10-K 1 efc5-0919_5682399form10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K ------------ FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 Commission File Number 333-9898 ------------------------------- KENMAR GLOBAL TRUST ----------------------------------------- (Exact Name of Registrant as Specified in Its Charter) DELAWARE 06-6429854 ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) c/o Preferred Investment Solutions Corp. 51 Weaver Street Building One South, 2nd Floor Greenwich, Connecticut 06831 ------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (203) 861-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Beneficial Interest ------------------------------------ (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes [ ] No [X] None of the voting securities of the Registrant are held by Non-Affiliates of the Registrant.
TABLE OF CONTENTS ----------------- Page ---- PART I ITEM 1. BUSINESS.................................................................................................1 ITEM 2. PROPERTIES...............................................................................................6 ITEM 3. LEGAL PROCEEDINGS........................................................................................6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS...........................................................6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES......................................................7 ITEM 6. SELECTED FINANCIAL DATA..................................................................................7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................................................................8 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................10 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...................................................................11 ITEM 9A. CONTROLS AND PROCEDURES................................................................................12 ITEM 9B. OTHER INFORMATION......................................................................................12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................................................12 ITEM 11. EXECUTIVE COMPENSATION.................................................................................15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS............................................................16 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................16 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.................................................................17 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.............................................................17 SIGNATURES
i PART I ITEM 1. BUSINESS (a) General Development of Business: Kenmar Global Trust (the "Fund") is a Delaware business trust that operates as a commodity investment pool. The Fund was formed on July 17, 1996 and commenced trading on May 22, 1997. The Fund maintains its principal office at 51 Weaver Street, Building One South, 2nd Floor, Greenwich, Connecticut 06831, with a telephone number of (203) 861-1000. The proceeds of the offering of the Units are used by the Fund to engage in the speculative trading of futures, forward, options and related contracts through allocating such proceeds to multiple commodity trading advisors (the "Advisors"). The assets of the Fund are deposited with commodity brokers and interbank dealers (collectively, the "Clearing Brokers") in trading accounts established by the Fund for the Advisors and are used by the Fund as margin to engage in trading. Units of beneficial interest are offered for sale as of the last day of each month at the then-current Net Asset Value per Unit. The minimum investment is $5,000, except for (i) trustees or custodians of eligible employee benefit plans and individual retirement accounts and (ii) existing holders of Units ("Unitholders") subscribing for additional Units, in which case the minimum investment is $2,000. Investors receive a Prospectus that sets forth the material terms of the investment. The Prospectus is updated every nine (9) months or upon any material change (whichever is sooner), as required by the Regulations promulgated under the Commodity Exchange Act, as amended (the "CEAct"), and is filed with the National Futures Association (the "NFA") and the Commodity Futures Trading Commission (the "CFTC") in compliance with such Regulations. The Fund's managing owner is Preferred Investment Solutions Corp. (previously Kenmar Advisory Corp.) ("Preferred"), a corporation originally organized as a New York corporation in September 1983 and reorganized as a Connecticut corporation on January 1, 1996. Preferred is owned equally and indirectly by Kenneth A. Shewer and Marc S. Goodman, the sole directors of Preferred. The Fund itself does not have any employees. Rather, Preferred employs 38 persons (as of December 31, 2004) and provides the Fund with the services of research, client support (marketing) and management information systems and analysis personnel to conduct its operational activities. The Fund is managed by Preferred. Preferred: (i) selects the Fund's Clearing Brokers and Selling Agents and selects and monitors the Advisors; (ii) allocates and/or reallocates Fund assets among the Advisors; (iii) determines if an Advisor should be removed or replaced; (iv) negotiates advisory fees; and (v) performs such other services as Preferred believes that the Fund may from time to time require. (b) Financial Information about Industry Segments: The Fund's business constitutes only one segment for financial reporting purposes, i.e., a commodity investment pool. (c) Narrative Description of Business: General ------- Preferred believes that the most effective means of controlling the risks of the Fund's futures, forward and options trading is through a diversified portfolio of Advisors. An important part of this strategy focuses on controlling risk by combining Advisors who employ diverse trading methodologies -- such as technical, fundamental, systematic, trend-following, discretionary or mathematical -- and who exhibit diverse performance characteristics. The objective of this strategy is to construct a portfolio of Advisors whose combined performance best meets the investment aim of the Fund to achieve superior returns within appropriately defined parameters of risk. The process of selecting Advisors is an ongoing one--Preferred continuously analyzes qualitatively and quantitatively the performance and trading characteristics of the current and prospective Advisors in an effort to determine which Advisors are best suited to Preferred's perception of the current market environment. Based upon such continuing analysis, Preferred will reallocate assets among the Advisors or change the portfolio of Advisors when Preferred's perception of the trading environment or an Advisor's individual performance indicates to Preferred that such change or changes are appropriate. Preferred believes that its ability to manage successfully the risks of futures and related investments is dependent upon a willingness to act decisively and a management style that identifies and responds to shifting market trends. Therefore, when Preferred's perception of market conditions and/or individual Advisor performance suggests that an alternative trading style or methodology might be better suited to Preferred's perception of the current market environment, Preferred may alter the portfolio of Advisors or the allocation of assets among the Advisors without prior notice to, or the approval of, the Unitholders. Advisor Summaries ----------------- Set forth below is a brief description of the portfolio of core-Advisors trading for the Fund as of December 31, 2004. Graham Capital Management, L.P. Graham Capital Management, L.P. ("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. KGT, Inc. and KGT Investment Partnership, L.P. are registered principals of GCM. (KGT, Inc. and KGT Investment Partners, L.P. are not affiliated with Preferred, the Fund or any other company affiliated or related to Preferred or the Fund.) 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. The registration of GCM with the CFTC and its membership in the National Futures Association must not be taken as an indication that any such agency or self-regulatory body has recommended or approved GCM. The current program used by GCM on behalf of the Fund is the K4 Program at 150% Leverage ("150% Leverage"). The Fund may also elect to have GCM utilize the K4 Program at Standard Leverage ("Standard Leverage") on behalf of the Fund. The Fund will not invest in both the Standard Leverage program and the 150% Leverage program simultaneously. 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. GCM offers clients various systematic and discretionary global macro trading programs and a long-short equity program. GCM uses systematic trading programs or models to produce trading signals on a largely automated basis when applied to market data. GCM also manages discretionary trading programs for which trades are determined subjectively on the basis of its traders' assessment of market conditions rather than through application of an automated system. GCM's long-short equity program applies a mean reversion strategy to several hundred large capitalization stocks. The investment objective of each GCM trading strategy is to provide clients with significant potential for capital appreciation in both rising and falling markets during expanding and recessionary economic cycles. Grinham Managed Funds Pty Ltd. Grinham Managed Funds Pty Ltd. ("Grinham") is an Australian commodity trading advisor licensed as a futures Broker by the Australian Securities Commission and was registered as a commodity trading advisor and was approved for membership in the NFA on February 26, 1997. Grinham utilizes an automated, technical trading system. The basic premise of the system is that markets incorporate a random and non-random component. The 2 Grinham system is designed to identify when markets begin to move in a non-random fashion and to generate orders to profit from non-random price movements. The registration of Grinham with the CFTC and its membership in the National Futures Association must not be taken as an indication that any such agency or self-regulatory body has recommended or approved Grinham. Grinham trades the Diversified Managed Accounts Program on behalf of the Fund. Grinham trades 45 markets across 7 countries, incorporating most of the major