<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1999
COMMISSION FILE NUMBER: 0-23950
KENMAR PERFORMANCE PARTNERS L.P.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2751509
(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 X No
------
<PAGE> 2
KENMAR PERFORMANCE PARTNERS L.P.
QUARTER ENDED JUNE 30, 1999
INDEX
PAGE
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of June 30, 1999
(unaudited) and December 31, 1998 (audited) 3
Statements of Operations for the Three Months and Six Months
Ended June 30, 1999 (unaudited) and 1998 (unaudited) 4
Statements of Changes in Partners' Capital (Net Asset Value)
for the Six Months Ended June 30, 1999 (unaudited)
and 1998 (unaudited) 5
Notes to Financial Statements (unaudited) 6-10
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 and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
KENMAR PERFORMANCE PARTNERS L.P.
STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 (unaudited) and December 31, 1998 (audited)
June 30, December 31,
1999 1998
---- ----
ASSETS
Equity in broker trading accounts
Cash $29,954,737 $15,308,018
Net option premiums (received) (242,318) (903,236)
Unrealized gain on open contracts 4,867,128 2,683,294
----------- -----------
Deposits with brokers 34,579,547 17,088,076
Cash and cash equivalents 9,722,905 5,150,036
Fixed income securities (cost,
including accrued interest, -
$22,090,170 and $44,688,456) 21,915,696 44,722,669
----------- -----------
Total assets $66,218,148 $66,960,781
=========== ===========
LIABILITIES
Accounts payable $ 19,044 $ 55,082
Commissions and other trading fees
on open contracts 377,159 433,602
Management fees 194,075 199,471
Incentive fees 717,755 537,584
Redemptions payable 1,325,594 458,912
----------- -----------
Total liabilities 2,633,627 1,684,651
----------- -----------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner - 53.5807 units
outstanding at June 30, 1999 and
December 31, 1998 976,322 914,497
Limited Partners - 3,435.9465 and
3,770.9723 units outstanding at
June 30, 1999 and December 31, 1998 62,608,199 64,361,633
----------- -----------
Total partners' capital
(Net Asset Value) 63,584,521 65,276,130
----------- -----------
$66,218,148 $66,960,781
=========== ===========
See accompanying notes.
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KENMAR PERFORMANCE PARTNERS L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1999
and 1998 and For the Six Months Ended
June 30, 1999 and 1998
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME
Commodity trading gains (losses)
Realized $ 9,295,474 $ (766,687) $ 8,692,942 $ 14,127,982
Change in unrealized 3,340,211 (3,883,736) 2,183,834 (3,277,249)
------------ ----------- ------------ ------------
Gain (loss) from commodity
trading 12,635,685 (4,650,423) 10,876,776 10,850,733
------------ ----------- ------------ ------------
Fixed income securities gains (losses)
Realized (218,493) 56,898 (525,093) 135,602
Change in unrealized (25,782) (31,980) (208,687) (132,718)
------------ ----------- ------------ ------------
Gain (loss) from fixed
income securities (244,275) 24,918 (733,780) 2,884
------------ ----------- ------------ ------------
Interest income 618,541 782,507 1,441,471 1,815,985
------------ ----------- ------------ ------------
Total income (loss) 13,009,951 (3,842,998) 11,584,467 12,669,602
------------ ----------- ------------ ------------
EXPENSES
Brokerage commissions 2,596,424 3,974,036 5,258,128 7,188,610
Management fees 568,992 549,212 1,143,223 1,181,793
Incentive fees 717,514 548,527 832,005 3,003,275
General Partner administrative
fee for operating expenses 153,491 151,595 334,054 331,237
Cash management service charge 15,000 21,499 22,000 33,792
Legal expenses 4,369 5,237 10,695 7,873
------------ ----------- ------------ ------------
Total expenses 4,055,790 5,250,106 7,600,105 11,746,580
------------ ----------- ------------ ------------
NET INCOME (LOSS) $ 8,954,161 $(9,093,104) $ 3,984,362 $ 923,022
============ =========== ============ ============
NET INCOME (LOSS) PER UNIT
(based on weighted average number
of units outstanding during
the period) $ 2,453.98 $ (2,104.38) $ 1,069.45 $ 207.86
============ =========== ============ ============
INCREASE (DECREASE) IN NET
ASSET VALUE PER UNIT $ 2,468.86 $ (2,035.24) $ 1,153.88 $ 95.46
============ =========== ============ ============
</TABLE>
See accompanying notes.
