for the payment of all Organization and Offering
Expenses incurred after the Initial Offering Period; provided, however,
that the amount of such Organization and Offering Expenses paid by the
Managing Owner shall be subject to reimbursement by the Trust to the
Managing Owner, without interest, in up to 36 monthly payments during
each of the first 36 months following the month in which such expenses
were paid by the Managing Owner. In the event that the amount of the
Organization and Offering Expenses incurred in connection with the sale
of Units during the Continuous Offering Period and paid by the Managing
Owner is not fully reimbursed by the end of the 36th month following the
month in which such expenses were paid by the Managing Owner, the
Managing Owner shall not be entitled to receive, and the Trust shall not
be required to pay, any unreimbursed portion of such expenses outstanding
as of such date. In the event the Trust terminates prior to the
completion of any reimbursement contemplated by this Section 4.8(a)(ii),
the Managing Owner shall not be entitled to receive, and the Trust shall
not be required to pay, any unreimbursed portion of such expenses
outstanding as of the date of such termination.
(iii) In no event shall the Managing Owner be entitled to
reimbursement under Section 4.8(a)(i) in an aggregate amount in excess of
2.5% of the
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aggregate amount of all subscriptions accepted during the Initial
Offering Period and the first 36 months of the Continuous Offering
Period. In no event shall the aggregate amount of the reimbursement
payments from the Trust to the Managing Owner under Sections 4.8(a)(i)
and (ii) in any month exceed 0.50% per annum of the Net Asset Value of
the Fund as of the beginning of such month
(iv) Organization and Offering Expenses shall mean those expenses
incurred in connection with the formation, qualification and registration
of the Trust and the Units and in offering, distributing and processing
the Units under applicable Federal and state law, and any other expenses
actually incurred and, directly or indirectly, related to the
organization of the Trust or the initial and continuous offering of the
Units, including, but not limited to, expenses such as: (i) initial and
ongoing registration fees, filing fees, escrow fees and taxes, (ii) costs
of preparing, printing (including typesetting), amending, supplementing,
mailing and distributing the Registration Statement, the Exhibits thereto
and the Prospectus during the Initial Offering Period and the Continuous
Offering Period, (iii) the costs of qualifying, printing, (including
typesetting), amending, supplementing, mailing and distributing sales
materials used in connection with the offering and issuance of the Units
during the Initial Offering Period and the Continuous Offering Period,
(iv) travel, telegraph, telephone and other expenses in connection with
the offering and issuance of the Units during the Initial Offering Period
and the Continuous Offering Period, (v) accounting, auditing and legal
fees (including disbursements related thereto) incurred in connection
therewith, and (vi) any extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
permitted indemnification associated therewith) related thereto.
(b) All ongoing charges, costs and expenses of the Trust's
operation, including, but not limited to, the routine expenses associated with
(i) preparation of monthly, quarterly, annual and other reports required by
applicable Federal and state regulatory authorities; (ii) Trust meetings and
preparing, printing and mailing of proxy statements and reports to
Unitholders; (iii) the payment of any distributions related to redemption of
Units; (iv) routine services of the Trustee, legal counsel and independent
accountants; (v) routine accounting and bookkeeping services, whether
performed by an outside service provider or by Affiliates of the Managing
Owner; (vi) postage and insurance; (vii) client relations and services; (viii)
computer equipment and system maintenance; (ix) the Management Fee; (x)
required payments to the Trust's Trading Advisors pursuant to any applicable
contract; and (xi) extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto) shall be billed to and/or paid by the Trust.
(c) The Managing Owner or any Affiliate of the Managing Owner may
only be reimbursed for the actual cost to the Managing Owner or such Affiliate
of any expenses which it advances on behalf of the Trust for which payment the
Trust is responsible. In addition, payment to the Managing Owner or such
Affiliate for indirect expenses incurred in performing services for the Trust
in its capacity as the managing owner of the Trust, such as salaries and
fringe benefits of officers and directors, rent or depreciation, utilities and
other administrative items generally falling within the category of the
Managing Owner's "overhead," is prohibited.
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(d) All general expenses of the Trust will be allocated among the
various Series as determined by the Managing Owner in its sole and absolute
discretion.
SECTION 4.9. Compensation to the Managing Owner. Each Series shall
pay to the Managing Owner, out of such Series' Trust Estate, in advance, a
monthly management fee in an amount equal to 0.04166% (0.50% per annum) of
such Series' Series Net Asset Value as of the beginning of such month. The
Managing Owner shall, in its capacity as a Unitholder, be entitled to receive
allocations and distributions pursuant to the provisions of this Trust
Agreement.
SECTION 4.10. Other Business of Unitholders. Except as otherwise
specifically provided herein, any of the Unitholders and any shareholder,
officer, director, employee or other person holding a legal or beneficial
interest in an entity which is a Unitholder, may engage in or possess an
interest in other business ventures of every nature and description,
independently or with others, and the pursuit of such ventures, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper.
SECTION 4.11. Voluntary Withdrawal of the Managing Owner. The
Managing Owner may withdraw voluntarily as the Managing Owner of the Trust
only upon one hundred and twenty (120) days' prior written notice to all
Limited Owners and the Trustee. If the withdrawing Managing Owner is the last
remaining Managing Owner, Limited Owners holding Units equal to at least a
majority (over 50%) of the Net Asset Value (not including Units held by the
Managing Owner) may vote to elect and appoint, effective as of a date on or
prior to the withdrawal, a successor Managing Owner who shall carry on the
business of the Trust. In the event of its removal or withdrawal, the Managing
Owner shall be entitled to a redemption of its Unit at the Net Asset Value
thereof on the next Redemption Date following the date of removal or
withdrawal. If the Managing Owner withdraws and a successor Managing Owner is
named, the withdrawing Managing Owner shall pay all expenses as a result of
its withdrawal.
SECTION 4.12. Authorization of Registration Statements. Each Limited
Owner (or any permitted assignee thereof) hereby agrees that the Managing
Owner is authorized to execute, deliver and perform the agreements, acts,
transactions and matters contemplated hereby or described in or contemplated
by the Registration Statements on behalf of the Trust without any further act,
approval or vote of the Limited Owners of the Trust, notwithstanding any other
provision of this Trust Agreement, the Delaware Trust Statute or any
applicable law, rule or regulation.
SECTION 4.13. Litigation. The Managing Owner is hereby authorized to
prosecute, defend, settle or compromise actions or claims at law or in equity
as may be necessary or proper to enforce or protect the Trust's interests. The
Managing Owner shall satisfy any judgment, decree or decision of any court,
board or authority having jurisdiction or any settlement of any suit or claim
prior to judgment or final decision thereon, first, out of any insurance
proceeds available therefor, next, out of the Trust's assets and, thereafter,
out of the assets (to the extent that it is permitted to do so under the
various other provisions of this Agreement) of the Managing Owner.
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ARTICLE V
TRANSFERS OF UNITS
SECTION 5.1. General Prohibition. A Limited Owner may not sell,
assign, transfer or otherwise dispose of, or pledge, hypothecate or in any
manner encumber any or all of his Units or any part of his right, title and
interest in the capital or profits in the Trust except as permitted in this
Article V and any act in violation of this Article V shall not be binding upon
or recognized by the Trust (regardless of whether the Managing Owner shall
have knowledge thereof), unless approved in writing by the Managing Owner.
SECTION 5.2. Transfer of Managing Owner's General Units.
(a) Upon an Event of Withdrawal (as defined in Section 13.1), the
Managing Owner's General Units shall be purchased by the Trust for a purchase
price in cash equal to the Net Asset Value thereof. The Managing Owner will
not cease to be a Managing Owner of the Trust merely upon the occurrence of
its making an assignment for the benefit of creditors, filing a voluntary
petition in bankruptcy, filing a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, filing an
answer or other pleading admitting or failing to contest material allegations
of a petition filed against it in any proceeding of this nature or seeking,
consenting to or acquiescing in the appointment of a trustee, receiver or
liquidator for itself or of all or any substantial part of its properties.
(b) To the full extent permitted by law, and on sixty (60) days'
prior written notice to the Limited Owners, of their right to vote thereon, if
the transaction is other than with an Affiliated entity, nothing in this Trust
Agreement shall be deemed to prevent the merger of the Managing Owner with
another corporation or other entity, the reorganization of the Managing Owner
into or with any other corporation or other entity, the transfer of all the
capital stock of the Managing Owner or the assumption of the Units, rights,
duties and liabilities of the Managing Owner by, in the case of a merger,
reorganization or consolidation, the surviving corporation or other entity by
operation of law or the transfer of the Managing Owner's Units to an Affiliate
of the Managing Owner. Without limiting the foregoing, none of the
transactions referenced in the preceding sentence shall be deemed to be a
voluntary withdrawal for purposes of Section 4.11 or an Event of Withdrawal or
assignment of Units for purposes of Sections 5.2(a) or 5.2(c).
(c) Upon assignment of all of its Units, the Managing Owner shall
not cease to be a Managing Owner of the Trust, or to have the power to
exercise any rights or powers as a Managing Owner, or to have liability for
the obligations of the Trust under Section 1.7 hereof, until an additional
Managing Owner, who shall carry on the business of the Trust, has been
admitted to the Trust.
SECTION 5.3. Transfer of Limited Units.
(a) Permitted assignees of the Limited Owners shall be admitted as
substitute Limited Owners pursuant to this Article V only upon the consent of
the Managing Owner, which
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may be withheld by the Managing Owner (x) if the proposed assignee does not
meet the established suitability requirements, or (y) to avoid adverse legal
consequences to the Trust.
(i) A substituted Limited Owner is a permitted assignee that has
been admitted as a Limited Owner with all the rights and powers of a
Limited Owner hereunder. If all of the conditions provided in Section
5.3(b) below are satisfied, the Managing Owner shall admit permitted
assignees into the Trust as Limited Owners by making an entry on the
books and records of the Trust reflecting that such permitted assignees
have been admitted as Limited Owners, and such permitted assignees will
be deemed Limited Owners at such time as such admission is reflected on
the books and records of the Trust.
(ii) A permitted assignee is a Person to whom a Limited Owner has
assigned his Limited Units with the consent of the Managing Owner, as
provided below in Section 5.3(d), but who has not become a substituted
Limited Owner. A permitted assignee shall have no right to vote, to
obtain any information on or account of the Trust's transactions or to
inspect the Trust's books, but shall only be entitled to receive the
share of the profits, or the return of the Capital Contribution, to which
his assignor would otherwise be entitled as set forth in Section 5.3(d)
below to the extent of the Limited Units assigned. Each Limited Owner
agrees that any permitted assignee may become a substituted Limited Owner
without the further act or consent of any Limited Owner, regardless of
whether his permitted assignee becomes a substituted Limited Owner.
(iii) A Limited Owner shall bear all extraordinary costs
(including attorneys' and accountants' fees), if any, related to any
transfer, assignment, pledge or encumbrance of his Limited Units.
(b) No permitted assignee of the whole or any portion of a Limited
Owner's Limited Units shall have the right to become a substituted Limited
Owner in place of his assignor unless all of the following conditions are
satisfied:
(i) The written consent of the Managing Owner to such substitution
shall be obtained, the granting or denial of which shall be within the
sole and absolute discretion of the Managing Owner, subject to the
provisions of Section 5.3(d)(i).
(ii) A duly executed and acknowledged written instrument of
assignment has been filed with the Trust setting forth the intention of
the assignor that the permitted assignee become a substituted Limited
Owner in his place;
(iii) The assignor and permitted assignee execute and acknowledge
and/or deliver such other instruments as the Managing Owner may deem
necessary or desirable to effect such admission, including his execution,
acknowledgment and delivery to the Managing Owner, as a counterpart to
this Trust Agreement, of a Power of Attorney in the form set forth in the
Subscription Agreement; and
(iv) Upon the request of the Managing Owner, an opinion of the
Trust's independent legal counsel is obtained to the effect that (A) the
assignment will
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not jeopardize the Trust's tax classification as a partnership and (B)
the assignment does not violate this Trust Agreement or the Delaware
Trust Statute.
(c) Any Person admitted as a Unitholder shall be subject to all of
the provisions of this Trust Agreement as if an original signatory hereto.
(d) (i) Subject to the provisions of Section 5.3(e) below,
compliance with the suitability standards imposed by the Trust for the
purchase of new Units, applicable Federal securities and state "Blue Sky"
laws and the rules of any other applicable governmental authority, a
Limited Owner shall have the right to assign all or any of his Limited
Units to any assignee by a written assignment (on a form acceptable to
the Managing Owner) the terms of which are not in contravention of any of
the provisions of this Trust Agreement, which assignment has been
executed by the assignor and received by the Trust and recorded on the
books thereof. An assignee of a Limited Unit (or any interest therein)
will not be recognized as a permitted assignee without the consent of the
Managing Owner, which consent the Managing Owner shall withhold only
under the following circumstances: (A) if necessary, in the judgment of
the Managing Owner (and upon receipt of an opinion of counsel to this
effect), to preserve the classification of the Trust as a partnership for
Federal income tax purposes or to preserve the characterization or
treatment of income or loss; or (B) if such assignment is effectuated
through an established securities market or a secondary market (or the
substantial equivalent thereof). The Managing Owner shall withhold its
consent to assignments made under the foregoing circumstances, and shall
exercise such right by taking any actions as it seems necessary or
appropriate in its reasonable discretion so that such transfers or
assignments of rights are not in fact recognized, and the assignor or
transferor continues to be recognized by the Trust as a Unitholder for
all purposes hereunder, including the payment of any cash distribution.
The Managing Owner shall incur no liability to any investor or
prospective investor for any action or inaction by it in connection with
the foregoing, provided it acted in good faith.
(ii) Except as specifically provided in this Trust Agreement, a
permitted assignee of a Unit shall be entitled to receive distributions
attributable to the Unit acquired by reason of such assignment from and
after the effective date of the assignment of such Unit to him. The
"effective date" of an assignment of a Limited Unit as used in this
clause shall be the first Business Day immediately following the next
succeeding Redemption Date, provided the Managing Owner shall have been
in receipt of the written instrument of assignment for at least five (5)
Business Days prior thereto. If the assignee is (A) an ancestor or
descendant of the Limited Owner, (B) the personal representative or heir
of a deceased Limited Owner, (C) the trustee of a trust whose beneficiary
is the Limited Owner or another person to whom a transfer could otherwise
be made or (D) the shareholders, partners, or beneficiaries of a
corporation, partnership or trust upon its termination or liquidation,
then the "effective date" of an assignment of a Unit in the Trust shall
be the first day of the month immediately following the month in which
the written instrument of assignment is received by the Managing Owner.
(iii) Anything herein to the contrary notwithstanding, the Trust
and the Managing Owner shall be entitled to treat the permitted assignor
of such Unit as the
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absolute owner thereof in all respects, and shall incur no liability for
distributions made in good faith to him, until such time as the written
assignment has been received by, and recorded on the books of, the Trust.
(e) (i) No assignment or transfer of a Unit may be made which would
result in the Limited Owners and permitted assignees of the Limited
Owners owning, directly or indirectly, individually or in the aggregate,
5% or more of the stock of the Managing Owner or any related person as
defined in Sections 267(b) and 707(b)(1) of the Code. If any such
assignment or transfer would otherwise be made by bequest, inheritance of
operation of law, the Unit transferred shall be deemed sold by the
transferor to the Trust immediately prior to such transfer in the same
manner as provided in Section 5.3(e)(iii).
(ii) No assignment or transfer of an interest may be made which
would contravene the NASAA Guidelines, as adopted in any state in which
the proposed transferor and transferee reside including, without
limitation, the restriction set forth in Paragraph F(2) of Article V
thereof, which precludes any assignment (except for assignments by gift,
inheritance, intra family assignment, family dissolutions and transfers
to affiliates), which would result in either the assignee or the assignor
holding Units valued at less than $5,000 (or $2,000 in the case of IRAs),
provided, however, that this limitation shall not apply in respect of a
Limited Owner wishing to assign its or his entire interest in the Trust.
(iii) Anything else to the contrary contained herein
notwithstanding: (A) In any particular twelve (12) consecutive month
period no assignment or transfer of a Unit may be made which would result
in increasing the aggregate total of Units previously assigned and/or
transferred in said period to 49% or more of the outstanding Units. This
limitation is hereinafter referred to as the "forty-nine percent (49%)
limitation"; (B) Clause (ii)(A) hereof shall not apply to a transfer by
gift, bequest or inheritance, or a transfer to the Trust, and, for
purposes of the forty-nine percent (49%) limitation, any such transfer
shall not be treated as such; (C) If, after the forty-nine percent (49%)
limitation is reached in any consecutive 12 month period, a transfer of a
Unit would otherwise take place by operation of law (but not including
any transfer referred to in clause (iii)(B) hereof) and would cause a
violation of the forty-nine percent (49%) limitation, then said Unit(s)
shall be deemed to have been sold by the transferor to the Trust in
liquidation of said Unit(s) immediately prior to such transfer for a
liquidation price equal to the Net Asset Value of said Unit(s) on such
date of transfer. The liquidation price shall be paid within 90 days
after the date of the transfer.