stock indices, interest rates, currency and commodities markets. Risk control is a major fundamental of the system, utilizing diversification to limit the risk of any single trade to less than 0.1% of the assets under management although Grinham cannot ensure that the risk or any one trade will not exceed this amount. Transtrend B.V. Transtrend, B.V. ("Transtrend") is a Dutch limited liability company formed in November 1991 to provide commodity trading advisory services to selected clients. It has been registered as a commodity trading advisor and commodity pool operator under the CEAct since September 23, 1994, and is a member of the NFA in such capacities. Transtrend is also licensed as a portfolio manager, and is subject to regulation by the Autoriteit Financiele Markten ("AFM"), the securities board of The Netherlands. Registration under the CEAct, membership in the NFA and the AFM license in no way imply that the CFTC, the NFA or the AFM have endorsed Transtrend's qualifications to provide the commodity trading advisory services described herein. In its Diversified Trend Program, traded on behalf of the Fund, Transtrend applies a combination of well researched trading systems. Each trading system has a demonstrated profit expectancy over the course of time. In particular, the trading systems attempt to exploit non-random price behaviors based on quantitative analysis of (typical) price patterns. The trading systems are consistent, systematic and applied with skill and discipline. The systems can be applied to well over a hundred different product-market-combinations traded on approximately fifty exchanges in approximately twenty-five countries. Diversified portfolios consist of a variety of futures broadly spread over interest instruments, stock indices, tangible commodities and Foreign Exchange pairs. Correlation analysis contributes to a desired portfolio balance. Volatility analysis plays a prominent role in the assessment of risk. Compatibility between trading systems and the markets they are applied to is monitored closely. Multiple entries and exits contribute to the desired stability of returns. Use of Proceeds --------------- The proceeds of the offering of the Units are used by the Fund to engage in the speculative trading of futures, forward, options and related markets through allocating such proceeds to the Advisors. To the extent the Fund trades in futures contracts on U.S. exchanges, the assets deposited by the Fund with its Clearing Brokers as margin must be segregated pursuant to the regulations of the CFTC. Such segregated funds may be invested only in a limited range of instruments -- principally U.S. government obligations. To the extent that the Fund trades in futures, forward, options and related contracts on markets other than regulated U.S. futures exchanges, funds deposited to margin positions held on such exchanges are invested in bank deposits or in instruments of a credit standing generally comparable to those authorized by the CFTC for investment of "customer segregated funds," although applicable CFTC rules prohibit funds employed in trading on foreign exchanges from being deposited in "customer segregated fund accounts." Although the percentages set forth below may vary substantially over time, as of December 31, 2004 the Fund estimates: 3 (i) up to approximately 70% of the Net Asset Value of the Fund is placed with the Clearing Brokers in the form of cash or U.S. Treasury bills to margin positions of all commodities combined. Such funds will be segregated pursuant to CFTC rules; (ii) approximately 30% of the Net Asset Value of the Fund is maintained in cash management, bank deposits or U.S. Treasury and U.S. Government Agencies issues. Fund assets maintained in bank deposits are currently maintained with Brown Brothers Harriman & Co. in New York, New York and Georgetown, Grand Cayman Island. Sentinel Management Group, Inc., a registered investment adviser, will be responsible for the cash management activities of the Fund, including investing in U.S. Treasury and U.S. Government Agencies issues. In addition, assets of the Fund not required to margin positions may be maintained in United States bank accounts opened in the name of the Fund and may be held in U.S. Treasury bills (or other securities approved by the CFTC for investment of customer funds). The Fund receives all of the interest income earned on its assets. Breakeven Table as of December 31, 2004 --------------------------------------- The "Breakeven Table" below indicates the approximate percentage and dollar returns required for the redemption value of an initial $5,000 investment in the Units to equal the amount originally invested twelve months after issuance (assuming the Units are purchased on and after June 1, 2004 and redeemed on the 10th through the 12th month-end following sale and, therefore, are subject to a 0.875% redemption charge). The "Breakeven Table," as presented, is an approximation only and may be affected to a certain extent as the size of the Fund exceeds $25 million. The Fund's capitalization does not directly affect the level of its charges as a percentage of Net Asset Value, other than (i) administrative expenses (which are assumed in the "Breakeven Table" to equal the maximum estimated percentage of the Fund's average beginning of month Net Assets) and (ii) Brokerage Commissions, as described further in footnote 3. See "Description of Current Charges" below for an explanation of these charges.
"Breakeven Table" -------------------------------------------------------------- ------------------------- ----------------------------- Expenses (1) Percentage Return Dollar Return Which must Be Offset Required Required To "Breakeven" First Twelve Months ($5,000 Initial of Investment Investment) First Twelve Months of Investment -------------------------------------------------------------- ------------------------- ----------------------------- Brokerage Commissions (2) (3) 10.00% $500.00 -------------------------------------------------------------- ------------------------- ----------------------------- Administrative Expenses (4) 0.75% $37.50 -------------------------------------------------------------- ------------------------- ----------------------------- Advisors' Profit Shares (5) 2.00% $100.00 -------------------------------------------------------------- ------------------------- ----------------------------- Preferred Incentive Fee (6) 0.044% $2.20 -------------------------------------------------------------- ------------------------- ----------------------------- Redemption Charge (7)(8)(9) 0.883% $44.15 -------------------------------------------------------------- ------------------------- ----------------------------- Interest Income (10) (1.25)% $(62.50) -------------------------------------------------------------- ------------------------- ----------------------------- Return on $5,000 initial investment required for 12.427% $621.35 "breakeven" if Units are redeemed on or before the 12th month-end following sale. -------------------------------------------------------------- ------------------------- -----------------------------
4 Notes to "Breakeven Table" (1) The foregoing break-even analysis assumes that the Units have a constant month-end Net Asset Value. Calculations are based on $5,000 as the Net Asset Value per Unit. See "Description of Current Charges" below for an explanation of the expenses included in the "Breakeven Table." (2) Paid to Preferred each month. Preferred pays all floor brokerage, exchange, clearing and NFA fees, selling compensation, trailing commissions and Advisors' Consulting Fees from this amount. (3) Effective March 1, 2004, once Net Assets reach $25 million, the annual Brokerage Commission rate will be reduced to a blended rate for all Net Assets based on 10% of the first $25 million and 9% on any Net Assets over that amount. A reduction in the annual Brokerage Commission rate will reduce the percentage return required to breakeven. (4) Administrative expenses are paid as incurred. For this "Breakeven Table" such expenses are at historical amounts. (5) Profit Shares are calculated quarterly on the basis of each Advisor's individual performance, not the overall performance of the Fund. Consequently, it is not possible to determine the amount of Profit Shares, if any, that would be payable in a "breakeven" year. Preferred believes that 2.00% of average beginning of month Net Assets is a reasonable estimate for such Profit Shares, but the actual Profit Shares paid in a "breakeven" year could substantially exceed such estimate. (6) No Incentive Fee might, in fact, be due. See "Description of Current Charges -- Profit Shares and Incentive Fees" below. However, for purposes of the "Breakeven Table," the Incentive Fee has been estimated at 5% of the 0.883% gain referred to below. (7) Redemption charges for purposes of this "breakeven" analysis equal 0.883% of the initial $5,000 (0.875% of the $5,044.15 Net Asset Value required so that after subtraction of the 0.875% redemption charge, the investor would receive net redemption proceeds of $5,000). (8) For the purposes of this Breakeven Table, it has been assumed that Units have been purchased on or after June 1, 2004 and the redemption charge is based on the applicable redemption charge for Units redeemed on the 10th through 12th month-end. For Units redeemed on the 1st through 3rd month-end the redemption charge would be 3.5%; for Units redeemed on the 4th through 6th month-end the redemption charge would be 2.625%; and for Units redeemed on the 7th through 9th month-end the redemption charge would be 1.75%. (9) Units purchased from March 1 through and including May 1, 2004 are subject to the same redemption fee schedule described in the immediately preceding footnote, except that such Units are subject to a 3% redemption charge for Units redeemed on the 1st month-end through the 3rd month-end after sale. Units purchased prior to March 1, 2004, remain subject to redemption charges and may only be redeemed beginning on or after the end of the sixth month after sale. Through the end of the twelfth and eighteenth full months after their sale, Units purchased prior to March 1, 2004 will be subject to redemption charges equal to 3% and 2%, respectively, of the Net Asset Value per Unit as of the date of redemption. For the purposes of the Breakeven Table the applicable redemption charge for Units redeemed as of the twelfth month-end would be 3% and therefore the percentage return required to breakeven would be 14.65%. (10) Interest income is estimated based on current rates.
