<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/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
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-23885
PRUDENTIAL SECURITIES STRATEGIC TRUST
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-7075398
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One New York Plaza, 13th Floor, New York, New York 10292
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
WILLOWBRIDGE STRATEGIC TRUST
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check CK 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 _CK_ No __
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $41,053,649 $46,416,620
Net unrealized gain on open commodity positions 3,663,777 2,451,210
Options, at market -- 362,402
------------- ------------
Net equity 44,717,426 49,230,232
Other receivables 21,786 3,218
------------- ------------
Total assets $44,739,212 $49,233,450
------------- ------------
------------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,127,880 $ 1,385,332
Incentive fees payable 646,724 --
Management fees payable 82,805 123,083
------------- ------------
Total liabilities 1,857,409 1,508,415
------------- ------------
Commitments
Trust capital
Limited interests (402,101.723 and 458,613.680 interests
outstanding) 42,457,347 47,217,112
General interests (4,020 and 4,933.397 interests outstanding) 424,456 507,923
------------- ------------
Total trust capital 42,881,803 47,725,035
------------- ------------
Total liabilities and trust capital $44,739,212 $49,233,450
------------- ------------
------------- ------------
Net asset value per limited and general interest ('Interests') $ 105.59 $ 102.96
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------------------ --------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity
transactions $ 1,017,473 $ 1,870,722 $ 7,140,800 $ 151,270
Change in net unrealized gain on
commodity positions 1,085,121 (169,114) 3,051,130 (852,064)
Interest income 1,473,020 1,625,529 424,076 588,806
----------------- --------------- ----------- -----------
3,575,614 3,327,137 10,616,006 (111,988)
----------------- --------------- ----------- -----------
EXPENSES
Commissions 2,417,893 2,700,306 571,579 1,014,613
Management fees 880,518 1,049,966 188,032 390,519
Incentive fees 646,724 1,220,889 646,724 6,481
----------------- --------------- ----------- -----------
3,945,135 4,971,161 1,406,335 1,411,613
----------------- --------------- ----------- -----------
Net income (loss) $ (369,521) $ (1,644,024) $ 9,209,671 $(1,523,601)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ (365,588) $ (1,632,429) $ 9,117,563 $(1,509,206)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
General interests $ (3,933) $ (11,595) $ 92,108 $ (14,395)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
NET INCOME (LOSS) PER WEIGHTED
AVERAGE LIMITED AND GENERAL
INTEREST
Net income (loss) per weighted
average limited and general
interest $ (.80) $ (3.96) $ 21.63 $ (3.27)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
Weighted average number of limited
and general interests outstanding 463,449 414,874 425,690 466,518
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1997 463,547.077 $47,217,112 $ 507,923 $47,725,035
Contributions 49,726.311 5,359,300 27,000 5,386,300
Net loss -- (365,588) (3,933) (369,521)
Redemptions (107,151.665) (9,753,477) (106,534) (9,860,011)
------------- ----------- --------- -----------
Trust capital--September 30, 1998 406,121.723 $42,457,347 $ 424,456 $42,881,803
------------- ----------- --------- -----------
------------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Prudential Securities Strategic Trust (the 'Trust') as of September
30, 1998 and the results of its operations for nine and the three months ended
September 30, 1998. However, the operating results for the interim periods may
not be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Trust's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997.
During July 1998, Willowbridge Associates Inc. ('Willowbridge') ceased to
serve as a trading manager to the Trust with regard to all trading programs with
the exception of its XLIM program, which represented approximately 50% of the
Trust's assets. These assets were assigned to a new trading manager, Bridgewater
Associates, Inc. ('Bridgewater') who began trading Trust assets on August 26,
1998. The monthly management fee paid to Bridgewater equals .0813% (a .9756%
annual rate) of its traded assets as compared to 1/4 of 1% (a 3% annual rate)
paid to Willowbridge. The quarterly incentive fees paid to Bridgewater and
Willowbridge equal 20% of the New High Net Trading Profits as defined in the
Advisory Agreements among the Trust, the Managing Owner and each trading
manager. In conjunction with this change, the Trust was renamed Prudential
Securities Strategic Trust.
B. Related Parties
Prudential Securities Futures Management Inc., a wholly owned subsidiary of
Prudential Securities Incorporated ('PSI'), is the managing owner of the Trust
(the 'Managing Owner'). The Managing Owner and its affiliates perform services
for the Trust which include, but are not limited to: brokerage services,
accounting and financial management, registrar, transfer and assignment
functions, investor communications, printing and other administrative services.
Except for the costs related to brokerage services, PSI or its affiliates pay
the costs of these services in addition to costs of organizing the Trust and
offering its interests as well as its routine operational, administrative, legal
and auditing fees. As described in the Annual Report, all commissions for
brokerage services are paid to PSI.
The Trust maintains its trading and cash accounts with PSI, the Trust's
commodity broker and an affiliate of the Managing Owner. Except for the portion
of assets that is deposited as margin to maintain forward currency contract
positions, the Trust's assets are maintained either on deposit with PSI or, for
margin purposes, with the various exchanges on which the Trust is permitted to
trade. PSI credits the Trust monthly with 80% of the interest it earns on the
equity in these accounts and retains the remaining 20%.
The Trust, acting through its trading managers, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and the Trust pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market position of the Trust.
As of September 30, 1998, a non-U.S. affiliate of the Managing Owner owns
293.003 limited interests of the Trust.
C. Credit and Market Risk
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
4
<PAGE>
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Trust's unrealized
gain (loss) on open commodity positions 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 the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Trust must rely solely on the credit of its broker (PSI) with
respect to forward transactions. The Trust presents unrealized gains and losses
on open forward positions as a net amount in the statements of financial
condition because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's trading managers to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI is the sole
counterparty or broker); limiting the amount of margin or premium required for
any one commodity or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the trading managers as it, in good faith, deems
to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant in accepting
orders for the purchase or sale of domestic futures and options contracts, is
required by Commodity Futures Trading Commission ('CFTC') regulations to
separately account for and segregate as belonging to the Trust all assets of the
Trust relating to domestic futures and options trading and not to commingle such
assets with other assets of PSI. At September 30, 1998 and December 31, 1997,
such segregated assets totalled $28,754,403 and $42,384,065, respectively. Part
30.7 of the CFTC regulations also requires PSI to secure assets of the Trust
related to foreign futures and options trading which totalled $16,133,874 and
$6,852,627 at September 30, 1998 and December 31, 1997, respectively. There are
no segregation requirements for assets related to forward trading.
As of September 30, 1998, all open futures and options contracts generally
mature within one year.
As of September 30, 1998 and December 31, 1997, gross contract amounts of
open futures, forward and options contracts are:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Financial Futures and Options
Contracts:
Commitments to purchase $ 793,312,025 $ 522,213,105
Commitments to sell 172,831,702 7,592,575
Currency Futures and Options
Contracts:
Commitments to purchase 145,779,350 101,737
Commitments to sell 30,246,740 74,270,062
Other Futures Contracts:
Commitments to purchase 3,866,086 29,375,203
Commitments to sell 9,468 1,551,520
Other Forward Contracts:
Commitments to purchase 171,615 939,873
Commitments to sell 251,085 --
</TABLE>
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures, forward or options contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the
5
<PAGE>
value of the contracts. As such, the Trust considers the 'fair value' of its
futures, forward and options contracts to be the net unrealized gain or loss on
the contracts (plus premiums on options). Thus, the amount at risk associated
with counterparty nonperformance of all contracts is the net unrealized gain
included in the statements of financial condition. The market risk associated
with the Trust's commitments to purchase commodities is limited to the gross
contract amounts involved, while the market risk associated with its commitments
to sell is unlimited since the Trust's potential involvement is to make delivery
of an underlying commodity at the contract price; therefore, it must repurchase
the contract at prevailing market prices.