(f) The Managing Owner, in its sole discretion, may cause the Trust
to make, refrain from making, or once having made, to revoke, the election
referred to in Section 754 of the Code, and any similar election provided by
state or local law, or any similar provision enacted in lieu thereof.
(g) The Managing Owner, in its sole discretion, may cause the Trust
to make, refrain from making, or once having made, to revoke the election by a
qualified fund under
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Section 988(c)(1)(E)(V), and any similar election provided by state or local
law, or any similar provision enacted in lieu thereof.
(h) Each Limited Owner hereby agrees to indemnify and hold harmless
the Trust and each Unitholder against any and all losses, damages, liabilities
or expense (including, without limitation, tax liabilities or loss of tax
benefits) arising, directly or indirectly, as a result of any transfer or
purported transfer by such Limited Owner in violation of any provision
contained in this Section 5.3.
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS
SECTION 6.1. Capital Accounts. A capital account shall be
established by the Managing Owner for each Unitholder with respect to each
Series (such account sometimes hereinafter referred to as a "book capital
account"). The initial balance of each Unitholder's book capital account shall
be the amount of his initial Capital Contribution.
SECTION 6.2. Monthly Allocations. No less frequently than as of the
close of business (as determined by the Managing Owner) on each Valuation
Point, the following determinations and allocations shall be made:
(a) First, any increase or decrease in the Series' Net Asset Value
as of such date as compared to the next previous determination of Net Asset
Value shall be credited or charged to the book capital accounts of the
Unitholders in such Series in the ratio that the balance of each such
Unitholder's book capital account bears to the balance of all Unitholders' in
such Series' book capital accounts; and
(b) Next, the amount of any distribution to be made to a Unitholder
and any amount to be paid to a Unitholder upon redemption of his Units shall
be charged to that Unitholder's book capital account as of the applicable
record date and Redemption Date, respectively.
SECTION 6.3. Allocation of Profit and Loss for Federal Income Tax
Purposes. As of the end of each Fiscal Year of the Trust, each Series'
recognized profit and loss shall be allocated among the Unitholders of such
Series pursuant to the following subparagraphs for Federal income tax
purposes. Except as otherwise provided herein, such allocations of profit and
loss shall be pro rata from Disposition Gain (or Disposition Loss) and Profits
(or Losses).
(a) First, the Profits or Losses shall be allocated pro rata among
the Unitholders based on their respective book capital accounts as of the last
day of each month in which such Profits or Losses accrued.
(b) Next, Disposition Gain or Disposition Loss from trading
activities of a Series for each Fiscal Year of the Trust shall be allocated
among the Unitholders as follows:
(i) There shall be established a tax capital account with respect
to each outstanding Unit of a Series. The initial balance of each tax
capital account shall be
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the amount paid by the Unitholder for the Unit. Tax capital accounts
shall be adjusted as of the end of each Fiscal Year as follows: (A) Each
tax capital account shall be increased by the amount of income (Profits
or Disposition Gain) which shall have been allocated to the Unitholder
who shall hold the Unit pursuant to Section 6.3(a) above and Sections
6.3(b)(ii) and 6.3(b)(iii) below; (B) Each tax capital account shall be
decreased by the amount of expense or loss (Losses or Disposition Losses)
which shall have been allocated to the Unitholder who shall hold the Unit
pursuant to Section 6.3(a) above and Sections 6.3(b)(iv) and 6.3(b)(v)
below and by the amount of any distribution which shall have been
received by the Unitholder with respect to the Unit (other than on
redemption of Units); and (C) If a Unit is redeemed, the tax capital
account with respect to such Unit shall be eliminated on the Redemption
Date.
(ii) Disposition Gain realized during any month shall be allocated
first among all Unitholders whose book capital accounts are in excess of
their Units' tax capital accounts (after making the adjustments, other
than adjustments resulting from the allocations to be made pursuant to
this Section 6.3(b)(ii) for the current month, described in Section
6.3(b)(i) above) in the ratio that each such Unitholder's excess shall
bear to all such Unitholder's excesses.
(iii) Disposition Gain realized during any month that remains
after the allocation pursuant to Section 6.3(b)(ii) above shall be
allocated to those Unitholders who were Unitholders during such month in
the ratio that each such Unitholder's book capital account bears to all
such Unitholders' book capital accounts as of the beginning of such
month.
(iv) Disposition Loss realized during any month shall be allocated
first among all Unitholders whose Units' tax capital accounts are in
excess of their book capital accounts (after making the adjustments,
other than adjustments resulting from the allocations to be made pursuant
to this Section 6.3(b)(iv) for the current month, described in Section
6.3(b)(i) above) in the ratio that each such Unitholder's excess shall
bear to all such Unitholders' excesses.
(v) Disposition Loss realized during any month that remains after
the allocation pursuant to Section 6.3(b)(iv) above shall be allocated to
those Unitholders who were Unitholders during such month in the ratio
that each such Unitholder's book capital account bears to all such
Unitholders' book capital accounts as of the beginning of such calendar
month.
(c) The tax allocations prescribed by this Section 6.3 shall be made
to each holder of a Unit whether or not the holder is a substituted Limited
Owner. For purposes of this Section 6.3, tax allocations shall be made to the
Managing Owner's Units on a Unit-equivalent basis.
(d) The allocation of income and loss (and items thereof) for
Federal income tax purposes set forth in this Section 6.3 is intended to
allocate taxable income and loss among Unitholders generally in the ratio and
to the extent that net profit and net loss shall be allocated to such
Unitholders under Section 6.2 so as to eliminate, to the extent possible, any
disparity
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between a Unitholder's book capital account and his tax capital
account, consistent with the principles set forth in Sections 704(b) and
(c)(2) of the Code.
(e) Notwithstanding this Section 6.3, if after taking into account
any distributions to be made with respect to such Unit for the relevant period
pursuant to Section 6.4 herein, any allocation would produce a deficit in the
book capital account of a Unit, the portion of such allocation that would
create such a deficit shall instead be allocated pro rata to the book capital
accounts of all the remaining Unitholders in such Series (subject to the same
limitation).
SECTION 6.4. Allocation of Distributions. Initially, distributions
shall be made by the Managing Owner, and the Managing Owner shall have sole
discretion in determining the amount and frequency of distributions, other
than redemptions, with respect to the Units; provided, however, that no
distribution shall be made that violates the Delaware Trust Statute. The
aggregate distributions made in a Fiscal Year (other than distributions on
termination, which shall be allocated in the manner described in Article VIII)
shall be allocated among the holders of record of Units in the ratio in which
the number of Units held of record by each of them bears to the number of
Units held of record by all of the Unitholders as of the record date of such
distribution; provided, further, however, that any distribution made in
respect of a Unit shall not exceed the book capital account for such Unit.
SECTION 6.5. Admissions of Unitholders; Transfers. For purposes of
this Article VI, Unitholders shall be deemed admitted, and a tax and book
capital account shall be established in respect of the Units acquired by such
Unitholder or in respect of additional Units acquired by an existing
Unitholder, as of the first day following the Redemption Date of the month in
which such Unitholder's Subscription Agreement or Exchange Request, as the
case may be, is received, provided the Managing Owner shall have been in
receipt of such Subscription Agreement or Exchange Request for at least five
Business Days, or in which the transfer of Units to such Unitholder is
recognized, except that persons accepted as subscribers to the Trust pursuant
to Section 3.4(b) shall be deemed admitted on the date determined pursuant to
such Section. Any Unitholder to whom a Unit had been transferred shall succeed
to the tax and book capital accounts attributable to the Unit transferred.
SECTION 6.6. Liability for State and Local and Other Taxes. In the
event that the Trust shall be separately subject to taxation by any state or
local or by any foreign taxing authority, the Trust shall be obligated to pay
such taxes to such jurisdiction. In the event that the Trust shall be required
to make payments to any Federal, state or local or any foreign taxing
authority in respect of any Unitholder's allocable share of income, the amount
of such taxes shall be considered a loan by the Trust to such Unitholder, and
such Unitholder shall be liable for, and shall pay to the Trust, any taxes so
required to be withheld and paid over by the Trust within ten (10) days after
the Managing Owner's request therefor. Such Unitholder shall also be liable
for (and the Managing Owner shall be entitled to redeem additional Units of
the foreign Unitholder as necessary to satisfy) interest on the amount of
taxes paid over by the Trust to the IRS or other taxing authority, from the
date of the Managing Owner's request for payment to the date of payment or the
redemption, as the case may be, at the rate of two percent (2%) over the prime
rate charged from time to time by Citibank, N.A. The amount, if any, payable
by the Trust to the Unitholder in respect of its Units so redeemed, or in
respect of any other actual distribution by the Trust to such Unitholder,
shall be reduced by any obligations owed to the Trust by the
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Unitholder, including, without limitation, the amount of any taxes required to
be paid over by the Series to the IRS or other taxing authority and interest
thereon as aforesaid. Amounts, if any, deducted by the Trust from any actual
distribution or redemption payment to such Unitholder shall be treated as an
actual distribution to such Unitholder for all purposes of this Trust
Agreement.
ARTICLE VII
REDEMPTIONS
SECTION 7.1. Redemption of Units. The Unitholders recognize that the
profitability of the Trust depends upon long-term and uninterrupted investment
of capital. It is agreed, therefore, that Trust profits and gains may be
automatically reinvested, and that distributions, if any, of profits and gains
to the Unitholders will be on a limited basis. Nevertheless, the Unitholders
contemplate the possibility that one or more of the Limited Owners may elect
to realize and withdraw profits, or withdraw capital through the redemption of
Units prior to dissolution. In that regard and subject to the provisions of
Section 4.2(i):
(a) Subject to the conditions set forth in this Article VII, each
Limited Owner (or any permitted assignee thereof) shall have the right to
redeem a Limited Unit or portion thereof on the first Redemption Date
following the date the Managing Owner has been in receipt of an acceptable
form of written notice of redemption for at least five Business Days. Units
will be redeemed on a "first in, first out" basis based on time of receipt of
redemption requests at a redemption price equal to the Net Asset Value per
Unit calculated as of the Valuation Point immediately preceding the applicable
Redemption Date. If a Unitholder (or permitted assignee thereof) is permitted
to redeem any or all of his Units as of a date other than a Redemption Date,
such adjustments in the determination and allocation among the Unitholders of
Disposition Gain, Disposition Loss, Profits, Losses and items of income or
deduction for tax accounting purposes shall be made as are necessary or
appropriate to reflect and give effect to the redemption.
(b) The value of a Unit for purposes of redemption shall be the book
capital account balance of such Unit at the Valuation Point immediately
preceding the Redemption Date, less any amount owing by such Limited Owner
(and his permitted assignee, if any) to the Trust pursuant to Sections 4.7(g),
5.3(h) or 6.6 of this Trust Agreement. If redemption of a Unit shall be
requested by a permitted assignee, all amounts which shall be owed to the
Trust under Sections 4.7(g), 5.3(h) or 6.6 hereof by the Unitholder of record,
as well as all amounts which shall be owed by all permitted assignees of such
Units, shall be deducted from the Net Asset Value of such Units upon
redemption.
(c) The effective date of redemption shall be the Redemption Date,
and payment of the value of the redeemed Units (except for Units redeemed as
part of an Exchange as provided in Section 7.4) generally shall be made within
fifteen Business Days following the Redemption Date; provided, that all
liabilities, contingent or otherwise, of the Trust, except any liability to
Unitholders on account of their Capital Contributions, have been paid or there
remains property of the Trust sufficient to pay them; and provided further,
that under extraordinary circumstances as may be determined by the Managing
Owner in its sole discretion, including, but not limited to, the inability to
liquidate Commodity positions as of such
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Redemption Date, or default or delay in payments due the Trust from commodity
brokers, banks or other Persons, or significant administrative hardship, the
Trust may in turn delay payment to Limited Owners requesting redemption of
Units of the proportionate part of the value of redeemed Units represented by
the sums which are the subject of such default or delay, in which event
payment for redemption of such Units will be made to Limited Owners as soon
thereafter as is practicable. A Limited Owner may revoke his notice of intent
to redeem on or prior to the fifth Business Day prior to the applicable
Redemption Date by written instructions to the Managing Owner. If a Limited
Owner revokes his notice of intent to redeem and thereafter wishes to redeem,
such Limited Owner will be required to submit written notice thereof in
accordance with Section 7.1(d) and will be redeemed on the first Redemption
Date to occur after the Managing Owner shall have been in receipt of such
written notice for at least five Business Days.
(d) A Limited Owner (or any permitted assignee thereof) wishing to
redeem Units must provide the Managing Owner with written notice of his intent
to redeem, which notice shall specify the name and address of the redeeming
Limited Owner and the amount of Limited Units sought to be redeemed. The
notice of redemption shall be in the form annexed to the Prospectus or in any
other form acceptable to the Managing Owner and shall be mailed or delivered
to the principal place of business of the Managing Owner. Such notice must
include representations and warranties that the redeeming Limited Owner (or
any permitted assignee thereof) is the lawful and beneficial owner of the
Units to be redeemed and that such Units are not subject to any pledge or
otherwise encumbered in any fashion. In certain circumstances, the Trust may
require additional documents, such as, but not limited to, trust instruments,
death certificates, appointments as executor or administrator or certificates
of corporate authority. Limited Owners requesting redemption shall be notified
in writing within five Business Days following the Redemption Date whether or
not their Units will be redeemed, unless payment for the redeeming Units is
made within that five Business Day period, in which case the notice of
acceptance of the redemption shall not be required.
(e) The Managing Owner may suspend temporarily any redemption if the
effect of such redemption, either alone or in conjunction with other
redemptions, would be to impair the Trust's ability to operate in pursuit of
its objectives. In addition, the Managing Owner may compel the redemption
Units pursuant to Section 4.2(i).
(f) Units that are redeemed shall be extinguished and shall not be
retained or reissued by the Trust.
(g) Except as discussed above, all requests for redemption in proper
form will be honored, and positions will be liquidated to the extent necessary
to discharge liabilities on the Redemption Date.
SECTION 7.2. Redemption by the Managing Owner. Notwithstanding any
provision in this Trust Agreement to the contrary, for so long as it shall act
as the Trust's Managing Owner, the Managing Owner shall not transfer or redeem
any of its General Units to the extent that any such transfer or redemption
would result in the Managing Owner and/or its Affiliates having less than a 1%
interest in the Trust.
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SECTION 7.3. Redemption Charge. The Managing Owner may impose a
redemption charge, if so provided in the Prospectus, with respect to any Unit;
provided, however, that no redemption charge will be assessed if a Limited
Owner simultaneously (i) exchanges the redeemed Unit or portion thereof for a
Unit of equal value in another Series, or (ii) invests the redemption proceeds
in another futures fund sponsored by the Managing Owner and/or its Affiliates.
Redemption charges may be waived by the Managing Owner in its sole and
absolute discretion.
SECTION 7.4. Exchange of Units. Units in one Series may be
exchanged, without applicability of redemption fees, for Units of equivalent
value of any other Series (an "Exchange") on any Redemption Date, in
accordance with the Prospectus and subject to the conditions on Redemptions in
this Article VII, except that an Exchange will be made on the Redemption Date
following the date the Managing Owner has been in receipt of an Exchange
Request for at least five Business Days.
SECTION 7.5. Special Redemption Date. Pursuant to Section 9.4, each
Limited Owner shall receive a notice of any decline ("Decline Notice") in the
estimated Net Asset Value per Unit to less than 50% of the Net Asset Value per
Unit as of the end of the immediately preceding Valuation Point ("Decline
Date") within seven Business Days of such occurrence. Within 7 business days
after any Decline Date, the Managing Owner shall declare a "Special Redemption
Date" as provided in this Section 7.5. Such Special Redemption Date shall be a
business day within 30 business days from the Decline Date, and the Managing
Owner shall mail the Decline Notice (which includes the Special Redemption
Date) to each Unitholder and assignee of Units, by first class mail, postage
prepaid, not later than 7 business days after the Decline Date, together with
instructions as to the procedure such Unitholder or assignee must follow to
have such Unitholder's or assignee's interest (only entire, not partial,
interests may be so redeemed unless otherwise determined by the Managing
Owner) in the Trust redeemed on the Special Redemption Date. Upon redemption
pursuant to a Special Redemption Date, a Unitholder or any other assignee of
whom the Managing Owner has received written notice, shall receive from the
Trust an amount equal to the Net Asset Value of such Unitholder's interest,
determined as of the close of business (as determined by the Managing Owner)
on such Special Redemption Date. No redemption charges shall be assessed on
any such Special Redemption Date. As in the case of a regular redemption, an
assignee shall not be entitled to redemption on any Special Redemption Date
until the Managing Owner has received written notice of the assignment,
transfer or disposition under which the assignee claims an interest in the
Units to be redeemed. Trading of the Trust shall be suspended between the
Decline Date and the Special Redemption Date.