Description Of Current Charges ------------------------------ Recipient Nature Of Payment Amount Of Payment Preferred Brokerage Commissions Flat-rate monthly commissions of 0.83% of the Fund's beginning of month Net Assets (a 10% annual rate). Once Net Assets reach $25 million, the annual Brokerage Commission rate will be reduced to a blended rate for all Net Assets based on 10% of the first $25 million and 9% on any Net Assets over that amount. Such commissions cover all floor brokerage, exchange, clearing and NFA fees incurred in the Fund's trading. Counterparties "Bid-ask" spreads Each counterparty with which the Fund trades receives "bid-ask" spreads on the forward trades executed on behalf of the Fund. Advisors Profit Shares Paid by the Fund on a quarterly basis (although accrued against Net Asset Value per Unit monthly). Each Advisor's Profit Share is determined based on any New Trading Profit (as defined) generated by such Advisor. New Trading Profit in respect of each Advisor's account is calculated after reduction for Brokerage Commissions at an annual rate of 1.5% - 5.0%, rather than at a 10% annual rate (or, if Net Assets exceed $25 million, at the blended rate of 10% 5 for the first $25 million and 9% on any Net Assets over that amount), and execution costs actually incurred (other than floor brokerage, exchange, clearing and NFA fees). New Trading Profit is not reduced by any Incentive Fee, administrative expenses or organizational and initial offering costs (or extraordinary expenses). The Profit Shares are payable separately to each Advisor based on its individual performance, not overall profits of the Fund. Units may be subject to reduction for Profit Shares attributable to a particular Advisor even though the Net Asset Value per Unit has declined from the purchase price of such Units. Preferred Incentive Fee Paid by the Fund as a whole on an annual basis (although accrued against Net Asset Value per Unit monthly). The Incentive Fee equals 5% of any New Overall Appreciation (as defined). An Incentive Fee may be allocated even though the Net Asset Value per Unit has declined from the purchase price of such Units. Third Parties Operating, Selling and Paid as incurred; not anticipated to exceed 0.75% of Administrative costs (including the Fund's average beginning of month Net Assets per year. miscellaneous execution costs)
Regulation ---------- Preferred, the Advisors and the Clearing Brokers are each subject to regulation by the CFTC and the NFA. Other than in respect of its periodic reporting requirements and the registration of the Units for continuous public distribution under the Securities Act of 1933, the Fund itself is generally not subject to regulation by the Securities and Exchange Commission. ITEM 2. PROPERTIES The Fund does not use any physical properties in the conduct of its business. The Fund's only place of business is the place of business of Preferred. Certain administrative services are provided by Derivatives Portfolio Management L.L.C. which is located at Two Worlds Fair Drive, P.O. Box 6741, Somerset, New Jersey 08875-6741. ITEM 3. LEGAL PROCEEDINGS There are no material proceedings pending to which the Fund or Preferred is a party or of which any of their properties is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS The Fund has never submitted any matters to a vote of its Unitholders. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Related Unitholder Matters -------------------------- (a) Market Information: (1)(i) There is no established public trading market for the Units, nor will one develop. Rather, Unitholders may purchase or redeem Units as of the end of each month at Net Asset Value, subject to certain early redemption charges. (b) Holders: (1) As of December 31, 2004, there were 802 holders of Units, including Preferred and the Advisors. As of December 31, 2004, Marc S. Goodman owned 52.8321 Units in his individual retirement account, Kenneth A. Shewer owned 50.2517 Units in his individual retirement account and Preferred owned 2,409.1584 Units. (c) Dividends: (1) The Fund has made no distributions since trading commenced, nor does Preferred presently intend to make any distributions in the future. (d) Securities Authorized for Issuance Under Equity Compensation Plans: (1) Not applicable. Reg. S-K Item 701(a) -------------------- During the fourth quarter of 2004, 1,993.6880 Units were sold for a total of $209,815. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data of the Fund has been derived from the Fund's audited financial statements.
Year ended Year ended Year ended Year ended Year ended 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 -------- -------- -------- -------- -------- Operations Data Realized Gains (Losses) $ 2,517,436 $ 3,085,074 $ 4,672,380 $ 2,479,061 $ (14,413) Change in Unrealized (802,457) (25,999) 631,477 (584,140) 960,207 Interest Income 380,892 127,729 170,849 517,609 1,129,270 Brokerage Commissions 264,647 232,081 184,293 239,616 312,560 Managing Owner Brokerage Commissions 2,082,064 2,009,917 1,647,208 1,566,968 1,911,158 Managing Owner Incentive fee 0 0 0 0 0 Advisor Profit Shares 295,261 507,299 934,498 465,428 198,721 Operating Expenses 163,402 153,200 139,531 99,383 132,875 Net Income (Loss) (709,503) 284,307 2,569,176 41,135 (480,250) 7 Net Income (Loss) Per Unit (3.20) 1.47 15.20 0.24 (2.29) (Based on Weighted Average Number of Units Outstanding) Increase (Decrease) in Net Asset (2.98) 0.25 14.29 (0.53) (2.57) Value per Unit 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 -------- -------- -------- -------- -------- Financial Position Data: Managing Owner's Capital $ 260,285 $ 257,247 $226,137 $196,966 $195,013 Other Unitholders' Capital 22,380,314 24,274,508 19,168,078 15,928,413 17,537,051 Total Capital 22,640,599 24,531,755 19,394,215 16,125,379 17,732,064 Net Asset Value Per Unit 108.04 111.02 $110.77 96.48 97.01
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The proceeds of the offering of the Units are used by the Fund to engage in the speculative trading of futures, forward, options and related contracts through allocating such proceeds to the Advisors. The assets of the Fund are deposited with the Clearing Brokers in trading accounts established by the Fund for the Advisors and are used by the Fund as margin to engage in trading. Such assets are held in either a non-interest bearing bank account or in securities approved by the CFTC for investment of customer funds. Critical Accounting Policies ---------------------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from those estimates. The Fund's significant accounting policies are described in detail in Note 1 of the Financial Statements. The market values of futures (exchange traded) contracts is verified by the administrator who obtains valuation data from third party data providers such as Bloomberg and Reuters and compares those prices with the Fund's broker. The market value of currency swap and forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 3 PM on the last business day of the reporting period. All values assigned by the administrator and confirmed by the Managing Owner are final and conclusive as to all unitholders. Results of Operations --------------------- The Fund incurs substantial charges from the payment of Profit Shares to the Advisors, the Incentive Fees and Brokerage Commissions to Preferred, and operating, selling, administrative and miscellaneous execution costs. Brokerage Commissions are payable upon the Net Asset Value of the Fund and are payable without regard to profitability of the Fund. As a result, it is possible that the Fund may incur a net loss when trading profits are not substantial enough to avoid depletion of the Fund's assets from such fees and expenses. Thus, due to the nature of the Fund's business, the success of the Fund is dependent upon the ability of the Advisors to generate trading profits through the speculative trading of futures, forward and option contracts sufficient to produce capital appreciation after payment of all fees and expenses. 