At September 30, 1998 and December 31, 1997, the fair values of futures,
forward and options contracts were:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 3,210,559 $ 116,237 $ 792,100 $ 240,225
Currencies 806,137 920,841 624,975 89
Other 162,955 -- 713,857 1,004,794
Foreign exchanges
Financial 1,715,387 955,922 1,621,656 46,687
Other 35,331 102,741 -- 3,123
Forward Contracts:
Other 764 171,615 -- 6,460
Options Contracts:
Domestic exchanges
Financial -- -- 68,002 --
Currencies -- -- 294,400 --
----------- ----------- ----------- -----------
$ 5,931,133 $ 2,267,356 $ 4,114,990 $ 1,301,378
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The following table presents the average fair value of futures, forward and
options contracts during the nine months ended September 30, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 787,562 $ 134,009 $ 406,350 $ 35,031
Currencies 814,093 315,517 983,915 206,216
Other 322,124 431,621 898,058 309,928
Foreign exchanges
Financial 1,904,090 204,298 291,249 160,998
Other 3,751 28,544 735,114 297,858
Forward Contracts:
Currencies 1,465 90 -- --
Other 120,443 190,690 11,410 8
Options Contracts:
Domestic exchanges
Financial 66,101 -- 21,330 --
Currencies 40,630 -- 2,460 --
Other 4,900 -- 41,871 --
Foreign exchanges
Financial 7,201 -- -- --
Other 15,134 -- 45,025 --
---------- ----------- ---------- -----------
$4,087,494 $ 1,304,769 $3,436,782 $ 1,010,039
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
6
<PAGE>
The following table presents the average fair value of futures, forward and
options contracts during the three months ended September 30, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $1,389,901 $ 60,775 $ 464,342 $ 23,234
Currencies 696,090 492,384 1,724,134 402,694
Other 132,465 226,164 426,299 221,110
Foreign exchanges
Financial 2,118,801 414,203 344,150 121,846
Other 9,377 70,578 561,388 615,353
Forward Contracts:
Currencies 3,663 226 -- --
Other 191 258,552 28,525 --
Options Contracts:
Domestic exchanges
Financial -- -- 53,325 --
Currencies -- -- 6,150 --
Other 12,250 -- 62,771 --
Foreign exchanges
Other 9,868 -- 111,335 --
---------- ----------- ---------- -----------
$4,372,606 $ 1,522,882 $3,782,419 $ 1,384,237
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following tables present the Trust's trading revenues from futures,
forward and options contracts during the nine and three months ended September
30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 1,850,457 $(3,055,444 ) $ 3,689,540 $(2,036,475 )
Currencies (3,540,488) 5,493,527 1,073,196 2,742,479
Other (5,631,904) 1,407,569 (1,601,657) (134,627 )
Foreign exchanges
Financial 12,604,230 (2,838,681 ) 7,475,224 (216,087 )
Other 3,303 1,040,851 3,303 (596,192 )
Forward Contracts:
Currencies (116,004) -- (116,004) --
Other (1,277,277) 114,100 (177,351) 114,100
Options Contracts:
Domestic exchanges
Financial (890,181) 123,224 -- (229,634 )
Currencies (722,951) (174,734 ) (66,426) (150,260 )
Other (4,940) (180,197 ) -- (35,816 )
Foreign exchanges
Financial (65,754) (14,941 ) -- --
Currencies (48,425) -- (48,425) --
Other (57,472) (213,666 ) (39,470) (158,282 )
------------ ------------ ------------ ------------
$ 2,102,594 $ 1,701,608 $ 10,191,930 $ (700,794 )
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
7
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust commenced operations on May 1, 1996 with gross proceeds of
$12,686,200 allocated to commodities trading. Additional Interests were offered
monthly at the then current net asset value per Interest until the continuous
offering period expired January 31, 1998. Additional contributions made during
the continuous offering period totalled $51,242,700.
At September 30, 1998, 100% of the Trust's net assets were allocated to
commodities trading. A significant portion of the net assets are held in cash
which is used as margin for the Trust's trading in commodities. Inasmuch as the
sole business of the Trust is to trade in commodities, the Trust continues to
own such liquid assets to be used as margin. PSI credits the Trust monthly with
80% of the interest it earns on the equity in these accounts and retains the
remaining 20%.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in commodity futures contract prices
during a single day by regulations referred to as 'daily limits.' During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Trust from promptly liquidating its commodity
futures positions.
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The Managing Owner attempts to minimize these risks
by requiring the Trust's trading managers to abide by various trading
limitations and policies. See Note C to the financial statements for a
further discussion of the credit and market risks associated with the
Trust's futures, forward and options contracts.
Redemptions of limited interests for the nine months and three months ended
September 30, 1998 were $9,753,477 and $2,642,961, respectively. Redemptions by
the Managing Owner recorded for the nine and three months ended September 30,
1998 were $106,534 and $31,159, respectively. Redemptions of limited interests
and general interests recorded from commencement of operations, May 1, 1996,
through September 30, 1998 were $21,076,549 and $106,534, respectively. Future
redemptions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
The Trust does not have, nor does it expect to have, any capital assets.
Year 2000 Risk
Investment funds, like financial and business organizations and individuals
around the world, depend on the smooth functioning of computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way in which dates are encoded. This is
commonly known as the 'Year 2000 Problem.' The Trust could be adversely affected
if computer systems used by it or any third party with whom it has a material
relationship do not properly perform date comparisons and calculations
concerning dates on or after January 1, 2000, which in turn could have a
negative impact on the handling or determination of trades and prices and the
services provided to the Trust.
The Trust has engaged third parties to perform primarily all of the services
it needs. Accordingly, the Trust's Year 2000 Problems, if any, are not its own
but those that center on the ability of the Trustee, Managing Owner, Prudential
Securities Incorporated, its trading managers and any other third party with
whom the Trust has a material relationship (individually, a 'Service Provider,'
and collectively, the 'Service Providers') to address and correct problems that
may cause their systems not to function as intended as a result of the Year 2000
Problem.
8
<PAGE>
The Trust has received assurances from its Managing Owner and Prudential
Securities Incorporated that they anticipate being able to continue their
operations without any material adverse impact from the Year 2000 Problem.
Although other Service Providers, such as the Trust's Trustee and trading
managers, have not made similar representations to the Trust, the Trust has no
reason to believe that these Service Providers will not take steps necessary to
avoid any material adverse impact on the Trust, though there can be no assurance
that this will be the case. The costs or consequences of incomplete or untimely
resolution of the Year 2000 Problem by the Service Providers, or by governments,
exchanges, clearing houses, regulators, banks and other third parties, are
unknown to the Trust at this time, but could have a material adverse impact on
the operations of the Trust. The Managing Owner will promptly notify the Trust's
limited owners in the event it determines that the Year 2000 Problem will have a
material adverse impact on the Trust's operations.
The Trust has considered various alternatives as a contingency plan. If the
Year 2000 Problems are systemic, for example, the federal government, the
banking system, exchanges or utilities are affected materially, there may be no
adequate contingency plan for the Trust to follow other than to suspend
operations. If the Year 2000 Problems are related to one or more of the other
Service Providers selected by the Trust, the Trust believes that each such
Service Provider is prepared to address any Year 2000 Problems which arise that
could have a material adverse impact on the Trust's operations.
Results of Operations
The net asset value per Interest as of September 30, 1998 was $105.59, an
increase of 2.55% from the December 31, 1997 net asset value per Interest of
$102.96. Additionally, the net asset value per Interest increased 26.36% during
the third quarter.
The Trust's trading resulted in a positive return for the third quarter.
Gains were seen in the financial and currency sectors. Losses were incurred in
the index, grain, metal, energy and soft sectors. The majority of third quarter
market movement occurred in the financial and currency sectors. These markets
were both influenced by significant world events including the weakness of large
Japanese banks and the devaluation of the Russian ruble. These events caused a
reevaluation of the outlook on the global economy resulting in falling world
stock markets. This drop prompted a flight to safety driving government bond
prices higher. As a result, the Trust's long positions in German ten-year, U.S.
Treasury, British, Eurodollar and French notional bond positions were
profitable. Through the second half of the quarter, the value of the German
deutsche mark rose as the U.S. dollar fell, profiting the Trust's long
positions. Gains were also achieved in the Canadian dollar and Japanese yen.
Stock market volatility led to losses across the Trust's index positions,
including the S&P 500, German DAX and Italian FIB 30.
During July 1998, Willowbridge ceased to serve as a trading manager to the
Trust with regard to all trading programs with the exception of its XLIM
program, which represented approximately 50% of the Trust's assets. These assets
were assigned to a new trading manager, Bridgewater, who began trading Trust
assets on August 26, 1998. As a result, the Trust did not incur commissions or
management fees during the period these assets were not allocated for
commodities trading. The monthly management fee paid to Bridgewater equals
.0813% (a .9756% annual rate) of its traded assets as compared to 1/4 of 1% (a
3% annual rate) paid to Willowbridge. The quarterly incentive fees paid to
Bridgewater and Willowbridge equal 20% of the New High Net Trading Profits as
defined in the Advisory Agreements among the Trust, the Managing Owner and each
trading manager.
Interest income is earned on the equity balances held at PSI and, therefore,
varies monthly according to interest rates, trading performance, contributions
and redemptions. Interest income decreased during the nine and three months
ended September 30, 1998 as compared to 1997 by approximately $153,000 and
$165,000, respectively. These fluctuations were largely the result of poor
trading performance from April 1997 through the second quarter of 1998,
declining interest rates during the current year and redemptions offset, in
part, by continually increasing asset levels due to contributions made during
1997 and 1998 through January 31 when the continuous offering period expired.
Commissions are calculated on the Trust's net asset value at the beginning of
each month and, therefore, vary according to trading performance, contributions
and redemptions. Commissions decreased during the nine and three months ended
September 30, 1998 as compared to 1997 by approximately $282,000 and $443,000,
respectively. The effect on the monthly net asset values of poor trading
performance from April 1997 through the second quarter of 1998, as well as
redemptions, caused a majority of these decreases.
9
<PAGE>
The reallocation of assets from Willowbridge to Bridgewater as discussed
above also resulted in decreases to commissions.
As of September 30, 1998, all trading decisions were made by Willowbridge and
Bridgewater (the 'Trading Managers'). Management fees are calculated on the net
asset value allocated to each Trading Manager at the end of each month and,
therefore, are affected by trading performance, contributions and redemptions.
Management fees decreased during the nine and three months ended September 30,
1998 as compared to 1997 by approximately $169,000 and $202,000, respectively,
primarily for the same reasons commissions decreased as discussed above.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Managers, as defined in the Advisory Agreements between the Trust, the
Managing Owner and each Trading Manager. Incentive fees for the nine and three
months ended September 30, 1998 were approximately $647,000 as a result of
strong trading performance during the third quarter of 1998. Incentive fees for
the nine months ended September 30, 1997 were approximately $1,221,000 as a
result of strong trading performance during the first quarter of 1997.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--There are no material legal proceedings pending by or
against the Registrant or the Managing Owner
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. (a) Exhibits--
3.1
and
4.1-- Second Amended and Restated Declaration of Trust and Trust
Agreement of the Registrant dated as of December 14, 1995
(incorporated by reference to Exhibit 3.1 to 4.1 to the
Registrant's Registration Statement on Form S-1, File No.