ARTICLE VIII
THE LIMITED OWNERS
SECTION 8.1. No Management or Control; Limited Liability. The
Limited Owners shall not participate in the management or control of the
Trust's business nor shall they transact any business for the Trust or have
the power to sign for or bind the Trust, said power being vested solely and
exclusively in the Managing Owner. Except as provided in Section 8.3 hereof,
no Limited Owner shall be bound by, or be personally liable for, the expenses,
liabilities or
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obligations of the Trust in excess of his Capital Contribution plus his share
of any Trust Estate in which such Limited Owners own a Unit and profits
remaining, if any. Except as provided in Section 8.3 hereof, each Limited Unit
owned by a Limited Owner shall be fully paid and no assessment shall be made
against any Limited Owner. No salary shall be paid to any Limited Owner in his
capacity as a Limited Owner, nor shall any Limited Owner have a drawing
account or earn interest on his contribution.
SECTION 8.2. Rights and Duties. The Limited Owners shall have the
following rights, powers, privileges, duties and liabilities:
(a) The Limited Owners shall have the right to obtain information of
all things affecting the Trust, provided that such is for a purpose reasonably
related to the Limited Owner's interest as a beneficial owner of the Trust,
including, without limitation, such reports as are set forth in Article IX and
such information as is set forth in Section 4.3(l) hereof. In the event that
the Managing Owner neglects or refuses to produce or mail to a Limited Owner a
copy of the information set forth in Section 4.3(l) hereof, the Managing Owner
shall be liable to such Limited Owner for the costs, including reasonable
attorney's fees, incurred by such Limited Owner to compel the production of
such information, and for any actual damages suffered by such Limited Owner as
a result of such refusal or neglect; provided, however, it shall be a defense
of the Managing Owner that the actual purpose of the Limited Owner's request
for such information was not reasonably related to the Limited Owner's
interest as a beneficial owner in the Trust (e.g., to secure such information
in order to sell it, or to use the same for a commercial purpose unrelated to
the participation of such Limited Owner in the Trust). The foregoing rights
are in addition to, and do not limit, other remedies available to Limited
Owners under Federal or state law.
(b) The Limited Owners shall receive the share of the distributions
provided for in this Trust Agreement in the manner and at the times provided
for in this Trust Agreement.
(c) Except for the Limited Owners' redemption rights set forth in
Article VII hereof or upon a mandatory redemption effected by the Managing
Owner pursuant to Section 4.2(i) hereof, Limited Owners shall have the right
to demand the return of their capital account only upon the dissolution and
winding up of the Trust and only to the extent of funds available therefor. In
no event shall a Limited Owner be entitled to demand or receive property other
than cash. Except with respect to Series or class differences, no Limited
Owner shall have priority over any other Limited Owner either as to the return
of capital or as to profits, losses or distributions. No Limited Owner shall
have the right to bring an action for partition against the Trust.
(d) Limited Owners holding Units representing at least a majority
(over 50%) in Net Asset Value of each affected Series (not including Units
held by the Managing Owner and its Affiliates, including the commodity broker)
voting separately as a class may vote to (i) continue the Trust as provided in
Section 13.1(b), (ii) remove the Managing Owner on reasonable prior written
notice to the Managing Owner, (iii) elect and appoint one or more additional
Managing Owners, or consent to such matters as are set forth in Section
5.2(b), (iv) approve a material change in the trading policies, as set forth
in the Prospectus, which change shall not be effective without the prior
written approval of such majority, (v) approve the
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termination of any agreement entered into between the Trust and the Managing
Owner or any Affiliate of the Managing Owner for any reason, without penalty,
(vi) approve amendments to this Trust Agreement as set forth in Section 11.1
hereof, and (vii) terminate the Series as provided in Section 13.1(g), and in
the case of (iii), (iv) and (v) in each instance on 60 days' prior written
notice.
Except as set forth above, the Limited Owners shall have no voting or
other rights with respect to the Trust.
SECTION 8.3. Limitation on Liability.
(a) Except as provided in Sections 4.7(g), 5.3(h) and 6.6 hereof,
and as otherwise provided under Delaware law, the Limited Owners shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the general corporation law
of Delaware and no Limited Owner shall be liable for claims against, or debts
of the Trust in excess of his Capital Contribution and his share of the
applicable Trust Estate and undistributed profits, except in the event that
the liability is founded upon misstatements or omissions contained in such
Limited Owner's Subscription Agreement delivered in connection with his
purchase of Units. In addition, and subject to the exceptions set forth in the
immediately preceding sentence, the Trust shall not make a claim against a
Limited Owner with respect to amounts distributed to such Limited Owner or
amounts received by such Limited Owner upon redemption unless, under Delaware
law, such Limited Owner is liable to repay such amount.
(b) The Trust shall indemnify to the full extent permitted by law
and the other provisions of this Agreement, and to the extent of the
applicable Trust Estate, each Limited Owner (excluding the Managing Owner to
the extent of its ownership of any Limited Units) against any claims of
liability asserted against such Limited Owner solely because he is a
beneficial owner of one or more Units as a Limited Owner (other than for taxes
for which such Limited Owner is liable under Section 6.6 hereof).
(c) Every written note, bond, contract, instrument, certificate or
undertaking made or issued by the Managing Owner shall give notice to the
effect that the same was executed or made by or on behalf of the Trust and
that the obligations of such instrument are not binding upon the Limited
Owners individually but are binding only upon the assets and property of the
Trust, and no resort shall be had to the Limited Owners' personal property for
satisfaction of any obligation or claim thereunder, and appropriate references
may be made to this Trust Agreement and may contain any further recital which
the Managing Owner deems appropriate, but the omission thereof shall not
operate to bind the Limited Owners individually or otherwise invalidate any
such note, bond, contract, instrument, certificate or undertaking. Nothing
contained in this Section 8.3 shall diminish the limitation on the liability
of the Trust to the extent set forth in Section 3.5 and 3.6 hereof.
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ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
SECTION 9.1. Books of Account. Proper books of account for the Trust
shall be kept and shall be audited annually by an independent certified public
accounting firm selected by the Managing Owner in its sole discretion, and
there shall be entered therein all transactions, matters and things relating
to the Trust's business as are required by the CE Act and regulations
promulgated thereunder, and all other applicable rules and regulations, and as
are usually entered into books of account kept by Persons engaged in a
business of like character. The books of account shall be kept at the
principal office of the Trust and each Limited Owner (or any duly constituted
designee of a Limited Owner) shall have, at all times during normal business
hours, free access to and the right to inspect and copy the same for any
purpose reasonably related to the Limited Owner's interest as a beneficial
owner of the Trust, including such access as is required under CFTC rules and
regulations. Such books of account shall be kept, and the Trust shall report
its Profits and Losses on, the accrual method of accounting for financial
accounting purposes on a Fiscal Year basis as described in Article X.
SECTION 9.2. Annual Reports and Monthly Statements. Each Limited
Owner shall be furnished as of the end of each month and as of the end of each
Fiscal Year with (a) such reports (in such detail) as are required to be given
to Limited Owners by the CFTC and the NFA, (b) any other reports (in such
detail) required to be given to Limited Owners by any other governmental
authority which has jurisdiction over the activities of the Trust and (c) any
other reports or information which the Managing Owner, in its discretion,
determines to be necessary or appropriate.
SECTION 9.3. Tax Information. Appropriate tax information (adequate
to enable each Limited Owner to complete and file his Federal tax return)
shall be delivered to each Limited Owner as soon as practicable following the
end of each Fiscal Year but generally no later than March 15.
SECTION 9.4. Calculation of Net Asset Value. Net Asset Value will be
estimated as required. Upon request, on any Business Day, the Managing Owner
shall make available to any Limited Owner the estimated Net Asset Value per
Unit. Each Limited Owner shall be notified of any decline in the estimated Net
Asset Value per Unit to less than 50% of the Net Asset Value per Unit as of
the end of the immediately preceding Valuation Point within seven Business
Days of such occurrence. Within 7 business days after any such notice, the
Managing Owner shall declare a "Special Redemption Date" as provided in
Section 7.5. Included in such notification shall be a description of the
Limited Owners' voting rights as set forth in Section 8.2 hereof.
SECTION 9.5. Other Reports. The Managing Owner shall send such other
reports and information, if any, to the Limited Owners as it may deem
necessary or appropriate. Each Limited Owner shall be notified of: (a) any
material change in the terms of the Advisory Agreement, including any change
in the Trading Advisor or any modification in connection with the method of
calculating the incentive fee; (b) any change of Trustee; (c) any other
material change affecting the compensation of any party within seven (7)
Business Days of such occurrence; and (d) a description of any material effect
on the Units such changes may have.
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Included in such notification shall be a description of the Limited Owners'
voting rights as set forth in Section 8.2 hereof and redemption rights as set
forth in Section 7.1 hereof. In addition, the Managing Owner shall submit to
the Securities Administrator of any State having jurisdiction over the Trust
any information required to be filed with such Administrator, including, but
not limited to, reports and statements required to be distributed to the
Limited Owners.
SECTION 9.6. Maintenance of Records. The Managing Owner shall
maintain: (a) for a period of at least six Fiscal Years all books of account
required by Section 9.1 hereof; a list of the names and last known address of,
and number of Units owned by, all Unitholders, a copy of the Certificate of
Trust and all certificates of amendment thereto, together with executed copies
of any powers of attorney pursuant to which any certificate has been executed;
copies of the Trust's Federal, state and local income tax returns and reports,
if any; and a record of the information obtained to indicate that a Limited
Owner meets the investor suitability standards set forth in the Prospectus,
and (b) for a period of at least six Fiscal Years copies of any effective
written trust agreements, subscription agreements and any financial statements
of the Trust. The Managing Owner may keep and maintain the books and records
of the Trust in paper, magnetic, electronic or other format at the Managing
Owner may determine in its sole discretion, provided the Managing Owner uses
reasonable care to prevent the loss or destruction of such records.
SECTION 9.7. Certificate of Trust. Except as otherwise provided in
the Delaware Trust Statute or this Trust Agreement, the Managing Owner shall
not be required to mail a copy of any Certificate of Trust filed with the
Secretary of State of the State of Delaware to each Limited Owner; however,
such certificates shall be maintained at the principal office of the Trust and
shall be available for inspection and copying by the Limited Owners in
accordance with this Trust Agreement. The Certificate of Trust shall not be
amended in any respect if the effect of such amendment is to diminish the
limitation on interseries liability under Section 3804 of the Delaware Trust
Statute.
SECTION 9.8. Registration of Units. Subject to Section 4.3(l)
hereof, the Managing Owner shall keep, at the Trust's principal place of
business, a Unit Register in which, subject to such reasonable regulations as
it may provide, it shall provide for the registration of Units and of
transfers of Units. Subject to the provisions of Article V, the Managing Owner
may treat the Person in whose name any Unit shall be registered in the Unit
Register as the Unitholder of such Unit for the purpose of receiving
distributions pursuant to Article VI and for all other purposes whatsoever.
ARTICLE X
FISCAL YEAR
SECTION 10.1. Fiscal Year. The Fiscal Year shall begin on the 1st
day of January and end on the 31st day of December of each year. The first
Fiscal Year of the Trust shall commence on the date of filing of the
Certificate of Trust and end on the 31st day of December 2004. The Fiscal Year
in which the Trust shall terminate shall end on the date of termination.
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ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS
SECTION 11.1. Amendments to the Trust Agreement.
(a) Amendments to this Trust Agreement may be proposed by the
Managing Owner or by Limited Owners holding Units equal to at least 10% of the
Net Asset Value of each Series of the Trust, unless the proposed amendment
affects only certain Series, in which case such amendment may be proposed by
Limited Owners holding Units equal to at least ten percent (10%) of Net Asset
Value of a Series of each affected Series. Following such proposal, the
Managing Owner shall submit to the Limited Owners of each affected Series a
verbatim statement of any proposed amendment, and statements concerning the
legality of such amendment and the effect of such amendment on the limited
liability of the Limited Owners. The Managing Owner shall include in any such
submission its recommendations as to the proposed amendment. The amendment
shall become effective only upon the written approval or affirmative vote of
Limited Owners holding Units equal to at least a majority (over 50%) of the
Net Asset Value of a Series (excluding Units held by the Managing Owner and
its Affiliates) of the Trust or, if the proposed amendment affects only
certain Series, of each affected Series, or such higher percentage as may be
required by applicable law, and upon receipt of an opinion of independent
legal counsel as set forth in Section 8.2 hereof and to the effect that the
amendment is legal, valid and binding and will not adversely affect the
limitations on liability of the Limited Owners as described in Section 8.3 of
this Trust Agreement. Notwithstanding the foregoing, where any action taken or
authorized pursuant to any provision of this Trust Agreement requires the
approval or affirmative vote of Limited Owners holding a greater interest in
Limited Units than is required to amend this Trust Agreement under this
Section 11.1, and/or the approval or affirmative vote of the Managing Owners,
an amendment to such provision(s) shall be effective only upon the written
approval or affirmative vote of the minimum number of Unitholders which would
be required to take or authorize such action, or as may otherwise be required
by applicable law, and upon receipt of an opinion of independent legal counsel
as set forth above in this Section 11.1. In addition, except as otherwise
provided below, reduction of the capital account of any assignee or
modification of the percentage of Profits, Losses or distributions to which an
assignee is entitled hereunder shall not be affected by amendment to this
Trust Agreement without such assignee's approval.
(b) Notwithstanding any provision to the contrary contained in
Section 11.1(a) hereof, the Managing Owner may, without the approval of the
Limited Owners, make such amendments to this Trust Agreement which (i) are
necessary to add to the representations, duties or obligations of the Managing
Owner or surrender any right or power granted to the Managing Owner herein,
for the benefit of the Limited Owners, (ii) are necessary to cure any
ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein or in the Prospectus, or to make
any other provisions with respect to matters or questions arising under this
Trust Agreement or the Prospectus which will not be inconsistent with the
provisions of the Trust Agreement or the Prospectus, or (iii) the Managing
Owner deems advisable, provided, however, that no amendment shall be adopted
pursuant to this clause (iii) unless the adoption thereof (A) is not adverse
to the interests of the Limited Owners; (B) is consistent with Section 4.1
hereof; (C) except as otherwise provided in Section 11.1(c) below,
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does not affect the allocation of Profits and Losses among the Limited Owners
or between the Limited Owners and the Managing Owner; and (D) does not
adversely affect the limitations on liability of the Limited Owners, as
described in Article VIII hereof or the status of the each Series as a
partnership for Federal income tax purposes. (i) Amendments to this document
which adversely affect the rights of Limited Owners, (ii) the appointment of a
new Managing Owner pursuant to Section 4.2(j) above, (iii) the dissolution of
the Trust pursuant to Section 13.1(f) below and (iv) any material changes in
the Trust's basic investment policies or structure shall occur only upon the
written approval or affirmative vote of Limited Owners holding Units equal to
at least a majority (over 50%) of the Net Asset Value of the Trust (excluding
Units held by the Managing Owner and its Affiliates) pursuant to Section
11.1(a) above.
(c) Notwithstanding any provision to the contrary contained in
Sections 11.1(a) and (b) hereof, the Managing Owner may, without the approval
of the Limited Owners, amend the provisions of Article VI of this Trust
Agreement relating to the allocations of Profits, Losses, Disposition Gain,
Disposition Loss and distributions among the Unitholders if the Trust is
advised at any time by the Trust's accountants or legal counsel that the
allocations provided in Article VI of this Trust Agreement are unlikely to be
respected for Federal income tax purposes, either because of the promulgation
of new or revised Treasury Regulations under Section 704 of the Code or other
developments in the law. The Managing Owner is empowered to amend such
provisions to the minimum extent necessary in accordance with the advice of
the accountants and counsel to effect the allocations and distributions
provided in this Trust Agreement. New allocations made by the Managing Owner
in reliance upon the advice of the accountants or counsel described above
shall be deemed to be made pursuant to the obligation of the Managing Owner to
the Trust and the Limited Owners, and no such new allocation shall give rise
to any claim or cause of action by any Limited Owner.
(d) Upon amendment of this Trust Agreement, the Certificate of Trust
shall also be amended, if required by the Delaware Trust Statute, to reflect
such change.
(e) No amendment shall be made to this Trust Agreement without the
consent of the Trustee if such amendment adversely affects any of the rights,
duties or liabilities of the Trustee; provided, however, that the Trustee may
not withhold its consent for any action which the Limited Owners are permitted
to take under Section 8.2(d) above. The Trustee shall execute and file any
amendment to the Certificate of Trust if so directed by the Managing Owner or
if such amendment is required in the opinion of the Trustee.
(f) No provision of this Agreement may be amended, waived or
otherwise modified orally but only by a written instrument adopted in
accordance with this Section.
SECTION 11.2. Meetings of the Trust. Meetings of the Unitholders of
the Trust or any Series thereof may be called by the Managing Owner and will
be called by it upon the written request of Limited Owners holding Units equal
to at least 10% of the Net Asset Value of the Trust or any Series thereof.
