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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Form 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
Two American Lane, P.O. Box 5150, Greenwich, Connecticut 06831-8150
-------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (203) 861-1000
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 No X
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<PAGE>
KENMAR GLOBAL TRUST
QUARTER ENDED SEPTEMBER 30, 1998
----------
INDEX
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of September 30, 1998
(unaudited) and December 31, 1997 (audited) 1
Statements of Operations for the Three Months and Nine
Months Ended September 30, 1998 and 1997 (unaudited) 2
Statements of Cash Flows for the Nine Months Ended
September 30,1998 and 1997 (unaudited) 3
Statements of Changes in Unitholders' Capital (Net Asset
Value) for the Nine Months Ended September 30, 1998 and
1997 (unaudited) 4
Notes to Financial Statements (unaudited) 5-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
i
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 (Unaudited) and December 31, 1997 (Audited)
----------
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Equity in broker trading accounts
Cash $14,560,861 $11,166,621
Net option premiums paid 0 12,165
Unrealized gain on open contracts 2,274,668 838,321
----------- -----------
Deposits with brokers 16,835,529 12,017,107
Cash 4,316,581 588,287
Other assets 53,527 177,369
----------- -----------
Total assets $21,205,637 $12,782,763
=========== ===========
LIABILITIES
Accounts payable $ 47,044 $ 24,489
Commissions and other trading fees on open contracts 11,828 6,831
Managing Owner brokerage commissions 113,149 89,492
Advisor profit shares 653,204 54,575
Managing Owner incentive fee 99,152 0
Reimbursable offering costs 69,111 23,058
Redemptions payable 210,200 176,774
Redemption charges payable to Managing Owner 5,763 4,503
Subscription deposits 0 25,720
----------- -----------
Total liabilities 1,209,451 405,442
----------- -----------
UNITHOLDERS' CAPITAL (NET ASSET VALUE)
Managing Owner--1,774.6051 and 1,258.4577 units outstanding
at September 30, 1998 and December 31, 1997 210,063 125,970
Other Unitholders--167,152.2390 and 122,392.3731 units
outstanding at September 30, 1998 and December 31, 1997 19,786,123 12,251,351
----------- -----------
Total unitholders' capital
(Net Asset Value) 19,996,186 12,377,321
----------- -----------
$21,205,637 $12,782,763
=========== ===========
See accompanying notes.
</TABLE>
1
<PAGE>
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1998 and 1997 and
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
----------
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
---------- -------- ---------- ---------
INCOME
<S> <C> <C> <C> <C>
Trading gains (losses)
Realized $1,945,436 $146,520 $3,538,619 $(25,851)
Change in unrealized 2,023,463 293,956 1,436,347 322,915
---------- -------- ---------- ---------
Gain from trading 3,968,899 440,476 4,974,966 297,064
Interest income 179,518 106,345 549,361 151,305
---------- -------- ---------- ---------
Total income 4,148,417 546,821 5,524,327 448,369
---------- -------- ---------- ---------
EXPENSES
Brokerage commissions 39,010 19,384 100,591 23,461
Managing Owner brokerage commissions 410,894 253,818 1,110,523 338,023
Advisor profit shares 637,231 51,232 875,702 55,523
Managing Owner incentive fee 99,152 0 100,182 0
Operating expenses 87,417 12,420 154,108 16,433
---------- -------- ---------- ---------
Total expenses 1,273,704 336,854 2,341,106 433,440
---------- -------- ---------- ---------
NET INCOME $2,874,713 $209,967 $3,183,221 $ 14,929
========== ======== ========== =========
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the period) $ 18.47 $ 2.12 $ 22.26 $ .16
========== ======== ========== =========
INCREASE (DECREASE) IN NET
ASSET VALUE PER UNIT $ 17.34 $ 2.44 $ 18.27 $ (.16)
========== ======== ========== =========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
----------
<CAPTION>
Nine Months
Ended
September 30,
-----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM (FOR)OPERATING ACTIVITIES
Net income $3,183,221 $14,929
Adjustments to reconcile net income to net cash
from (for) operating activities:
Net change in unrealized (1,436,347) (322,915)
Increase in accounts payable and
accrued expenses 748,990 225,417
Decrease in net option premiums 12,165 20,725
Decrease in other assets 123,842 0