33-80443, dated as of December 14, 1995)
4.2-- Subscription Agreement (incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1, File No. 33-80443, dated as of December 14, 1995)
4.3-- Request for Redemption (incorporated by reference to
Exhibit 4.3 to the Registrant's Registration
Statement on Form S-1, File No. 33-80443, dated as of
December 14, 1995)
10.9-- Advisory Agreement dated August 25, 1998 among
the Registrant, Prudential Securities Futures
Management Inc. and Bridgewater Associates,
Inc. (filed herewith)
27.1-- Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
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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.
PRUDENTIAL SECURITIES STRATEGIC TRUST
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: November 16, 1998
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
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ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of the 25th
day of August, 1998 by and among Prudential Securities
Strategic Trust, a Delaware business trust (the "Trust"),
Prudential Securities Futures Management Inc., a Delaware
corporation (the "Managing Owner") and Bridgewater
Associates, Inc., a Connecticut corporation (the "Advisor").
W I T N E S S E T H :
WHEREAS, the Trust has been organized primarily for the
purpose of trading, buying, selling, spreading or otherwise
acquiring, holding or disposing of futures, forwards and
options contracts. Physical commodities also may be traded
from time to time. The foregoing commodities related
transactions are collectively referred to as "Commodities";
and
WHEREAS, the Managing Owner is authorized to utilize the
services of one or more professional commodity trading
advisors in connection with the Commodities trading
activities of the Trust; and
WHEREAS, the Trust wishes to retain the Advisor as a
commodity trading advisor to the Trust to manage a portion
of the Trust's Assets; and
WHEREAS, the Advisor's present business includes the
management of Commodities accounts for its clients; and
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WHEREAS, the Advisor is registered as a commodity trading
advisor under the United States Commodity Exchange Act, as
amended ("CE Act") and is a member of the National Futures
Association ("NFA") as a commodity trading advisor and will
maintain such registration and membership for the term of
this Agreement; and
WHEREAS, the Trust and the Advisor desire to enter into this
Agreement in order to set forth the terms and conditions
upon which the Advisor will render and implement commodity
advisory services in connection with the conduct by the
Trust of its Commodities trading activities during the term
of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Duties of the Advisor.
(a) Appointment. The Trust hereby appoints the Advisor, and
the Advisor hereby accepts appointment, as its
attorney-in-fact to invest and reinvest in Commodities a
portion of the Net Asset Value of the Trust (the "Allocated
Assets") on the terms and conditions set forth herein,
commencing on the date hereof. The precise definition of the
term "Net Asset Value" shall be as defined in Exhibit A
hereto. Initially, the Allocated Assets will be
approximately $16,700,000 in cash, which shall be traded at
1.5 times the Pure Alpha Trading Approach level so that the
actual trading level will be $25,050,000 ( the leveraged
amount shall be referred to as the "Trading Level"). This
limited power-of-attorney is a continuing power and shall
continue in effect with respect to the Advisor until
terminated hereunder. To this end, the Advisor (i) agrees
to act as a commodity trading advisor retained by the
Managing Owner on behalf of the Trust, and specifically, to
exercise discretion with respect to the Allocated Assets at
the related Trading Level, and which the Managing Owner may
allocate to the Advisor in the future, upon the terms
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and conditions, and for the purposes, set forth in this
Agreement and (ii) shall have sole authority and
responsibility for independently directing the investment
and reinvestment in Commodities of the Allocated Assets at
the related Trading Level for the term of this Agreement
pursuant to the trading methods, systems and strategies
substantially similar to its Pure Alpha System as described
more fully in Exhibit B hereto (the Advisor's "Trading
Approach") as such trading approach is described in the
Advisor's Disclosure Document dated June 17, 1998 attached
hereto as Exhibit C (the "Disclosure Document"), receipt of
which is hereby acknowledged, subject to the Trust's trading
policies and limitations as set forth in Exhibit D, attached
hereto, as the same may be modified or amended and provided
in writing to the Advisor from time to time (the Trust's
"Trading Policies and Limitations"). The Managing Owner and
the Trust acknowledge that the Advisor makes no guarantee of
profits or of protection against loss, and that the
Advisor's Commodities transactions hereunder are for the
account and risk of the Trust.
(b) Allocation of Responsibilities. The Managing Owner
will have the responsibility for the management of the
portion of the Trust's Net Asset Value that is invested in
United States Treasury bills or other investments approved
by the Commodity Futures Trading Commission ("CFTC") for the
investment of "customer" funds or are held in cash. The
Advisor will use its good faith best efforts in determining
the investment and reinvestment in Commodities of the
Allocated Assets at the related Trading Level in compliance
with the Trading Policies and Limitations, and in accordance
with its Trading Approach. In the event that the Managing
Owner shall, in its sole discretion, determine in good faith
following consultation, if appropriate under the
circumstances, with the Advisor that any trading instruction
issued by the Advisor violates the Trust's Trading Policies
and Limitations, then the Managing Owner, following
reasonable notice appropriate under the circumstances to the
Advisor, may override
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such trading instruction. Nothing
herein shall be construed to prevent the Managing Owner from
imposing any limitation(s) on the trading activities of the
Trust beyond those enumerated in Exhibit D hereto if the
Managing Owner determines that such limitation(s) are
necessary or in the best interests of the Trust, in which
case the Advisor will adhere to such limitations following
written notification thereof.
(c) Modification of Trading Approach. In the event the
Advisor wishes to use a trading method or strategy other
than or in addition to the Trading Approach in connection
with trading for the Trust (including without limitation the
deletion of an agreed upon trading method or strategy or the
addition of a trading method or strategy in addition to the
then agreed upon Trading Approach), either in whole or in
part, the Advisor may not do so unless it gives the Managing
Owner prior written notice of its intention to utilize such
different trading method or strategy, and the Managing Owner
consents thereto in writing.
(d) Notification of Material Changes. The Advisor also
agrees to give the Trust prior written notice of any
proposed material change in its Trading Approach, and agrees
not to make any material change in such Trading Approach (as
applied to the Trust) over the objection of the Managing
Owner, it being understood that the Advisor shall be free to
institute non-material changes in its Trading Approach (as
applied to the Trust) without prior written notification.
Without limiting the generality of the foregoing,
refinements to the Advisor's Trading Approach, the addition
or deletion of Commodities to or from the Advisor's Trading
Approach, and variations in the leverage principles and
policies utilized by the Advisor shall not be deemed a
material change in the Advisor's Trading Approach, and prior
approval of the Managing Owner shall not be required
therefor. The Advisor agrees that it will discuss with the
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Managing Owner upon request, subject to adequate assurances
of confidentiality, any trading methods or strategies used
by it for trading customer accounts which differ from the
Trading Approach which it uses for the Trust, provided, that
nothing contained in this Agreement shall require the
Advisor to disclose what it deems to be proprietary or
confidential information concerning any such trading methods
or strategies, including the Trading Approach.
(e) Request for Information. The Advisor agrees to provide
the Trust with any reasonable information concerning the
Advisor that the Trust may reasonably request, subject to
receipt of adequate assurances of confidentiality by the
Trust, including, but not limited to, information regarding
any change in control, key personnel, Trading Approach and
financial condition which the Trust reasonably deems to be
material to the Trust; the Advisor also shall notify the
Trust of any such matters the Advisor, in its reasonable
judgment, believes may be material to the Trust relating to
the Advisor and its Trading Approach.
(f) Notice of Errors. The Advisor is responsible for
promptly reviewing all oral and written confirmations it
receives to determine that the Commodities trades were made
in accordance with the Advisor's instructions. If the
Advisor determines that an error was made in connection with
a trade or that a trade was made other than in accordance
with the Advisor's instructions, the Advisor shall promptly
notify the Trust of this fact, and shall utilize its
reasonable best efforts to cause the error or discrepancy to
be corrected.
(g) Exculpation. The Advisor and its employees, officers,
directors and controlling persons shall not be liable to the
Managing Owner, its officers, directors, shareholders or
employees, or any person who controls the Managing Owner, or
the Trust or its interestholders, or any of their respective
successors or assigns under this Agreement, except that
5
<PAGE>
the Advisor may be liable by reason of the Advisor's acts or
omissions in material breach of this Agreement or due to its
misconduct or negligence or by reason of not having acted in
good faith in the reasonable belief that such actions or
omissions were in the best interests of the Trust; it being
understood that all purchases and sales of Commodities shall
be for the account and risk of the Trust, and the Advisor
shall not incur any liability for trading profits or losses
resulting therefrom.
(h) Initial Allocation, Additional Allocations, and
Reallocations. Initially, the Allocated Assets will equal
approximately $16,700,000 in cash, as of the effective date
of this Agreement. This amount will be traded at 1.5 times
the Pure Alpha Trading Approach level so that the Trading
Level will equal $25,050,000. Thereafter, subject to
Section 11(a) below, the Trust may (i) allocate additional
capital to the Advisor, (ii) reallocate capital away from
the Advisor to one or more commodity trading advisors
("Other Advisor(s)"), or (iii) allocate additional capital
to an Other Advisor. If the Trust allocates additional
capital to the Advisor or reallocates capital away from the
Advisor, the Trust will give the Advisor written notice of
such changes and the amount of the then current Allocated
Assets and the related Trading Level once the change has
been effected.