Such call for a meeting shall be deemed to have been made upon the receipt by
the Managing Owner of a written request from the requisite percentage of
Limited Owners. The Managing Owner shall deposit in the United States mails,
within 15 days after receipt of said request, written notice to all
Unitholders of the Trust or any Series thereof of the meeting and the purpose
of the meeting, which shall be held on a date, not less than 30 nor more
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than 60 days after the date of mailing of said notice, at a reasonable time
and place. Any notice of meeting shall be accompanied by a description of the
action to be taken at the meeting and an opinion of independent counsel as to
the effect of such proposed action on the liability of Limited Owners for the
debts of the Trust. Unitholders may vote in person or by proxy at any such
meeting.
SECTION 11.3. Action Without a Meeting. Any action required or
permitted to be taken by Unitholders by vote may be taken without a meeting by
written consent setting forth the actions so taken. Such written consents
shall be treated for all purposes as votes at a meeting. If the vote or
consent of any Unitholder to any action of the Trust or any Unitholder, as
contemplated by this Agreement, is solicited by the Managing Owner, the
solicitation shall be effected by notice to each Unitholder given in the
manner provided in Section 15.4. The vote or consent of each Unitholder so
solicited shall be deemed conclusively to have been cast or granted as
requested in the notice of solicitation, whether or not the notice of
solicitation is actually received by that Unitholder, unless the Unitholder
expresses written objection to the vote or consent by notice given in the
manner provided in Section 15.4 below and actually received by the Trust
within 20 days after the notice of solicitation is effected. The Managing
Owner and all persons dealing with the Trust shall be entitled to act in
reliance on any vote or consent which is deemed cast or granted pursuant to
this Section and shall be fully indemnified by the Trust in so doing. Any
action taken or omitted in reliance on any such deemed vote or consent of one
or more Unitholders shall not be void or voidable by reason of timely
communication made by or on behalf of all or any of such Unitholders in any
manner other than as expressly provided in Section 15.4.
ARTICLE XII
TERM
SECTION 12.1. Term. The term for which the Trust and each Series is
to exist shall commence on the date of the filing of the Certificate of Trust,
and shall terminate pursuant to the provisions of Article XIII hereof or as
otherwise provided by law.
ARTICLE XIII
TERMINATION
SECTION 13.1. Events Requiring Dissolution of the Trust or any
Series. The Trust or, as the case may be, any Series thereof, shall dissolve
at any time upon the happening of any of the following events:
(a) The filing of a certificate of dissolution or revocation of the
Managing Owner's charter (and the expiration of 90 days after the date of
notice to the Managing Owner of revocation without a reinstatement of its
charter) or upon the withdrawal, removal, adjudication or admission of
bankruptcy or insolvency of the Managing Owner (each of the foregoing events
an "Event of Withdrawal") unless at the time there is at least one remaining
Managing Owner and that remaining Managing Owner carries on the business of
the Trust or (ii) within 90 days of such Event of Withdrawal all the remaining
Unitholders agree in writing to continue the business
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of the Trust and to select, effective as of the date of such event, one or
more successor Managing Owners. If the Trust is terminated as the result of an
Event of Withdrawal and a failure of all remaining Unitholders to continue the
business of the Trust and to appoint a successor Managing Owner as provided in
clause (a)(ii) above, within 120 days of such Event of Withdrawal, Limited
Owners holding Units representing at least a majority (over 50%) of the Net
Asset Value of each Series (not including Units held by the Managing Owner and
its Affiliates) may elect to continue the business of the Trust by forming a
new statutory trust (the "Reconstituted Trust") on the same terms and
provisions as set forth in this Trust Agreement (whereupon the parties hereto
shall execute and deliver any documents or instruments as may be necessary to
reform the Trust). Any such election must also provide for the election of a
Managing Owner to the Reconstituted Trust. If such an election is made, all
Limited Owners of the Trust shall be bound thereby and continue as Limited
Owners of the Reconstituted Trust.
(b) The occurrence of any event which would make unlawful the
continued existence of the Trust or any Series thereof, as the case may be.
(c) The failure to sell the Subscription Minimum (as defined in the
Prospectus) to at least 100 subscribers to the Trust during the Initial
Offering Period.
(d) In the event of the suspension, revocation or termination of the
Managing Owner's registration as a commodity pool operator under the CE Act,
or membership as a commodity pool operator with the NFA unless at the time
there is at least one remaining Managing Owner whose registration or
membership has not been suspended, revoked or terminated.
(e) The Trust or, as the case may be, any Series becomes insolvent
or bankrupt.
(f) The Limited Owners holding Units representing at least a
majority (over 50%) of the Net Asset Value (which excludes the Units of the
Managing Owner) vote to dissolve the Trust, notice of which is sent to the
Managing Owner not less than ninety (90) Business Days prior to the effective
date of termination.
(g) The Limited Owners of each Series holding Units representing at
least a majority (over 50%) of the Net Asset Value of the Series (which
excludes the Units of the Managing Owner) vote to dissolve the Trust, notice
of which is sent to the Managing Owner not less than 90 Business Days prior to
the effective date of such terminations.
(h) The decline of the Net Asset Value of a Series of the Trust
Estate by 50% from the Net Asset Value of the Trust Estate (i) at the
commencement of the Series' trading activities or (ii) on the first day of a
fiscal year, in each case after appropriate adjustment for distributions,
additional capital contributions and redemptions.
(i) The determination of the Managing Owner that the Series'
aggregate net assets of the Trust in relation to the operating expenses of the
Series make it unreasonable or imprudent to continue the business of the
Series, or, in the exercise of its reasonable discretion, the determination by
the Managing Owner to dissolve the Trust because the aggregate Net Asset
TA-58
Value of the Trust or Series as of the close of business on any Business Day
declines below $10 million.
The death, legal disability, bankruptcy, insolvency, dissolution, or
withdrawal of any Limited Owner (as long as such Limited Owner is not the sole
Limited Owner of the Trust) shall not result in the termination of the Trust
or any Series thereof, and such Limited Owner, his estate, custodian or
personal representative shall have no right to withdraw or value such Limited
Owner's Units except as provided in Section 7.1 hereof. Each Limited Owner
(and any assignee thereof) expressly agrees that in the event of his death, he
waives on behalf of himself and his estate, and he directs the legal
representative of his estate and any person interested therein to waive the
furnishing of any inventory, accounting or appraisal of the assets of the
Trust and any right to an audit or examination of the books of the Trust,
except for such rights as are set forth in Article IX hereof relating to the
Books of Account and reports of the Trust.
SECTION 13.2. Distributions on Dissolution. Upon the dissolution of
the Trust or any Series, the Managing Owner (or in the event there is no
Managing Owner, such person (the "Liquidating Trustee") as the majority in
interest of the Limited Owners may propose and approve) shall take full charge
of the Trust Estate. Any Liquidating Trustee so appointed shall have and may
exercise, without further authorization or approval of any of the parties
hereto, all of the powers conferred upon the Managing Owner under the terms of
this Trust Agreement, subject to all of the applicable limitations,
contractual and otherwise, upon the exercise of such powers, and provided that
the Liquidating Trustee shall not have general liability for the acts,
omissions, obligations and expenses of the Trust. Thereafter, the business and
affairs of the Trust or Series shall be wound up and all assets shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom shall be applied and distributed in the following
order of priority: to the expenses of liquidation and termination and to
creditors, including Unitholders who are creditors, to the extent otherwise
permitted by law, in satisfaction of liabilities of the Trust (whether by
payment or the making of reasonable provision for payment thereof) other than
liabilities for distributions to Unitholders, and (b) to the Managing Owner
and each Limited Owner pro rata in accordance with his positive book capital
account balance, less any amount owing by such Unitholder to the Series, after
giving effect to all adjustments made pursuant to Article VI and all
distributions theretofore made to the Unitholders pursuant to Article VI.
After the distribution of all remaining assets of the Series, the Managing
Owner will contribute to the Series an amount equal to the lesser of (i) the
deficit balance, if any, in its book capital account, and (ii) the excess of
1.01% of the total Capital Contributions of the Limited Owners over the
capital previously contributed by the Managing Owner. Any Capital
Contributions made by the Managing Owner pursuant to this Section shall be
applied first to satisfy any amounts then owed by the Series to its creditors,
and the balance, if any, shall be distributed to those Unitholders in the
Series whose book capital account balances (immediately following the
distribution of any liquidation proceeds) were positive, in proportion to
their respective positive book capital account balances.
SECTION 13.3. Termination; Certificate of Cancellation. Following
the dissolution and distribution of the assets of all Series of the Trust, the
Trust shall terminate and Managing Owner or Liquidating Trustee, as the case
may be, shall execute and cause such certificate of cancellation of the
Certificate of Trust to be filed in accordance with the Delaware Trust
Statute.
TA-59
Notwithstanding anything to the contrary contained in this Trust Agreement,
the existence of the Trust as a separate legal entity shall continue until the
filing of such certificate of cancellation.
ARTICLE XIV
POWER OF ATTORNEY
SECTION 14.1. Power of Attorney Executed Concurrently. Concurrently
with the written acceptance and adoption of the provisions of this Trust
Agreement, each Limited Owner shall execute and deliver to the Managing Owner
a Power of Attorney as part of the Subscription Agreement, or in such other
form as may be prescribed by the Managing Owner. Each Limited Owner, by its
execution and delivery hereof, irrevocably constitutes and appoints the
Managing Owner and its officers and directors, with full power of
substitution, as the true and lawful attorney-in-fact and agent for such
Limited Owner with full power and authority to act in his name and on his
behalf in the execution, acknowledgment, filing and publishing of Trust
documents, including, but not limited to, the following:
(a) Any certificates and other instruments, including but not
limited to, any applications for authority to do business and amendments
thereto, which the Managing Owner deems appropriate to qualify or continue the
Trust as a business trust in the jurisdictions in which the Trust may conduct
business, so long as such qualifications and continuations are in accordance
with the terms of this Trust Agreement or any amendment hereto, or which may
be required to be filed by the Trust or the Unitholders under the laws of any
jurisdiction;
(b) Any instrument which may be required to be filed by the Trust
under the laws of any state or by any governmental agency, or which the
Managing Owner deems advisable to file; and
(c) This Trust Agreement and any documents which may be required to
effect an amendment to this Trust Agreement approved under the terms of the
Trust Agreement, and the continuation of the Trust, the admission of the
signer of the Power of Attorney as a Limited Owner or of others as additional
or substituted Limited Owners, or the termination of the Trust, provided such
continuation, admission or termination is in accordance with the terms of this
Trust Agreement.
SECTION 14.2. Effect of Power of Attorney. The Power of Attorney
concurrently granted by each Limited Owner to the Managing Owner:
(a) Is a special, irrevocable Power of Attorney coupled with an
interest, and shall survive and not be affected by the death, disability,
dissolution, liquidation, termination or incapacity of the Limited Owner;
(b) May be exercised by the Managing Owner for each Limited Owner by
a facsimile signature of one of its officers or by a single signature of one
of its officers acting as attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment by a Limited Owner
of the whole or any portion of his Limited Units; except that where the
assignee thereof has been
TA-60
approved by the Managing Owner for admission to the Trust as a substituted
Limited Owner, the Power of Attorney of the assignor shall survive the
delivery of such assignment for the sole purpose of enabling the Managing
Owner to execute, acknowledge and file any instrument necessary to effect such
substitution.
Each Limited Owner agrees to be bound by any representations made by
the Managing Owner and by any successor thereto, determined to be acting in good
faith pursuant to such Power of Attorney and not constituting negligence or
misconduct.
SECTION 14.3. Limitation on Power of Attorney. The Power of Attorney
concurrently granted by each Limited Owner to the Managing Owner shall not
authorize the Managing Owner to act on behalf of Limited Owners in any
situation in which this Trust Agreement requires the approval of Limited
Owners unless such approval has been obtained as required by this Trust
Agreement. In the event of any conflict between this Trust Agreement and any
instruments filed by the Managing Owner or any new Managing Owner pursuant to
this Power of Attorney, this Trust Agreement shall control.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. Governing Law. The validity and construction of this
Trust Agreement and all amendments hereto shall be governed by the laws of the
State of Delaware, and the rights of all parties hereto and the effect of
every provision hereof shall be subject to and construed according to the laws
of the State of Delaware without regard to the conflict of laws provisions
thereof; provided, however, that causes of action for violations of Federal or
state securities laws shall not be governed by this Section 15.1, and
provided, further, that the parties hereto intend that the provisions hereof
shall control over any contrary or limiting statutory or common law of the
State of Delaware (other than the Delaware Trust Statute) and that, to the
maximum extent permitted by applicable law, there shall not be applicable to
the Trust, the Trustee, the Managing Owner, the Unitholders or this Trust
Agreement any provision of the laws (statutory or common) of the State of
Delaware (other than the Delaware Trust Statute) pertaining to trusts which
relate to or regulate in a manner inconsistent with the terms hereof: the
filing with any court or governmental body or agency of trustee accounts or
schedules of trustee fees and charges, (b) affirmative requirements to post
bonds for trustees, officers, agents, or employees of a trust, (c) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (d) fees or
other sums payable to trustees, officers, agents or employees of a trust, (e)
the allocation of receipts and expenditures to income or principal, (f)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (g) the establishment of fiduciary or
other standards or responsibilities or limitations on the acts or powers of
trustees or managers that are inconsistent with the limitations on liability
or authorities and powers of the Trustee or the Managing Owner set forth or
referenced in this Trust Agreement. Section 3540 of Title 12 of the Delaware
Code shall not apply to the Trust. The Trust shall be of the type commonly
called a "statutory trust," and without limiting the provisions hereof, the
Trust may exercise all powers that are ordinarily exercised by such a trust
under Delaware law. The Trust specifically reserves the right to
TA-61
exercise any of the powers or privileges afforded to statutory trusts and the
absence of a specific reference herein to any such power, privilege or action
shall not imply that the Trust may not exercise such power or privilege or
take such actions.
SECTION 15.2. Provisions In Conflict With Law or Regulations.
(a) The provisions of this Trust Agreement are severable, and if the
Managing Owner shall determine, with the advice of counsel, that any one or
more of such provisions (the "Conflicting Provisions") are in conflict with
the Code, the Delaware Trust Statute or other applicable Federal or state
laws, the Conflicting Provisions shall be deemed never to have constituted a
part of this Trust Agreement, even without any amendment of this Trust
Agreement pursuant to this Trust Agreement; provided, however, that such
determination by the Managing Owner shall not affect or impair any of the
remaining provisions of this Trust Agreement or render invalid or improper any
action taken or omitted prior to such determination. No Managing Owner or
Trustee shall be liable for making or failing to make such a determination.
(b) If any provision of this Trust Agreement shall be held invalid
or unenforceable in any jurisdiction, such holding shall not in any manner
affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Trust Agreement in any
jurisdiction.
SECTION 15.3. Construction. In this Trust Agreement, unless the
context otherwise requires, words used in the singular or in the plural
include both the plural and singular and words denoting any gender include all
genders. The title and headings of different parts are inserted for
convenience and shall not affect the meaning, construction or effect of this
Trust Agreement.
SECTION 15.4. Notices. All notices or communications under this
Trust Agreement (other than requests for redemption of Units, notices of
assignment, transfer, pledge or encumbrance of Units, and reports and notices
by the Managing Owner to the Limited Owners) shall be in writing and shall be
effective upon personal delivery, or if sent by mail, postage prepaid, or if
sent electronically, by facsimile or by overnight courier; and addressed, in
each such case, to the address set forth in the books and records of the Trust
or such other address as may be specified in writing, of the party to whom
such notice is to be given, upon the deposit of such notice in the United
States mail, upon transmission and electronic confirmation thereof or upon
deposit with a representative of an overnight courier, as the case may be.
Requests for redemption, notices of assignment, transfer, pledge or
encumbrance of Units shall be effective upon timely receipt by the Managing
Owner in writing.
SECTION 15.5. Counterparts. This Trust Agreement may be executed in
several counterparts, and all so executed shall constitute one agreement,
binding on all of the parties hereto, notwithstanding that all the parties are
not signatory to the original or the same counterpart.
SECTION 15.6. Binding Nature of Trust Agreement. The terms and
provisions of this Trust Agreement shall be binding upon and inure to the
benefit of the heirs, custodians, executors, estates, administrators, personal
representatives, successors and permitted assigns of
TA-62
the respective Unitholders. For purposes of determining the rights of any
Unitholder or assignee hereunder, the Trust and the Managing Owner may rely
upon the Trust records as to who are Unitholders and permitted assignees, and
all Unitholders and assignees agree that the Trust and the Managing Owner, in
determining such rights, shall rely on such records and that Limited Owners
and assignees shall be bound by such determination.
SECTION 15.7. No Legal Title to Trust Estate. The Unitholders shall
not have legal title to any part of the Trust Estate.
SECTION 15.8. Creditors. No creditors of any Unitholders shall have
any right to obtain possession of, or otherwise exercise legal or equitable
remedies with respect to the Trust Estate.