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<PAGE> 5
KENMAR PERFORMANCE PARTNERS L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Partners' Capital
--------------------------------------------------------------------------------
General Limited Total
Units Amount Units Amount Units Amount
------- -------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1999
- ------------------------------
Balances at December 31, 1998 53.5807 $914,497 3,770.9723 $ 64,361,633 3,824.5530 $ 65,276,130
Net income for the six months
ended June 30, 1999 61,825 3,922,537 3,984,362
Additions 0.0000 0 62.4056 1,060,903 62.4056 1,060,903
Redemptions 0.0000 0 (397.4314) (6,736,874) (397.4314) (6,736,874)
------- -------- ---------- ------------ ---------- ------------
Balances at June 30, 1999 53.5807 $976,322 3,435.9465 $ 62,608,199 3,489.5272 $ 63,584,521
======= ======== ========== ============ ========== ============
Six Months Ended June 30, 1998
- ------------------------------
Balances at December 31, 1997 53.5807 $769,245 4,640.7205 $ 66,625,712 4,694.3012 $ 67,394,957
Net income for the six months
ended June 30, 1998 5,115 917,907 923,022
Additions 0.0000 0 34.6895 521,886 34.6895 521,886
Redemptions 0.0000 0 (561.9807) (8,617,315) (561.9807) (8,617,315)
------- -------- ---------- ------------ ---------- ------------
Balances at June 30, 1998 53.5807 $774,360 4,113.4293 $ 59,448,190 4,167.0100 $ 60,222,550
======= ======== ========== ============ ========== ============
Net Asset Value Per Unit
---------------------------------------------------
June 30, December 31, June 30, December 31,
1999 1998 1998 1997
$18,221.53 $17,067.65 $14,452.22 $14,356.76
========== ========== ========== ==========
</TABLE>
See accompanying notes.
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KENMAR PERFORMANCE PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Partnership
Kenmar Performance Partners L.P. (the Partnership) is a New
York limited partnership. The Partnership is a multi-advisor,
multi-strategy commodity pool which trades in United States
(U.S.) and foreign futures, options, forwards and related
markets. It 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
commodity exchanges where the Partnership executes
transactions. Additionally, the Partnership is subject to the
requirements of Futures Commission Merchants (FCMs) and
interbank market makers (collectively, "brokers") through
which the Partnership trades.
The Partnership is a registrant with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of
1934. As a registrant, the Partnership is subject to the
regulation of the Securities and Exchange Commission.
B. Method of Reporting
The Partnership's financial statements are presented in
accordance with generally accepted accounting principles,
which require the use of certain estimates made by the
Partnership's management.
C. Commodities
Gains or losses are realized when contracts are liquidated.
Unrealized gains or losses on open contracts (the difference
between contract purchase price and market price) at the date
of the statement of financial condition are included in equity
in broker trading accounts. Any change in net unrealized gain
or loss from the preceding period is reported in the statement
of operations. Brokerage commissions include other trading
fees and are charged to expense when contracts are opened.
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash and investments in
money market mutual funds. Interest income includes
interest-equivalent dividends on money market mutual funds.
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<PAGE> 7
KENMAR PERFORMANCE PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. Fixed Income Securities
Fixed income securities are reported at market value plus
accrued interest. Fixed income securities transactions are
accounted for on the trade date. Interest is recorded on the
accrual basis.
F. Income Taxes
The Partnership prepares calendar year U.S. and state
information tax returns and reports to the partners their
allocable shares of the Partnership's income, expenses and
trading gains or losses.
G. Foreign Currency Transactions
The Partnership'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. GENERAL PARTNER
The General Partner of the Partnership is Kenmar Advisory Corp.,
which conducts and manages the business of the Partnership. The
General Partner is required by the Limited Partnership Agreement to
maintain an investment in the Partnership of 1% of the Net Asset
Value, up to a total of $500,000.
A portion of the brokerage commissions paid by the Partnership to
certain brokers is, in turn, paid by the brokers to the General
Partner.
