-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FwNcB0riuLqwnGTAEwAV6WBRfosm0ONVSNmMidzXVNRhSTqQWeIIg5DnaC3raH72 Q6kO6Q0/+n8jyqR8z2KODQ== 0000950110-99-000392.txt : 19990326 0000950110-99-000392.hdr.sgml : 19990326 ACCESSION NUMBER: 0000950110-99-000392 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENMAR GLOBAL TRUST CENTRAL INDEX KEY: 0001019561 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 066429854 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-08869 FILM NUMBER: 99573142 BUSINESS ADDRESS: STREET 1: TWO AMERICAN LANE STREET 2: P O BOX 5150 CITY: GREENWICH STATE: CT ZIP: 06831-8150 BUSINESS PHONE: 2038611000 MAIL ADDRESS: STREET 1: TWO AMERICAN LANE STREET 2: P O BOX 5150 CITY: GREENWICH STATE: CT ZIP: 06831-8150 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission File Number 333-8869 -------- KENMAR GLOBAL TRUST ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 06-6429854 ---------------------------- ----------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) Two American Lane, P.O. Box 5150, 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] 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..................................................... 7 Item 3. Legal Proceedings.............................................. 7 Item 4. Submission of Matters to a Vote of Security Holders............ 7 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............................................ 8 Item 6. Selected Financial Data........................................ 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 10 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 11 Item 8. Financial Statements and Supplementary Data.................... 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................ 11 PART III Item 10. Directors and Executive Officers of the Registrant............. 12 Item 11. Executive Compensation......................................... 13 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................................... 13 Item 13. Certain Relationships and Related Transactions................. 14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................... 15 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 Two American Lane, P.O. Box 5150, 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 on futures, forward, options and related markets 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) Unitholders subscribing for additional Units, where 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 filed with the National Futures Association (the "NFA") and the Commodity Futures Trading Commission (the "CFTC") in compliance with its Regulations. The Fund's managing owner is Kenmar Advisory Corp. ("Kenmar"), a corporation originally organized as a New York corporation in September 1983 and reorganized as a Connecticut corporation on January 1, 1996. Kenmar is owned equally and indirectly by Kenneth A. Shewer and Marc S. Goodman, the sole directors of Kenmar. The Fund itself does not have any employees. Rather, Kenmar employs 38 persons (as of March 15, 1999) 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 Kenmar. Kenmar: (i) selects the Fund's Clearing Brokers and Selling Agents and selects and monitors the Advisors; (ii) allocates and/or reallocates Fund assets among the Advisors; (iii) determines if an Advisor should be removed or replaced; (iv) negotiates advisory fees; and (v) performs such other services as Kenmar believes that the Fund may from time to time require. (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 Kenmar believes that the most effective means of controlling the risks of the Fund's futures, forward and options trading is through a diversified portfolio of Advisors. An important part of this strategy focuses on controlling risk by combining Advisors who employ diverse trading methodologies -- such as technical, fundamental, systematic, trend-following, discretionary or mathematical -- and who exhibit diverse performance characteristics. The objective of this strategy is to construct a portfolio of Advisors whose combined performance best meets the investment aim of the Fund to achieve superior returns within appropriately defined parameters of risk. The process of selecting Advisors is an ongoing one--Kenmar continuously analyzes qualitatively and quantitatively the performance and trading characteristics of the current and prospective Advisors in an effort to determine which Advisors are best suited to Kenmar's perception of the current market environment. Based upon such continuing analysis, Kenmar -1- will reallocate assets among the Advisors or change the portfolio of Advisors when Kenmar's perception of the trading environment or an Advisor's individual performance indicates to Kenmar that such change or changes are appropriate. Kenmar 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 shifting market trends. Therefore, when Kenmar's perception of market conditions and/or individual Advisor performance suggests that an alternative trading style or methodology might be better suited to Kenmar's perception of the current market environment, Kenmar may alter the portfolio of Advisors or the allocation of assets among the Advisors without prior notice to, or the approval of, the Unitholders. Advisor Summaries Set forth below is a brief description of the portfolio of Advisors trading for the Fund as of March 15, 1999. DREISS RESEARCH CORPORATION Dreiss Research Corporation utilizes a trend-following system, which is technical in nature and ignores news, weather, politics and other fundamental factors except as they are reflected in the markets. The technical basis for the trading method is the fractal decomposition of weekly price patterns. This analysis identifies turning points for constructing trend lines and determining support and resistance, which are then combined in a system which generates specific trading signals. Signals are then screened by a unique Choppiness Index which may then be used to adjust the proximity of entry and exit signals. Dreiss Research Corporation trades a diversified portfolio of futures contracts representing most major commodity groups (i.e., agriculture, currencies, energy, equity