2. Indemnification.
(a) The Advisor and each employee, officer, directors and
controlling person of the Advisor shall be indemnified by
the Trust against any losses, judgments, liabilities,
expenses (including, without limitation, reasonable
attorneys' fees) and amounts paid in settlement of any
claims (collectively "Losses") sustained by the Advisor and
its employees, officers, directors and controlling persons
(i) in connection with any matter relating to the Trust's
Registration
6
<PAGE>
Statement No. 33-80443 or final prospectus,
dated February 7, 1996 and as amended by the revised
prospectus dated April 21, 1997, (collectively, the
"Prospectus") including all amendments and supplements
thereto, as well as any matters relating to the Trust prior
to the effective date of this Agreement, (ii) in connection
with any acts or omissions of the Advisor relating to its
management of its allocable portion of the Trust's Net Asset
Value, and (iii) as a result of a material breach of this
Agreement by the Trust or the Managing Owner provided that,
(A) such Losses were not the direct result of negligence,
misconduct or a material breach of this Agreement on the
part of the Advisor, (B) the Advisor and its employees acted
(or omitted to act) in good faith and in a manner reasonably
believed by it and them to be in the best interests of the
Trust and (C) any such indemnification by the Trust will
only be recoverable from the assets of the Trust.
(b) The Trust shall be indemnified by the Advisor against
any Losses sustained by the Trust directly resulting from
(i) the negligence or misconduct of, or a material breach of
this Agreement by, the Advisor or its employees or (ii) any
action or omission to act of the Advisor or its employees
that was not taken in good faith or in a manner reasonably
believed by it and them to be in the best interests of the
Trust.
(c) No indemnification shall be permitted under this Section
2 for amounts paid in settlement if either (A) the party
claiming indemnification (the "Indemnitee") fails to notify
the indemnifying party of the terms of any settlement
proposed, at least fifteen (15) days before any amounts are
paid or (B) the indemnifying party does not in its good
faith business judgment approve the amount of the settlement
within thirty (30) days of its receipt of notice of the
proposed settlement. Notwithstanding the foregoing, the
indemnifying party shall, at all times,
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<PAGE>
have the right to offer to settle any matter with the approval of the
Indemnitee (which approval shall not be withheld
unreasonably) and if the indemnifying party successfully
negotiates a settlement and tenders payment therefor to the
Indemnitee, the Indemnitee must either use its reasonable
best efforts to dispose of the matter in accordance with the
terms and conditions of the proposed settlement or the
Indemnitee may refuse to settle the matter and continue its
defense in which latter event the maximum liability of the
indemnifying party to the Indemnitee shall be the amount of
said proposed settlement. Any indemnification under this
Section 2, unless ordered by a court, shall be made by the
indemnifying party only as authorized in the specific case
and only upon a determination by mutually acceptable
independent legal counsel in a written opinion that
indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set
forth hereunder.
(d) None of the provisions for indemnification in this
Section 2 shall be applicable with respect to default
judgments or confessions of judgment entered into by an
Indemnitee, with its knowledge, without the prior consent of
the indemnifying party.
(e) In the event that an Indemnitee under this Section 2 is
made a party to an action, suit or proceeding alleging both
matters for which indemnification can be made hereunder and
matters for which indemnification may not be made hereunder,
such Indemnitee shall be indemnified only for that portion
of the Losses incurred in such action, suit or proceeding
which relates to the matters for which indemnification can
be made.
(f) Expenses incurred in defending a threatened or pending
civil, administrative or criminal action, suit or proceeding
against an Indemnitee shall be paid in advance of the final
disposition of such action, suit or proceeding if (i) the
legal action, suit or proceeding, if
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<PAGE>
sustained, would entitle the Indemnitee to indemnification pursuant to the
terms of this Section 2, and (ii) the Indemnitee undertakes
to repay the advanced funds in cases in which the Indemnitee
is not entitled to indemnification pursuant to the preceding
paragraph, and (iii) in the case of advancement of expenses,
the Indemnitee receives a written opinion of mutually
acceptable independent legal counsel that advancing such
expenses is proper in the circumstances.
3. Advisor Independence. The Advisor shall for all
purposes herein be deemed to be an independent contractor
with respect to the Trust, the Managing Owner and Other
Advisors, and shall, unless otherwise expressly authorized,
have no authority to act for or to represent the Trust, the
Managing Owner or any Other Advisor in any way or otherwise
be deemed to be a general agent, joint venturer or partner
of the Trust, the Managing Owner or any Other Advisor, or in
any way be responsible for the acts or omissions of any
Other Advisor as long as it is acting independently of such
Other Advisor. The parties acknowledge that the Advisor has
not been an organizer or promoter of the Trust.
Nothing herein contained shall be deemed to require the
Trust to take any action contrary to its Agreement of
Limited Trust or Certificate of Limited Trust, or any
applicable statute, regulation or rule of any exchange or
self-regulatory organization.
The Trust and the Managing Owner acknowledge that the
Advisor's Trading Approach is its confidential property.
Nothing in this Agreement shall require the Advisor to
disclose the confidential or proprietary details of its
Trading Approach. The Trust and the Managing Owner further
agree that they will keep confidential and will not
disseminate the Advisor's trading advice to the Trust,
except as, and to the extent that, it may be determined by
the Managing Owner to be (i) necessary for the monitoring
the business of the Trust, including the performance
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<PAGE>
of brokerage services by the Trust's commodity broker(s), or
(ii) expressly required by law or regulation.
4. Commodity Broker. All Commodities trades for the
account of the Trust shall be made through such commodity
broker or brokers as the Managing Owner directs pursuant to
such procedures as are mutually agreed upon. The Advisor
shall not have any authority or responsibility in selecting
or supervising any broker for execution of Commodities
trades of the Trust or for negotiating commission rates to
be charged therefor. The Advisor shall not be responsible
for determining that any such bank or broker used in
connection with any Commodities transactions meets the
financial requirements or standards imposed by the Trust's
Trading Policies and Limitations. At the present time it is
contemplated that the Trust will effect all Commodities
trades through Prudential Securities Incorporated
("Prudential Securities"); provided, however, that the
Advisor may execute transactions at such other broker(s),
and upon such terms and conditions, as the Advisor and the
Managing Owner agree, if such broker(s) agree to "give up"
all such transactions to Prudential Securities for
clearance. To the extent that the Trust determines to
utilize a broker or brokers other than Prudential Securities
to execute its trades, it will consult with the Advisor
prior to directing it to utilize such broker(s), and will
not retain the services of such broker(s) over the
reasonable objection of the Advisor.
5. Fees. In consideration of and in compensation for the
performance of the Advisor's services under this Agreement,
the Advisor shall receive from the Trust:
(a) A monthly management fee (the "Management Fee") equal
to 5.42 basis points (approximately 65 basis points
annually) of the Allocated Assets at the related Trading
Level as of the last day of each calendar month.
For purposes of determining such Management
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Fee, any distributions and redemptions allocable to the Advisor made
as of the last day of such month shall be added back to the
Net Asset Value and there shall be no reduction for (i) the
accrued Management Fee being calculated, or (ii) any fees
due the Advisor under paragraph (c) below accrued as of the
last day of such month or (iii) any reallocation of assets
as of the last day of such month, or (iv) any accrued but
unpaid extraordinary expenses. The Management Fee for any
month in which the Advisor manages all or any portion of the
Allocated Assets at the Trading Level for less than a full
month shall be prorated, such proration to be calculated on
the basis of the number of days in the month the Allocated
Assets at their related Trading Level were under the
Advisor's management as compared to the total number of days
in such month.
(b) For the purposes of calculating incentive fees under
Section 5, only the (i) management fee paid to the Advisor
shall be deducted from the Allocated Assets, (ii) together
with brokerage commissions attributable to the Advisor's
trading activities, and (iii) extraordinary expenses, if
any, attributable to the Advisor.
(c) A quarterly Incentive Fee shall be paid to the Advisor
of twenty percent (20%) of New High Net Trading Profits (as
hereinafter defined) achieved on the Allocated Assets,
including realized and unrealized gains and losses thereon.
New High Net Trading Profits for the Advisor shall be
computed as of the close of trading on the last day of each
calendar quarter. The first Incentive Fee which may be due
and owing to the Advisor in respect of any New High Net
Trading Profits shall be computed as of the end of the first
calendar quarter during which the Advisor managed the
Allocated Assets for at least 45 days. New High Net
Trading Profits shall be computed solely on the performance
of the Advisor and shall not include or be affected by the
performance of any Other Advisor.