Commencing May 1998, the General Partner rebated to certain
multi-million dollar investors a portion of the compensation it
receives for managing the Partnership. Such rebates were made by
issuing additional units and, for the six months ended June 30, 1999
and 1998, amounted to $148,407 and $31,142, respectively.
Note 3. COMMODITY TRADING ADVISORS
The Partnership has advisory agreements with various commodity
trading advisors pursuant to which the Partnership pays monthly
management fees of 0% to 1/6 of 1% (2% annually) of the net asset
value under management (as defined in the advisory agreements) and
quarterly incentive fees of 15% to 25% of the profit subject to
incentive fee (as defined in the advisory agreements).
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<PAGE> 8
KENMAR PERFORMANCE PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 4. DEPOSITS WITH BROKERS
The Partnership 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 Partnership earns interest income on
its cash deposited with the brokers.
Note 5. OTHER EXPENSES
The General Partner pays substantially all ordinary operating and
administrative expenses incurred by the Partnership. The Partnership
pays the General Partner a monthly administrative fee equal to 1/12
of 1% (1% annually) of the prior month's beginning Net Asset Value of
the Partnership. The Partnership also pays actual amounts incurred
for cash management services and services performed by independent
legal counsel.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the General Partner. The subscription price
is equal to the Net Asset Value of the units purchased plus a 5%
selling commission, unless waived in whole or in part by the General
Partner. Additions to partners' capital are shown net of such selling
commissions, which amounted to $7,808 and $5,128 for the six months
ended June 30, 1999 and 1998, respectively.
The Partnership is not required to make distributions, but may do so
at the sole discretion of the General Partner. A Limited Partner may
request and receive redemption of units owned, subject to
restrictions in the Limited Partnership Agreement.
Note 7. TRADING ACTIVITIES AND RELATED RISKS
The Partnership 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 Partnership 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.
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<PAGE> 9
KENMAR PERFORMANCE PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Purchase and sale of futures and options on futures contracts
requires margin deposits with the FCMs. Additional deposits may be
necessary for any loss on 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 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 Partnership has a substantial portion of its assets on deposit
with brokers and dealers in securities and other financial
institutions in connection with its cash management activities. In
the event of a financial institution's insolvency, recovery of
Partnership assets on deposit may be limited to account insurance or
other protection afforded such deposits. In the normal course of
business, the Partnership requires collateral for repurchase
agreements in excess of the face value of such agreements.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market risk
equal to the value of futures contracts purchased and unlimited
liability on such contracts sold short. As both a buyer and seller of
options, the Partnership 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
Partnership to potentially unlimited liability, and purchased options
expose the Partnership 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 during the six
months ended June 30, 1999 and 1998, was approximately $5,200,000 and
$4,100,000, respectively, and the related fair values at June 30,
1999 and December 31, 1998, are approximately $4,265,000 and
$1,780,000, respectively.
Net trading results from derivatives for the three months and six
months ended June 30, 1999 and 1998, are reflected in the statement
of operations and equal gain (loss) from commodity trading less
brokerage commissions. Such trading results reflect the net gain
(loss) arising from the Partnership's speculative trading of futures
contracts, options on futures contracts and forward contracts.
-9-
<PAGE> 10
KENMAR PERFORMANCE PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
At June 30, 1999 and December 31, 1998, the notional amount of open
contracts is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
Contracts to Contracts to Contracts to Contracts to
Purchase Sell Purchase Sell
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Derivatives (excluding
purchased options) $438,900,000 $1,312,200,000 $1,165,100,000 $803,800,000
Purchased options 10,200,000 18,400,000 1,600,000 6,600,000
</TABLE>
The above amounts do not represent the Partnership's risk of loss due
to market and credit risk, but rather represent the Partnership's
extent of involvement in derivatives at the date of the statement of
financial condition.