8 The following paragraph presents a summary of the Fund's operations for the calendar year 2004. It is important to note, however, that (i) the Advisors trade in various markets at different times and that prior activity in a particular market does not mean that such markets will be actively traded by an Advisor or will be profitable in the future and (ii) the Advisors trade independently of each other using different trading systems and may trade different markets with various concentrations at various times. Consequently, the results of operations of the Fund can only be discussed in the context of the overall trading activities of the Fund, the Advisors' trading activities on behalf of the Fund as a whole and how the Fund has performed in the past. As of December 31, 2004, the Net Asset Value of the Fund was $22,640,599, a decrease of approximately 7.71% from its Net Asset Value of $24,531,755 at December 31, 2003. The Fund's subscriptions and redemptions for the year ended December 31, 2004 totaled $2,935,410 and $3,956,659, respectively. For the year ended December 31, 2004, the Fund had revenues comprised of $2,517,436 in realized trading gains, $(802,457) in change in unrealized trading losses and $380,892 in interest income. Total expenses and Brokerage Commissions for the year ended December 31, 2004 were $2,805,374. The Net Loss for the year ended December 31, 2004 was $(709,503). The Net Asset Value per Unit at December 31, 2004 decreased 2.69% from $111.02 at December 31, 2003 to $108.04 at December 31, 2004. The Fund's trading losses during 2004 resulted primarily from losses in the indices, metals and softs sectors offset by gains in the currencies, energy, grains and interest rate sectors. As of December 31, 2003, the Net Asset Value of the Fund was $24,531,755, an increase of approximately 26.49% from its Net Asset Value of $19,394,215 at December 31, 2002. The Fund's subscriptions and redemptions for the year ended December 31, 2003, totaled $8,278,861 and $3,187,628, respectively. For the year ended December 31, 2003, the Fund had revenues comprised of $3,085,074 in realized trading gains, $(25,999) in unrealized trading losses and $127,729 of interest income. Total expenses and Brokerage Commissions for the year ended December 31, 2003 were $2,902,497. The Net Income for the year ended December 31, 2003 was $284,307. The Net Asset Value per Unit increased 0.23% from $110.77 at December 31, 2002, to $111.02 at December 31, 2003. The Fund's positive performance for the year ended December 31, 2003 resulted primarily from currencies, global stock indices and metals. As of December 31, 2002, the Net Asset Value of the Fund was $19,394,215, an increase of approximately 20.27% from its Net Asset Value of $16,125,379 at December 31, 2001. The Fund's subscriptions and redemptions for the year ended December 31, 2002, totaled $3,163,416 and $2,354,126, respectively. For the year ended December 31, 2002, the Fund had revenues comprised of $4,672,380 in realized trading gains, $631,477 in unrealized trading gains and $170,849 of interest income. Total expenses and Brokerage Commissions for the year ended December 31, 2002 were $2,905,530. The Net Income for the year ended December 31, 2002 was $2,569,176. The Net Asset Value per Unit increased 14.81% from $96.48 at December 31, 2001, to $110.77 at December 31, 2002. The Fund's positive performance for the year ended December 31, 2002 resulted primarily from global interest rates, currencies and global stock indices. Past performance is not indicative of future results. As a result, any recent increases in realized or unrealized trading gains may have no bearing on any results that may be obtained in the future. Liquidity And Capital Resources ------------------------------- Units may be redeemed, at a Unitholder's option, as of the close of business on the last day of any month. Units purchased on and after June 1, 2004 are redeemed at Net Asset Value and are subject to redemption charges as follows: Units redeemed on the 1st month-end through the 3rd month-end after sale are subject to a 3.5% redemption charge, Units redeemed on the 4th month-end through the 6th month-end after sale are subject to a 2.625% redemption charge, Units redeemed on the 7th month-end through the 9th month-end after sale are subject to a 1.75% redemption charge and Units redeemed on the 10th through 12th month-end after sale are subject to a 0.875% redemption charge. After the end of the 12th month, there will be no charge for redemptions. Units purchased from March 1 through and including May 1, 2004 are subject to the same redemption fee schedule described in the immediately preceding paragraph, except that such Units are subject to a 3% redemption charge for Units redeemed on the 1st month-end through the 3rd month-end after sale. 9 Units purchased prior to March 1, 2004, remain subject to redemption charges and may only be redeemed beginning on or after the end of the sixth month after sale. Through the end of the twelfth and eighteenth full months after their sale, Units purchased prior to March 1, 2004 will be subject to redemption charges equal to 3% and 2%, respectively, of the Net Asset Value per Unit as of the date of redemption. The amount of capital raised for the Fund should not, except at extremely high levels of capitalization, have a significant impact on its operations. The Fund's costs are generally proportional to its asset base and, within broad ranges of capitalization, the Advisors' trading positions (and the resulting gains and losses) should increase or decrease in approximate proportion to the size of the Fund's account managed by each of them, respectively. The Fund raises additional capital only through the continuous offering of its Units. The Fund does not borrow, and sells no securities other than the Units. Inflation per se is not a significant factor in the Fund's profitability, although inflationary cycles can give rise to the type of major price movements that can have a materially favorable or adverse impact on the Fund's performance. With respect to the Fund's trading, in general, the Fund's Advisors will endeavor to trade only futures, forwards and options that have sufficient liquidity to enable them to enter and close out positions without causing major price movements. Notwithstanding the foregoing, most United States commodity exchanges limit the amount by which certain commodities may move during a single day by regulations referred to as "daily price fluctuation limits" or "daily limits." Pursuant to such regulations, no trades may be executed on any given day at prices beyond the daily limits. If the price for a particular contract has increased or decreased by an amount equal to the "daily limit," positions in such futures contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. The price of a futures contract has occasionally moved the daily limit for several consecutive days, with little or no trading, thereby effectively preventing a party from liquidating his position. While the occurrence of such an event may reduce or effectively eliminate the liquidity of a particular market, it will not limit ultimate losses and may in fact substantially increase losses because of this inability to liquidate unfavorable positions. In addition, if there is little or no trading in a particular futures or forward contract that the Fund is trading, whether such illiquidity is caused by any of the above reasons or otherwise, the Fund may be unable to execute trades at favorable prices and/or may be unable or unwilling to liquidate its position prior to its expiration date, thereby requiring the Fund to make or take delivery of the underlying interest of the commodity. In highly unusual circumstances, market illiquidity could make it difficult for certain Advisors to close out open positions, and any such illiquidity could expose the Fund to significant losses, or cause it to be unable to recognize unrealized gains. However, in general, there is no meaningful difference between the Fund's realized and unrealized gains. In terms of cash flow, it makes little difference whether a market position remains open (so that the profit or loss on such positions remains unrealized), as cash settlement of unrealized gains and losses occurs periodically whether or not positions are closed out. The only meaningful difference between realized and unrealized gains or losses in the case of the Fund is that unrealized items reflect gains or losses on positions which the Advisors have determined not to close out (presumably, in the hope of future profits), whereas realized gains or losses reflect amounts received or paid in respect of positions no longer being maintained. Off-Balance Sheet Arrangements ------------------------------ None. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements meeting the requirements of Regulation S-X appear beginning on Page F-1 of this report. The supplementary financial information specified by Item 302 of Regulation S-K appears herewith. 10 Selected Quarterly Financial Data --------------------------------- The following summarized quarterly financial information presents the results of operations for the three month periods ended March 31, June 30, September 30 and December 31, 2004 and 2003.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2004 2004 2004 2004 --------------- ----------------- ---------------- --------------- Gain (Loss) from trading $ 1,493,247 $(2,425,994) $ (357,942) $ 2,741,021 Net Investment (Loss) (692,863) (544,649) (450,228) (472,095) Net Income (Loss) 800,384 (2,970,643) (808,170) 2,268,926 Net Income (Loss) per unit 3.60 (13.03) (3.60) 10.70 Increase (Decrease) in Net Asset Value per Unit 3.46 (13.35) (3.66) 10.57 Net Asset Value per Unit at end of period 114.48 101.13 97.47 108.04 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2003 2003 2003 2003 --------------- ----------------- ---------------- ---------------- Gain (Loss) from trading $ 1,171,236 $ 916,963 $(1,028,023) $ 1,766,818 Net Investment (Loss) (657,529) (690,854) (517,055) (677,249) Net Income (Loss) 513,707 226,109 (1,545,078) 1,089,569 Net Income (Loss) per unit 2.92 1.20 (7.82) 5.11 Increase (Decrease) in Net Asset Value per Unit 2.21 0.92 (7.80) 4.92 Net Asset Value per Unit at end of period 112.98 113.90 106.10 111.02