SECTION 15.9. Integration. This Trust Agreement constitutes the
entire agreement among the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements and understandings pertaining
thereto.
TA-63
IN WITNESS WHEREOF, the undersigned have duly executed this Amended and
Restated Declaration of Trust and Trust Agreement as of the day and year first
above written.
WILMINGTON TRUST COMPANY,
as Trustee
By:
----------------------------------------------
Name: Rosemary Kennard
Title: Financial Services Officer
PREFERRED INVESTMENT SOLUTIONS CORP.,
as Managing Owner
By:
----------------------------------------------
Name: Kenneth A. Shewer
Title: Co-Chief Executive Officer
All Limited Owners now and hereafter admitted as
Limited Owners of the Trust and reflected in the
books and records of the Trust as Limited Owners
from time to time, pursuant to powers of attorney
now and hereafter executed in favor of, and
granted and delivered to, the Managing Owner by
each of the Limited Owners
By: PREFERRED INVESTMENT SOLUTIONS CORP.,
as attorney-in-fact
By:
----------------------------------------------
Name: Kenneth A. Shewer
Title: Co-Chief Executive Officer
TA-64
ANNEX
WORLD MONITOR TRUST III
REQUEST FOR REDEMPTION
__________, 20__
(Please date)
WORLD MONITOR TRUST III
c/o Preferred Investment Solutions Corp.
900 King Street, Suite 100
Rye Brook, New York 10573
Dear Sirs:
All capitalized and other defined terms used herein and not expressly
defined herein shall have the same respective meaning as are assigned such
terms in the final prospectus and disclosure document of World Monitor Trust
III (the "Trust") and each Series thereof, constituting a part of the
registration statement on Form S-1, as amended, filed with the Securities and
Exchange Commission pursuant to which the Trust registered the Limited Units
of each Series, as the same may at any time and from time to time be further
amended or supplemented (the "Prospectus").
The undersigned (Unitholder #__________) hereby requests redemption of
the number of Units specified below or, if a dollar amount is specified below,
the number of Units determined by dividing such dollar amount by the Series
Net Asset Value per Unit of the applicable Series as of 10:00 p.m., New York
City time, on the Redemption Date, in each Series of the Trust indicated
below, subject to all terms and conditions of the Declaration of Trust and
Trust Agreement (the "Declaration of Trust") of the Trust as described in the
Prospectus. PLEASE FILL OUT APPLICABLE SECTION BELOW (IF NO SECTIONS ARE
COMPLETED BELOW ALL UNITS HELD OF RECORD BY THE UNDERSIGNED WILL BE REDEEMED):
----------------------------------------------------------------------------------------------------------------
Series Full Redemption Partial Redemption
Either $ or # of units
($1,000 minimum or 10 units
minimum )
----------------------------------------------------- ----------------------- ----------------------------------
SERIES G - Graham Capital Management, L. P. [ ]
----------------------------------------------------- ----------------------- ----------------------------------
SERIES H - Bridgewater Associates, Inc. [ ]
----------------------------------------------------- ----------------------- ----------------------------------
SERIES I - Eagle Trading Systems Inc. [ ]
----------------------------------------------------- ----------------------- ----------------------------------
SERIES J - Graham Capital Management, L. P. [ ]
Bridgewater Associates, Inc.
Eagle Trading Systems Inc.
----------------------------------------------------------------------------------------------------------------
(Please specify number of Units or dollar amount to be redeemed in each
Series; if no number of Units is specified, it will be assumed that you
wish to redeem ALL of your Units.)
This Request for Redemption must be received by the Managing Owner by
10:00 AM New York time at least five (5) Business Days prior to the day
as of which the redemption is to be effective. A redemption will be
effective as of the close of business on the last Business Day of any
calendar month. For example, if the last business day of the month is a
Friday, notice must be received by the Managing Owner by 10:00 AM New
York time on the Friday of the immediately preceding week. I understand
that, if I am redeeming all or some of my Units in Class I of any Series
prior to the first anniversary of their purchase, I will be subject to a
redemption charge equal to the product of (i) the net asset value per
Unit on the redemption date of the Units being redeemed, multiplied by
(ii) the number of months remaining before the first anniversary of the
date such Units were purchased, multiplied by (iii) 1/12th of 2.00%.
There is no redemption charge for Class I Units on or after the first
anniversary of their purchase. I (either in my individual capacity or as
an authorized representative of
Annex-1
an entity, if applicable) hereby represent and warrant that I am the
true, lawful, and beneficial owner of the Units to which this Request
for Redemption relates, with full power and authority to request
Redemption of such Units. Such Units are not subject to any pledge or
otherwise encumbered in any fashion.
United States Taxable Unitholders Only:
Under the penalties of perjury, I hereby certify that the Social Security
Number or Taxpayer ID Number indicated on this Request for Redemption is
my true, correct and complete Social Security Number or Taxpayer ID
Number and that I am not subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
Non-United States Unitholders Only:
Under penalties of perjury, I hereby certify that (a) I am not a citizen
or resident of the United States and have not been present in the United
States for 183 days or more during any calendar year or (b) I am a
non-United States corporation, partnership, estate or trust.
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS OF TRUST ARE
REGISTERED
UNITS REGISTERED IN THE NAME(S) OF:
________________________________________________________________________________
Type or Print Name Social Security or Taxpayer ID
________________________________________________________________________________
Street
________________________________________________________________________________
City State Zip
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
Signature(s) Guaranteed by: _______________________________________
_____________________________________ _______________________________________
Signature(s) of owner(s) or assignee(s)
Entity Owner (or assignee)
_______________________________________
Signature(s) Guaranteed by: By ____________________________________
(Trustee, partner, or authorized
officer. If a corporation, include
certified copy of authorizing
_____________________________________ resolution.)
NOTE: If the entity owner is a trustee, custodian, of fiduciary or an
Individual Retirement Account, Keogh Plan without common law
employees or employee benefit plan under which a plan participant
may exercise control over assets in his account, the signature of
the plan participant must also be supplied.
Plan Participant
_______________________________________
Signature(s) Guaranteed by: Type or Print Name
_____________________________________ _______________________________________
(Signature)
THIS REQUEST FOR REDEMPTION MUST BE RECEIVED BY THE MANAGING OWNER AT
LEAST FIVE (5) BUSINESS DAYS PRIOR TO THE DATE AS OF WHICH REDEMPTION IS TO BE
EFFECTIVE.
Annex-2
ANNEX
EXCHANGE REQUEST FOR
CLASS I UNITS OF BENEFICIAL INTEREST
To: WORLD MONITOR TRUST III
c/o Preferred Investment Solutions Corp.
900 King Street, Suite 100
Rye Brook, New York 10573
I hereby request the following exchange of Units as of the Business Day
which first occurs five (5) Business Days after your receipt of this Exchange
Request, upon the terms and conditions described in the Prospectus for World
Monitor Trust III (the "Trust") dated _______ __, 2006. I certify that all of
the statements made in my original Subscription Agreement remain accurate. I
(either in my individual capacity or as an authorized representative of an
entity, if applicable) hereby represent and warrant that I am the true,
lawful, and beneficial owner of the Units to which this Exchange Request
relates, with full power and authority to request an Exchange of such Units.
Such Units are not subject to any pledge or otherwise encumbered in any
fashion. I (either in my individual capacity or as an authorized
representative of any entity, if applicable) hereby represent and warrant that
I have received and read the Prospectus as it relates to the Series of Units
which are being purchased in connection with this Exchange Request. All
capitalized and other defined terms used herein and not expressly defined
herein shall have the same respective meaning as are assigned such terms in
the final prospectus and disclosure document of the Trust and each Series
thereof, constituting a part of the registration statement on Form S-1 filed
with the Securities and Exchange Commission pursuant to which the Trust
registered the Limited Units of each Series, as the same may at any time and
from time to time be further amended or supplemented, as the same may at any
time and from time to time be amended or supplemented after the effective date
of such registration statement (the "Prospectus"). I understand that I may
exchange various Class I of the Series and various Class II of the Series but
that I may not exchange from Class I to Class II or vice-versa. I understand
that the Exchange of Units will be treated as a redemption of Units in one
Series (with the related tax consequences) and the immediate purchase of Units
in the Series into which I exchange. I understand that the Managing Owner, in
its sole and absolute discretion, may reject this Exchange Request.
Amount to be Redeemed Upon Exchange Specify (X) Series to be Purchased Upon Exchange:*
$/Units _____ or All Units of - Series G _____ in Units of Series G
$/Units _____ or All Units of - Series H _____ in Units of Series H
$/Units _____ or All Units of - Series I _____ in Units of Series I
$/Units _____ or All Units of - Series J _____ in Units of Series J
* If you are exchanging Units of one Series for Units of more than one Series,
please complete a separate Exchange Request for each Series being exchanged
into.
Annex-3
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH UNITS OF TRUST ARE REGISTERED
UNITS REGISTERED IN THE NAME(S) OF:
________________________________________________________________________________
Type or Print Name Social Security or Taxpayer ID
________________________________________________________________________________
Street
________________________________________________________________________________
City State Zip Code
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
Signature(s) Guaranteed by: _______________________________________
_____________________________________ _______________________________________
Signature(s) of owner(s) or assignee(s)
Entity Owner (or assignee)
_______________________________________
Signature(s) Guaranteed by: _______________________________________
_____________________________________ By ____________________________________
(Trustee, partner, or authorized
officer. If a corporation, include
certified copy of authorizing
resolution.)
NOTE: If the entity owner is a trustee, custodian, or fiduciary of an
Individual Retirement Account, Keogh Plan without common law
employees or employee benefit plan under which a plan participant
may exercise control over assets in his account, the signature of
the plan participant must also be supplied.
Plan Participant
_______________________________________
Signature(s) Guaranteed by: Type or Print Name
_____________________________________ _______________________________________
(Signature)
IF SUBMITTED IN ACCORDANCE WITH REQUIRED PROCEDURES, THE EXCHANGE
REQUESTED HEREIN WILL BE EFFECTIVE AS OF THE BUSINESS DAY FOLLOWING TWO
(2) BUSINESS DAYS AFTER THE DATE ON WHICH THIS EXCHANGE REQUEST WAS
RECEIVED.
Annex-4
ANNEX
EXCHANGE REQUEST FOR
CLASS II UNITS OF BENEFICIAL INTEREST
To: WORLD MONITOR TRUST III
c/o Preferred Investment Solutions Corp.
900 King Street, Suite 100
Rye Brook, New York 10573
I hereby request the following exchange of Units as of the Business Day
which first occurs five (5) Business Days after your receipt of this Exchange
Request, upon the terms and conditions described in the Prospectus for World
Monitor Trust III (the "Trust") dated _______ __, 2006. I certify that all of
the statements made in my original Subscription Agreement remain accurate. I
(either in my individual capacity or as an authorized representative of an
entity, if applicable) hereby represent and warrant that I am the true,
lawful, and beneficial owner of the Units to which this Exchange Request
relates, with full power and authority to request an Exchange of such Units.
Such Units are not subject to any pledge or otherwise encumbered in any
fashion. I (either in my individual capacity or as an authorized
representative of any entity, if applicable) hereby represent and warrant that
I have received and read the Prospectus as it relates to the Series of Units
which are being purchased in connection with this Exchange Request. All
capitalized and other defined terms used herein and not expressly defined
herein shall have the same respective meaning as are assigned such terms in
the final prospectus and disclosure document of the Trust and each Series
thereof, constituting a part of the registration statement on Form S-1 filed
with the Securities and Exchange Commission pursuant to which the Trust
registered the Limited Units of each Series, as the same may at any time and
from time to time be amended or supplemented after the effective date of such
registration statement (the "Prospectus"). I understand that I may exchange
various Class I of the Series and various Class II of the Series but that I
may not exchange from Class I to Class II or vice-versa. I understand that the
Exchange of Units will be treated as a redemption of Units in one Series (with
the related tax consequences) and the immediate purchase of Units in the
Series into which I exchange. I understand that the Managing Owner, in its
sole and absolute discretion, may reject this Exchange Request.
Amount to be Redeemed Upon Exchange Specify (X) Series to be Purchased Upon Exchange:*
$/Units _____ or All Units of - Series G _____ in Units of Series G
$/Units _____ or All Units of - Series H _____ in Units of Series H
$/Units _____ or All Units of - Series I _____ in Units of Series I
$/Units _____ or All Units of - Series J _____ in Units of Series J
* If you are exchanging Units of one Series for Units of more than one
Series, please complete a separate Exchange Request for each Series being
exchanged into.
Annex-5
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH UNITS OF TRUST ARE REGISTERED
UNITS REGISTERED IN THE NAME(S) OF:
________________________________________________________________________________
Type or Print Name Social Security or Taxpayer ID
________________________________________________________________________________
Street
________________________________________________________________________________
City State Zip Code
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
_______________________________________
Signature(s) Guaranteed by: _______________________________________
_____________________________________ _______________________________________
Signature(s) of owner(s) or assignee(s)
Entity Owner (or assignee)
_______________________________________
Signature(s) Guaranteed by: _______________________________________
_____________________________________ By ____________________________________
(Trustee, partner, or authorized
officer. If a corporation, include
certified copy of authorizing
resolution.)
NOTE: If the entity owner is a trustee, custodian, or fiduciary of an
Individual Retirement Account, Keogh Plan without common law
employees or employee benefit plan under which a plan participant
may exercise control over assets in his account, the signature of
the plan participant must also be supplied.
Plan Participant
_______________________________________
Signature(s) Guaranteed by: Type or Print Name
_____________________________________ _______________________________________
(Signature)
IF SUBMITTED IN ACCORDANCE WITH REQUIRED PROCEDURES, THE EXCHANGE
REQUESTED HEREIN WILL BE EFFECTIVE AS OF THE BUSINESS DAY FOLLOWING TWO
(2) BUSINESS DAYS AFTER THE DATE ON WHICH THIS EXCHANGE REQUEST WAS
RECEIVED.
Annex-6
EXHIBIT B
WORLD MONITOR TRUST III
____________________
SUBSCRIPTION REQUIREMENTS
By executing a Subscription Agreement and Power of Attorney Signature
Page for Units of Beneficial Interest ("Units") of one or more Series of World
Monitor Trust III (the "Trust"), as indicated on the Subscription Agreement
and Power of Attorney Signature Page, each purchaser ("Purchaser") of Units
irrevocably subscribes for Units of each Series indicated on the Purchaser's
Subscription Agreement and Power of Attorney Signature Page at a purchase
price per Unit at Series Net Asset Value per Unit during the continuous
offering, as described in the Prospectus of the Trust and each of the Series
dated _______ __, 2006 (the "Prospectus"). Capitalized terms used but not
defined herein have the meaning ascribed thereto in the Prospectus.
If Purchaser's Subscription Agreement and Power of Attorney Signature
Page is accepted, Purchaser agrees to contribute Purchaser's subscription to
the Trust and to be bound by the terms of the Trust's Declaration of Trust and
Trust Agreement ("Declaration of Trust and Trust Agreement"), which will be in
substantially the form of the Declaration of Trust and Trust Agreement
included in the Prospectus as Exhibit A. Purchaser agrees to reimburse the
Trust and Preferred Investment Solutions Corp., the managing owner of the
Trust (the "Managing Owner"), for any expense or loss incurred by either as a
result of the cancellation of Purchaser's Units due to a failure of the
Purchaser to deliver good funds in the full amount of the purchase price of
the Units subscribed for by Purchaser.
Representations and Warranties
As an inducement to the Managing Owner to accept this subscription,
Purchaser, by executing and delivering Purchaser's Subscription Agreement and
Power of Attorney Signature Page, represents and warrants to the Trust, the
Managing Owner, and the Selling Agent as follows:
(a) Purchaser is at least twenty-one years old and is
legally competent to execute the Subscription Agreement and Power of
Attorney Signature Page. Purchaser acknowledges that Purchaser has
received (prior to any solicitation of Purchaser's investment) a copy of
the Prospectus -- including the Appendices, the Declaration of Trust and
Trust Agreement and summary financial information relating to the Trust
current within 60 calendar days -- dated within nine months of the date
as of which Purchaser has subscribed to purchase Units.
(b) All information that Purchaser has heretofore
furnished to the Managing Owner or that is set forth in the Subscription
Agreement and Power of Attorney submitted by Purchaser is correct and
complete as of the date of such Subscription Agreement and Power of
Attorney, and if there should be any change in such information prior to
acceptance of Purchaser's subscription, Purchaser will immediately
furnish such revised or corrected information to the Managing Owner.
(c) Unless (d) below is applicable, Purchaser's
subscription is made with Purchaser's funds for Purchaser's own account
and not as trustee, custodian or nominee for another.
(d) The subscription, if made as custodian for a minor, is
a gift Purchaser has made to such minor and is not made with such
minor's funds or, if not a gift, the representations as to net worth and
annual income set forth below apply only to such minor.