indexes, interest rates, livestock, metals and softs). HIRST INVESTMENT MANAGEMENT INC. Hirst Investment Management Inc. trades a diversified portfolio pursuant to its DSP Trading System (the "System"). The System is a technical methodology which uses information generated by the market itself, such as prices, volume and open interest. It ignores "fundamental" data, such as news, politics, and weather, except as these factors are reflected in the markets. The methodology and the algorithms used are original work and are not derived from any other known trading methodology. Hirst Investment Management Inc. may trade futures on any and all U.S. and non-U.S. commodities including, but not limited to, financials, currencies, interest-rate contracts, metals, livestock, grains, stock indices, energies, softs, fiber and foods. Hirst Investment Management Inc. may also trade the interbank foreign exchange markets and cash commodities and may effect exchanges of futures for physicals (EFP) transactions. HYMAN BECK & COMPANY, INC. Hyman Beck & Company, Inc. relies primarily on technical analysis. The trading methodologies employed by Hyman Beck & Company, Inc. are based on programs analyzing a large number of interrelated mathematical and statistical formulas and techniques which are quantitative and proprietary in nature. Hyman Beck & Company, Inc. trades its Global Portfolio on behalf of the Fund, relying on long-term, technical trend-following analysis. The Global Portfolio trades a portfolio of over 30 futures and forward markets worldwide with a concentration in world interest rate and other financial markets. SUNRISE CAPITAL PARTNERS, LLC Sunrise Capital Partners, LLC will trade its Expanded Diversified Program on behalf of the Fund. Sunrise Capital Partners, LLC utilizes technical trend-following systems trading a wide continuum of time windows. Relying on technical analysis Sunrise Capital Partners, LLC believes that future price movements in all markets may be more accurately anticipated by analyzing historical price movements within a quantitative framework rather attempting to predict or forecast changes in price through fundamental economic analysis. The trading methodologies employed by Sunrise Capital Partners LLC are based on programs analyzing a large number of interrelated mathematical and statistical formulas and techniques which are quantitative, proprietary in nature and which have been either learned or developed by principals of Sunrise Capital Partners, -2- LLC. Sunrise Capital Partners, LLC's trading system consists of multiple, independent and parallel systems, each designed and tested to seek out and extract different market inefficiencies on different time horizons. WILLOWBRIDGE ASSOCIATES INC. Willowbridge Associates Inc. utilizes its XLIM Trading Approach on behalf of the Fund. The XLIM Trading Approach is traded on a discretionary basis by Philip L. Yang. Trading decisions are based primarily on Mr. Yang's analysis of technical factors, fundamentals and market action. The XLIM Trading Approach trades are selected from a wide variety of futures contracts, forwards, spot and options contracts on United States and international markets, including but not limited to, financial instruments, currencies, precious and base metals and agricultural commodities. Mr. Yang reserves the right to change the portfolio composition of the XLIM Trading Approach. USE OF PROCEEDS The proceeds of the offering of the Units are used by the Fund to engage in the speculative trading on futures, forward, options and related markets through allocating such proceeds to the Advisors. To the extent the Fund trades in futures contracts on U.S. exchanges, the assets deposited by the Fund with its Clearing Brokers as margin must be segregated pursuant to the regulations of the CFTC. Such segregated funds may be invested only in a limited range of instruments -- principally U.S. government obligations. To the extent that the Fund trades in futures, forward, options and related contracts on markets other than regulated U.S. futures exchanges, funds deposited to margin positions held on such exchanges are invested in bank deposits or in instruments of a credit standing generally comparable to those authorized by the CFTC for investment of "customer segregated funds," although applicable CFTC rules prohibit funds employed in trading on foreign exchanges from being deposited in "customer segregated fund accounts." Although the percentages set forth below may vary substantially over time, Kenmar estimates that: (i) up to approximately 56% of the Net Asset Value of the Fund will be 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) up to approximately 5% of the Fund's assets will be used to margin foreign futures contracts; and (iii) approximately 39% in bank deposits. 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 United States 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" The "Breakeven Table" below indicates the approximate percentage and dollar returns required for the redemption value of an initial $5,000 investment in the Units to equal the amount originally invested twelve months after issuance (assuming the Units are redeemed during months 7-12 and, therefore, are subject to a 3% redemption charge). The "Breakeven Table," as presented, is not affected by the size of the Fund. The Fund's capitalization does not directly affect the level of its charges as a percentage of Net Asset Value, as the Fund has no fixed dollar amount, as opposed to (i) percentage of assets, (ii) percentage of profits or (iii) per-trade costs (each of which will, or should, equal approximately the same percentage of the Fund's equity, whatever its size), other than administrative expenses (which are -3- assumed in the "Breakeven Table" to equal the maximum estimated percentage of the Fund's average beginning of month Net Assets). In order for Column II in the "Breakeven Table" to present absolute dollar amount "breakeven" figures, it has been assumed that the average beginning of month Net Assets attributable to an initial investment during the twelve-month "breakeven" period equals the amount of such initial investment. This is, in fact, unlikely to be the case.