There were no extraordinary, unusual or infrequently occurring items recognized in any quarter reported above, and the Fund has not disposed of any segments of its business. There have been no year-end adjustments that are material to the results of any fiscal quarter reported above. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure. 11 ITEM 9A. CONTROLS AND PROCEDURES Preferred Investment Solutions Corp., the Managing Owner of the Fund, with the participation of the Managing Owner's principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Fund as of the end of the period covered by this annual report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no changes in the Managing Owner's internal controls over financial reporting that occurred during our most recent fiscal quarter with respect to the Fund or in other factors applicable to the Fund that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a), (b) Identification of Directors and Executive Officers: Preferred Investment Solutions Corp. is the sole managing owner of the Fund. Preferred, a corporation originally organized as a New York corporation in September 1983 and reorganized as a Connecticut corporation on January 1, 1996, is owned equally and indirectly by Messrs. Shewer and Goodman. Kenneth A. Shewer is Preferred's Chairman, Co-Chief Executive Officer and Co-Investment Officer and Marc S. Goodman is its President, Co-Chief Executive Officer and Co-Investment Officer. Messrs. Shewer and Goodman are Preferred's sole directors. 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 and August 1, 1985, respectively. He has been Chairman of the Managing Owner since February 1984. Mr. Shewer was employed by Pasternak, Baum & Co., Inc. ("Pasternak, Baum"), an international cash commodity firm, from June 1975 until September 1983. Mr. Shewer created and managed Pasternak, Baum's Grain Logistics and Administration Department and created its Domestic Corn and Soybean Trading Department. In 1982, Mr. Shewer became co-manager of Pasternak, Baum's F.O.B. Corn Department. In 1983, Mr. Shewer was made Vice President and Director of Pasternak, Baum. Mr. Shewer graduated from Syracuse University with a B.S. degree in 1975. Mr. Marc S. Goodman (born 1948), has been a principal, associated person and NFA associate member of the Managing Owner since February 7, 1984, May 1, 1985 and August 1, 1985, respectively. He has been President of the Managing Owner since February 1984. Mr. Goodman joined Pasternak, Baum in September 1974 and was Vice President and Director from July 1981 until September 1983. While at Pasternak, Baum, Mr. Goodman was largely responsible for business development outside of the United States, for investment of its corporate retirement funds, and for selecting trading personnel. Mr. Goodman has conducted extensive business in South America, Europe and the Far East. Mr. Goodman graduated from the Bernard M. Baruch School of Business of the City University of New York with a B.B.A. in 1969 and an M.B.A. in 1971 in Finance and Investments, where he was awarded an Economics and Finance Department Fellowship from September 1969 through June 1971. Messrs. Shewer and Goodman left Pasternak, Baum in September 1983 to form Kenmar 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 has been Chief Operating Officer and Senior Executive Vice President of the Managing Owner since joining the Managing Owner in July 1986. Ms. Goodman has been involved in the futures industry since 1974. From 1974 through 1976, she was employed by 12 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 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 1974. Esther E. Goodman is married to Marc S. Goodman. Mr. Braxton Glasgow III (born 1953), has been a principal, associated person, branch manager and NFA associated person 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 in 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 commodity 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. 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 and is a Certified Public Accountant. Mr. Marc J. Oppenheimer (born 1957), has been a principal of the Managing Owner since February 16, 2005. He also serves as Executive Vice President of Kenmar Global Investment Management, Inc. Mr. Oppenheimer served as President and Chief Executive Officer of Crystallex International Corporation (AMEX: KRY) from February 1995 to September 2003 and served as its Vice Chairman from September 2003 to May 2004. He is currently a member of the Crystallex board of directors. From December 2002 to October 2003, Mr. Oppenheimer served as a director of IDT and currently serves as a Director for its telecom/VOIP unit Net2Phone. From 1991 to 1994, he served as Executive Vice President and Chief Financial Officer of Concord Camera Corp. (NASDAQ: LENS), a multi-national, publicly traded company. From 1990 to 1991 he served as Director for International Trade and Merchant Banking at Midlantic National Bank and from 1980 to 1985, Mr. Oppenheimer served as a lending officer in the International Commodity Financing Division of Chase Manhattan Bank, in the capacity of Assistant Treasurer and Second Vice President. Mr. Oppenheimer graduated with a BS with Honors in Management and Industrial Relations from New York University College of Business and Public Administration and an MBA with Honors in Finance from New York University's Graduate School of Business Administration. 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 and administration. 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 ("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 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 13 in 1992. Mr. Block's registration as a principal of the Managing Owner has been effective since March 17, 2005. His registration as an Associated Person of the Managing Owner is pending with the National Futures Association. 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 has been Senior Vice President and Director of Research of the Managing Owner since joining the Managing Owner in October 1999. Prior to joining the Managing Owner, 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 Master 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. Richard Horwitz (born 1953), Senior Vice President and Director of Risk Management and Performance Analytics, joined the Managing Owner in 2002. In that role, he has been developing proprietary risk transparency/risk management systems and collaborates on manager due diligence and analytics. Previously, Mr. Horwitz was a Principal at Capital Market Risk Advisors, Inc., a preeminent risk management consulting firm. For the prior eight years, he was a Senior Research Analyst and Principal at Sanford C. Bernstein & Co., Inc. During the previous six years, he was a Senior Associate at Booz Allen & Hamilton, Inc. where he focused on the financial services industries. Mr. Horwitz received an undergraduate degree in Electrical Engineering from MIT and a M.B.A. from the Sloan School of Management at MIT. Mr. Peter J. Fell (born 1960), has been a 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 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 a M.B.A. in Finance from Columbia University. 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 2002, respectively. He has been a Managing Director of the Managing Owner since joining the Managing Owner in January 2002. 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 14 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 ("GAM") where she was involved in the successful development and launch of 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. Each director of Preferred serves until the next annual meeting of stockholders or until a successor is elected. Executive officers of Preferred are appointed annually and serve at the discretion of its Board of Directors. Messrs. Shewer and Goodman hold directorships in the following entities, all of which are affiliates of Preferred: Kenmar Global Strategies Inc., Kenmar Holdings Inc., Kenmar Investment Adviser Corp., Kenmar Securities, Inc. and Kenmar Global Investment Management Inc. In addition, Mr. Shewer is a director of KAS Commodities Inc., Mr. Goodman is a director of MSG Commodities Inc. and both are managing members of Kenmar Greenwich Holdings LLC. (c) Identification of Certain Significant Employees: None. (d) Family Relationships: Mrs. Esther Eckerling Goodman is married to Mr. Marc S. Goodman. (e) Business Experience: See Item 10(a) and (b) above. (f) Involvement in Certain Legal Proceedings: None. (g) Promoters and Control Persons: Not applicable. (h) Audit Committee Financial Expert The Fund itself does not have any employees. Preferred acts as managing owner of the Fund. The Board of Directors of Preferred has delegated audit committee responsibilities to the Internal Controls and Disclosure Committee. Maureen Howley, as Chief Financial Officer of Preferred and as a member of the Internal Controls and Disclosure Committee, serves as the "audit committee financial expert" for Preferred. Ms. Howley is not a member of the Board of Directors and she is not independent of management. (i) Code of Ethics Preferred has adopted a code of ethics for its principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of the code of ethics may be obtained at no charge by written request to Preferred, 51 Weaver Street, Building One South, 2nd Floor, Greenwich, Connecticut 06831 or by calling (203) 861-1000. ITEM 11. EXECUTIVE COMPENSATION The Fund has no directors or executive officers. The business of the Fund is managed by Preferred which is responsible for the administration of the business affairs of the Fund and receives the compensation described in Item 1 hereof. 