The General Partner has established procedures to actively monitor
market risk and minimize credit risk. The Limited Partners 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 8. INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of June 30, 1999, the
statements of operations for the six months ended June 30, 1999 and
1998, and for the three months ended June 30, 1999 and 1998, and the
statements of changes in partners' capital (net asset value) for the
six months ended June 30, 1999 and 1998, 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 June 30, 1999,
and the results of operations for the six months ended June 30, 1999
and 1998, and for the three months ended June 30, 1999 and 1998.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The assets of Kenmar Performance Partners L.P. (the "Partnership") are used for
trading, buying, selling, spreading, swapping or otherwise acquiring, holding or
disposing of commodities, futures contracts, forward contracts, foreign exchange
commitments, swap contracts, exchange-for-physicals, spot (cash) commodities and
other items, options on the foregoing, and any rights pertaining to the
foregoing contracts, instruments or investments throughout the world
(collectively, "Commodities") through the retention of professional commodity
trading advisors (the "Advisors").
The assets of the Partnership are deposited with commodity brokers and foreign
exchange dealers (collectively, the "Commodity Brokers") in trading accounts
established by the Partnership for the Advisors and are used by the Partnership
as margin to engage in trading. Such assets are held in either a non-interest
bearing bank account or in securities approved by the Commodity Futures Trading
Commission for investment of customer funds. In addition, certain of the
Partnership's assets may be placed in a custodial account with a cash manager to
maximize the interest earned on assets not committed as margin.
CAPITAL RESOURCES. The Partnership does not have, nor does it expect to have,
any capital assets. Redemptions and sales of units of limited partnership
interests ("Units") in the future will affect the amount of funds available for
trading Commodities in subsequent periods.
There are three primary factors that affect the Partnership's capital resources:
(i) the trading profit or loss generated by the Advisors (including interest
income); (ii) the capital invested or redeemed by the limited partners of the
Partnership (the "Limited Partners"); and (iii) the capital invested or redeemed
by the Partnership's general partner, Kenmar Advisory Corp. (the "General
Partner"). The General Partner has maintained, and has agreed to maintain, at
all times a capital account in such amount, up to a total of $500,000, as is
necessary for the General Partner to maintain a one percent (1%) interest in the
capital, income and losses of the Partnership. All capital contributions by the
General Partner necessary to maintain such capital account balance are evidenced
by units of general partnership interests, each of which has an initial value
equal to the Net Asset Value per Unit (as defined below) at the time of such
contribution. The General Partner, in its sole discretion, may withdraw any
excess above its required capital contribution without notice to the Limited
Partners. The General Partner, in its sole discretion, may also contribute any
greater amount to the Partnership, for which it shall receive, at its option,
additional units of general partnership interests or Units at their then-current
Net Asset Value (as defined below).
"Net Asset Value" is defined as total assets of the Partnership less total
liabilities as determined in accordance with the principles set forth in the
Second Restatement of the Limited Partnership Agreement of the Partnership,
dated September 1, 1993, as amended December 1, 1995 (the "Partnership
Agreement"), or where no such principles are specified therein, in accordance
with United States generally accepted accounting principles applied on a
consistent basis. The term "Net Asset Value per Unit" is defined in the
Partnership Agreement to mean the Net Asset Value of the Partnership divided by
the number of Units issued and outstanding as of the date of computation.
RESULTS OF OPERATIONS. The Partnership incurs substantial charges from the
payment of management and/or incentive fees to the Advisors and administrative
fees to the General Partner which are payable based upon the Net Asset Value of
the Partnership and are payable without regard to the profitability of the
Partnership. The brokerage commissions to the Commodity Brokers are also payable
without regard to the profitability of the Partnership, although under certain
circumstances such commissions have been, and may continue to be, higher when
Advisors experience profits and, as a result, increase their trading activity.
As a result, in certain years the Partnership has incurred a net loss when
trading profits were not substantial enough to avoid depletion of the
Partnership's assets from such fees and expenses. Thus, due to the nature of the
Partnership's business, the success of the Partnership is dependent upon the
ability of the Advisors to generate trading profits through the speculative
trading of Commodities sufficient to produce capital appreciation after payment
of all fees and expenses.
The Advisors trade in various markets at different times, and 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 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 Partnership can only be discussed in the
context of the overall trading activities of the Partnership, the Advisors'
trading activities on behalf of the Partnership as a whole and how the
Partnership has performed in the past.
Set forth below is a comparison of the results of operations of the Partnership
for the three-month and six month periods ended June 30, 1999 and
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<PAGE> 12
1998.