"BREAKEVEN TABLE" - ------------------------------------------------------------------------------------------------------------------- DOLLAR RETURN EXPENSES (1) PERCENTAGE RETURN REQUIRED WHICH MUST BE OFFSET REQUIRED ($5,000 INITIAL INVESTMENT) TO "BREAK EVEN" FIRST TWELVE MONTHS FIRST TWELVE MONTHS OF INVESTMENT OF INVESTMENT - ------------------------------------------------------------------------------------------------------------------- Brokerage Commissions (2) 11.00% $ 550.00 - ------------------------------------------------------------------------------------------------------------------- Administrative Expenses (3) 1.0% $ 50.00 - ------------------------------------------------------------------------------------------------------------------- Miscellaneous Execution Costs (4) 0.25% $ 12.50 - ------------------------------------------------------------------------------------------------------------------- Advisors' Profit Shares (5) 2.00% $ 100.00 - ------------------------------------------------------------------------------------------------------------------- Kenmar Incentive Fee (6) 0.15% $ 7.50 - ------------------------------------------------------------------------------------------------------------------- Redemption Charge (7) 3.10% $ 155.00 - ------------------------------------------------------------------------------------------------------------------- Interest Income (8) (4.6)% $(230.00) - ------------------------------------------------------------------------------------------------------------------- RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR "BREAK EVEN" IF UNITS ARE REDEEMED ON OR BEFORE THE 12TH MONTH- 12.9% $ 645.00 END FOLLOWING SALE. - ------------------------------------------------------------------------------------------------------------------- RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR "BREAK EVEN" IF UNITS ARE REDEEMED ON THE 13TH MONTH-END 11.84% $ 592.00 THROUGH THE 18TH MONTH-END FOLLOWING SALE. - ------------------------------------------------------------------------------------------------------------------- RETURN ON $5,000 INITIAL INVESTMENT REQUIRED FOR "BREAK EVEN" IF UNITS ARE REDEEMED AFTER THE 18TH MONTH-END 9.80% $ 490.00 FOLLOWING SALE. - -------------------------------------------------------------------------------------------------------------------
-4- Notes to "Breakeven Table" (1) See "Description of Current Charges" for an explanation of the expenses included in the "Breakeven Table." (2) Paid to Kenmar each month. Kenmar pays all floor brokerage, exchange, clearing and NFA fees, selling compensation, trailing commissions and Consulting Fees from this amount. (3) Administrative expenses are paid as incurred, but for this "Breakeven Table" such expenses are assumed to be the maximum estimated amount. (4) Estimated; paid on a per-transaction basis. "Bid-ask" spreads are not included due to the difficulty of determining such spreads, which may constitute a significant cost to the Fund. (5) Profit Shares are calculated quarterly on the basis of each Advisor's individual performance, not the overall performance of the Fund. Consequently, it is not possible to determine the amount of Profit Shares, if any, that would be payable in a "breakeven" year. Kenmar believes that 2.00% of average beginning of month Net Assets is a reasonable estimate for such Profit Shares, but the actual Profit Shares paid in a "breakeven" year could substantially exceed such estimate. (6) No Incentive Fee might, in fact, be due despite the approximately 3.1% Net Asset Value gain necessary to offset the redemption charge of $155 (based on an initial $5,000 investment). However, for purposes of the "Breakeven Table," the Incentive Fee has been estimated at 5% of such 3.1% gain. (7) Redemption charges for purposes of this "breakeven" analysis equal 3.1% of the initial $5,000 investment because these charges would equal 3% of the $5,155 Net Asset Value required so that after subtraction of the 3% redemption charge, the investor would receive net redemption proceeds of $5,000. (8) Interest income is estimated based on current rates. -5- DESCRIPTION OF CURRENT CHARGES RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT - --------- ----------------- ----------------- Kenmar Brokerage commissions Flat-rate monthly commissions of 0.917% of the Fund's beginning of month Net Assets (an 11% annual rate). Such commissions cover all floor brokerage, exchange, clearing and NFA fees incurred in the Fund's trading. Third Parties Miscellaneous Paid as incurred; not anticipated to execution costs exceed 0.25% of average beginning of month Net Assets per year. Counterparties "Bid-ask" spreads Each counterparty with which the Fund trades receives "bid-ask" spreads on the forward trades executed on behalf of the Fund. Advisors Profit Shares Paid by the Fund on a quarterly basis (although accrued against Net Asset Value per Unit monthly). Each initial 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 4.5%--7.0%, rather than at an 11% annual rate, and execution costs actually incurred (other than floor brokerage, exchange, clearing and NFA fees). New Trading Profit is not reduced by any Incentive Fee, administrative expenses or organizational and initial offering costs (or extraordinary expenses). THE PROFIT SHARES ARE PAYABLE SEPARATELY TO EACH ADVISOR BASED ON ITS INDIVIDUAL PERFORMANCE, NOT OVERALL PROFITS OF THE FUND. UNITS MAY BE SUBJECT TO REDUCTION FOR PROFIT SHARES ATTRIBUTABLE TO A PARTICULAR ADVISOR EVEN THOUGH THE NET ASSET VALUE PER UNIT HAS DECLINED FROM THE PURCHASE PRICE OF SUCH UNITS. Kenmar Incentive Fee Paid by the Fund as a whole on an annual basis (although accrued against Net Asset Value per Unit monthly). The Incentive Fee equals 5% of any New Overall Appreciation (as defined). AN INCENTIVE FEE MAY BE ALLOCATED EVEN THOUGH THE NET ASSET VALUE PER UNIT HAS DECLINED FROM THE PURCHASE PRICE OF SUCH UNITS. Third Parties Operating, Selling and Paid as incurred; not anticipated to Administrative costs exceed 1.0% of the Fund's average beginning of month Net Assets per year. REGULATION Kenmar, 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. -6- 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 Kenmar. 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 pending legal proceedings to which the Fund or Kenmar is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Fund has never submitted any matters to a vote of its Unitholders. -7- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information: 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: As of December 31, 1998, there were 838 holders of Units, including Kenmar and the Advisors. As of December 31, 1998, Robert L. Cruikshank owned 1,000 Units, Marc S. Goodman owned 52.8321 Units in his individual retirement account and Kenmar owned 2,333.0461 Units. (c) Dividends: The Fund has made no distributions since trading commenced, nor does Kenmar presently intend to make any distributions in the future. -8- 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 Period Ended December 31, 1998 December 31, 1997 December 31, 1996 ----------------- ----------------- ----------------- Operations Data Realized Gains (Losses) ...................... $ 4,443,190 $ (162,443) $ 0 Change in Unrealized ......................... 