15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS Reg. S-K Item 201(d) -------------------- (a) Securities Authorized for Issuance Under Equity Compensation Plans: Not applicable. Reg. S-K Item 403 ----------------- (a) Security Ownership of Certain Beneficial Owners: As of December 31, 2004, no person or "group" is known to the registrant to be the beneficial owner of more than five percent of the Units. (b) Security Ownership of Management: As of December 31, 2004, the following officers of Preferred beneficially owned the following number of Units: Number Name and Address of Beneficial of Units Percentage of Owner Owned Class ----- ----- ----- Marc S. Goodman 52.8321 Less than 1% 51 Weaver Street, Building One South 2nd Floor Greenwich, Connecticut 06831 Kenneth A. Shewer 50.2517 Less than 1% 51 Weaver Street, Building One South 2nd Floor Greenwich, Connecticut 06831 As of December 31, 2004, Preferred has purchased and will maintain a 1% interest in the Fund in its capacity as managing owner. (c) Changes in Control: None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others: See "Item 11. Executive Compensation" and "Item 12. Security Ownership of Certain Beneficial Owners and Management." Preferred acts as managing owner and commodity pool operator. Certain administrative services are provided by Derivatives Portfolio Management L.L.C. The Fund pays its own administrative expenses. (b) Certain Business Relationships: None. (c) Indebtedness of Management: The Fund is prohibited from making any loans, to management or otherwise. 16 (d) Transactions with Promoters: Not Applicable. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The following table sets forth information with respect to services provided to us by Arthur F. Bell, Jr. & Associates, L.L.C., our independent certified public accountants, for the years ended December 31, 2004 and 2003. 2004 2003 Audit Fees billed for the year ................ $ 47,141 $ 43,036 Audit-Related Fees ............................ 0 0 Tax Fees ...................................... 6,145 5,500 All Other Fees ................................ 0 0 Total $ 53,286 $ 48,536 =========== =========== (a) Audit Fees. Consists of aggregate fees billed to us by Arthur F. Bell, Jr. & Associates, L.L.C. for each of the last two fiscal years for professional services rendered for the audit of our annual financial statements, review of our interim financial statements, and services that are normally provided in connection with statutory or regulatory filings or engagements, including consents and other services related to Securities and Exchange Commission matters. (b) Audit-Related Fees. Consists of aggregate fees billed to us by Arthur F. Bell, Jr. & Associates, L.L.C. for each of the last two fiscal years for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit Fees." (c) Tax Fees. Consists of aggregate fees billed to us by Arthur F. Bell, Jr. & Associates, L.L.C. for each of the last two fiscal years for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance and tax audit issues. (d) All Other Fees. Consists of other fees billed to us by Arthur F. Bell, Jr. & Associates, L.L.C. for each of the last two fiscal years for products and services other than the services reported above. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Form 10-K:
1. Independent Auditor's Report...........................................................................F-1 Statements of Financial Condition as of December 31, 2004 and 2003 (Audited)...........................F-2 Condensed Schedules of Investments as of December 31, 2004 and 2003 (Audited)..........................F-3 Statements of Operations For the Years Ended December 31, 2004, 2003 and 2002 (Audited)................F-4 Statements of Cash Flows For the Years Ended December 31, 2004, 2003 and 2002 (Audited)................F-5 17 Statements of Changes in Unitholders' Capital (Net Asset Value) For the Years Ended December 31, 2004, 2003 and 2002 (Audited).........................................................F-6 Notes to Financial Statements (Audited)...........................................................F-7-F-12
2. Exhibits. Exhibit Number Description of Document 3.1 Certificate of Formation of the Registrant. (Incorporated by reference to the Fund's Registration Statement on Form S-1, Registration No. 333-8869, dated July 25, 1996). 3.2 Declaration of Trust and Trust Agreement of the Registrant. (Incorporated by reference to the Fund's Registration Statement on Form S-1, Registration No. 333-8869, dated July 25, 1996). 3.3 Amended and Restated Declaration of Trust and Trust Agreement of the Registrant. (Incorporated by reference to the Fund's Registration Statement on Form S-1, Registration No. 333-8869, dated July 25, 1996). 10.1 Form of Advisory Agreement. (Incorporated by reference to the Fund's Registration Statement on Form S-1, Registration No. 333-8869, dated July 25, 1996). 10.2 Form of Customer Agreement between the Trust and the Commodity Brokers. (Incorporated by reference to the Fund's Registration Statement on Form S-1, Registration No. 333-8869, dated July 25, 1996). 10.3 Form of Escrow Agreement. (Incorporated by reference to the Fund's Registration Statement on Form S-1, Registration No. 333-8869, dated July 25, 1996). 10.4 Subscription Agreement and Power of Attorney. (Incorporated by reference to the Fund's Registration Statement on Form S-1, Registration No. 333-8869, dated July 25, 1996). 31.01 Certification of Kenneth A. Shewer, Co-Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934. 31.02 Certification of Maureen Howley, Senior Vice President and Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934. 32.01 Certification of Kenneth A. Shewer, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. 32.02 Certification of Maureen Howley, Senior Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 31st day of March, 2005. KENMAR GLOBAL TRUST By: Preferred Investment Solutions Corp., Managing Owner By: /s/Kenneth A. Shewer ---------------------------- Kenneth A. Shewer Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 31st day of March, 2005. KENMAR GLOBAL TRUST By: Preferred Investment Solutions Corp., Managing Owner By: /s/Kenneth A. Shewer ---------------------------- Kenneth A. Shewer Chairman and Director (Principal Executive Officer) By: /s/Maureen Howley ---------------------------- Maureen Howley Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer for the Fund) 19 KENMAR GLOBAL TRUST ANNUAL REPORT December 31, 2004 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Unitholders Kenmar Global Trust We have audited the accompanying statements of financial condition of Kenmar Global Trust, including the condensed schedules of investments, as of December 31, 2004 and 2003, and the related statements of operations, cash flows and changes in unitholders' capital (net asset value) for the years ended December 31, 2004, 2003 and 2002. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 Fund'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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kenmar Global Trust as of December 31, 2004 and 2003, and the results of its operations, cash flows and changes in its net asset values for the years ended December 31, 2004, 2003 and 2002, in conformity with U.S. generally accepted accounting principles. /s/ ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. Hunt Valley, Maryland March 9, 2005 F-1 KENMAR GLOBAL TRUST STATEMENTS OF FINANCIAL CONDITION December 31, 2004 and 2003 ---------------
2004 2003 ---- ---- ASSETS Equity in broker trading accounts Cash $16,186,328 $21,617,196 Unrealized gain on open contracts 409,172 1,082,839 ----------- ----------- Deposits with brokers 16,595,500 22,700,035 Cash and cash equivalents 6,613,238 2,334,203 Unrealized (loss) on open forward currency contracts (159,830) (31,040) Subscriptions receivable 0 30,000 ----------- ----------- Total assets $23,048,908 $25,033,198 =========== =========== LIABILITIES Accounts payable $ 35,826 $ 50,629 Commissions and other trading fees on open contracts 4,673 4,673 Managing Owner brokerage commissions 151,310 181,331 Advisor profit shares 123,925 156,471 Redemptions payable 91,091 107,914 Redemption charges payable to Managing Owner 1,484 425 ----------- ----------- Total liabilities 408,309 501,443 ----------- ----------- UNITHOLDERS' CAPITAL (Net Asset Value) Managing Owner - 2,409.1584 and 2,317.0232 units outstanding at December 31, 2004 and 2003 260,285 257,247 Other Unitholders - 207,148.9756 and 218,640.2418 units outstanding at December 31, 2004 and 2003 22,380,314 24,274,508 ----------- ----------- Total unitholders' capital (Net Asset Value) 22,640,599 24,531,755 ----------- ----------- $23,048,908 $25,033,198 =========== ===========
See accompanying notes. F-2 KENMAR GLOBAL TRUST CONDENSED SCHEDULES OF INVESTMENTS December 31, 2004 and 2003 ---------------