----------- -----------
Net cash from (for) operating activities 2,631,871 (61,844)
----------- -----------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Addition of units 6,525,844 11,387,259
Decrease in subscription deposits (25,720) 0
Offering costs paid (369,968) (5,630)
Redemption of units (1,639,493) 0
----------- -----------
Net cash from financing activities 4,490,663 11,381,629
----------- -----------
Net increase in cash 7,122,534 11,319,785
CASH
Beginning of period 11,754,908 2,000
----------- -----------
End of period $18,877,442 $11,321,785
=========== ===========
END OF PERIOD CASH CONSISTS OF:
Cash in broker trading accounts $14,560,861 $10,004,683
Cash 4,316,581 1,317,102
----------- -----------
Total end of period cash $18,877,442 $11,321,785
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
KENMAR GLOBAL TRUST
STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE)
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
----------
<CAPTION>
Unitholders' Capital
Total -------------------------------------------------
Number of Managing Other
Units Owner Unitholders Total
------------ -------- ----------- -----------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1998
- ------------------------------------
Balances at December 31, 1997 123,650.8308 $125,970 $12,251,351 $12,377,321
Net income for the nine months
ended September 30, 1998 32,951 3,150,270 3,183,221
Additions 61,475.3446 55,400 6,470,444 6,525,844
Redemptions (16,199.3313) 0 (1,674,179) (1,674,179)
Offering costs (4,258) (411,763) (416,021)
------------ -------- ----------- -----------
Balances at September 30, 1998 168,926.8441 $210,063 $19,786,123 $19,996,186
============ ======== =========== ===========
Nine Months Ended September 30, 1997
- ------------------------------------
Balances at December 31, 1996 20.0000 $ 400 $ 1,600 $ 2,000
Additions 113,411.1982 115,800 11,271,459 11,387,259
Net income for the nine months
ended September 30, 1997 157 14,772 14,929
Offering costs (808) (78,069) (78,877)
------------ -------- ----------- -----------
Balances at September 30, 1997 113,431.1982 $115,549 $11,209,762 $11,325,311
============ ======== =========== ===========
Net Asset Value Per Unit
-----------------------------------------------------------------------------
September 30, December 31, September 30, December 31,
1998 1997 1997 1996
------- ------- ------ -------
$118.37 $100.10 $99.84 $100.00
======= ======= ====== =======
See accompanying notes.
</TABLE>
4
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Trust
Kenmar Global Trust (the Trust) is a Delaware business trust. The Trust
is a multi-advisor, multi-strategy commodity pool which trades in United
States (U.S.) and foreign futures, options, forwards and related
markets. The Trust 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 Trust
is subject to the regulatory requirements under the Securities Act of
1933 and the Securities Exchange Act of 1934. As a commodity pool, the
Trust 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 Trust executes
transactions. Additionally, the Trust is subject to the requirements of
the Futures Commission Merchants (FCMs) and interbank market makers
(collectively, "brokers") through which the Trust trades.
C. Method of Reporting
The Trust's financial statements are presented in accordance with
generally accepted accounting principles, which require the use of
certain estimates made by the Trust'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 Trust prepares calendar year U.S. and state information tax returns
and reports to the Unitholders their allocable shares of the Trust's
income, expenses and trading gains or losses.
5
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. Organizational and Offering Costs
Organizational and initial offering costs (exclusive of selling
commissions) of approximately $560,000 were advanced to the Trust by the
Managing Owner. Such costs are charged to the Trust and reimbursed to
the Managing Owner at a monthly rate of 0.2% of the Trust's beginning of
month Net Asset Value until such amounts are fully reimbursed. The total
amount of organizational and initial offering costs to be reimbursed to
the Managing Owner may be reduced by $25,000 if the Trust's Net Asset
Value does not reach a certain future level. Any unreimbursed
organizational and initial offering costs as of the date of the Trust's
dissolution will not be reimbursed to the Managing Owner.