(e) If Purchaser is subscribing in a representative
capacity, Purchaser has full power and authority to purchase the Units
and enter into and be bound by the Subscription Agreement and Power of
Attorney on behalf of the entity for which Purchaser is purchasing the
Units, and such entity has full right and power to purchase such Units
and enter into and be bound by the Subscription Agreement and Power of
Attorney and to become a Unitholder and be bound by the terms and
conditions of the Declaration of Trust and Trust Agreement.
(f) Purchaser either is not required to be registered with
the Commodity Futures Trading Commission ("CFTC") or to be a member of
the National Futures Association ("NFA"), or, if required to be so
registered, is duly registered with the CFTC and is a member in good
standing of the NFA. Purchaser agrees to supply the Managing Owner with
such information as the Managing Owner may reasonably request in order
to verify the foregoing representation. Certain entities which acquire
Units may, as a result, themselves become "commodity pools" within the
intent of applicable CFTC and NFA rules, and their sponsors, accordingly,
will be required to register as "commodity pool operators."
SR-1
(g) The address set forth on the Subscription Agreement
and Power of Attorney Signature Page is Purchaser's true and correct
address and Purchaser has no present intention of becoming a resident of
any other state or country.
(h) If Purchaser is a trust or custodian under an Employee
Benefit Plan (or otherwise is an entity which holds plan assets), none
of the Trustee, the Managing Owner, the Advisors, any Selling Agent, or
Clearing Broker, or any of their affiliates either: (i) has investment
discretion with respect to the investment of the assets of such entity
being used to purchase Units; (ii) has authority or responsibility to
give or regularly gives investment advice with respect to such assets
for a fee and pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular
investment needs of the trust or custodian; or (iii) is an employer
maintaining or contributing to the Trust.
(i) To the best knowledge of Purchaser, Purchaser is
independent of the Trust and any of the parties identified in paragraph
(h) above and the decision to invest in the Units was made entirely
independently of such parties, and was not part of a coordinated or
joint investment effort with one or more other investors.
(j) Purchaser has received a Prospectus of each Series
which constitutes its Commodity Futures Trading Commission ("CFTC")
Disclosure Document.
(k) Purchaser is purchasing the Units for Purchaser's own
account.
(l) If trading for the applicable Series has commenced,
Purchaser has received a copy of its most recent monthly report as
required by the CFTC.
(m) Purchaser acknowledges that as a holder or holders of
any interests in, or claims of any kind against, any Series, Purchaser
will seek to recover any debts, liabilities, obligations and expenses
incurred or otherwise existing with respect to that Series solely from,
or to assert such claims solely against, (i) the assets of that Series
(and not the assets of any other Series or the Trust generally) or (ii)
the Managing Owner.
(n) Purchaser agrees to provide any information deemed
necessary by the Trust to comply with its anti-money laundering program
and related responsibilities from time to time.
(o) Purchaser represents that Purchaser and each
beneficial owner of Purchaser is (i) not an individual, entity or
organization identified on any U.S. Office of Foreign Assets Control
"watch list" and does not have any affiliation of any kind with such an
individual, entity or organization; (ii) not a foreign shell bank; and
(iii) not a person or entity resident in or whose subscription funds are
transferred from or through a jurisdiction identified as non-cooperative
by the U.S. Financial Action Task Force.
(p) Purchaser represents that Purchaser is not, and no
beneficial owner of Purchaser is, a senior foreign political figure,(1)
an immediate family member of a senior foreign political figure(2) or a
close associate of a senior foreign political figure.(3)
(q) Purchaser represents that the funds to be invested in
the Trust were not derived from activities that may contravene U.S. or
non-U.S. anti-money laundering laws or regulations.
Consent to Electronic Delivery of Reports
You may consent to receiving periodic reports electronically by
supplying your e-mail address under Item 12(a) of the Subscription Agreement
and Power of Attorney Signature Page. In the alternative, you may elect to
______________________
(1) A "senior foreign political figure" is defined as an official in the
executive, legislative, administrative, military or judicial branches of
a foreign government (whether elected or not), a senior official of a
major foreign political party, or a senior executive of a foreign
government-owned corporation. In addition, a "senior foreign political
figure" includes any corporation, business or other entity that has been
formed by, or for the benefit of, a senior foreign political figure.
(2) "Immediate family" of a senior foreign political figure typically
includes the figure's parents, siblings, spouse, children and in-laws.
(3) A "close associate" of a senior foreign political figure is a person who
is widely and publicly known to maintain an unusually close relationship
with the senior foreign political figure, and includes a person who is in
a position to conduct substantial domestic and international financial
transactions on behalf of the senior foreign political figure.
SR-2
receive paper reports by checking the box under Item 12(b) of the Subscription
Agreement and Power of Attorney Signature Page. These periodic reports
include:
o annual reports that contain audited financial statements; and
o monthly reports containing unaudited condensed financial statements.
You will receive these reports via e-mail, if you so elect. You must
have an e-mail address to use this service, and you must provide your e-mail
address in Item 11 of the Subscription Agreement and Power of Attorney
Signature Page. If you elect to receive these reports electronically, you will
not receive paper copies of the reports in the mail, unless you later revoke
your consent. You may revoke your consent and receive paper copies at any time
by notifying the Managing Owner in writing at 900 King Street, Suite 100, Rye
Brook, New York 10573. Furthermore, if your e-mail address changes, you must
immediately advise the Trust at the address above.
Acknowledgment of, Consent to and Agreement Regarding Limitation on
Interseries Liability
Purchaser, with respect to Units of each Series for which Purchaser
hereby subscribes and that is the subject of this agreement (the "Contracting
Series"), agrees and consents (the "Consent") to look solely to the assets
(the "Contracting Series Assets") of the relevant Contracting Series and to
the Managing Owner and its assets for payment in respect of any claim against
or obligation of such Series. The Contracting Series Assets of a particular
Series include only those funds and other assets that are paid, held or
distributed to the Trust on account of and for the benefit of such Contracting
Series, including, without limitation, funds delivered to the Trust for the
purchase of Units in such Series.
In furtherance of the Consent, Purchaser agrees, with respect to each
Contracting Series, that (i) any debts, liabilities, obligations,
indebtedness, expenses and claims of any nature and of all kinds and
descriptions (collectively, "Claims") of such Contracting Series incurred,
contracted for or otherwise existing and (ii) any Units, beneficial interests
or equity ownership of any kind (collectively, "Units") of such Contracting
Series, arising from, related to or in connection with the Trust and its
assets and the Contracting Series and the Contracting Series Assets, shall be
subject to the following limitations:
(a) (i) except as set forth below, the Claims and Units,
if any, of the Subscriber (collectively, the "Subordinated Claims and
Units") shall be expressly subordinate and junior in right of payment to
any and all other claims against and Units in the Trust and any Series
thereof, and any of their respective assets, which may arise as a matter
of law or pursuant to any contract; provided, however, that the
Subscriber's Claims (if any) against and Units (if any) in the
Contracting Series shall not be considered Subordinated Claims and Units
with respect to enforcement against and distribution and repayment from
the Contracting Series, the Contracting Series Assets and the Managing
Owner and its assets; and provided further that (1) the Subscriber's
valid Claims, if any, against the Contracting Series shall be pari passu
and equal in right of repayment and distribution with all other valid
Claims against the Contracting Series and (2) the Subscriber's Units, if
any, in the Contracting Series shall be pari passu and equal in right of
repayment and distribution with all other Units in the Contracting
Series; and (ii) the Subscriber will not take, demand, or receive from
any Series or the Trust or any of their respective assets (other than
the Contracting Series, the Contracting Series Assets and the Managing
Owner and its assets) any payment for the Subordinated Claims and Units;
(b) the Claims and Units of the Subscriber with respect to
the Contracting Series shall only be asserted and enforceable against
the Contracting Series, the Contracting Series Assets and the Managing
Owner and its assets and such Claims and Units shall not be asserted or
enforceable for any reason whatsoever against any other Series, the
Trust generally or any of their respective assets;
(c) if the Claims of the Subscriber against the
Contracting Series or the Trust are secured in whole or in part, the
Subscriber hereby waives {under section 1111(b) of the Bankruptcy Code
[11 U.S.C. ss.1111(b)]} any right to have any deficiency Claims (which
deficiency Claims may arise in the event such security is inadequate to
satisfy such Claims) treated as unsecured Claims against the Trust or
any Series (other than the Contracting Series), as the case may be;
(d) in furtherance of the foregoing, if and to the extent
that the Subscriber receives monies in connection with the Subordinated
Claims and Units from a Series or the Trust (or their respective
assets), other than the Contracting Series, the Contracting Series
Assets and the Managing Owner and its assets, the Subscriber shall be
deemed to hold such monies in trust and shall promptly remit such monies
to the Series or the Trust that paid such amounts for distribution by
the Series or the Trust in accordance with the terms hereof; and
SR-3
(e) the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied, the Units are sold,
transferred, redeemed or in any way disposed of and notwithstanding that
the agreements in respect of such Claims and Units are terminated,
rescinded or canceled.
The representations and statements set forth herein may be asserted in
the defense of the Trust, the Managing Owner, the Advisors to the Trust, the
Selling Agents or others in any subsequent litigation or other proceeding.
____________________
Investor Suitability
Purchaser understands that the purchase of Units may be made only by
persons who, at a minimum, have (i) a net worth of at least $150,000
(exclusive of home, furnishings and automobiles) or (ii) an annual gross
income of at least $45,000 and a net worth of at least $45,000 (exclusive of
home, furnishings and automobiles). Residents of the following states must
meet the requirements set forth below ("net worth" for such purposes is in all
cases is exclusive of home, furnishings and automobiles). In addition,
Purchaser may not invest more than 10% of his or her net worth (in all cases
exclusive of home, furnishings and automobiles) in the Trust.
1. Alaska -- Eligible investors must have (i) a net worth of at least
$225,000 (exclusive of home, furnishings and automobiles) or (ii) an annual
gross income of at least $60,000 and a net worth of at least $60,000
(exclusive of home, furnishings and automobiles).
2. Arizona -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000.
3. California -- Net worth of at least $250,000 and an annual income of
at least $65,000 or, in the alternative, a net worth of at least $500,000.
4. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
5. Kansas -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000.
6. Maine -- Minimum subscription per investment, both initial and
subsequent, of $5,000; net worth of at least $200,000 or a net worth of at
least $50,000 and an annual income of at least $50,000.
7. Massachusetts -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
8. Michigan -- Net worth of at least $225,000 or a net worth of at least
$60,000 and annual income of at least $60,000.
9. Minnesota -- "Accredited investors," as defined in Rule 501(a) under
the Securities Act of 1933.
10. Mississippi -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
11. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
12. New Hampshire -- Net worth of at least $250,000 or a net worth of at
least $125,000 and an annual income of at least $50,000.
13. New Jersey -- Net worth of at least $250,000 and a taxable income of
at least $65,000 or, in the alternative, a net worth of at least $500,000.
14. North Carolina -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
15. Oklahoma -- Net worth of at least $225,000 or a net worth of $60,000
and an annual income of at least $60,000.
16. Oregon -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
17. Pennsylvania -- Net worth of a least $175,000 or a net worth of at
least $100,000 and an annual taxable income of at least $50,000.
18. South Carolina -- Net worth of at least $100,000 or a net income in
1998 some portion of which was subject to maximum federal and state income
tax.
SR-4
19. Tennessee -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
20. Texas -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
[Remainder of page intentionally left blank.]
SR-5
- --------------------- ---------------------
NOT FOR MINNESOTA OR NOT TO BE USED AFTER
TEXAS RESIDENTS January __, 2007
- --------------------- ---------------------
WORLD MONITOR TRUST III
SUBSCRIPTION INSTRUCTIONS
Any person considering subscribing for the units should carefully read
and review a current Prospectus of the Trust dated _______ __, 2006. The
Prospectus should be accompanied by the most recent monthly report of the Trust.
Line Number Item To Be Completed
----------- --------------------
1 Check box if you are either a new subscriber or an existing
owner.
2 Enter the total dollar amount being invested.
3 Check box if this is an addition to an existing account and
list Unitholder #.
4 Enter the investor's brokerage account number (as opened with
the Selling Agent) and check the box if the account is to be
debited for investment.
6 Enter the Social Security Number OR Taxpayer ID Number, as
applicable and check the appropriate box to indicate ownership
type. For IRA accounts, the Taxpayer ID Number of the
Custodian should be entered, as well as the Social Security
Number of the investor.
7 Enter the name of the investor. For UGMA/UTMA (Minor)
accounts, enter the Minor name followed by "Minor".
8 For UGMA/UTMA accounts, enter the custodian name. For Trusts,
enter the Trustee(s) name(s). For Corporations, Partnerships,
and Estates, enter the officer or contact person name. Special
Note: Copies of trust agreements, corporate papers and other
appropriate documents may be required for Selling Agent
approval.
9 Enter the legal address (which is the resident or domicile
address used for tax purposes) of the investor (no post office
boxes). Line 9 must be completed.
10 If the mailing address is different from the legal address,
enter on line 10.
11 If an IRA account, enter Custodian's name and address.
12 The investor must sign and date. If it is a joint account,
both investors must sign. In the case of IRA's, the
Custodian's signature, as well as the investor's signature, is
required.
13 Check box if you are a U.S. investor and if you are subject to
backup withholding under the provisions of
Section 3406(a)(1)(C) of the Internal Revenue Code.
14 The Registered Representative and office manager must sign.
15 The name of the selling firm, Registered Representative name,
Registered Representative number, and address and phone number
must be entered.
The Branch Office/Representative Copy Page must be retained in the
Branch Office. Remaining copies should be forwarded to a) the
appropriate department of the Selling Agent if required or b) Preferred
Investment Solutions Corp., 900 King Street, Suite 100, Rye Brook, New
York 10573, Fax (914) 307-4050, Attn: Investor Services . Questions
should be directed to Preferred Investment Solutions Corp.'s Investor
Services at (914) 307-4000.
The Client should return this Subscription Agreement and payment to his
or her Registered Representative's office address.
Units are speculative and involve a high degree of risk. No person may
invest more than 10% of his or her net worth (in all cases exclusive
of home, furnishings and automobiles) in the Trust.
SA-1
- --------------------- ---------------------
NOT FOR MINNESOTA OR NOT TO BE USED AFTER
TEXAS RESIDENTS January __, 2007
- --------------------- ---------------------
Signature Page
WORLD MONITOR TRUST III
CLASS I ONLY
------------
SUBSCRIPTION AGREEMENT FOR LIMITED UNITS OF BENEFICIAL INTEREST IN
WORLD MONITOR TRUST III
IMPORTANT: READ REVERSE SIDE BEFORE SIGNING
The investor named below, by execution and delivery of this Subscription
Agreement and Power of Attorney, by payment of the purchase price for Class I
units of beneficial interest ("Units") in each Series of World Monitor Trust
III indicated on line 2 below and by either (i) wire transfer pursuant to
instructions supplied by the Managing Owner or (ii) authorizing the Selling
Agent (or Additional Seller, as the case may be) to debit investor's customer
securities account in the amount set forth below, hereby subscribes for the
purchase of Units at Series Net Asset Value per Unit during the continuous
offering.
The named investor further acknowledges receipt of the prospectus of the
Trust and each of the Series dated _______ __, 2006 (the "Prospectus"),
including the Declaration of Trust and Trust Agreement, the Subscription
Requirements and the Subscription Agreement and Power of Attorney set forth
therein, the terms of which govern the investment in the Units being
subscribed for hereby, together with, if applicable, recent Account Statements
relating to the Trust (current within 60 calendar days) and the Trust's most
recent Annual Report (unless the information in such Annual Report has been
included in the Prospectus by amendment or supplement).
The named investor is purchasing Units for such investor's own account.
If this investment is for a qualified employee benefit plan, an
individual retirement account or other tax-exempt investor, in making this
investment on behalf of each entity, the named investor has satisfied
themselves as to the potential tax consequences of this investment.
1) Status of Subscriber(s) (check one): 2) Total $ Amount of Subscription by Series:
|_| New Subscriber(s) (minimum aggregate amount of $5,000, except $2,000 minimum
|_| Existing Owner(s) aggregate amount for IRAs, other tax-exempt accounts, and
existing investors of the Trust, not less than $500 per Series)
Series G Units.....................$________________________
Series H Units.....................$________________________
Series I Units.....................$________________________
Series J Units.....................$________________________
3) |_| Check here if this is an addition to an existing account. 4) Selling Agent Brokerage Account #________________________
(must be completed)
|_| if payment is made by debit to investor's securities
account, check box
5) |_| Check here if the Subscriber(s) is (are) an Employee
Benefit Plan (or otherwise an entity that holds plan assets).
|_| Check here if the Employee Benefit Plan is a governmental
or foreign plan, or otherwise is not subject to ERISA or Section
4975 of the Code.