381,635 838,321 0 Interest Income .............................. 750,290 293,033 0 Brokerage Commissions ........................ 147,779 45,814 0 Managing Owner Brokerage Commissions ......... 1,652,458 631,403 0 Managing Owner Incentive fee ................. 43,400 0 0 Advisor Profit Shares ........................ 984,809 106,886 0 Operating Expenses ........................... 134,568 58,398 0 Net Income ................................... 2,612,101 126,410 0 Net income Per Unit (Based on Weighted Average Number of Units Outstanding) ....... 16.96 1.24 0 Increase in Net Asset Value per Unit ......... 13.09 0.10 0 12/31/98 12/31/97 12/31/96 ---------- ----------- -------- Financial Position Data: Managing Owner's Capital ..................... $ 263,850 $ 125,970 $ 400 Other Unitholders' Capital ................... 25,099,248 12,251,351 1,600 Total Capital ................................ 25,363,098 12,377,321 2,000 Net Asset Value Per Unit ..................... 113.19 100.10 100.00
-9- 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 on futures, forward, options and related markets 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. Results of Operations. The Fund incurs substantial charges from the payment of Profit Shares to the Advisors and the Incentive Fee and Brokerage Commissions to Kenmar. The Brokerage Commissions are payable without regard to the profitability of the Fund. 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. The following paragraph presents a summary of the Fund's operations for the calendar year 1998. 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, 1998, the Net Asset Value of the Fund was $25,363,098, an increase of approximately 104.92% from its Net Asset value of $12,377,321 at December 31, 1997. The Fund's subscriptions and redemptions for the year ended December 31, 1998 totaled $13,497,520 and $2,401,065, respectively. For the year ended December 31, 1998, the Fund had revenues comprised of $4,443,190 in realized trading gains, $381,635 in change in unrealized trading gains and $750,290 in interest income. Total expenses for the year ended December 31, 1998 were $2,963,014. The Net Income for the year ended December 31, 1998 was $2,612,101. The Net Asset Value per Unit at December 31, 1998 increased 13.08% from $100.10 at December 31, 1997 to $113.19 at December 31, 1998. The Fund's trading gains during 1998 resulted primarily from global interest rates and global stock indices. As of December 31, 1997, the Net Asset Value of the Trust was $12,377,321, an increase of approximately 116.99% from its Net Asset value of $5,704,100 at the commencement of trading. The Trust's subscriptions and redemptions for the year ended December 31, 1997 totaled $12,847,562 and $450,887, respectively. For the year ended December 31, 1997, the Trust had revenues comprised of ($162,443) in realized trading losses, $838,321 in change in unrealized trading gains and $293,033 in interest income. Total expenses for the year ended December 31, 1997 were $842,501. The Net Income for the year ended December 31, 1997 was $126,410. The Net Asset Value per Unit at December 31, 1997 increased .10% from $100.00 at December 31, 1996 to $100.10 at December 31, 1997. The Trust's trading gains during 1997 were resulted primarily from currencies, global interest rates, energies and grains. 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 only as of the close of business on the last day of a calendar month and only beginning on or after the end of the sixth month after sale. Through the end of the twelfth and eighteenth full months after their sale, Units will be subject to redemption charges, payable to Kenmar, equal to 3% and 2%, respectively, of the Net Asset Value per Unit as of the date of redemption. Requests for redemption must be received at least 10 calendar days before the proposed date of redemption. -10- 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. 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 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. 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements meeting the requirements of Regulation S-X appear beginning on Page 25 of this report. The supplementary financial information specified by Item 302 of Regulation S-K is not applicable. 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- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a), (b) Identification of Directors and Executive Officers: Kenmar Advisory Corp. is the sole managing owner of the Fund. Kenmar, 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. The directors and executive officers of Kenmar currently are as follows: MR. KENNETH A. SHEWER, age 45, has been the Chairman and a director of Kenmar since September 1983. Mr. Shewer was employed by Pasternak, Baum and Co., Inc. ("Pasternak, Baum"), an international cash commodity firm, from June 1976 until September 1983. Mr. Shewer left Pasternak, Baum in September 1983 to form Kenmar Advisory Corp. with Mr. Goodman. Mr. Shewer created and managed Pasternak, Baum's Grain Logistics and Administration Department and created its Domestic Corn and Soybean Trading Department. In 1982, Mr. Shewer became co-manager of Pasternak, Baum's F.O.B. Corn Department. In 1983, Mr. Shewer was made Vice President and Director of Pasternak, Baum. Mr. Shewer graduated from Syracuse University with a B.S. degree in 1975. MR. MARC S. GOODMAN, age 50, has been the President and a director of Kenmar since September 1983. Mr. Goodman joined Pasternak, Baum in September 1974 and was a Vice President and Director from July 1981 until September 1983. Mr. Goodman left Pasternak, Baum in September 1983 to form Kenmar Advisory Corp. with Mr. Shewer. While at Pasternak, Baum, Mr. Goodman was largely responsible for business development outside of the United States, for investment of its corporate retirement funds and for selecting trading personnel. Mr. Goodman has conducted extensive business in South America, Europe and the Far East. Mr. Goodman was awarded an Economics and Finance Department Fellowship from September 1969 through June 1971. Mr. Goodman graduated from the Bernard M. Baruch School of Business of the City University of New York with a B.B.A. in 1969 and an M.B.A. in 1971 in Finance and Investments. MS. ESTHER ECKERLING GOODMAN, age 46, has been the Senior Executive Vice President of Kenmar