Ongoing offering costs are borne by the Trust and are charged directly
to unitholders' capital as incurred.
The Declaration of Trust and Trust Agreement limits organizational and
offering costs, including selling commissions and redemption fees, to
15% of the capital contributions to the Trust.
F. Foreign Currency Transactions
The Trust'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 Trust is Kenmar Advisory Corp., which conducts
and manages the business of the Trust. 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 Trust.
The Managing Owner is paid monthly brokerage commissions equal to 1/12
of 11% (11% annually) of the Trust's beginning of month Net Asset Value.
The Managing Owner, in turn, pays substantially all actual costs of
executing the Trust'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 Trust.
6
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 2. MANAGING OWNER (CONTINUED)
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 Trust has advisory agreements with various commodity trading
advisors pursuant to which the Trust pays quarterly profit shares of 15%
to 20% of Trading Profit (as defined in each advisory agreement).
Note 4. DEPOSITS WITH BROKERS
The Trust deposits funds 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 Trust 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 Trust 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 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 Trust 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 $35,057 during the nine months ended September 30, 1998.
Note 6. TRADING ACTIVITIES AND RELATED RISKS
The Trust 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 Trust 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.
7
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
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 Trust 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 Trust assets on deposit
may be limited to account insurance or other protection afforded such
deposits. In the normal course of business, the Trust does not require
collateral from such financial institutions. Since forward contracts are
traded in unregulated markets between principals, the Trust also assumes
the risk of loss from counterparty nonperformance.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Trust 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 Trust 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 Trust to potentially
unlimited liability, and purchased options expose the Trust to a risk of
loss limited to the premiums paid.
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 nine months ended
September 30, 1998 and for the period May 22, 1997 (commencement of
trading) to September 30, 1997 and the related fair values as of
September 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
For the Nine For the Period
Months Ended May 22, 1997 As of As of
September 30, to September 30, December 31,
1998 September 30, 1997 1998 1997
------------ ------------------ ------------- -----------
<S> <C> <C> <C> <C>
Exchange traded futures and
options on futures contracts $1,110,000 $240,000 $2,195,000 $847,000
Forward contracts 200 50,000 80,000 3,000
</TABLE>
Net trading results from derivatives for the three months and nine
months ended September 30, 1998 and 1997 are reflected in the statement
of operations and consists 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 three months and nine months
ended September 30, 1998, the net trading gain from derivatives was
approximately $3,899,000 and $4,804,000, respectively. For the three
months and nine months ended September 30, 1997, the net trading gain
from derivatives was approximately $406,000
8
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
and $254,000, respectively. Such trading results reflect the net gain
arising from the Trust's speculative trading of futures contracts,
options on futures contracts and forward contracts.
Open contracts generally mature within one year; the latest maturity
date for open contracts as of September 30, 1998 is December 2000.
However, the Trust intends to close all contracts prior to maturity. At
September 30, 1998 and December 31, 1997, the notional amount of open
contracts is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------------ -----------------------------
Contracts to Contracts to Contracts to Contract to
Purchase Sell Purchase Sell
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Exchange traded futures contracts and
written options thereon:
- Financial instruments $195,900,000 $ 4,200,000 $44,900,000 $16,300,000
- Metals 5,600,000 5,900,000 1,800,000 3,700,000
- Energy 600,000 1,400,000 0 1,100,000
- Agricultural 600,000 6,400,000 1,500,000 2,800,000
- Currencies 15,700,000 5,900,000 15,300,000 18,800,000
Forward Contracts:
- Currencies 5,600,000 1,600,000 0 700,000
------------ ----------- ----------- -----------
$224,000,000 $25,400,000 $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
============ =========== =========== ===========
</TABLE>
The above amounts do not represent the Trust's risk of loss due to
market and credit risk, but rather represent the Trust's extent of
involvement in derivatives at the date of the statement of financial
condition.