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"New High Net Trading Profits" (for purposes of calculating
the Advisor's Incentive Fee only) for each calendar quarter
is defined as the excess (if any) of (A) the Allocated
Assets, including realized and unrealized gains and losses
thereon, as of the last day of any calendar quarter, after
deduction of Management Fees paid or payable in respect of
such Allocated Assets as of the last day of such quarter but
before deduction of Incentive Fees for such quarter, minus
(B) the Allocated Assets, including realized and unrealized
gains and losses thereon, as of the last day of the most
recent preceding calendar quarter for which an Incentive Fee
in respect of such Allocated Assets was earned (or the
effective date of this Agreement, whichever date the
Allocated Assets were greater), after deduction of
Management Fees and Incentive Fees, paid or payable in
respect of such Allocated Assets for such prior quarter. In
computing New High Net Trading Profits, the difference
between (A) and (B) in the preceding sentence shall be (i)
decreased by (1) all additions to the Allocated Assets and
reallocations of assets to the Advisor from Other Advisors
between the dates referred to in (A) and (B) and (2) all
interest earned on the Allocated Assets between the dates
referred to in (A) and (B), and (ii) increased by (1) the
Advisor's Allocable Portion (as defined) of any
distributions or redemptions paid or payable by the Trust as
of, or subsequent to, the date in (B) through the date in
(A), (2) losses incurred between the dates referred to in
(A) and (B), if any, associated with the Advisor's Allocable
Portion of distributions or redemptions, as well as losses
associated with reallocations of assets away from the
Advisor in the event that the Trust has retained one or more
Other Advisors, (3) any reallocations of assets away from
the Advisor between the dates referred to in (A) and (B),
and (4) extraordinary expenses not related to the Advisor
from the date in (B) to the last day of the calendar
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quarter as of which the current Incentive Fee calculation is made.
The term "extraordinary expenses" as used in this Agreement
shall have the same meaning ascribed to it under Section 4.7
of the Trust Agreement. Initially, the Advisor's "Allocable
Portion" of distributions and redemptions shall be an amount
which bears the same ratio as the Net Asset Value of the
Allocated Assets (that is, the non-leveraged amount) bears
to the Trust's Net Asset Value. The loss adjustment
referred to in clause (ii)(2) above shall be calculated by
determining any cumulative net trading loss being carried
forward as of the date of such redemption or reallocation of
assets away from the Advisor and multiplying this cumulative
loss by a fraction, the numerator of which is the aggregate
Net Asset Value of the Interests redeemed or the Net Asset
Value of any reallocation of assets away from the Advisor at
the end of such quarter and the denominator of which is the
Net Asset Value of the Allocated Assets at the end of such
quarter but before redemptions or reallocation of assets
either to or from the Advisor. If any redemption or
reallocation of assets away from the Advisor occurs as of
any date which is not the end of a calendar quarter, and the
Trust's account has a cumulative loss, the above calculation
will be prepared and a loss carryforward adjustment will be
made; to the extent that as of such date, New High Net
Trading Profits have been achieved, the Advisor will receive
an Incentive Fee thereon as if such redemption or
reallocation of assets away from the Advisor occurred as of
the end of a quarter. For purposes of calculating the first
Incentive Fee payable to the Advisor the date referred to in
(B) shall be the effective date of this Agreement.
(d) Timing of Payment. Monthly Management Fees and
Quarterly Incentive Fees shall be paid within fifteen (15)
business days following the end of the period for which
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they are payable. If an Incentive Fee shall have been paid by
the Trust to the Advisor in respect of any calendar quarter
and the Advisor shall incur subsequent losses on the
Allocated Assets the Advisor shall nevertheless be entitled
to retain amounts previously paid to it in respect of New
High Net Trading Profits.
(e) Neither the Advisor nor any of its employees shall
receive any commissions, compensation, remuneration or
payments whatsoever from any broker with which the Trust
carries an account for transactions executed in the Trust's
account.
6. Term and Termination.
(a) Term. This Agreement shall commence on the date hereof
and, unless sooner terminated, shall continue in effect
until the close of business on August 31, 1999. Thereafter,
this Agreement shall be renewed automatically on the terms
and conditions set forth herein for additional successive
twelve (12) month terms, each of which shall commence on the
first day of the month subsequent to the conclusion of the
preceding twelve (12) month term, unless this Agreement is
terminated pursuant to paragraphs (b), (c) or (d) of this
Section 6. The automatic renewal(s) set forth in the
preceding sentence hereof shall not be affected by (i) any
reallocation of Trust's Net Asset Value away from the
Advisor pursuant to Section 7 of this Agreement, or (ii) the
retention of Other Advisors following a reallocation, or
otherwise.
(b) Automatic Termination. This Agreement shall terminate
automatically in the event that the Trust is terminated.
This Agreement shall terminate automatically with respect to
the Advisor, immediately upon written notice from the
Managing Owner, without affecting the continuation of this
Agreement with any Other Advisor in the event that the
Advisor's allocable percentage of the Net Asset Value of the
Trading Level of the Allocated Assets at the close of
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trading on any business day is equal to or less than the
Termination Amount. The "Termination Amount" shall be an
amount equal to 66-2/3% of the portion of the Net Asset
Value of the Trading Level of the Allocated Assets on the
date it commences Commodities trading activities for the
Trust, or the first day of any calendar year, whichever day
the Net Asset Value allocated to the Advisor is higher, in
either case, as adjusted on an ongoing basis by the
percentage decline(s) or increases in that portion of the
Trust's Net Asset Value and related Trading Level allocated
to the Advisor's management caused by distributions,
redemptions and permitted reallocations, and new allocations
to the Advisor covered by reallocations away from Other
Advisors, respectively. Each redemption and distribution of
funds shall have the effect of reducing the Termination
Amount by an amount equal to the portion of such redemption
or distribution allocable to the Advisor. Reallocations of
funds away from the Advisor shall reduce the Termination
Amount in the same pro portion that the Allocated Assets are
leveraged to create the Trading Level.
(c) Optional Termination Right of Trust. This Agreement
may be terminated at any time in the sole discretion of the
Managing Owner upon one business day prior written notice to
the Advisor. The Managing Owner will use its best efforts
to cause any such termination to occur as of a month-end.
(d) Optional Termination Right of Advisor. The Advisor
shall have the right to terminate this Agreement immediately
upon written notice to the Managing Owner if (i) the
registration of the Managing Owner as a commodity pool
operator under the CE Act, or its NFA membership as a
commodity pool operator is revoked, suspended, terminated or
(ii) there is an unauthorized assignment of this Agreement
by the Trust or the Managing Owner. Otherwise, the
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<PAGE>
Advisor shall have the right to terminate this Agreement (1) upon
written notice to the Managing Owner at least thirty (30)
days' prior to the end of each twelve (12) month term of
this Agreement; and (2) upon thirty (30) days' prior written
notice to the Managing Owner in the event (i) of the receipt
by the Advisor of an opinion of independent counsel
satisfactory to the Advisor and the Trust that by reason of
the Advisor's activities with respect to the Trust, the
Advisor is required to register as an investment adviser
under the Investment Advisers Act of 1940; (ii) the Managing
Owner imposes additional trading limitation(s) pursuant to
Section 1 of this Agreement which the Advisor does not agree
to follow in its management of the Trust's Net Asset Value
or the Managing Owner overrides a trading instruction of the
Advisor; (iii) if the Trading Level of the Allocated Assets
decreases, for any reason, to less than $10,000,000; which
represents a cash allocation to the Advisor of approximately
$6,666,667; (iv) the Managing Owner elects (pursuant to
Section 1 of this Agreement) to have the Advisor use a
different Trading Approach in the Advisor's management of
Trust assets from that which the Advisor is then using to
manage such assets and the Advisor objects to using such
different Trading Approach; (v) the Advisor determines to
make a material change in the Trading Approach to which the
Managing Owner objects; (vi) the amounts deducted, excluding
the management fee, for the purpose of determining the
Advisor's incentive fee exceed 7.5% of the Allocated Assets
or (vii) other good cause is shown and the written consent
of the Managing Owner is obtained (which shall not be
withheld unreasonably).
(e) In the event that this Agreement is terminated pursuant
to subparagraphs (b), (c) or (d) of this Section 6, the
Advisor shall be entitled to, and the Trust shall pay, the
Management Fee and the Incentive Fee, if any, which shall be
computed (A) with respect to the Management Fee, on a pro
rata basis, based upon the portion of the month for which
the Advisor
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had its portion of the Trust's Net Asset Value
under management, and (B) with respect to the Incentive Fee,
if any, as if the effective date of termination was the last
day of the then current calendar quarter. The rights of the
Advisor to fees earned through the earlier to occur of the
date of expiration or termination of this Agreement shall
survive this Agreement until satisfied.
7. Reallocation of Funds. The Managing Owner may, at any
month-end, in its sole discretion, upon at least ten (10)
business days' prior written notice, reallocate a portion of
the Allocated Assets away from the Advisor.
8. Liquidation of Positions. The Advisor agrees to
liquidate open positions in the amount that the Managing
Owner informs the Advisor, in writing via telecopy or other
equivalent means, that the Managing Owner considers
necessary or advisable to liquidate in order to (i) effect
any termination or reallocation pursuant to Sections 6 or 7,
respectively, or (ii) fund its pro rata share of any
redemption, distribution or Trust expense. The Managing
Owner shall not, however, have authority to instruct the
Advisor as to which specific open positions to liquidate,
except as provided in Section 1 hereof. The Managing Owner
shall provide the Advisor with such reasonable prior notice
of such liquidation as is practicable under the
circumstances and will endeavor to provide at least three
(3) days' prior notice. In the event that losses incurred
by the Advisor exceed the assets allocated to the Advisor,
the Managing Owner will withdraw the funds necessary to
cover such excess losses pro rata from the assets under the
management of all Other Advisors.