since March 1991 and has also served as Chief Operating Officer of Kenmar since October 1995. Ms. Goodman joined Kenmar in July 1986 and has been involved in the futures industry since 1974. From 1974 through 1976, she was employed by Conti-Commodity Services, Inc. and ACLI Commodity Services, Inc., in the areas of hedging, speculative trading and tax arbitrage. In 1976, Ms. Goodman joined Loeb Rhoades and Company, Inc., where she was responsible for the development and management of a managed futures program which, in 1979, became the trading system for an independent 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 Association and its predecessor, the Managed Futures Trade Association, from 1987 through 1995. In addition, she has written several articles and has spoken before various professional groups and organizations on the subject of managed futures. Ms. Goodman attended Vassar College from 1970-1972 and graduated from Stanford University in 1974 with a B.A. degree. Ms. Goodman is married to Mr. Marc S. Goodman. MR. ROBERT L. CRUIKSHANK, age 62, joined Kenmar as its Executive Vice President in March 1991. Mr. Cruikshank spent 20 years (1958-1978) at Blyth Eastman Dillon in New York and was its Executive Vice President in charge of the Securities Division, which included all domestic and international sales and branch office activities, all trading departments and the research areas. In 1979, Mr. Cruikshank jointly formed Neild, Cruikshank & Co., an independent market-maker on the Chicago Board of Options Exchange ("CBOE"), where he remained until 1984, when he formed his own market making firm, Nassau Corporation. From 1982 to 1984 Mr. Cruikshank also served as Director and Vice Chairman of the Board of the CBOE, during which time he was instrumental in the development of the S&P 100 (OEX) option contract. From 1985, when he left Nassau Corporation, until March 1991, he served as President and CEO of First Capital Financial Corporation, a national real estate syndication firm owned by Sam Zell. Mr. Cruikshank graduated cum laude from Princeton University with a B.A. degree in economics in 1958. Each director of Kenmar serves until the next annual meeting of stockholders or until a successor is elected. Executive officers of Kenmar are appointed annually and serve at the discretion of its Board of Directors. Messrs. Shewer and Goodman -12- hold directorships in the following entities, all of which are affiliates of Kenmar: Kenmar Asset Allocation Inc., 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 Select Advisors L.L.C. and Kenmar Greenwich Holdings LLC. (c) Identification of Certain Significant Employees: None. (d) Family Relationships: None. (e) Business Experience: See Item 10(a)(b) above. (f) Involvement in Certain Legal Proceedings: None. (g) Promoters and Control Persons: Kenmar is the sole promoter and controlling person of the Fund. ITEM 11. EXECUTIVE COMPENSATION The Fund has no directors or executive officers. The business of the Fund is managed by Kenmar which is responsible for the administration of the business affairs of the Fund and receives the compensation described in Item 1 hereof. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners: As of December 31, 1998, no person or "group" is known to be or has been the beneficial owner of more than five percent of the Units. (b) Security Ownership of Management: As of December 31, 1998, the following officers of Kenmar beneficially owned the following number of Units: Number of Percent Name of Beneficial Owner Units Owned of Class ------------------------ ----------- -------- Robert L. Cruikshank 1,000 Less than 1% Marc S. Goodman 52.8321 Less than 1% As of December 31, 1998, Kenmar has purchased and will maintain a 1% interest in the Fund in its capacity as managing owner. (c) Changes in Control: None. -13- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others: Kenmar 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. (d) Transactions with Promoters: Not Applicable. -14- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. Affirmation of the Commodity Pool Operator......................... -ii- Independent Auditor's Report....................................... -iii- Statements of Financial Condition as of December 31, 1998 and 1997. F-1 Statements of Operations for the years ended December 31, 1998 and 1997 and for the period July 17, 1996 (inception) to December 31, 1996 ............................................... F-2 Statements of Cash Flows for the years ended December 31, 1998 and 1997 and for the period July 17, 1996 (inception) to December 31, 1996................................................ F-3 Statements of changes in Unitholders' Capital (Net Asset Value) for the years ended December 31, 1998 and 1997 and for the Period July 17, 1996 (inception) to December 31, 1996.......... F-4 Notes to Financial Statements.................................... F-5-F-9 2. Financial Data Schedule 3. The following exhibits are filed with this Report or incorporated by reference in the Prospectus dated July 1, 1998 included within the Registration Statement on Form S-1 (File No. 333-8869): 1.01 Form of Selling Agreement 1.02 Amendment No. 1 to Selling Agreement 3.01 Certificate of Formation of the Registrant 3.02 Declaration of Trust and Trust Agreement of the Registrant 3.03 Amended and Restated Declaration of Trust and Trust Agreement 10.01 Form of Advisory Agreement 10.02 Form of Customer Agreement between the Fund and the Commodity Brokers 10.03 Form of Escrow Agreement 10.04 Subscription Agreement and Power of Attorney (b) Reports on Form 8-K: The Fund did not file any reports on Form 8-K during the fourth quarter of 1998. -15- 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 25th day of March, 1999. KENMAR GLOBAL TRUST By: Kenmar Advisory 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 25th day of March, 1999. KENMAR GLOBAL TRUST By: Kenmar Advisory Corp., managing owner By: /s/ Kenneth A. Shewer --------------------- Kenneth A. Shewer Chairman and Director (Principal Executive Officer) By: /s/ Marc S. Goodman --------------------- Marc S. Goodman President and Director By: /s/ Thomas J. DiVuolo --------------------- Thomas J. DiVuolo Senior Vice President (Principal Financial and Accounting Officer for the Fund) EX-13 2 ANNUAL REPORT KENMAR GLOBAL TRUST ANNUAL REPORT December 31, 1998 KENMAR GLOBAL TRUST TABLE OF CONTENTS PAGE ---- Affirmation of the Commodity Pool Operator............................... -ii- Independent Auditor's Report............................................. -iii- Financial Statements Statements of Financial Condition December 31, 1998 and 1997............................................ F-1 Statements of Operations For the Years Ended December 31, 1998 and 1997 and For the Period July 17, 1996 (inception) to December 31, 1996........................ F-2 Statements of Cash Flows For the Years Ended December 31, 1998 and 1997 and For the Period July 17, 1996 (inception) to December 31, 1996........................ F-3 Statements of Changes in Unitholders' Capital (Net Asset Value) For the Years Ended December 31, 1998 and 1997 and For the Period July 17, 1996 (inception) to December 31, 1996........................ F-4 Notes to Financial Statements........................................ F-5-F-9 -i- KENMAR GLOBAL TRUST AFFIRMATION OF THE COMMODITY POOL OPERATOR ---------- To the best of the knowledge and belief of the undersigned, the information contained in the Annual Report for the year ended December 31, 1998 is accurate and complete. /s/MARC S. GOODMAN -------------------------- Marc S. Goodman, President Kenmar Advisory Corp. KENMAR GLOBAL TRUST -ii- ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. CERTIFIED PUBLIC ACCOUNTANTS (410) 821-8000 FAX (410) 321-8359 Member: AMERICAN INSTITUTE OF Suite 200 CERTIFIED PUBLIC ACCOUNTANTS SEC Practice Section 201 International Circle Maryland Association of Hunt Valley, Maryland 21030 Certified Public Accountants INDEPENDENT AUDITOR'S REPORT To the Unitholders Kenmar Global Trust We have audited the accompanying statements of financial condition of Kenmar Global Trust as of December 31, 1998 and 1997, and the related statements of operations, cash flows and changes in unitholders' capital (net asset value) for the years ended December 31, 1998 and 1997 and for the period July 17, 1996 (inception) to December 31, 1996. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kenmar Global Trust as of December 31, 1998 and 1997, and the results of its operations, cash flows and the changes in its net asset values for the years ended December 31, 1998 and 1997 and for the period July 17, 1996 (inception) to December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur F. Bell, Jr. & Associates, L.L.C. Hunt Valley, Maryland March 1, 1999 -iii- KENMAR GLOBAL TRUST STATEMENTS OF FINANCIAL CONDITION December 31, 1998 and 1997 ----------
1998 1997 ----------- ----------- ASSETS Equity in broker trading accounts Cash .................................................. $14,288,556 $11,166,621 Net option premiums paid .............................. 0 12,165 Unrealized gain on open contracts ..................... 1,219,956 838,321 ----------- ----------- Deposits with brokers .............................. 15,508.512 12,017,107 Cash ..................................................... 10,582,645 588,287 Other assets ............................................. 0 177,369 ----------- ----------- Total assets ....................................... $26,091,157 $12,782,763 =========== =========== LIABILITIES Accounts payable ......................................... $ 65,017 $ 24,489 Commissions and other trading fees on open contracts ..... 18,122 6,831 Managing Owner brokerage commissions ..................... 160,616 89,492 Managing Owner incentive fee ........................... 42,368 0 Advisor profit shares .................................... 109,106 54,575 Reimbursable offering costs .............................. 44,975 23,058 Redemptions payable ...................................... 255,238 176,774 Redemption charges payable to Managing Owner ............. 4,897 4,503 Subscription deposits .................................... 27,720 25,720 ----------- ----------- Total liabilities .................................. 728,059 405,442 ----------- ----------- UNITHOLDERS' CAPITAL (NET ASSET VALUE) Managing Owner - 2,331.0461 and 1,258.4577 units outstanding at December 31, 1998 and 1997 .............. 263,850 125,970 Other Unitholders - 221,745.5512 and 122,392.3731 units outstanding at December 31, 1998 and 1997 .............. 25,099,248 12,251,351 ----------- ----------- Total unitholders' capital (Net Asset Value)........ 25,363,098 12,377,321 ----------- ----------- $26,091,157 $12,782,763 =========== ===========
See accompanying notes. -F-1- KENMAR GLOBAL TRUST STATEMENTS OF OPERATIONS For the Years Ended December 31, 1998 and 1997 and For the Period July 17, 1996 (inception) to December 31, 1996
Year Ended Year Ended Period Ended December 31, December 31, December 31, 1998 1997 1996 ---------- ---------- ---------- INCOME Trading gains (losses) Realized ..................... $4,443,190 $ (162,443) $ 0 Change in unrealized ......... 381,635 838,321 0 ---------- ---------- ---------- Gain from trading ......... 4,824,825 675,878 0 Interest income ....................... 750,290 293,033 0 ---------- ---------- ---------- Total income .............. 5,575,115 968,911 0 ---------- ---------- ---------- EXPENSES Brokerage commissions ................. 147,779 45,814 0 Managing Owner brokerage commissions .. 1,652,458 631,403 0 Managing Owner incentive fee .......... 43,400 0 0 Advisor profit shares ................. 984,809 106,886 0 Operating expenses .................... 134,568 58,398 0 ---------- ---------- ---------- Total expenses ............ 2,963,014 842,501 0 ---------- ---------- ---------- NET INCOME ................ $2,612,101 $ 126,410 $ 0 ========== ========== ========== NET INCOME PER UNIT (based on weighted average number of units outstanding during the period)... $ 16.96 $ 1.24 $ 0.00 ========== ========== ========== INCREASE IN NET ASSET VALUE PER UNIT ........................ $ 13.09 $ 0.10 $ 0.00 ========== ========== ==========
See accompanying notes. -F-2- KENMAR GLOBAL TRUST STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998 and 1997 and For the Period July 17, 1996 (inception) to December 31, 1996 ----------
Year Ended Year Ended Period Ended December 31, December 31, December 31, 1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM (FOR) OPERATING ACTIVITIES Net income .............................................. $ 2,612,101 $ 126,410 $ 0 Adjustments to reconcile net income to net cash from (for) operating activities: (Increase) decrease in net option premiums paid .... 12,165 (12,165) 0 Net change in unrealized ........................... (381,635) (838,321) 0 (Increase) decrease in other assets ................ 177,369 (177,369) 0 Increase in accounts payable and accrued expenses... 219,842 175,387 0 ------------ ------------ ------------ Net cash (for) operating activities ............. 2,639,842 (726,058) 0 ------------ ------------ ------------ CASH FLOWS FROM (FOR) FINANCING ACTIVITIES Addition of units ....................................... 13,497,520 12,847,562 2,000 Increase in subscription deposits ....................... 2,000 25,720 0 Offering costs paid ..................................... (700,862) (124,706) 0 Redemption of units ..................................... (2,322,207) (269,610) 0 ------------ ------------ ------------ Net cash from financing activities .............. 10,476,451 12,478,966 2,000 ------------ ------------ ------------ Net increase in cash ....................................... 13,116,293 11,752,908 2,000 CASH Beginning of period ..................................... 11,754,908 2,000 0 ------------ ------------ ------------ End of period ........................................... $ 24,871,201 $ 11,754,908 $ 2,000 ============ ============ ============ END OF PERIOD CASH CONSISTS OF: Cash in broker trading accounts ......................... $ 14,288,556 $ 11,166,621 $ 0 Cash .................................................... 10,582,645 588,287 2,000 ------------ ------------ ------------ Total end of period cash ........................ $ 24,871,201 $ 11,754,908 $ 2,000 ============ ============ ============