The Managing Owner has established procedures to actively monitor and
minimize market and 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.
Note 7. INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of September 30, 1998, the
statements of operations for the nine months ended September 30, 1998
and 1997 and for the three months ended September 30, 1998 and
9
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
1997 and the statements of cash flows and changes in unitholders'
capital (net asset value) for the nine months ended September 30, 1998
and 1997 are unaudited. In the opinion of management, such financial
statements reflect all adjustments, which were of a normal and recurring
nature, necessary for a fair presentation of financial position as of
September 30, 1998, the results of operations for the three months and
nine months ended September 30, 1998 and 1997 and cash flows for the
nine months ended September 30, 1998 and 1997.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The proceeds of the offering of the Units are used by the Trust 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 Trust are deposited with commodity brokers and interbank
dealers (collectively, the "Clearing Brokers") in trading accounts established
by the Trust for the Advisors and are used by the Trust 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.
CAPITAL RESOURCES. The Trust does not have, nor does it expect to have, any
capital assets. Redemptions and sales of the units of beneficial interest (the
"Units") in the future will affect the amount of funds available for trading
futures, forwards and options in subsequent periods.
There are three primary factors that affect the Trust's capital resources: (i)
the trading profit or loss generated by the Advisors (including interest
income); (ii) the capital invested or redeemed by the unitholders of the Trust
(the "Unitholders"); and (iii) the capital invested or redeemed by the Trust's
managing owner, Kenmar Advisory Corp. ("Kenmar"). Kenmar has maintained, and has
agreed to maintain, at all times one percent (1%) interest in the Trust. All
capital contributions by Kenmar necessary to maintain such capital account
balance are evidenced by units of beneficial interest, each of which has an
initial value equal to the Net Asset Value per Unit (as defined below) at the
time of such contribution. Kenmar, in its sole discretion, may withdraw any
excess above its required capital contribution without notice to the
Unitholders. Kenmar, in its sole discretion, may also contribute any greater
amount to the Trust, for which it shall receive, at its option, additional Units
at their then-current Net Asset Value (as defined below).
"Net Asset Value" is defined as total assets of the Trust less total liabilities
as determined in accordance with generally accepted accounting principles as
described in the Trust's Amended and Restated Declaration of Trust and Trust
Agreement dated as of December 17, 1996 (the "Declaration of Trust Agreement").
The term "Net Asset Value Per Unit" is defined in the Declaration of Trust
Agreement to mean the Net Assets of the Trust divided by the number of Units
outstanding as of the date of determination.
RESULTS OF OPERATIONS. The Trust incurs substantial charges from the payment of
profit shares to the Advisors, incentive fees to Kenmar, reimbursement to Kenmar
for its advancing the organizational and initial offering costs of the Trust,
brokerage commissions and miscellaneous executions costs and administrative
expenses. Such reimbursement and brokerage commissions are payable based upon
the Net Asset Value of the Trust and are payable without regard to the
profitability of the Trust. As a result, it is possible that the Trust may incur
a net loss when trading profits are not substantial enough to avoid depletion of
the Trust's assets from such fees and expenses. Thus, due to the nature of the
Trust's business, the success of the Trust is dependent upon the ability of the
Advisors to generate trading profits through the speculative trading of futures,
forwards and options sufficient to produce capital appreciation after payment of
all fees and expenses.
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
Trust can only be discussed in the context of the overall trading activities of
the Trust, the Advisors' trading activities on behalf of the Trust as a whole
and how the Trust has performed in the past.
The Trust commenced trading operations on May 22, 1997. Set forth below are the
results of operations of the Trust for the three months and nine months ended
September 30, 1998 and 1997.