6) Social Security # or Taxpayer ID _______ - _______ - ________ Custodian ID # _______ - _______ - ________
Taxable Investors (check one)
|_| Individual Ownership |_| Tenants in Common |_| Estate |_| UGMA/UTMA
|_| Partnership |_| Joint Tenants with Right of Survivorship |_| Grantor or Other Revocable Trust (Minor)
|_| Corporation |_| Community Property |_| Trust other than a Grantor or Revocable Trust
Non-Taxable Investors (check one): (Custodians MUST sign Item 10 below) (Trust documents MUST accompany application)
|_| IRA |_| Profit Sharing |_| Pension |_| Other
|_| IRA Rollover |_| Defined Benefit |_| SEP (specify)
- ------------------------------------------------------------------------------------------------------------------------------------
7) Name_____________________________________________________________________________________________________________________________
8) Trustee/officer, if applicable___________________________________________________________________________________________________
9) Resident Address_________________________________________________________________________________________________________________
Street City State Zip Code Tel. Number E-mail Address
10) Mailing Address_________________________________________________________________________________________________________________
(if different) Street City State Zip Code Tel. Number E-mail Address
11) Custodian Name
and Mailing Address Address_____________________________________________________________________________________________________
Street City State Zip Code
- ------------------------------------------------------------------------------------------------------------------------------------
12) (a) Consent to Electronic Delivery of Periodic Reports: (b) Consent to Delivery of Paper Copies of Periodic Reports:
Please provide e-mail address: Please check the following box:
________________________________________________ |_|
E-mail Address
- ------------------------------------------------------------------------------------------------------------------------------------
SA-2
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR(S) MUST SIGN
- ------------------------------------------------------------------------------------------------------------------------------------
X_______________________________________ X_______________________________________ X__________________________________________
Signature of Investor Date Telephone Signature of Joint Investor Date Signature of Custodian Date
Executing and delivering this Subscription Agreement and Power of Attorney
shall in no respect be deemed to constitute a waiver of any rights under the
Securities Act of 1933 or under the Securities Exchange Act of 1934.
- --------------------------------------------------------------------------------
13) UNITED STATES INVESTORS ONLY
I have checked the following box, if I am subject to backup withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: |_|
Under penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number next to my name is my true,
correct and complete Social Security Number or Taxpayer ID Number and that the
information given in the immediately preceding sentence is true, correct and
complete.
NON-UNITED STATES INVESTORS ONLY
Under penalties of perjury, by signature above I hereby certify that (a) I am
not a citizen or resident of the United States or (b) (in the case of an
investor which is not an individual) the investor is not a United States
corporation, partnership, estate or trust.
- --------------------------------------------------------------------------------
14) I hereby certify that I have informed the investor of all pertinent facts
relating to the risks, tax consequences, liquidity, marketability, management
and control of the Managing Owner with respect to an investment in the Units,
as set forth in the Prospectus dated _______ __, 2006.
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments,
financial situation and needs and any other information known by me, that
investment in the Trust is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
The Registered Representative MUST sign below in order to substantiate
compliance with NASD Conduct Rule 2810.
X_______________________________________ X_____________________________________
Signature of Registered Representative Signature of Office Manager Date
- --------------------------------------------------------------------------------
15) Selling Firm _______________________ R.R. Name ____________________________
_______________________________________________________________
R.R. Telephone R.R.Fax R.R. Number
R.R. Address _______________________________________________________________
(for Street City State Zip Code
confirmation) (P.O. Box not acceptable)
The representations and statements set forth herein may be asserted in the
defense of the Trust, the Managing Owner, the Advisors to the Trust, the
Selling Agent or others in any subsequent litigation or other proceeding.
SA-3
- --------------------- ---------------------
NOT FOR MINNESOTA OR NOT TO BE USED AFTER
TEXAS RESIDENTS January __, 2007
- --------------------- ---------------------
Signature Page
WORLD MONITOR TRUST III
CLASS II ONLY
-------------
SUBSCRIPTION AGREEMENT FOR LIMITED UNITS OF BENEFICIAL INTEREST IN
WORLD MONITOR TRUST III
IMPORTANT: READ REVERSE SIDE BEFORE SIGNING
The investor named below, by execution and delivery of this Subscription
Agreement and Power of Attorney, by payment of the purchase price for Class II
units of beneficial interest ("Units") in each Series of World Monitor Trust
III indicated on line 2 below and by either (i) wire transfer pursuant to
instructions supplied by the Managing Owner or (ii) authorizing the Selling
Agent (or Additional Seller, as the case may be) to debit investor's customer
securities account in the amount set forth below, hereby subscribes for the
purchase of Units at Series Net Asset Value per Unit during the continuous
offering.
The named investor further acknowledges receipt of the prospectus of the
Trust and each of the Series dated _______ __, 2006 (the "Prospectus"),
including the Declaration of Trust and Trust Agreement, the Subscription
Requirements and the Subscription Agreement and Power of Attorney set forth
therein, the terms of which govern the investment in the Units being
subscribed for hereby, together with, if applicable, recent Account Statements
relating to the Trust (current within 60 calendar days) and the Trust's most
recent Annual Report (unless the information in such Annual Report has been
included in the Prospectus by amendment or supplement).
The named investor is purchasing Units for such investor's own account.
If this investment is for a qualified employee benefit plan, an
individual retirement account or other tax-exempt investor, in making this
investment on behalf of each entity, the named investor has satisfied
themselves as to the potential tax consequences of this investment.
1) Status of Subscriber(s) (check one): 2) Total $ Amount of Subscription by Series:
|_| New Subscriber(s) (minimum aggregate amount of $5,000, except $2,000 minimum
|_| Existing Owner(s) aggregate amount for IRAs, other tax-exempt accounts, and
existing investors of the Trust, not less than $500 per Series)
Series G Units.....................$________________________
Series H Units.....................$________________________
Series I Units.....................$________________________
Series J Units.....................$________________________
3) |_| Check here if this is an addition to an existing account. 4) Selling Agent Brokerage Account #________________________
(must be completed)
|_| if payment is made by debit to investor's securities
account, check box
5) |_| Check here if the Subscriber(s) is (are) an Employee
Benefit Plan (or otherwise an entity that holds plan assets).
|_| Check here if the Employee Benefit Plan is a governmental
or foreign plan, or otherwise is not subject to ERISA or Section
4975 of the Code.
6) Social Security # or Taxpayer ID _______ - _______ - ________ Custodian ID # _______ - _______ - ________
Taxable Investors (check one)
|_| Individual Ownership |_| Tenants in Common |_| Estate |_| UGMA/UTMA
|_| Partnership |_| Joint Tenants with Right of Survivorship |_| Grantor or Other Revocable Trust (Minor)
|_| Corporation |_| Community Property |_| Trust other than a Grantor or Revocable Trust
Non-Taxable Investors (check one): (Custodians MUST sign Item 10 below) (Trust documents MUST accompany application)
|_| IRA |_| Profit Sharing |_| Pension |_| Other
|_| IRA Rollover |_| Defined Benefit |_| SEP (specify)
- ------------------------------------------------------------------------------------------------------------------------------------
7) Name_____________________________________________________________________________________________________________________________
8) Trustee/officer, if applicable___________________________________________________________________________________________________
9) Resident Address_________________________________________________________________________________________________________________
Street City State Zip Code
10) Mailing Address_________________________________________________________________________________________________________________
(if different) Street City State Zip Code
11) Custodian Name
and Mailing Address Address_____________________________________________________________________________________________________
Street City State Zip Code
- ------------------------------------------------------------------------------------------------------------------------------------
12) (a) Consent to Electronic Delivery of Periodic Reports: (b) Consent to Delivery of Paper Copies of Periodic Reports:
Please provide e-mail address: Please check the following box:
________________________________________________ |_|
E-mail Address
- ------------------------------------------------------------------------------------------------------------------------------------
SA-4
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR(S) MUST SIGN
- ------------------------------------------------------------------------------------------------------------------------------------
X_______________________________________ X_______________________________________ X__________________________________________
Signature of Investor Date Telephone Signature of Joint Investor Date Signature of Custodian Date
Executing and delivering this Subscription Agreement and Power of Attorney
shall in no respect be deemed to constitute a waiver of any rights under the
Securities Act of 1933 or under the Securities Exchange Act of 1934.
- --------------------------------------------------------------------------------
13) UNITED STATES INVESTORS ONLY
I have checked the following box, if I am subject to backup withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: |_|
Under penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number next to my name is my true,
correct and complete Social Security Number or Taxpayer ID Number and that the
information given in the immediately preceding sentence is true, correct and
complete.
NON-UNITED STATES INVESTORS ONLY
Under penalties of perjury, by signature above I hereby certify that (a) I am
not a citizen or resident of the United States or (b) (in the case of an
investor which is not an individual) the investor is not a United States
corporation, partnership, estate or trust.
- --------------------------------------------------------------------------------
14) I hereby certify that I have informed the investor of all pertinent facts
relating to the risks, tax consequences, liquidity, marketability, management
and control of the Managing Owner with respect to an investment in the Units,
as set forth in the Prospectus dated _______ __, 2006.
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments,
financial situation and needs and any other information known by me, that
investment in the Trust is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
The Registered Representative MUST sign below in order to substantiate
compliance with NASD Conduct Rule 2810.
X_______________________________________ X_____________________________________
Signature of Registered Representative Signature of Office Manager Date
- --------------------------------------------------------------------------------
15) Selling Firm _______________________ R.R. Name ____________________________
_______________________________________________________________
R.R. Telephone R.R.Fax R.R. Number
R.R. Address _______________________________________________________________
(for Street City State Zip Code
confirmation) (P.O. Box not acceptable)
The representations and statements set forth herein may be asserted in the
defense of the Trust, the Managing Owner, the Advisors to the Trust, the
Selling Agent or others in any subsequent litigation or other proceeding.
SA-5
WORLD MONITOR TRUST III
UNITS OF BENEFICIAL INTEREST
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
World Monitor Trust III
c/o Preferred Investment Solutions Corp., Managing Owner
900 King Street, Suite 100
Rye Brook, New York 10573
Attention: Investor Services
Dear Sirs:
1. Subscription for Units. I hereby subscribe for the number of units of
beneficial interest ("Units") of each Series of World Monitor Trust III (the
"Trust") set forth in the Subscription Agreement and Power of Attorney
Signature Page, at Series Net Asset Value per Unit during the continuous
offering as set forth in the prospectus of the Trust dated _______ __, 2006
(the "Prospectus"). Units are offered as of the beginning of each calendar
month (until such time as the offering is discontinued). The settlement date
for my purchase of Units will be not more than five business days after the
purchase date of my Units, which will occur as of the first day of the
calendar month immediately following the month during which my subscription is
accepted. I understand that all investors will have the right to revoke their
subscriptions, and receive a refund of their invested funds, for a period of
five business days following receipt of the Prospectus. Preferred Investment
Solutions Corp., the Managing Owner of the Trust ("the Managing Owner"), may,
in its sole and absolute discretion, accept or reject this subscription in
whole or in part, except that, if this subscription is to be accepted in part
only, it shall not be reduced to an amount less than $5,000; $2,000 in the
case of persons permitted to purchase such lesser minimum, as described above.
Except as otherwise set forth herein, all subscriptions once submitted are
irrevocable. All Units are offered subject to prior sale.
2. Representations and Warranties of Subscriber. I have received the
Prospectus together with summary financial information relating to the Trust
current within 60 calendar days. I understand that by submitting this
Subscription Agreement and Power of Attorney I am making the representations
and warranties set forth in "Exhibit B - Subscription Requirements" contained
in the Prospectus including without limitation, those representations and
warranties relating to my net worth and annual income set forth therein and
compliance with CFTC and anti-money laundering regulations.
3. Power of Attorney. In connection with my acceptance of an interest in
the Trust, I do hereby irrevocably constitute and appoint the Managing Owner,
and its successors and assigns, as my true and lawful Attorney-in-Fact, with
full power of substitution, in my name, place and stead, to (i) file,
prosecute, defend, settle or compromise litigation, claims or arbitrations on
behalf of the Trust and each Series and (ii) make, execute, sign, acknowledge,
swear to, deliver, record and file any documents or instruments which may be
considered necessary or desirable by the Managing Owner to carry out fully the
provisions of the Declaration of Trust and Trust Agreement of the Trust, which
is attached as Exhibit A to the Prospectus, including, without limitation, the
execution of the said Agreement itself and effecting all amendments permitted
by the terms thereof. The Power of Attorney granted hereby shall be deemed to
be coupled with an interest and shall be irrevocable and shall survive, and
shall not be affected by, my subsequent death, incapacity, disability,
insolvency or dissolution or any delivery by me of an assignment of the whole
or any portion of my Units.
4. Irrevocability; Governing Law. I hereby acknowledge and agree that I
am not entitled to cancel, terminate or revoke this subscription or any of my
agreements hereunder after the Subscription Agreement and Power of Attorney
has been submitted (and not rejected) and that this subscription and such
agreements shall survive my death or disability, but shall terminate with the
full redemption of all my Units in the Trust. This Subscription Agreement and
Power of Attorney shall be governed by and interpreted in accordance with the
laws of the State of Delaware without regard to principles of conflicts of
law.
5 ERISA. If the undersigned is acting on behalf of an "employee benefit
plan," as defined in and subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or any "plan," as defined in Section 4975
of the Internal Revenue Code of 1986, as amended (the "Code") (each such
employee benefit plan and plan, a "Plan"), the individual signing this
Subscription Agreement and Power of Attorney on behalf of the undersigned,
understands, as or on behalf of the fiduciary of the Plan responsible for
purchasing the Units (the "Plan Fiduciary") that: (a) the Plan Fiduciary has
considered an investment in the Trust for such Plan in light of the risks
relating thereto; (b) the Plan Fiduciary has determined that, in view of such
considerations, the investment in the Trust for such Plan is consistent with
the Plan Fiduciary's responsibilities under ERISA; (c) the Plan's investment
in the Trust does not violate and is not otherwise inconsistent with the terms
of any legal document constituting the Plan or any trust agreement thereunder;
(d) the Plan's investment in the Trust has been duly authorized and approved
by all necessary parties; (e) none of the Managing Owner, any Advisor to the
Trust, the Selling Agents, any Clearing Broker, any broker through which any
Advisor requires the Trust to trade, the Trustee, any of their respective
affiliates or any of their respective agents or employees (i) has investment
discretion with respect to the investment of assets of the Plan used to
purchase Units, (ii) has authority or responsibility to or regularly gives
investment advice with respect to the assets of the Plan
SA-6
used to purchase Units for a fee and pursuant to an agreement or understanding
that such advice will serve as a primary basis for investment decisions with
respect to the Plan and that such advice will be based on the particular
investment needs of the Plan, or (iii) is an employer maintaining or
contributing to the Plan; and (f) the Plan Fiduciary (i) is authorized to
make, and is responsible for, the decision to invest in the Trust, including
the determination that such investment is consistent with the requirement
imposed by Section 404 of ERISA that Plan investments be diversified so as to
minimize the risk of large losses, (ii) is independent of the Managing Owner,
any Advisor to the Trust, the Selling Agent, any Correspondent Selling Agent,
any Clearing Broker and any of their respective affiliates, and (iii) is
qualified to make such investment decision. The undersigned understands that
the Managing Owner may request that the undersigned furnish the Managing Owner
with such information as the Managing Owner may reasonably require to
establish that the purchase of Units by the Plan does not violate any
provision of ERISA or the Code, including, without limitation, those
provisions relating to "prohibited transactions" by "parties in interest" or
"disqualified persons," as defined therein.
6. Risks. The Units are speculative and involve a high degree of risk.
Risks relating to the Units include: (i) you could lose all or substantially
all of your investment; (ii) the Trust is highly leveraged and trades in
volatile markets; (iii) performance can be extremely volatile; (iv)
substantial expenses must be offset by trading profits and interest income;
and (v) the Trust trades to a substantial degree on non-U.S. markets which are
not subject to the same degree of regulation as U.S. markets. See "The Risks
You Face" beginning on page 18 of the Prospectus.
READ AND COMPLETE REVERSE SIDE
SA-7
EXHIBIT D
PRIVACY NOTICE
This Privacy Policy Notice explains the manner in which Kenmar* collects,
utilizes and maintains non-public personal information about customers who are
individuals, as required under federal and other applicable law. Kenmar is
committed to protecting a customer's privacy and maintaining the
confidentiality and security of a customer's personal information.
Collection of Information. Kenmar collects non-public information about
customers from the following sources:
o Applications, questionnaires and other information provided by a
customer in writing, in person, by telephone, electronically or by
any other means. This information may include name, address,
e-mail address, employment information, and financial and
investment information;
o Kenmar-related transactions and investments, including account
balances, investments and withdrawals/redemptions; and
o If you visit Kenmar's web site, software is used to collect
anonymous data such as browser types, pages visited, and date of
visit. Kenmar uses this data to better understand web site usage
and to improve its web site. The information is stored in log
files and is used for aggregated and statistical reporting. This
log information is not linked to personally identifiable
information gathered elsewhere on the site.