As of June 30, 1999, the Net Asset Value of the Partnership was
$63,584,521, an increase of approximately 8.55% from its Net Asset Value of
$58,576,998 at March 31, 1999. The Partnership's subscriptions and redemptions
for the quarter ended June 30, 1999 totaled $599,677 and $4,546,315,
respectively. For the quarter ended June 30, 1999, the Partnership had income
comprised of $9,076,981 in realized gains, $3,314,429 in change in unrealized
gains and $618,541 in interest income, compared to losses comprised of
$(709,789) in realized losses, $(3,915,716) in change in unrealized losses and
$782,507 in interest income for the same period in 1998. The total income for
the second quarter of 1999 increased by $16,852,949 from the same period in
1998, while total expenses decreased by $1,194,316 between these periods. The
Net Asset Value per Unit at June 30, 1999 increased approximately 15.67%, from
$15,752.67 at March 31, 1999 to $18,221.53 at June 30, 1999. The Partnership's
positive performance for the quarter ended June 30, 1999 resulted primarily from
gains in global interest rates, currencies, U.S. stock indices and energies.
The Net Asset Value of the Partnership decreased $1,691,609, or (2.59)% from
December 31, 1998 through June 30, 1999. The Partnership's subscriptions and
redemptions for the six months ended June 30, 1999 totaled $1,060,903 and
$6,736,874, respectively. For the six months ended June 30, 1999, the
Partnership had revenue comprised of $8,167,849 in realized gains, $1,975,147 in
change in unrealized gains and $1,441,471 in interest income, compared to income
comprised of $14,263,584 in realized gains, $(3,409,967) in change in unrealized
losses and $1,815,985 in interest income for the same period in 1998. The total
income for the six months of 1999 decreased by $1,085,135 from the same period
in 1998 while expenses decreased by $4,146,475 between these periods. The Net
Asset Value per Unit at June 30, 1999 increased 6.76%, from $17,067.65 at
December 31, 1998 to $18,221.53 at June 30, 1999. The Partnership's positive
performance for the six months ended June 30, 1999 resulted primarily from
U.S. and Pacific Rim interest rates, U.S. and Pacific Rim stock indices,
energies and grains.
For the reasons described in this Management's Discussion and Analysis, past
performance is not indicative of future results. As a result, any recent
increases in realized or unrealized trading gains will have no bearing on any
results that may be obtained in the remainder of 1999 and future years.
LIQUIDITY. Although there is no public market for the Units, a Limited Partner
may redeem its Units in the Partnership as of any month-end occurring six months
or more after such investment was made.
With respect to the Partnership's trading, in general, the Advisors will
endeavor to trade only Commodities 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 Partnership is trading, whether such illiquidity is
caused by any of the above reasons or otherwise, the Partnership 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
Partnership 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 Partnership. 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.
The Partnership's trading may also be impacted by the various conflicts of
interest among the Partnership and the General Partner, the Advisors and the
Commodity Brokers.
YEAR 2000 COMPLIANCE. Many computer systems were designed using only two digits
to designate years. These systems may not be able to distinguish the Year 2000
from the Year 1900 (commonly known as the "Year 2000 Problem"). Like other
investment funds and financial business organizations, the Partnership could be
adversely affected if the computer systems used by the General Partner or the
Partnership's service providers do not properly address this problem prior to
January 1, 2000. Currently, the General Partner does not anticipate that the
transition to the 21st century will have any material effect on the Partnership.
The General Partner has established a "Y2K Task Force" consisting of
representatives of its information technology, research, accounting, compliance
and trading departments to specifically address all Year 2000 issues in a timely
manner. Actions taken have included an analysis of all in-house software and
hardware to determine Year 2000 compliance. The General Partner is currently in
the process of requesting confirmation from all third parties with which it and
the Partnership have a material relationship that these parties have taken the
same actions. Procedures to bring all mission-critical software into Year 2000
compliance are in progress. Testing of corrected software has already begun.
Contingency plans are being established for all non-mission critical systems. No
direct costs have been or are expected to be incurred in addressing the Year
2000 Problem. The General Partner has addressed all of the issues as a part of
its ongoing operations, so the Partnership will not be required to reimburse the
General Partner for any expenses incurred.