As of September 30, 1998, the Net Asset Value of the Trust was $19,996,186, an
increase of approximately 31.57% from its Net Asset Value of $15,197,940 at June
30, 1998. The Trust's subscriptions and redemptions for the quarter ended
September 30, 1998 totaled $2,759,592 and $646,119, respectively. For the
quarter ended September 30, 1998, the Trust had revenues comprised of $1,945,436
in realized gains, $2,023,463 in change in unrealized gains and $179,518 in
interest income compared to revenues comprised of $146,520 in realized gains,
$293,956 in change in unrealized gains and $106,345 in interest income for the
same period in 1997. Total income for the third quarter of 1998 increased by
$3,601,596 from the same period in 1997, while total expenses increased by
$936,850 between these periods. The Net Asset Value per Unit at September 30,
1998 increased 17.16% from $101.03 at June 30, 1998 to $118.37 at September 30,
1998. The Trust's positive performance for the quarter ended September 30, 1998
resulted primarily from gains in currencies, global interest rates, grains and
meats.
The Net Asset Value of the Trust increased $7,618,865, or 61.56% from December
31, 1997 through September 30, 1998. The Trust's subscriptions and redemptions
for the nine months ended September 30, 1998 totaled $6,525,844 and $1,674,179,
11
<PAGE>
respectively. For the nine months ended September 30, 1998, the Trust had
revenues comprised of $3,538,619 in realized gains, $1,436,347 in change in
unrealized gains and $549,361 in interest income compared to revenues comprised
of ($25,851) in realized losses, $322,915 in change in unrealized gains and
$151,305 in interest income for the same period in 1997. The total income for
the first nine months of 1998 increased by $5,075,958 from the same period in
1997 while expenses increased by $1,907,666 between these periods. The Net Asset
Value per Unit at September 30, 1998 increased 18.25% from $100.10 at December
31, 1997 to $118.37 at September 30, 1998. The Trust's positive performance for
the first nine months of 1998 resulted primarily from gains in European and US
interest rates, European stock indices, grains, tropicals and meats.
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. Units may be redeemed, at a Unitholder's option, as of the close of
business on the last day of any month beginning with the end of the sixth month
after their sale. Units are redeemed at Net Asset Value, subject to redemption
charges of 3% and 2%, respectively, for Units redeemed on and after the end of
the sixth month through the end of the twelfth month after sale and from the end
of the twelfth month through the end of the eighteenth month after sale.
With respect to the Trust's trading, in general, the Trust'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. The price of a futures contract has
occasionally moved the daily limit for several consecutive days, with little or
no trading, thereby effectively preventing a party from liquidating its
position. While the occurrence of such an event may reduce or effectively
eliminate the liquidity of a particular market, it will not limit ultimate
losses and may in fact substantially increase losses because of this inability
to liquidate unfavorable positions. In addition, if there is little or no
trading in a particular futures or forward contract that the Trust is trading,
whether such illiquidity is caused by any of the above reasons or otherwise, the
Trust 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 Trust to make or take delivery of the underlying interest of the
commodity.
In addition, certain Advisors trade on futures markets outside the United States
on behalf of the Trust. Certain foreign exchanges may be substantially more
prone to periods of illiquidity than United States exchanges. Further, certain
Advisors trade forward contracts which are not traded on exchanges; rather banks
and dealers act as principals in these markets. The Commodity Futures Trading
Commission does not regulate trading on non-U.S. futures markets or in forward
contracts.
YEAR 2000 COMPLIANCE. Commodity pools, like financial business organizations and
individuals around the world, depend on the smooth functioning of computer
systems. Many computer systems in use today cannot recognize the computer code
for the year 2000, but revert to 1900 or some other date. This is commonly known
as the "Year 2000 Problem". The Trust could be adversely affected if computer
systems used by Kenmar or any third party with whom it has a material
relationship do not properly process and calculate date-related information and
data concerning dates on or after January 1, 2000. Such a failure could have a
negative impact on the handling or determination of futures trades and prices
and the services provided to the Trust.
Kenmar has begun its planning in response to the Year 2000 Problem and currently
has employees specifically working on such response. Kenmar has developed its
own Year 2000 compliance plan to deal with the potential problems and has taken
steps that it believes are reasonably designed to address the Year 2000 Problem
with respect to the computer systems that relate to the Trust. This includes
hardware and software upgrades, systems consulting and computer maintenance.