9. Other Accounts of the Advisor.
(a) Subject to paragraph (b) of this Section 9, the Advisor
shall be free to manage and trade accounts for other
investors (including other public and private commodity
pools)
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during the term of this Agreement and to use the same
or other information and Trading Approach utilized in the
performance of services for the Trust for such other
accounts so long as the Advisor's ability to carry out its
obligations and duties to the Trust pursuant to this
Agreement is not materially impaired thereby. In addition,
the Advisor and its officers, directors, and employees, as
applicable, also will be permitted to trade in Commodities
for their own accounts, so long as the Advisor's ability to
carry out its obligations and duties to the Trust is not
materially impaired thereby.
(b) Furthermore, so long as the Advisor is performing
services for the Trust, it agrees that it will not accept
additional capital for management in the Commodities markets
if doing so would have a reasonable likelihood of resulting
in the Advisor having to modify materially its agreed upon
Trading Approach being used for the Trust in a manner which
might reasonably be expected to have a material adverse
effect on the Trust without giving the Managing Owner
written notice thereof at least 90 days prior to accepting
such additional capital (without limiting the generality of
the foregoing, it is understood that this paragraph shall
not prohibit the acceptance of additional capital, which
acceptance requires only routine adjustments to trading
patterns in order to comply with speculative position limits
or daily trading limits).]
(c) The Advisor agrees, in its management of accounts other
than the account of the Trust, that it will not knowingly or
deliberately favor any other account managed or controlled
by it or any of its employees or affiliates (in whole or in
part) over the Trust. The preceding sentence shall not be
interpreted to preclude (i) the Advisor from charging
another client fees which differ from the fees to be paid to
it hereunder, or (ii) an adjustment by the Advisor in the
implementation of the Trading Approach or other any agreed
upon trading method
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<PAGE>
or strategy in accordance with the
procedures set forth in Section 1 hereof, which is
undertaken by the Advisor in good faith in order to
accommodate additional accounts. The Advisor, upon
reasonable request and receipt of adequate assurances of
confidentiality, shall provide the Managing Owner with an
explanation of the differences, if any, in performance
between the Trust and any other similar account pursuant to
the same Trading Approach for which the Advisor or any of
its affiliates acts as a commodity trading advisor (in whole
or in part).
(d) Upon reasonable notice from the Managing Owner, the
Advisor shall permit the Managing Owner to review at the
Advisor's offices during normal business hours such trading
records of other accounts managed by the Advisor or its
affiliates pursuant to the Trading Approach employed for the
Trust as it reasonably may request for the purpose of
confirming that the Trust has been treated equitably with
respect to advice rendered during the term of this Agreement
by the Advisor for other accounts managed by the Advisor,
which the parties acknowledge to mean that the Managing
Owner may inspect, subject to such restrictions as the
Advisor may reasonably deem necessary or advisable so as to
preserve the confidentiality of proprietary information and
the identity of its clients, all trading records of the
Advisor as it reasonably may request related to such other
accounts during normal business hours. The Advisor may, in
its discretion, withhold from any such report or inspection
the identity of the client for whom any such account is
maintained and in any event, the Trust and the Managing
Owner shall keep all such information obtained by it from
the Advisor confidential.
10. Speculative Position Limits. If, at any time during the
term of this Agreement, it appears to the Advisor that it
may be required to aggregate the Trust's Commodities
positions with the positions of any other accounts it owns
or controls for purposes of applying the
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<PAGE>
speculative position limits of the CFTC, any exchange, self-regulatory
body, or governmental authority, the Advisor promptly will
notify the Managing Owner if the Trust's positions are
included in an aggregate amount which equals or exceeds one
hundred percent (100%) of the applicable speculative limit.
The Advisor agrees that, if its trading recommendations
pursuant to its agreed upon Trading Approach are altered
because of the potential application of speculative position
limits, the Advisor will modify its trading instructions to
the Trust and its other accounts in a good faith effort to
achieve an equitable treatment of all accounts; to wit, the
Advisor will liquidate Commodities positions and/or limit
the taking of new positions in all accounts it manages,
including the Trust, as nearly as possible in the same
proportion as the Trading Level of the Allocated Assets and
the assets of other accounts traded by the Advisor bears to
all assets, including notional amounts, traded by the
Advisor to the extent necessary to comply with applicable
speculative position limits. The Advisor presently believes
that its Trading Approach for the management of the Trust's
account can be implemented for the benefit of the Trust
notwithstanding the possibility that, from time to time,
speculative position limits may become applicable.
11. Redemptions, Distributions and Reallocations.
(a) The Managing Owner agrees to give the Advisor at least
three (3) days' prior notice of any proposed redemptions,
distributions or reallocations.
(b) Redemptions and distributions shall be charged against
the various Trust accounts managed by its trading advisors,
including the Advisor, in such proportions as the Managing
Owner, in its discretion, determines to be in the Trust's
best interests.
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<PAGE>
12. Brokerage Confirmations and Reports. The Managing Owner
will instruct the Trust's commodity broker or brokers to
furnish the Advisor with copies of all trade confirmations,
daily equity runs, and monthly trading statements relating
to the Allocated Assets under the management of the Advisor.
The Advisor will maintain records as required by law and
will monitor all open positions relating thereto; provided,
however, that except as provided in Section 1(f) hereof, the
Advisor shall not be responsible for any brokerage errors.
The Managing Owner also will furnish the Advisor with a copy
of all reports, including but not limited to, monthly,
quarterly and annual reports, sent to the limited owners,
the Securities and Exchange Commission ("SEC"), the CFTC and
the NFA. The Advisor shall, at the Managing Owner's
request, provide the Managing Owner with copies of all trade
confirmations, daily equity runs, monthly trading reports or
other reports sent to the Advisor by the Trust's commodity
broker regarding the Trust, and in the Advisor's possession
or control, as the Managing Owner deems appropriate, if the
Managing Owner cannot obtain such copies on its own behalf.
Upon request, the Managing Owner will provide the Advisor
with accurate information with respect to the Trust's then
current Net Asset Value and Net Asset Value per Unit.
13. The Advisor's Representations and Warranties. The
Advisor represents and warrants that:
(a) It has full capacity and authority to enter into this
Agreement, and to provide the services required of it
hereunder;
(b) It is a duly formed and validly existing corporation,
in good standing under the laws of the jurisdiction of its
organization, and in good standing and qualified to do
business in each jurisdiction in which the nature and
conduct of its business requires such qualification
21
<PAGE>
and the failure to be so qualified would materially adversely affect
its ability to perform its obligations under this Agreement
(c) It will not by entering into this Agreement and by
acting as a commodity trading advisor to the Trust, (i) be
required to take any action contrary to any applicable
statute, law or regulation of any jurisdiction or (ii)
breach or cause to be breached any undertaking, agreement,
contract, statute, rule or regulation to which it is a party
or by which it is bound which, in the case of (i) or (ii),
would materially limit or materially adversely affect its
ability to perform its duties under this Agreement;
(d) It is duly registered as a commodity trading advisor
under the CE Act and is a member of the NFA as a commodity
trading advisor and it will maintain and renew such
registration and membership during the term of this
Agreement;
(e) A copy of its most recent Commodity Trading Advisor
Disclosure Document, as required by Part 4 of the CFTC's
regulations, has been provided to the Trust in the form of
Exhibit B hereto and, except as disclosed in such Disclosure
Document, all information in such Disclosure Document
(including, but not limited to, background, performance,
trading methods and trading systems) is true, complete and
accurate in all material respects and is in conformity in
all material respects with the provisions of the CE Act
including the rules and regulations thereunder;
(f) The amount of Trust assets to be allocated to the
Advisor should not, in the reasonable judgment of the
Advisor, result in the Advisor being required to alter its
Trading Approach to a degree which would be expected to have
a material adverse effect on the Trust;
22
<PAGE>
(g) Neither the Advisor nor its employees, agents, or
affiliates, nor any of its or their respective successors or
assigns: (i) shall knowingly or deliberately use or
distribute for any purpose whatsoever any list containing
the names and/or residence addresses of, and/or other
information about, the limited owners of the Trust; nor (ii)
shall solicit any person it or they know is a limited owner
of the Trust for the purpose of soliciting commodity
business from such limited owner, unless such limited owner
shall have first contacted the Advisor or is already a
client of the Advisor or a prospective client with which the
Advisor has commenced discussions or is introduced or
referred to the Advisor by an unaffiliated agent;
(h) This Agreement has been duly and validly executed and
delivered and is a valid and binding agreement, enforceable
against it in accordance with its terms;
(i) There is no pending, or to the best of its knowledge,
threatened or contemplated action, suit or proceeding before
any court or arbitration panel, or before or by any
governmental, administrative or self-regulatory body, to
which it or its employees or affiliates is a party, or to
which any of its assets is subject, which might reasonably
be expected to result in any material adverse change in the
condition of the Advisor (financial or otherwise), business
or prospects or reasonably might be expected to affect
adversely in any material respect any of the Advisor's
assets or which reasonably might be expected to (A)
materially impair the Advisor's ability to discharge its
obligations to the Trust, or (B) result in a matter which
would require disclosure in its Disclosure Document which
has not been so disclosed; and the Advisor has not received
any notice of an investigation by (i) the NFA regarding
noncompliance with NFA rules or the CE Act, (ii) the CFTC
regarding noncompliance with the CE Act, or the rules and
regulations thereunder, or (iii) any exchange regarding
noncompliance with the rules of such
23
<PAGE>
exchange, which investigation reasonably might be expected
to (1) materially impair its ability to discharge its obligations
to the Trust, or (2) result in a matter which would require
disclosure in its Disclosure Document which has not been so
disclosed;
(j) The Advisor is taking immediate action to identify any
of its computer systems that are year 2000 vulnerable. If
such systems are identified that negatively affect the
Advisor's services, it will take immediate action to update
those systems.; and
(k) The Advisor foresees no problem in accepting and
processing data related to the Euro. If unanticipated
difficulties arise, the Advisor will notify the Trust in a
timely manner.