See accompanying notes. -F-3- KENMAR GLOBAL TRUST STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE) For the Years Ended December 31, 1998 and 1997 and For the Period July 17, 1996 (inception) to December 31, 1996 ----------
Unitholders' Capital -------------------------------------------- Total Number of Managing Other Units Owner Unitholders Total ------------ ------------ ------------ ------------ Balances at July 17, 1996 (inception) .. 0.0000 $ 0 $ 0 $ 0 Additions ..................... 20.0000 400 1,600 2,000 ------------ ------------ ------------ ------------ Balances at December 31, 1996 .......... 20.0000 400 1,600 2,000 Additions ..................... 128,219.1639 125,800 12,721,762 12,847,562 Net income for the year ended December 31, 1997 .... 1,279 125,131 126,410 Redemptions ................... (4,588.3331) 0 (450,887) (450,887) Offering costs ................ (1,509) (146,255) (147,764) ------------ ------------ ------------ ------------ Balances at December 31, 1997 .......... 123,650.8308 $ 125,970 $ 12,251,351 $ 12,377,321 Net income for the year ....... 26,933 2,585,168 2,612,101 ended December 31, 1998 Additions ..................... 123,109.1508 118,400 13,379,120 13,497,520 Redemptions ................... (22,683.3843) 0 (2,401,065) (2,401,065) Offering costs ................ (7,435) (715,326) (722,779) ------------ ------------ ------------ ------------ Balances at December 31, 1998 .......... 224,076.5973 $ 263,850 $ 25,099,248 $ 25,363,098 ============ ============ ============ ============ Net Asset Value Per Unit ---------------------------------------- December 31, ---------------------------------------- 1998 1997 1996 ------- ------- ------- $113.19 $100.10 $100.00 ======= ======= =======
See accompanying notes. -F-4- KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS ---------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General Description of the Fund Kenmar Global Trust (the "Fund") is a Delaware business trust. The Fund is a multi-advisor, multi-strategy commodity pool which trades in United States (U.S.) and foreign futures, options, forwards and related markets. The Fund was formed on July 17, 1996 and commenced trading on May 22, 1997. B. Regulation As a registrant with the Securities and Exchange Commission, the Fund is subject to the regulatory requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. As a commodity pool, the Fund is subject to the regulations of the Commodity Futures Trading Commission, an agency of the U.S. government which regulates most aspects of the commodity futures industry, rules of the National Futures Association, an industry self-regulatory organization, and the requirements of the various commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the requirements of the Futures Commission Merchants (FCMs) and interbank market makers (collectively, "brokers") through which the Fund trades. C. Method of Reporting The Fund's financial statements are presented in accordance with generally accepted accounting principles, which require the use of certain estimates made by the Fund's management. Gains or losses are realized when contracts are liquidated. Net unrealized gain or loss on open contracts (the difference between contract purchase prices and market prices) is reported in the statement of financial condition in accordance with Financial Accounting Standards Board Interpretation No. 39 - "Offsetting of Amounts Related to Certain Contracts." Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. Brokerage commissions paid directly to brokers include other trading fees and are charged to expense when contracts are opened. D. Income Taxes The Fund prepares calendar year U.S. and state information tax returns and reports to the Unitholders their allocable shares of the Fund's income, expenses and trading gains or losses. E. Organizational and Offering Costs Organizational and initial offering costs (exclusive of selling commissions) of approximately $540,000 were advanced to the Fund by the Managing Owner. Such costs are charged to unitholders' capital and reimbursed to the Managing Owner at a monthly rate of 0.2% of the Fund's beginning of month Net Asset Value. As of December 31, 1998, all such organizational and initial offering costs advanced by the Managing Owner have been charged to unitholders' capital. Ongoing offering costs are borne by the Fund and are charged directly to unitholders' capital as incurred. -F-5- KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. Foreign Currency Transactions The Fund's functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the statement of financial condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income currently. Note 2. MANAGING OWNER The Managing Owner of the Fund is Kenmar Advisory Corp., which conducts and manages the business of the Fund. The Declaration of Trust and Trust Agreement requires the Managing Owner to maintain a capital account equal to 1% of the total capital accounts of the Fund. The Managing Owner is paid monthly brokerage commissions equal to 1/12 of 11% (11% annually) of the Fund's beginning of month Net Asset Value. The Managing Owner, in turn, pays substantially all actual costs of executing the Fund's trades, selling commissions and trailing commissions to selling agents, and consulting fees to the Advisors. The amount paid to the Managing Owner is reduced by brokerage commissions and other trading fees paid directly by the Fund. For the year ended December 31, 1998 and for the period May 22, 1997 (commencement of trading) to December 31, 1997, brokerage commissions equated to an approximate round-turn equivalent rate of $84 and $92, respectively. Such approximate round-turn equivalent brokerage commission rate will vary depending on the frequency of trading by the Fund's commodity trading advisors. The Managing Owner is paid an incentive fee equal to 5% of New Overall Appreciation (which is defined in the Declaration of Trust and Trust Agreement and excludes interest income) as of each fiscal year-end and upon redemption of Units. Note 3. COMMODITY TRADING ADVISORS The Fund has advisory agreements with various commodity trading advisors pursuant to which the Fund pays quarterly profit shares of 15% to 20% of Trading Profit (as defined in each advisory agreement). Note 4. DEPOSITS WITH BROKERS The Fund deposits cash with brokers subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such brokers. The Fund earns interest income on its cash deposited with the brokers. Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS Investments in Units of Beneficial Interest are made by subscription agreement, subject to acceptance by the Managing Owner. The Fund is not required to make distributions, but may do so at the sole discretion of the Managing Owner. A Unitholder may request and receive redemption of Units owned, beginning with the end of the sixth month after -F-6- KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS (CONTINUED) such Units are sold, subject to restrictions in the Declaration of Trust and Trust Agreement. Units redeemed on or before the end of the twelfth full calendar month and after the end of the twelfth full month but on or before the end of the eighteenth full calendar month after the date such Units begin to participate in the profits and losses of the Fund are subject to early redemption charges of 3% and 2%, respectively, of the Net Asset Value redeemed. All redemption charges are paid to the Managing Owner. Such redemption charges are included in redemptions of unitholders' capital and amounted to $51,752 and $12,592 during 1998 and 1997, respectively. Note 6. TRADING ACTIVITIES AND RELATED RISKS The Fund engages in the speculative trading of U.S. and foreign futures contracts, options on U.S. and foreign futures contracts and forward contracts (collectively, "derivatives"). These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The Fund is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. Purchases and sales of futures and options on futures contracts require margin deposits with the FCMs. Additional deposits may be necessary for any loss of contract value. The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from such FCM's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with an FCM are considered commingled with all other customer funds subject to the FCM's segregation requirements. In the event of an FCM's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. The Fund has cash on deposit with interbank market makers and other financial institutions in connection with its trading of forward contracts and its cash management activities. In the event of a financial institution's insolvency, recovery of Fund assets on deposit may be limited to account insurance or other protection afforded such deposits. In the normal course of business, the Fund does not require collateral from such financial institutions. Since forward contracts are traded in unregulated markets between principals, the Fund also assumes the risk of loss from counterparty nonperformance. For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Fund is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Fund pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Fund to potentially unlimited liability, and purchased options expose the Fund to a risk of loss limited to the premiums paid. -F-7- KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) The fair value of derivatives represents unrealized gains and losses on open futures and forward contracts and long and short options at market value. The average fair value of derivatives for the year ended December 31, 1998 and for the period May 22, 1997 (commencement of trading) to December 31, 1997 and the related fair values as of December 31, 1998 and 1997, are as follows:
1998 1997 ------------------------- ------------------------- Average Year End Average Period End Fair Value Fair Value Fair Value Fair value ---------- ---------- ---------- ---------- Exchange traded futures and options on futures contracts $1,050,000 $1,240,000 $440,000 $847,000 Forward contracts 20,000 (20,000) 30,000 3,000
Net trading results from derivatives for the years ended December 31, 1998 and 1997, are reflected in the statement of operations and consist of the gain from trading less brokerage commissions and the portion of the Managing Owner brokerage commissions that is payable to the brokers. For the years ended December 31, 1998 and 1997, the net trading gain from derivatives was approximately $4,564,000 and $595,000, respectively. Such trading results reflect the net gain arising from the Fund's speculative trading of futures contracts, options on futures contracts and forward contracts. Open contracts generally mature within one year; however, the Fund intends to close all contracts prior to maturity. The latest maturity date for open contracts at December 31, 1998 and 1997 is September 1999 and June 1998, respectively. At December 31, 1998 and 1997, the notional amount of open contracts is as follows:
1998 1997 --------------------------- --------------------------- Contracts to Contracts to Contracts to Contracts to Purchase Sell Purchase Sell ------------ ------------ ------------ ------------ Exchange traded futures contracts and written options thereon: - Financial instruments .............. $ 96,900,000 $ 99,000,000 $ 44,900,000 $ 16,300,000 - Metals ............................. 4,200,000 11,100,000 1,800,000 3,700,000 - Energy ............................. 0 1,800,000 0 1,100,000 - Agricultural ....................... 900,000 9,300,000 1,500,000 2,800,000 - Currencies ......................... 6,800,000 6,400,000 15,300,000 18,800,000 Forward Contracts: - Currencies ........................ 4,600,000 2,600,000 0 700,000 ------------ ------------ ------------ ------------ $113,400,000 $130,200,000 $ 63,500,000 $ 43,400,000 ============ ============ ============ ============ Exchange traded purchased options on futures contracts: - Financial instruments ............. 0 0 $ 3,400,000 $ 0 - Currencies ........................ 0 0 0 1,400,000 ------------ ------------ ------------ ------------ $ 0 $ 0 $ 3,400,000 $ 1,400,000 ============ ============ ============ ============
-F-8- KENMAR GLOBAL TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) The above amounts do not represent the Fund's risk of loss due to market and credit risk, but rather represent the Fund's extent of involvement in derivatives at the date of the statement of financial condition. The Managing Owner has established procedures to actively monitor market risks and minimize credit risk. The Unitholders bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received. -F-9- EX-27 3 FINANCIAL DATA SCHEDULE
5 1 12-MOS DEC-31-1998 DEC-31-1998 10,582,645 0 0 0 0 26,091,157 0 0 26,091,157 728,059 0 0 0 0 0 26,091,157 0 5,575,115 0 0 2,963,014 0 0 2,612,101 0 2,612,101 0 0 0 2,612,101 16.96 16.96
-----END PRIVACY-ENHANCED MESSAGE-----