Beyond the challenges facing internal computer systems, the systems failure of
any of the third parties with whom the Trust has a material relationship--e.g.,
the futures exchanges and clearing organizations through which it trades and the
respective Advisors--could result in a material financial risk to the Trust.
Regarding the futures exchanges, all United States futures exchanges will be
subject to the monitoring of the CFTC for their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject to market-wide
testing of their Year 2000 compliance during 1999. With respect to the Advisors,
Kenmar intends to monitor their progress throughout 1999 in their Year 2000
compliance and, where applicable, to test external interface with the Advisors.
Despite the best efforts of Kenmar, there can be no assurance that the above
steps will be sufficient to avoid any adverse impact to the Trust, whether from
failures in its own computer systems or those of the Advisors or Clearing
Brokers or other third parties. The cost of Year 2000 compliance has not been
and is not expected to be material to the financial condition or operating
results of the Partnership.
12
<PAGE>
SAFE HARBOR STATEMENT. The discussion above contains certain forward-looking
statements (as such term is defined in the rules promulgated under the
Securities Exchange Act of 1934) that are based on the beliefs of the Trust, as
well as assumptions made by, and information currently available to, the Trust.
A number of important factors should cause the Trust's actual results,
performance or achievements for 1998 and beyond to differ materially from the
results, performance or achievements expressed in, or implied by, such
forward-looking statements. These factors include, without limitation, the
factors described above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Derivative instruments involve varying degrees of off-balance sheet market risk
and changes in the level or volatility of interest rates, foreign currency
exchange rates or the market values of the financial instruments or commodities
underlying such derivative instruments frequently result in the changes in the
Trust's unrealized profit (loss) on such derivative instruments as reflected in
the Statements of Financial Condition. The Trust's exposure to market risk is
influenced by a number of factors, including the relationships among derivative
instruments held by the Trust as well as the volatility and liquidity of the
markets in which the financial instruments are traded.
Kenmar has procedures in place intended to control the Trust's exposure to
market risk, although there can be no assurance that they will, in fact, succeed
in doing so. These procedures focus primarily on monitoring the trading of the
Advisors selected from time to time for the Trust, calculating the Net Asset
Value of the Advisors respective Trust accounts as of the close of business on
each day and reviewing outstanding positions for over-concentrations--both on
an Advisor-by-Advisor and on an overall Trust basis. While Kenmar will not
itself intervene in the markets to hedge or diversify the Trust's market
exposure, Kenmar may urge Advisors to reallocate positions, or itself reallocate
Trust assets among Advisors (although typically only as of the end of a month)
in an attempt to avoid over-concentrations. However, such interventions would be
unusual. Except in cases in which it appears that an Advisor has begun to
deviate from past practice or trading policies or to be trading erratically,
Kenmar's basic risk control procedures consist of the ongoing process of Advisor
monitoring and selection, with the market risk controls being applied by the
Advisors themselves.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
On December 17, 1996, the Trust commenced offering Units in a public offering
under the Securities Act of 1933. The Trust commenced trading operations on May
22, 1997. Units are offered at Net Asset Value as of the last day of each month.
The minimum investment is 50 Units (or, if less, $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 20 Units (or, if less, $2,000). Investments in excess
of these minimums are permitted in $100 increments.
During the third quarter of 1998, 24,448 Units were sold for a total of
$2,759,600.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS.
Financial Data Schedule.
B. REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements 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.
KENMAR GLOBAL TRUST
By: Kenmar Advisory Corp., managing owner
Dated: November 13, 1998 By: /s/ ROBERT L. CRUIKSHANK
----------------------------------
Robert L. Cruikshank
Executive Vice President
(Duly Authorized Officer
of Kenmar)
Dated: November 13, 1998 By: /s/ THOMAS J. DIVUOLO
----------------------------------
Thomas J. DiVuolo
Senior Vice President
(Principal Financial and Accounting
Officer of the Registrant)
14
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