The within representations and warranties shall be
continuing during the term of this Agreement, and, if at any
time, any event has occurred which would make or tend to
make any of the foregoing not true, the Advisor promptly
will notify the Trust in writing thereof.
14. The Managing Owner's Representations and Warranties.
The Managing Owner represents and warrants on behalf of the
Trust and itself that:
(a) It has full corporate capacity and authority to enter
into this Agreement;
(b) It will not, by acting as Managing Owner to the Trust
or by entering into this Agreement, (i) be required to take
any action contrary to its incorporating documents or any
applicable statute, law or regulation of any jurisdiction,
or (ii) breach or cause to be breached (A) any undertaking,
agreement, contract, statute, rule, regulation, to which it
or the Trust is a party or by which it or the Trust is bound
or (B) any order of any court or governmental or regulatory
agency having jurisdiction over the Trust or the Managing
Owner, which in the case of (i) or (ii)
24
<PAGE>
would materially limit or materially adversely affect the
performance of its or the Trust's duties under this Agreement;
(c) The Trust and the Managing Owner have obtained all
required governmental and regulatory licenses, registrations
and approvals required by law as may be necessary to act as
described in the Trust's Registration Statement and
Prospectus, including, without limitation, registration as a
commodity pool operator under the CE Act and membership as a
commodity pool operator in the NFA. The Managing Owner will
maintain and renew the foregoing registrations, licenses,
memberships and approvals, as appropriate, during the term
of this Agreement;
(d) The Trust and the Managing Owner have complied, and
will continue to comply, with all laws, rules and
regulations having application to its or their business,
including rules and regulations promulgated by the CFTC and
NFA, the violation of which would materially and adversely
affect the business, financial condition or earnings of the
Trust or the Managing Owner; and there are no actions, suits
or proceedings pending or, to the best of the knowledge of
the Trust or the Managing Owner, threatened against it or
them, at law or in equity or before or by any federal,
state, municipal or other governmental or regulatory
department, commission, board, bureau, agency or
instrumentality, or by any commodity or security exchange
worldwide in which an adverse decision would materially and
adversely affect the ability of the Trust or the Managing
Owner to comply with, and perform their obligations under,
this Agreement;
25
<PAGE>
(e) This Agreement has been duly and validly authorized,
executed and delivered, and is a valid and binding
agreement, enforceable against each of them, in accordance
with its terms; and
(f) On the date hereof, it is, and during the term of this
Agreement, it will be (i) in the case of the Trust, a duly
formed and validly existing Delaware business trust, and
(ii) in the case of the Managing Owner, a duly formed and
validly existing corporation, in each case, in good standing
under the laws of the State of Delaware, and in good
standing and qualified to do business in each jurisdiction
in which the nature and conduct of its business requires
such qualification and the failure to be so qualified would
materially adversely affect its ability to perform its
obligations under this Agreement; and
(g) All authorizations, consents or orders of any court, or
of any federal, state or other governmental or regulatory
agency or body required for the valid authorization,
issuance, offer and sale of the Trust's Interests were
obtained, and, to the best of its knowledge, after due
inquiry no order preventing or suspending the use of the
Prospectus with respect to the Interests was issued by the
SEC, the CFTC or the NFA. The Trust's Registration
Statement and Prospectus contained all statements which were
required to be made therein, conformed in all material
respects with the requirements of the Securities Act of
1933, as amended and the CE Act, and the rules and
regulations of the SEC and the CFTC, respectively,
thereunder, and with the rules of the NFA, and did not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein (with respect to
the Prospectus, in light of the circumstances in which they
were made) not misleading; provided, however, that this
representation and warranty shall not apply to any
statements or
26
<PAGE>
omissions made in reliance upon and in
conformity with information furnished to the Managing Owner,
the Trust or to Prudential Securities by or on behalf of the
trading advisors referenced in the Registration Statement or
Prospectus, including, without limitation, all references to
those trading advisors and their affiliates, controlling
persons, shareholders, directors, officers and employees, as
well as to each such trading advisor's trading approach and
past performance history.
(h) The Trust's offering of its Interests has terminated and
there are not currently, and will not be in the future, any
offering materials in use by the Trust or the Managing Owner
in connection with the offer or sale of Interests in the
Trust.
The within representations and warranties shall be
continuing during the term of this Agreement, and, if at any
time, any event has occurred which would make or tend to
make any of the foregoing not true, the Managing Owner
promptly will notify the Advisor in writing.
15. Assignment. This Agreement may not be assigned by any
of the parties hereto without the express prior written
consent of the other parties hereto.
16. Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and the
successors and permitted assigns of each of them, and no
other person (except as otherwise provided herein) shall
have any right or obligation under this Agreement. The
terms "successors" and "assigns" shall not include any
purchasers, as such, of Interests.
17. Amendment or Modification. This Agreement may not be
amended or modified except by the written consent of the
parties hereto.
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<PAGE>
18. Notices. Except as otherwise provided herein, all
notices required to be delivered under this Agreement shall
be effective only if in writing and shall be deemed given by
the party required to provide notice when received by the
party to whom notice is required to be given and shall be
delivered personally, by registered mail, postage prepaid,
return receipt requested, or by telecopy, as follows (or to
such other address as the party entitled to notice shall
hereafter designate by written notice to the other parties):
If to the Managing Owner: If to the Trust:
Prudential Securities Futures PSI Strategic Trust
Management Inc. c/o Prudential Securities Futures.
One New York Plaza, 13th floor Management Inc
New York, New York 10292-2585 One New York Plaza, 13th floor
Attention: Eleanor L. Thomas New York, New York 10292-2585
Facsimile: (212) 778-3694 Attention: Eleanor L. Thomas
Facsimile: (212) 778-3694
and in either case with a copy to:
Rosenman & Colin LLP and Prudential Securities Incorporated
575 Madison Avenue One New York Plaza, 13th Floor
New York, New York 10022 New York, New York 10292-2585
Attention: Fred M. Santo, Esq. Attention: Eleanor L. Thomas
Facsimile: (212) 940-7079 Facsimile: (212) 778-3694
If to the Advisor:
Bridgewater Associates, Inc.
372 Danbury Road
Wilton, CT 06897
Attention: Giselle Wagner
Facsimile: (203) 762-2615
19. Governing Law. The parties agree that this Agreement
shall be governed by and construed in accordance with the
laws of the State of New York without regard to conflict of
laws principles.
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<PAGE>
20. Survival. The provisions of this Agreement shall
survive the termination of this Agreement with respect to
any matter arising while this Agreement was in effect.
21. Disclosure Document Modifications. The Advisor shall
promptly furnish the Managing Owner with a copy of all
modifications to its Disclosure Document when available for
distribution. Upon receipt of any modified Disclosure
Document by the Managing Owner, the Managing Owner will
provide the Advisor with an acknowledgement of receipt
thereof.
22. Promotional Literature. The parties agree that prior to
using any literature in which reference to the other parties
hereto is made, they shall furnish a copy of such
information to the other parties and will not make use of
any literature containing references to such other parties
to which such other parties object, except as otherwise
required by law or regulation.
23. No Waiver. No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver granted hereunder
must be in writing and shall be valid only in the specific
instance in which given.
24. Headings. Headings to Sections herein are for the
convenience of the parties only, and are not intended to be
or to affect the meaning or interpretation of this
Agreement.
25. Complete Agreement. Except as otherwise provided
herein, this Agreement constitutes the entire agreement
between the parties with respect to the matters referred to
herein, and no other agreement, verbal or otherwise, shall
be binding upon the parties hereto.
29
<PAGE>
26. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original
and all of which, when taken together, shall constitute one
original instrument.
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first
above written.
PRUDENTIAL SECURITIES PRUDENTIAL SECURITIES FUTURES
STRATEGIC TRUST MANAGEMENT, INC.
By: PRUDENTIAL SECURITIES
FUTURES MANAGEMENT, INC. By: /s/ Guy S. Scarpaci
------------------------
Its: Managing Owner Guy S. Scarpaci, Director
By: /s/ Eleanor L. Thomas
------------------------
Eleanor L. Thomas
Vice-President
BRIDGEWATER ASSOCIATES, INC.
By: /s/ Giselle Wagner
---------------------------------
Giselle Wagner,
Chief Operating Officer
30
<PAGE>
EXHIBIT A
"Net Asset Value" of the assets in the Trust Estate,
includes but is not limited to, all cash and cash
equivalents (valued at cost plus accrued interest and
amortization of original issue discount) less total
liabilities, of the Trust, each determined on the basis of
generally accepted accounting principles in the United
States, consistently applied under the accrual method of
accounting ("GAAP"), including, but not limited to, the
extent specifically set forth below:
1. Net Asset Value shall include any unrealized profit or loss
on open Commodities Positions, and any other credit or debit
accruing to the Trust but unpaid or not received by the
Trust.