2004 2003 ----------------------------- --------------------------- LONG FUTURES CONTRACTS ---------------------- % of Net % of Net Description Value Asset Value Value Asset Value ----------- ----- ----------- ----- ----------- Agricultural $ 19,225 0.08 % $ 12,694 0.05 % Currency 17,393 0.08 % 297,693 1.21 % Energy 0 0.00 % (40,699) (0.16)% Interest rate 4,224 0.02 % 21,480 0.09 % Metals 201,425 0.89 % 757,821 3.09 % Stock index 228,871 1.01 % 336,835 1.37 % Other 0 0.00 % (261) 0.00 % ------------ ---------- ---------- ---------- Total long futures contracts $ 471,138 2.08 % $1,385,563 5.65 % ------------ ---------- ---------- ---------- SHORT FUTURES CONTRACTS ----------------------- % of Net % of Net Description Value Asset Value Value Asset Value ----------- ----- ----------- ----- ----------- Agricultural $ 30,118 0.13 % $ 7,048 0.03 % Currency 38,601 0.17 % 19,684 0.08 % Energy 77,620 0.34 % (93) 0.00 % Interest rate 11,351 0.05 % 3,069 0.01 % Metals (221,495) (0.97)% (340,931) (1.39)% Stock index 2,498 0.01 % 8,499 0.03 % Other (659) 0.00% 0 0.00 % ------------ ---------- ---------- ---------- Total short futures contracts $ (61,966) (0.27)% $ (302,724) (1.24)% ------------ ---------- ---------- ---------- Total futures contracts $ 409,172 1.81 % $1,082,839 4.41 % ============ ========== ========== ========== FORWARD CURRENCY CONTRACTS % of Net % of Net Description Value Asset Value Value Asset Value ----------- ----- ----------- ----- ----------- Long forward currency contracts $ 168,689 0.74 % $ (18,061) (0.07)% Short forward currency contracts (328,519) (1.45)% (12,979) (0.05)% ------------ ---------- ---------- ---------- Total forward currency contracts $ (159,830) (0.71)% $ (31,040) (0.12)% ============ ========== ========== ==========
See accompanying notes. F-3 KENMAR GLOBAL TRUST STATEMENTS OF OPERATIONS For the Years Ended December 31, 2004, 2003 and 2002 ---------------
2004 2003 2002 ---- ---- ---- TRADING GAINS (LOSSES) Realized $ 2,517,436 $ 3,085,074 $ 4,672,380 Change in unrealized (802,457) (25,999) 631,477 Brokerage commissions (264,647) (232,081) (184,293) ----------- ----------- ----------- Gain from trading 1,450,332 2,826,994 5,119,564 ----------- ----------- ----------- NET INVESTMENT (LOSS) Income Interest income 380,892 127,729 170,849 ----------- ----------- ----------- Expenses Managing Owner brokerage commissions 2,082,064 2,009,917 1,647,208 Advisor profit shares 295,261 507,299 934,498 Operating expenses 163,402 153,200 139,531 ----------- ----------- ----------- Total expenses 2,540,727 2,670,416 2,721,237 ----------- ----------- ----------- Net investment (loss) (2,159,835) (2,542,687) (2,550,388) ----------- ----------- ----------- NET INCOME (LOSS) $ (709,503) $ 284,307 $ 2,569,176 =========== =========== =========== NET INCOME (LOSS) PER UNIT (based on weighted average number of units outstanding during the year) $ (3.20) $ 1.47 $ 15.20 =========== =========== =========== INCREASE (DECREASE) IN NET ASSET VALUE PER UNIT $ (2.98) $ 0.25 $ 14.29 =========== =========== ===========
See accompanying notes. F-4 KENMAR GLOBAL TRUST STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2004, 2003 and 2002 ---------------
2004 2003 2002 ---- ---- ---- Cash flows from (for) operating activities Net income (loss) $ (709,503) $ 284,307 $ 2,569,176 Adjustments to reconcile net income (loss) to net cash from operating activities: Net change in unrealized 802,457 25,999 (631,477) Increase (decrease) in accounts payable and accrued expenses (77,370) 152,289 54,328 ----------- ----------- ----------- Net cash from operating activities 15,584 462,595 1,992,027 ----------- ----------- ----------- Cash flows from (for) financing activities Addition of units 2,965,410 8,248,861 3,163,416 Offering costs paid (160,404) (238,000) (109,630) Redemption of units (3,972,423) (3,168,133) (2,343,977) ----------- ----------- ----------- Net cash from (for) financing activities (1,167,417) 4,842,728 709,809 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (1,151,833) 5,305,323 2,701,836 Cash and cash equivalents Beginning of year 23,951,399 18,646,076 15,944,240 ----------- ----------- ----------- End of year $22,799,566 $23,951,399 $18,646,076 =========== =========== =========== End of year cash and cash equivalents consists of: Cash in broker trading accounts $16,186,328 $21,617,196 $10,076,868 Cash and cash equivalents 6,613,238 2,334,203 8,569,208 ----------- ----------- ----------- Total end of year cash and cash equivalents $22,799,566 $23,951,399 $18,646,076 =========== =========== ===========
See accompanying notes. F-5 KENMAR GLOBAL TRUST STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE) For the Years Ended December 31, 2004, 2003 and 2002 ---------------
Unitholders' Capital Total -------------------------------------------------- Number of Managing Other Units Owner Unitholders Total ----- ----- ----------- ----- Balances at December 31, 2001 167,134.9545 $196,966 $15,928,413 $16,125,379 Net income for the year ended December 31, 2002 30,486 2,538,690 2,569,176 Additions 31,247.2738 0 3,163,416 3,163,416 Redemptions (23,296.6072) 0 (2,354,126) (2,354,126) Offering costs (1,315) (108,315) (109,630) ------------ -------- ----------- ----------- Balances at December 31, 2002 175,085.6211 226,137 19,168,078 19,394,215 Net income for the year ended December 31, 2003 3,749 280,558 284,307 Additions 74,176.8974 30,000 8,248,861 8,278,861 Redemptions (28,305.2535) 0 (3,187,628) (3,187,628) Offering costs (2,639) (235,361) (238,000) ------------ -------- ----------- ----------- Balances at December 31, 2003 220,957.2650 257,247 24,274,508 24,531,755 Net (loss) for the year ended December 31, 2004 (5,250) (704,253) (709,503) Additions 26,902.1150 10,000 2,925,410 2,935,410 Redemptions (38,301.2460) 0 (3,956,659) (3,956,659) Offering costs (1,712) (158,692) (160,404) ------------ -------- ----------- ----------- Balances at December 31, 2004 209,558.1340 $260,285 $22,380,314 $22,640,599 ============ ======== =========== ===========
Net Asset Value Per Unit ------------------------------------------------ December 31, 2004 2003 2002 ---- ---- ---- $108.04 $111.02 $110.77 ======= ======= =======
See accompanying notes. F-6 KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS --------------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------- A. General Description of the Fund Kenmar Global Trust (the Fund) is a Delaware business trust. The Fund is a multi-advisor, multi-strategy commodity pool which trades in United States (U.S.) and foreign futures, options, forward currency and related markets. B. Regulation As a registrant with the Securities and Exchange Commission, the Fund is subject to the regulatory requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. As a commodity pool, the Fund is subject to the regulations of the Commodity Futures Trading Commission, an agency of the U.S. government which regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of the various commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the requirements of the Futures Commission Merchants (brokers) and interbank market makers through which the Fund trades. C. Method of Reporting The Fund's financial statements are presented in accordance with accounting principles generally accepted in the United States of America, which require the use of certain estimates made by the Fund's management. Gains or losses are realized when contracts are liquidated. Net unrealized gain or loss on open contracts (the difference between contract trade price and market price) is reflected in the statement of financial condition 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 verified by the administrator who obtains valuation data from third party providers such as Bloomberg and Reuters and compares those prices with the Fund's broker. The market value of currency swap and forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 3 PM on the last business day of the reporting period. Any change in net unrealized gain or loss is reported in the statement of operations. Brokerage commissions paid directly to brokers, reflected as "brokerage commissions" in the statement of operations, include exchange and other trading fees and are charged to expense when contracts are opened. D. Cash and Cash Equivalents Cash and cash equivalents includes cash and short-term time deposits held at financial institutions. E. Income Taxes The Fund prepares calendar year U.S. and applicable state information tax returns and reports to the Unitholders their allocable shares of the Fund's income, expenses and trading gains or losses. F. Offering Costs Offering costs are borne by the Fund and are charged directly to unitholders' capital as incurred. F-7 KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) --------------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------- (CONTINUED) G. Foreign Currency Transactions The Fund's functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the statement of financial condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income currently. Note 2. MANAGING OWNER -------------- The Managing Owner of the Fund is Preferred Investment Solutions Corp. (previously Kenmar Advisory Corp.), which conducts and manages the business of the Fund. The Declaration of Trust and Trust Agreement requires the Managing Owner to maintain a capital account equal to at least 1% of the total capital accounts of the Fund. The Managing Owner has agreed to maintain a net worth of not less than $1,000,000. At December 31, 2004, the Managing Owner has a net worth in excess of $1,000,000. Effective March 1, 2004, the