Despite the corrective measures that the General Partner has implemented, no
assurance can be given that the Partnership's service providers have anticipated
every step necessary to avoid any adverse effect on the Partnership attributable
to the Year 2000 Problem. A most likely worst case scenario would be one in
which trading of contracts on behalf of the Partnership becomes impossible as a
result of the Year 2000 Problem. The General Partner would be able to assess
such a situation in advance of the December 31, 1999 deadline and either
liquidate all positions prior to that date and/or establish relationships with
additional counterparties. Further,
-12-
<PAGE> 13
prospective investors should understand that the failure of third parties, such
as futures exchanges, clearing organizations or regulators, to resolve the Year
2000 Problem in a timely manner could result in a material financial risk to the
Partnership.
SAFE HARBOR STATEMENT. The discussions above and under the heading "Item 3.
Quantitative and Qualitative Disclosures About Market Risk" contain certain
"forward-looking statements" (as such term is defined in Section 21E of the
Securities Exchange Act of 1934) that are based on the beliefs of the
Partnership, as well as assumptions made by, and information currently available
to, the Partnership. Words such as "expects," "anticipates" and similar
expressions have been used to identify "forward-looking statements" but are not
the exclusive means of identifying such statements. A number of important
factors should cause the Partnership's actual results, performance or
achievements for 1999 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 and under the heading "Item 3. Quantitative and Qualitative Disclosures
About Market Risk."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Derivative instruments involve varying degrees of off-balance sheet market risk.
Changes in the level or volatility of interest rates or foreign currency
exchange rates or the market values of the financial instruments or commodities
underlying such derivative instruments frequently result in changes in the
Partnership's unrealized profit (loss) on such derivative instruments as
reflected in the Statements of Financial Condition included herein. The
Partnership's exposure to market risk is influenced by a number of factors,
including the relationships among derivative instruments held by the
Partnership, as well as the volatility and liquidity of the markets in which the
financial instruments are traded. There has been no material change, during the
three and six months ended June 30, 1999, in the sources of the Partnership's
exposure to market risk.
The General Partner has procedures in place intended to control the
Partnership's exposure to market risk, although there can be no assurance that
it 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
Partnership, calculating the Net Asset Value of the Advisors' respective
Partnership accounts as of the close of business on each day and reviewing
outstanding positions for over-concentrations - both on an Advisor-by-Advisor
and an overall Partnership basis. While the General Partner will not itself
intervene in the markets to hedge or diversify the Partnership's market
exposure, the General Partner may urge Advisors to reallocate positions, or
itself reallocate Partnership 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, the General Partner'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> 14
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In September 1985, the Partnership commenced a private placement of Units in
reliance on the exemptions afforded by, among others, Sections 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of Regulation
D promulgated thereunder. The sales qualify as an exempt offering under Rule 506
of Regulation D because they are made solely to "accredited investors," as
defined by Regulation D. Similar reliance has been placed on available
exemptions from securities qualification requirements under applicable state
securities laws. Units are offered monthly at a price per Unit equal to the then
current Net Asset Value per Unit, with a required minimum subscription of
$25,000 for new investors other than individual retirement accounts ("IRAs") and
qualified retirement plans and Keogh Plans ("Plans") and $10,500 for IRAs, Plans
and existing Limited Partners, which minimums may be waived by the General
Partner in its sole discretion. A subscriber may subscribe for Units in excess
of the foregoing minimum amounts. As of the date hereof, the Partnership
continues to offer Units, and there is no maximum number of Units that may be
purchased or sold.
During the second quarter of 1999, 35 Units were sold for an aggregate
subscription amount of $599,677.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS.
27 Financial Data Schedule.
B. REPORTS ON FORM 8-K. None.
-14-
<PAGE> 15
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 PERFORMANCE PARTNERS L.P.
By: Kenmar Advisory Corp., general partner
Dated: August ___, 1999 By: /s/ ROBERT L. CRUIKSHANK
-----------------------------------
Robert L. Cruikshank
Executive Vice President
(Duly Authorized Officer of the
General Partner)
Dated: August ___, 1999 By: /s/ THOMAS J. DIVUOLO
-----------------------------------
Thomas J. DiVuolo
Senior Vice President
(Principal Financial and
Accounting Officer of the Registrant)
-15-
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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<SECURITIES> 21,915,696
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