2. All open commodity futures contracts and options traded on a
United States exchange are calculated at their then current
market value, which shall be based upon the settlement price
for that particular commodity futures contract and option
traded on the applicable United States exchange on the date
with respect to which Net Asset Value is being determined;
provided, that if a commodity futures contract or option
traded on a United States exchange could not be liquidated
on such day, due to the operation of daily limits or other
rules of the exchange upon which that position is traded or
otherwise, the settlement price on the first subsequent day
on which the position could be liquidated shall be the basis
for determining the market value of such position for such
day. The current market value of all open commodity futures
contracts and options traded on a non-United States exchange
shall be based upon the liquidating value for that
particular commodity futures contract and option traded on
the applicable non-United States exchange on the date with
respect to which Net Asset Value is being determined;
provided, that if a commodity futures contract or option
traded on a non-United States exchange could not be
liquidated on such day, due to the operation of rules of the
exchange upon which that position is traded or otherwise,
the liquidating value on the first subsequent day on which
the position could be liquidated shall be the basis for
determining the market value of such position for such day.
The current market value of all open forward contracts
entered into by the Trust shall be the mean between the last
bid and last asked prices quoted by the bank or financial
institution which is a party to the contract on the date
with respect to which Net Asset Value is being determined;
provided, that if such quotations are not available on such
date, the mean between the last bid and asked prices on the
first subsequent day on which such quotations are available
shall be the basis for determining the market value of such
forward contract for such day. The Managing Owner may in
its discretion value any assets of the Trust Estate pursuant
to such other principles as it may deem fair and equitable
so long as such principles are consistent with normal
industry standards.
3. Interest earned on the Trust's commodity brokerage account
shall be accrued at least monthly.
4. The amount of any distribution made pursuant to Article VI
of the Trust Agreement shall be a liability of the Trust
from the day when the distribution is declared until it is
paid.
"Trust Estate" means any cash, commodity futures, forward
and option contracts, all funds on deposit in the Trust's
accounts, and any other property held by the Trust, and all
proceeds therefrom, including any rights of the Trust
pursuant to any Subscription Agreement and any other
agreements to which the Trust is a party.
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<PAGE>
<PAGE>
EXHIBIT B
Description of Trading Approach
For purposes of this Agreement, the Advisor's Trading
Approach will be its Pure Alpha Strategy as described in its
Disclosure Document dated June 17, 1998 ("Disclosure
Document")with the following modification: (i) cash bonds
will be excluded from the portfolio mix and the capital
normally allocated to cash bonds will be reallocated to the
other markets the Advisor trades, (ii) unless a forward
contract is executed through Prudential Securities or its
affiliates, futures contracts on currencies will be traded
at this time, instead of futures and forward contracts on
currencies, and (iii) trade the Trust's assets at 1.5 times
the normal Pure Alpha Strategy level.
The reallocation of assets from cash bonds to other markets
traded by the Advisor will allow the Advisor to manage the
allocated assets within the same target return as The Pure
Alpha Strategy with cash bonds. The Advisor introduced cash
bonds to The Pure Alpha Strategy on January 1, 1998 but it
has not had a material affect on overall performance. The
Advisor makes no representation about the overall
performance which will result from the modifications set
forth above to its Pure Alpha Strategy. In the future, upon
reasonable prior notice, the Managing Owner may authorize
the Advisor to executed forward currency transactions
through counter-parties, other than Prudential Securities or
its affiliates.
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<PAGE>
<PAGE>
Exhibit C
COMMODITY TRADING ADVISOR
DISCLOSURE DOCUMENT
BRIDGEWATER ASSOCIATES, INC.
372 Danbury Road
Wilton, Connecticut 06897
Telephone (203) 762-8511
Fax (203) 762-2615
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE
MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
No person is authorized by Bridgewater Associates Inc., to give any
information or to make any representations that are not contained
in this Disclosure Document.
The Date of this Disclosure Document is
---------------------------------------
June 17, 1998
The delivery of this Disclosure Document at any time does not imply
that the information contained herein is correct as of any time
subsequent to the date shown above. This Disclosure Document is not
to be distributed under any circumstances after March 17, 1999 and
will be superseded after that date by a Disclosure Document containing
then current information about this program.
<PAGE>
<PAGE>
EXHIBIT D
TRUST'S TRADING LIMITATIONS AND POLICIES
The Trust will observe the trading limitations and trading
policies set forth hereafter. The Advisor initially will be
allocated approximately $16,700,000 of the Trust's Net Asset
Value (the "Allocated Assets") with instruction to trade the
Allocated Assets at 1.5 times the Pure Alpha Trading
Approach level so that the trading level of the Trust's
account directed by the Advisor will be approximately
$25,050,000, which thereafter may be reallocated to
additional commodity trading managers (but will in no event
be reallocated to commodity trading managers affiliated with
Prudential Securities) whom the Managing Owner may, in its
discretion, retain in the event of the termination of the
Advisor or the reallocation of assets under the Advisor's
management away from the Advisor.
The following limitations and policies are applicable to the
Trust as a whole. The Advisor sometimes may be prohibited
from taking positions for the Trust which it would otherwise
acquire due to the need to comply with these limitations and
policies. The Managing Owner will monitor compliance with
the trading limitations and policies of the Trust set forth
below, and it may impose additional restrictions (through
modification of such limitations and policies) upon the
trading activities of the Advisor, as it, in good faith,
deems appropriate in the best interests of the Trust,
subject to the terms of the Advisory Agreement.
The Managing Owner will not approve a material change in the
following trading limitations and policies without obtaining
the prior written approval of Limited Owners owning more
than 50% of the Interests. The Managing Owner may, however,
impose additional trading limitations on the trading
activities of the Trust without obtaining such approval if
the Managing Owner determines such additional limitations to
be necessary in the best interests of the Trust.
Trading Limitations
!!!!!!!!!!!!!!!!!!!!!
The Trust will not: (i) engage in pyramiding its
commodities positions (i.e., the use of unrealized profits
on existing positions to provide margin for the acquisition
of additional positions in the same or a related commodity),
but may take into account open trading equity on existing
positions in determining generally whether to acquire
additional commodities positions; (ii) borrow or loan money
(except with respect to the initiation or maintenance of the
Trust's commodities positions or obtaining lines of credit
for the trading of forward currency contracts; provided,
however, that the Trust is prohibited from incurring any
indebtedness on a non-recourse basis); (iii) permit rebates
to be received by the Managing Owner or its affiliates, or
permit the Managing Owner or any affiliate to engage in any
reciprocal business arrangements which would circumvent the
foregoing prohibition; (iv) permit the Advisor to share in
any portion of the commodity brokerage fees paid by the
Trust; (v) commingle its assets, except as permitted by law;
or (vi) permit the churning of its commodity accounts.
The Trust will conform in all respects to the rules,
regulations and guidelines of the markets on which its
trades are executed.
<PAGE>
Trading Policies
Subject to the foregoing limitations, the Advisor has agreed
to abide by the trading policies of the Trust as they apply
to the Allocated Assets, which currently are as follows:
a. The Allocated Assets will generally be invested in contracts
which are traded in sufficient volume to permit taking and
liquidating positions.
b. Stop or limit orders may, in the Advisor's discretion, be
given with respect to initiating or liquidating positions in
order to seek to limit losses or secure profits. If stop or
limit orders are used, no assurance can be given, however,
that Prudential Securities will be able to liquidate a
position at a specified stop or limit order price, due to
either the volatility of the market or the inability to
trade because of market limitations.
c. The Advisor generally will not initiate an open position in
a futures contract (other than a cash settlement contract)
during any delivery month in that contract, except when
required by exchange rules, law or exigent market
circumstances. This policy does not apply to forward and
cash market transactions.
d. The Advisor may occasionally make or accept delivery of a
commodity including, without limitation, currencies. The
Advisor also may engage in EFP transactions involving
currencies and metals and other commodities in such volume
as may be agreed upon between the Trust and the Advisor.
e. The Advisor may, from time to time, employ trading
techniques such as spreads, straddles and conversions.
f. The Advisor will not initiate open positions which would
result in net long or short positions requiring as margin or
premium for outstanding positions in excess of 15% of the
Allocated Assets for any one commodity, or in excess of
66-2/3% of the Allocated Assets for all commodities combined.
Under certain market conditions, such as an inability to
liquidate open commodities positions because of daily price
fluctuations, the Managing Owner may be required to commit
as margin in excess of the foregoing limits and in such case
the Managing Owner will cause the Advisor to reduce its open
positions to comply to these limits before initiating new
commodities positions.
g. To the extent the Advisor engages in transactions in forward
currency contracts other than with or through Prudential
Securities and/or PBFI, the Trust will only engage in such
transactions with or
<PAGE>
through a bank which as of the end of
its last fiscal year had an aggregate balance in its
capital, surplus and related accounts of at least
$100,000,000, as shown by its published financial statements
for such year, and through other broker-dealer firms with an
aggregate balance in its capital, surplus and related
accounts of at least $50,000,000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential Securities Strategic
Trust and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0001005006
<NAME> Prudential Securities Strategic Trust
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Sep-30-1998
<PERIOD-TYPE> 9-Mos
<CASH> 41,053,649
<SECURITIES> 3,663,777
<RECEIVABLES> 21,786
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,739,212
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,739,212
<CURRENT-LIABILITIES> 1,857,409
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 42,881,803
<TOTAL-LIABILITY-AND-EQUITY> 44,739,212
<SALES> 0
<TOTAL-REVENUES> 3,575,614
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,945,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (369,521)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> 0
</TABLE>