Use and Disclosure of Information. Kenmar uses personal information in ways
compatible with the purposes for which we originally requested it. Kenmar does
not disclose non-public personal information about customers to affiliates or
nonaffiliated third parties except in limited circumstances as required or
permitted by law. For example, we may share non-public personal information
about customers with affiliated and nonaffiliated parties in the following
situations, among others: in connection with the administration and operations
of Kenmar and/or to service your account(s), or to provide services or process
transactions that you have requested, with Kenmar's brokers, custodians,
administrators, attorneys, accountants, auditors, or other service providers;
to respond to a subpoena or court order, judicial process or regulatory
inquiry; to protect or defend against fraud, unauthorized transactions (such
as money laundering), law suits, claims or other liabilities; to protect the
security of our records, or to protect our rights or property; in connection
with a proposed or actual sale, merger, or transfer of all or a portion of
Kenmar's business; to otherwise assist Kenmar in offering Kenmar-related
products and services to customers; at a customer's direction/consent, with
the customer's representatives, advisors and other third parties.
Kenmar restricts access to your personal and account information to those
employees who need to know that information to provide products and services
to you. Kenmar maintains appropriate physical, electronic and procedural
safeguards to guard your non-public personal information.
Kenmar's Privacy Policy also applies to former customers. Kenmar reserves the
right to change its Privacy Policy at any time. The examples above are
illustrations and are not intended to be exclusive. Kenmar's Privacy Policy
complies with federal law regarding privacy--you may have additional rights
under other foreign or domestic laws that may apply to you.
If you have any questions, please call Kenmar's Investor Services and
Communications at 914-307-4000 or send a letter to Kenmar, Attention: Investor
Services, 900 King Street, Suite 100, Rye Brook, NY 10573.
___________________
* "Kenmar" or "we" means (i) collectively, Kenmar Securities Inc.,
Preferred Investment Solutions Corp., Kenmar IA Corp., Kenmar GIM Inc.,
Kenmar Global Strategies, Inc., Kenmar Investment Adviser LLC and Kenmar
Global Investment Management LLC (ii) private and public investment
funds/pools advised by Kenmar (including the Trust) and (iii) their
affiliates.
SA-1
Important Privacy Choices for California Consumers
You have the right to control whether Kenmar shares some of your personal
information. Please read the following information carefully before you make
your choices below.
Your Rights
You have the following rights to restrict the sharing of personal and
financial information with our affiliates (companies we own or control) and
outside companies that we do business with. Nothing in this form prohibits the
sharing of information necessary for us to follow the law, as permitted by
law, or to give you the best service on your accounts with us. This includes
sending you information about some other products or services.
Your Choices
Restrict Information Sharing With Companies We Own or Control (Affiliates):
Unless you say "No," we may share personal and financial information about you
with our affiliated companies.
(___) NO, please do not share personal and financial information with your
affiliated companies.
Restrict Information Sharing With Other Companies We Do Business With To
Provide Financial Products And Services:
Unless you say "No," we may share personal and financial information about you
with outside companies we contract with to provide financial products and
services to you. As a practical matter, it may be impossible to provide
products and services to you if we cannot share your personal and financial
information with such service providers to your account.
(___) NO, please do not share personal and financial information with outside
companies you contract with to provide financial products and services.
Restrict Information Sharing With Other Companies That Do Not Provide Products
and Services To You:
Unless you say "Yes" we may not share personal and financial information about
you with outside companies who do not provide financial products and services
to you.
(___) YES, I authorize you to share personal and financial information with
outside companies who do not provide financial products and services to you.
Time Sensitive Reply
You may make your privacy choice(s) at any time. Your choice(s) marked here or
otherwise indicated to us will remain unless you state otherwise. However, if
we do not hear from you we may share some of your information with affiliated
companies and other companies with whom we have contracts to provide products
and services.
To exercise your choices or to modify any of your prior choices do one of the
following: (1) Fill out, sign and send back this form to us using the envelope
provided (you may want to make a copy for your records); or (2) call Kenmar
Investor Services at 914-307-4000 to communicate the information to us.
Print Name: ______________________________
Signature: ___________________________ Date: _____________________
P-1
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following expenses reflect the estimated amounts in connection with
the issuance and distribution of the Units hereunder.
Approximate
Amount
-----------
Securities and Exchange Commission Registration Fee................ $ 50,000
National Association of Securities Dealers, Inc. Filing Fee........ 30,500
Printing Expenses.................................................. 85,000
Fees of Certified Public Accountants............................... 70,000
Blue Sky Expenses (Excluding Legal Fees)........................... 50,000
Fees of Counsel.................................................... 1,178,000
Miscellaneous Offering Costs....................................... 180,000
-----------
Total........................................................... $1,643,500
==========
____________________
Item 14. Indemnification of Directors and Officers.
Section 4.7 of the Second Amended and Restated Declaration of
Trust and Trust Agreement (attached as Exhibit A to the prospectus which forms
a part of this Registration Statement and, as amended from time to time)
provides for the indemnification of the Managing Owner. The Managing Owner
(including Covered Persons as provided under the Declaration of Trust and
Trust Agreement) shall be indemnified by the Trust against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with its activities for the Trust, provided that
(i) the Managing Owner was acting on behalf of or performing services for the
Trust and has determined, in good faith, that such course of conduct was in
the best interests of the Trust and such liability or loss was not the result
of negligence, misconduct, or a breach of the Trust Agreement on the part of
the Managing Owner and (ii) any such indemnification will only be recoverable
from the Trust Estate (as such term is defined in the Declaration of Trust and
Trust Agreement). All rights to indemnification permitted therein and payment
of associated expenses shall not be affected by the dissolution or other
cessation to exist of the Managing Owner, or the withdrawal, adjudication of
bankruptcy or insolvency of the Managing Owner, or the filing of a voluntary
or involuntary petition in bankruptcy under Title 11 of the U.S. Code by or
against the Managing Owner. The source of payments made in respect of
indemnification under the Trust Agreement shall be the assets of each Series
on a pro rata basis, as the case may be.
Item 15. Recent Sales of Unregistered Securities.
On October 5, 2004, the Registrant sold 10 Units of each of Series
G, Series H and Series I to the Managing Owner for $3,000. On March 10, 2005,
the Registrant sold 10 Units of the Series J to the Managing Owner for $1,000.
No underwriting discount or sales commission was paid or received with respect
to these sales. The Registrant claims an exemption from registration for this
transaction based on Section 4(2) of the Securities Act of 1933, as amended,
as a sale by an issuer not involving a public offering.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits (unless otherwise indicated) are filed
herewith and made a part of this Registration Statement:
Exhibit
Number Description of Document
- ------ -----------------------
1.1 Form of Selling Agreement*
4.1 Second Amended and Restated Declaration of Trust and Trust Agreement
of the Registrant (annexed to the Prospectus as Exhibit A) Form of
Request for Redemption (annexed to Exhibit A) Form of Exchange
Request for Class I Units of Beneficial Ownership (annexed to
Exhibit A) Form of Exchange Request for Class II Units of Beneficial
Ownership (annexed to Exhibit A)
4.2 Subscription Requirements (annexed to the Prospectus as Exhibit B)
4.3 Subscription Instructions, Form of Subscription Agreement and Power
of Attorney (annexed to the Prospectus as Exhibit C)
4.4 Form of Privacy Notice (annexed to the Prospectus as Exhibit D)
5.1 Opinion of Richards, Layton & Finger as to legality*
8.1 Opinion of Sidley Austin LLP as to income tax matters*
10.1 Form of Subscription Escrow Agreement*
10.2 Form of Advisory Agreement among WMT III Series G/J Trading Vehicle
LLC, Preferred Investment Solutions Corp. (the "Managing Owner") and Graham
Capital Management, L.P. *
10.3 Form of Advisory Agreement among WMT III Series H/J Trading Vehicle
LLC, the Managing Owner and Bridgewater Associates, Inc. *
10.4 Form of Advisory Agreement among WMT III Series I/J Trading Vehicle
LLC, the Managing Owner and Eagle Trading Systems Inc. *
10.5 Form of Customer Agreement between the World Monitor Trust III and
UBS Securities LLC*
23.1 Consent of Deloitte & Touche LLP, Independent Registered Public
Accounting Firm, is included as part of Registration Statement
23.2 Consent of Arthur F. Bell, Jr. & Associates, L.L.C., Independent
Registered Public Accounting Firm, is included as part of Registration
Statement
23.3 Consent of Sidley Austin LLP is included as part of Registration
Statement
23.4 Consent of Richards, Layton & Finger is included as part of Exhibit
5.1*
23.5 Consent of Sidley Austin LLP as tax counsel is included as part of
Registration Statement*
(b) The following financial statements are included in the Prospectus:
II-2
(1) World Monitor Trust III- Series G
Report of Independent Registered Public Accounting Firm
(Deloitte & Touche LLP)
Report of Independent Registered Public Accounting Firm
(Arthur F. Bell, Jr. & Associates, L.L.C.)
Statements of Financial Condition as of December 31, 2005 and 2004
Statement of Operations for the period December 1, 2005 (commencement of
operations) to December 31, 2005
Statement of Changes in Unitholders' Capital for the Year Ended
December 31, 2005 122
Notes to Financial Statements
(2) WMT III Series G/J Trading Vehicle LLC
Independent Auditors' Report
Statement of Financial Condition as of December 31, 2005
Condensed Schedule of Investments as of December 31, 2005
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Members' Capital (Net Asset Value) for the period
December 1, 2005 (commencement of operations) to December 31, 2005
Notes to Financial Statements
(3) World Monitor Trust III- Series H
Report of Independent Registered Public Accounting Firm
(Deloitte & Touche LLP)
Report of Independent Registered Public Accounting Firm
(Arthur F. Bell, Jr. & Associates, L.L.C.)
Statements of Financial Condition as of December 31, 2005 and 2004
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Unitholders' Capital for the Year Ended
December 31, 2005
Notes to Financial Statements
(4) WMT III Series H/J Trading Vehicle LLC
Independent Auditors' Report
Statement of Financial Condition as of December 31, 2005
Condensed Schedule of Investments as of December 31, 2005
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Members' Capital (Net Asset Value) for the period
December 1, 2005 (commencement of operations) to December 31, 2005
Notes to Financial Statements
(5) World Monitor Trust III- Series I
Report of Independent Registered Public Accounting Firm
(Deloitte & Touche LLP)
Report of Independent Registered Public Accounting Firm
(Arthur F. Bell, Jr. & Associates, L.L.C.)
Statements of Financial Condition as of December 31, 2005 and 2004
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Unitholders' Capital for the Year Ended
December 31, 2005
Notes to Financial Statements
(6) WMT III Series I/J Trading Vehicle LLC
Independent Auditors' Report
Statement of Financial Condition as of December 31, 2005
II-3
Condensed Schedule of Investments as of December 31, 2005
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Members' Capital (Net Asset Value) for the period
December 1, 2005 (commencement of operations) to December 31, 2005
Notes to Financial Statements
(7) World Monitor Trust III- Series J
Report of Independent Registered Public Accounting Firm
Statement of Financial Condition as of December 31, 2005
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Unitholders' Capital for the Year Ended
December 31, 2005
Notes to Financial Statements
(8) WMT III Series G/J Trading Vehicle LLC
Independent Auditors' Report
Statement of Financial Condition as of December 31, 2005 Condensed
Schedule of Investments as of December 31, 2005
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Members' Capital (Net Asset Value) for the period
December 1, 2005 (commencement of operations) to December 31, 2005
Notes to Financial Statements
(9) WMT III Series H/J Trading Vehicle LLC
Independent Auditors' Report
Statement of Financial Condition as of December 31, 2005
Condensed Schedule of Investments as of December 31, 2005
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Members' Capital (Net Asset Value) for the period
December 1, 2005 (commencement of operations) to December 31, 2005
Notes to Financial Statements
(10) WMT III Series I/J Trading Vehicle LLC
Independent Auditors' Report
Statement of Financial Condition as of December 31, 2005
Condensed Schedule of Investments as of December 31, 2005
Statement of Operations for the period December 1, 2005 (commencement
of operations) to December 31, 2005
Statement of Changes in Members' Capital (Net Asset Value) for the period
December 1, 2005 (commencement of operations) to December 31, 2005
Notes to Financial Statements
(11) Preferred Investment Solutions Corp. (formerly Kenmar Advisory Corp.)
Independent Auditor's Report
Statement of Financial Condition as of December 31, 2005 (Audited)
Notes to Statement of Financial Condition (Audited)
Independent Auditor's Report
Statement of Financial Condition as of December 31, 2004 (Audited)
II-4
Notes to Statement of Financial Condition (Audited)
_____________________
* Previously filed as like-numbered exhibit to the initial filing or the
second or third pre-effective amendment to Registration Statement on Form S-1
(No. 333- 119612) and incorporated by reference herein.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (ss.230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(A) Paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on
Form S-8 (ss. 239.16b of this chapter), and the information
required to be included in a post-effective amendment by
those paragraphs is contained in reports filed with or
furnished to the Commission by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78o(d)) that are incorporated by
reference in the registration statement; and
(B) Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii)
of this section do not apply if the registration statement
is on Form S- 3 (ss. 239.13 of this chapter) or Form F- 3
(ss. 239.33 of this chapter) and the information required to
be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished
to the Commission by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement,
or is contained in a form of prospectus filed pursuant to
Rule 424(b) (ss. 230.424(b) of this chapter) that is part of
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the bona fide offering thereof.
II-5
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) That, for the purpose of determining liability under the
Securities Act of 1933 to any purchaser:
(i) If the registrant is subject to Rule 430C (ss. 230.430C
of this chapter), each prospectus filed pursuant to Rule 424(b) as
part of a registration statement relating to an offering, other
than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A (ss. 230.430A of this
chapter), shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as
to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
(5) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in the
initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering
of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications,
the undersigned registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424 (ss. 230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used or
referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about the
undersigned registrant or its securities provided by or on behalf
of the undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to officers, directors or controlling persons of
the registrant pursuant to the provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such
II-6
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by an officer, director, or
controlling person of the registrant in the successful defense of any such
action, suit or proceeding) is asserted by such officer, director or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Managing Owner of the Registrant has duly caused this Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in The County of Westchester in the State of New York on the 25th
day of April, 2006.
WORLD MONITOR TRUST III
By: Preferred Investment Solutions Corp.
Managing Owner
By: /s/MARC S. GOODMAN
-----------------------------------
Marc S. Goodman
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed below by the following
persons on behalf of the Managing Owner of the Registrant in the capacities
and on the date indicated.
Signature Title with Registrant Date
--------- --------------------- ----
/s/KENNETH A. SHEWER Chairman
- --------------------------- Co-Chief Executive Officer April 25, 2006
Kenneth A. Shewer
/s/MARC S. GOODMAN Co-Chief Executive Officer and
- --------------------------- President April 25, 2006
Marc S. Goodman
/s/ESTHER E. GOODMAN Chief Operating Officer and
- --------------------------- Senior Executive Vice President April 25, 2006
Esther E. Goodman
/s/MAUREEN D. HOWLEY Chief Financial Officer and
- --------------------------- Senior Vice President April 25, 2006
Maureen Howley
/s/DAVID K. SPOHR Vice President and Director of Fund
- --------------------------- Administration April 25, 2006
David K. Spohr
(Being principal executive officer, the principal financial and
accounting officer and a majority of the directors of Preferred Investment
Solutions Corp.)
PREFERRED INVESTMENT
SOLUTIONS CORP.
Managing Owner Of Registrant
By: /s/MARC S. GOODMAN
------------------
Marc S. Goodman April 25, 2006
Co-Chief Executive Officer
II-8
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Westchester in the
State of New York on the 25th day of April, 2006.
WMT III SERIES G/J TRADING VEHICLE LLC
By: World Monitor Trust III - Series G, a member
By: Preferred Investment Solutions Corp., managing
owner
By: /s/MARC S. GOODMAN
----------------------------------------
Marc S. Goodman
Co-Chief Executive Officer
By: World Monitor Trust III - Series J, a member
By: Preferred Investment Solutions Corp., managing
owner
By: /s/MARC S. GOODMAN
----------------------------------------
Marc S. Goodman
Co-Chief Executive Officer
WMT III SERIES H/J TRADING VEHICLE LLC
By: World Monitor Trust III - Series H, a member
By: Preferred Investment Solutions Corp., managing
owner
By: /s/MARC S. GOODMAN
-----------------------------------
Marc S. Goodman
Co-Chief Executive Officer
By: World Monitor Trust III - Series J, a member
By: Preferred Investment Solutions Corp., managing
owner
By: /s/MARC S. GOODMAN
-----------------------------------
Marc S. Goodman
Co-Chief Executive Officer
WMT III SERIES I/J TRADING VEHICLE LLC
By: World Monitor Trust III - Series I, a member
By: Preferred Investment Solutions Corp., managing
owner
By: /s/MARC S. GOODMAN
-----------------------------------
Marc S. Goodman
Co-Chief Executive Officer
By: World Monitor Trust III - Series J, a member
By: Preferred Investment Solutions Corp., managing
owner
By: /s/MARC S. GOODMAN
-----------------------------------
Marc S. Goodman
Co-Chief Executive Officer
II-9