Managing Owner is paid monthly brokerage commissions ("Managing Owner Brokerage Commissions") equal to 1/12 of 10% (10% annually) of the Fund's beginning of month Net Asset Value on the first $25 million of Net Asset Value and 1/12 of 9% (9% annually) of the Fund's beginning of month Net Asset Value in excess of $25 million. During the period May 9, 2003 to February 28, 2004, the Managing Owner brokerage commissions were equal to 1/12 of 10% (10% annually) of the Fund's beginning of month Net Asset Value. Prior to May 9, 2003, the Managing Owner brokerage commissions were equal to 1/12 of 11% (11% annually) of the Fund's beginning of month Net Asset Value. The Managing Owner, in turn, pays substantially all actual costs of executing the Fund's trades, selling commissions and trailing commissions to selling agents, and consulting fees to the commodity trading advisors. Managing Owner brokerage commissions are reduced by brokerage commissions and other trading fees paid directly to brokers by the Fund. For the years ended December 31, 2004, 2003 and 2002, brokerage commissions equated to an approximate round-turn equivalent rate of $58, $62 and $64, respectively. Such approximate round-turn equivalent brokerage commission rate will vary depending on the frequency of trading by the Fund's commodity trading advisors. The Managing Owner is paid an incentive fee equal to 5% of New Overall Appreciation (which is defined in the Declaration of Trust and Trust Agreement and excludes interest income) as of each fiscal year-end and upon redemption of Units. No incentive fee was earned by the Managing Owner during 2004, 2003 and 2002. Note 3. COMMODITY TRADING ADVISORS -------------------------- The Fund has advisory agreements with various commodity trading advisors pursuant to which the Fund pays quarterly profit shares of 20% of Trading Profit (as defined in each respective advisory agreement). F-8 KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) --------------- Note 4. DEPOSITS WITH BROKERS --------------------- The Fund deposits cash with brokers subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such brokers. The Fund earns interest income on its cash deposited with the brokers. Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS -------------------------------------------- Investments in Units of Beneficial Interest are made by subscription agreement, subject to acceptance by the Managing Owner. The Fund is not required to make distributions, but may do so at the sole discretion of the Managing Owner. A Unitholder may request and receive redemption of Units owned, subject to restrictions in the Declaration of Trust and Trust Agreement. Units purchased on or after May 31, 2004 and redeemed prior to the end of the twelfth month after such Units are sold are subject to the following redemption charges paid to the Managing Owner: 3.5% of Net Asset Value redeemed on or after the end of the first and on or before the end of the third month after purchase; 2.625% of Net Asset Value redeemed from the beginning of the fourth and on or before the end of the sixth month after purchase; 1.75% of Net Asset Value redeemed from the beginning of the seventh and on or before the end of the ninth month after purchase; and 0.875% of Net Asset Value redeemed from the beginning of the tenth and on or before the end of the twelfth month after purchase. Units purchased on or after February 28, 2004 and prior to May 31, 2004 and redeemed prior to the end of the twelfth month after such Units are sold are subject to the following redemption charges paid to the Managing Owner: 3% of Net Asset Value redeemed on or after the end of the first and on or before the end of the third month after purchase; 2.625% of Net Asset Value redeemed from the beginning of the fourth and on or before the end of the sixth month after purchase; 1.75% of Net Asset Value redeemed from the beginning of the seventh and on or before the end of the ninth month after purchase; and 0.875% of Net Asset Value redeemed from the beginning of the tenth and on or before the end of the twelfth month after purchase. Units purchased prior to February 28, 2004 may only be redeemed beginning on or after the end of the sixth month after sale. Such units redeemed on or before the end of the twelfth full calendar month and after the end of the twelfth full month but on or before the end of the eighteenth full calendar month after the date such Units begin to participate in the profits and losses of the Fund are subject to early redemption charges of 3% and 2%, respectively, of the Net Asset Value redeemed. All redemption charges are paid to the Managing Owner. Such redemption charges are included in redemptions in the statement of changes in unitholders' capital and amounted to $17,240, $1,845 and $4,872 during 2004, 2003 and 2002, respectively. Note 6. TRADING ACTIVITIES AND RELATED RISKS ------------------------------------ The Fund engages in the speculative trading of U.S. and foreign futures contracts, options on U.S. and foreign futures contracts and forward currency contracts (collectively, "derivatives"). The Fund is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. F-9 KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) --------------- Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) ------------------------------------------------ Purchases and sales of futures and options on futures contracts require margin deposits with the brokers. Additional deposits may be necessary for any loss of contract value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker's segregation requirements. In the event of a broker's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. The Fund has cash and cash equivalents on deposit with interbank market makers and other financial institutions in connection with its trading of forward currency contracts and its cash management activities. In the event of a financial institution's insolvency, recovery of Fund assets on deposit may be limited to account insurance or other protection afforded such deposits. Since forward currency contracts are traded in unregulated markets between principals, the Fund also assumes the risk of loss from counterparty nonperformance. For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Fund is exposed to a market risk equal to the notional contract value of futures and forward currency contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Fund pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Fund to potentially unlimited liability, and purchased options expose the Fund to a risk of loss limited to the premiums paid. The 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 7. GUARANTEES ---------- In the normal course of business, the Fund enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The Fund expects the risk of any future obligation under these indemnifications to be remote. F-10 KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) --------------- Note 8. FINANCIAL HIGHLIGHTS -------------------- The following information presents per unit operating performance data and other supplemental financial data for the years ended December 31, 2004, 2003 and 2002. This information has been derived from information presented in the financial statements.
2004 2003 2002 ---- ---- ---- Per Unit Performance (for a unit outstanding throughout the entire year) Net asset value per unit at beginning of year $111.02 $110.77 $ 96.48 ------- ------- ------- Income from operations: Gain from trading (1) 7.48 14.61 30.03 Net investment (loss) (1) (9.74) (13.13) (15.09) ------- ------- ------- Total income (loss) from operations (2.26) 1.48 14.94 ------- ------- ------- Offering costs (1) (0.72) (1.23) (0.65) ------- ------- ------- Net asset value per unit at end of year $108.04 $111.02 $110.77 ======= ======= ======= Total Return (2.69)% 0.23 % 14.81 % ======= ======= ======= Supplemental Data Ratios to average net asset value: Expenses prior to advisor profit shares (9.56)% (9.97)% (10.73)% Advisor profit shares (1.26)% (2.34)% (5.61)% ------- ------- ------- Total expenses (10.82)% (12.31)% (16.34)% ======= ======= ======= Net investment (loss) (2) (7.94)% (9.38)% (9.71)% ======= ======= =======
Total returns are calculated based on the change in value of a unit during the year. An individual unitholder's total returns and ratios may vary from the above total returns and ratios based on the timing of additions and redemptions. ------------------------ (1) The net investment (loss) per unit and offering costs per unit are calculated by dividing the net investment (loss) and offering costs by the average number of units outstanding during the year. The gain from trading is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. (2) Excludes advisor profit shares. F-11
EXHIBIT INDEX Exhibit Number Description of Document Page Number 31.01 Certification of Kenneth A. Shewer, Co-Chief E-2 Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934. 31.02 Certification of Maureen Howley, Senior Vice E-3 President and Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934. 32.01 Certification of Kenneth A. Shewer, Co-Chief E-4 Executive Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002 32.02 Certification of Maureen Howley, Senior Vice E-5 President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002
E-1