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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
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
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(Exact name of registrant as specified in its charter)
Delaware 13-7075398
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 778-7866
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Interests
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Second Amended and Restated Declaration of Trust and Trust Agreement of the
Registrant dated as of January 31, 1996, included as part of the Registration
Statement on Form S-1 (File No. 33-80443) filed with the Securities and Exchange
Commission on February 7, 1996, pursuant to Rule 424(b) of the Securities Act of
1933, is incorporated by reference into Part IV of this Annual Report on Form
10-K
Annual Report to Interest holders for the year ended December 31, 1998 is
incorporated by reference into Parts II and IV of this Annual Report on Form
10-K
Index to exhibits can be found on pages 11 and 12.
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PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 4
Item 3 Legal Proceedings................................................................ 4
Item 4 Submission of Matters to a Vote of Interest Holders.............................. 4
PART II
Item 5 Market for the Registrant's Interests and Related Interest Holder Matters........ 4
Item 6 Selected Financial Data.......................................................... 4
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 4
Item 7A Quantitative and Qualitative Disclosures About Market Risk....................... 5
Item 8 Financial Statements and Supplementary Data...................................... 8
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 8
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 8
Item 11 Executive Compensation........................................................... 9
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 9
Item 13 Certain Relationships and Related Transactions................................... 10
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 11
Financial Statements and Financial Statement Schedules........................... 11
Exhibits......................................................................... 11
Reports on Form 8-K.............................................................. 12
SIGNATURES.................................................................................. 13
</TABLE>
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PART I
Item 1. Business
General
Prudential Securities Strategic Trust, formerly known as Willowbridge
Strategic Trust, (the 'Registrant') was organized under the Delaware Business
Trust Statute on October 16, 1995 and commenced trading operations on May 1,
1996. The Registrant will terminate on December 31, 2015 unless terminated
sooner as provided in the Second Amended and Restated Declaration of Trust and
Trust Agreement (the 'Trust Agreement'). The Registrant was formed to engage in
the speculative trading of commodity futures, forward and options contracts. The
trustee of the Registrant is Wilmington Trust Company.
On May 1, 1996, the Registrant completed its initial offering with gross
proceeds of $12,686,200 from the sale of 125,352 limited interests and 1,510
general interests (collectively, the 'Interests'). Additional Interests were
being offered monthly at the then current net asset value per Interest until the
continuous offering period expired on January 31, 1998. Additional contributions
raised during the continuous offering period resulted in additional proceeds to
the Registrant of $51,242,700.
During July 1998, Willowbridge Associates Inc. ('Willowbridge') ceased to
serve as a trading manager to the Registrant with regard to all trading programs
with the exception of its XLIM program, which represented approximately 50% of
the Registrant's assets. These assets were reallocated to a new trading manager
to the Registrant, Bridgewater Associates, Inc. ('Bridgewater'), who began
trading Registrant 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 (the 'Trading Managers')
equal 20% of the New High Net Trading Profits as defined in the Advisory
Agreements among the Registrant, Prudential Securities Futures Management Inc.
(the 'Managing Owner') and each Trading Manager. In conjunction with this
change, the Registrant was renamed Prudential Securities Strategic Trust.
The Registrant is engaged solely in the business of commodity futures,
forward and options trading; therefore, presentation of industry segment
information is not applicable.
Managing Owner
The Managing Owner, Prudential Securities Futures Management Inc., is a
wholly owned subsidiary of Prudential Securities Incorporated ('PSI'), which, in
turn, is a wholly owned subsidiary of Prudential Securities Group Inc. PSI was
the principal underwriter and selling agent for the Registrant's Interests and
is the commodity broker ('Commodity Broker') of the Registrant. The Managing
Owner is required to maintain at least a 1% interest in the Registrant so long
as it is acting as the Managing Owner.
Competition
The Managing Owner and its affiliates have formed, and may continue to form,
various entities to engage in the speculative trading of futures, forward and
options contracts which have certain of the same investment policies as the
Registrant.
The Registrant was an open-end fund which solicited the sale of additional
Interests on a monthly basis until the Continuous Offering Period expired. As
such, the Registrant no longer competes with other entities to attract new
participants. However, to the extent that the Trading Managers recommend similar
or identical trades to the Registrant and other accounts which they manage, the
Registrant may compete with those accounts for the execution of the same or
similar trades.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the Managing Owner and its affiliates pursuant
to the Trust Agreement as further discussed in Notes A, C and D to the
Registrant's annual report to limited owners for the year ended December 31,
1998 ('Registrant's 1998 Annual Report') which is filed as an exhibit hereto.
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Item 2. Properties
The Registrant does not own or lease any property.
Item 3. Legal Proceedings
There are no material legal proceedings pending by or against the Registrant
or the Managing Owner.
Item 4. Submission of Matters to a Vote of Interest Holders
None
PART II
Item 5. Market for the Registrant's Interests and Related Interest Holder
Matters
Information with respect to the offering of Interests is incorporated by
reference to Note A to the Registrant's 1998 Annual Report, which is filed as an
exhibit hereto.
A significant secondary market for the Interests has not developed, and it is
not expected that one will develop in the future. There are also certain
restrictions set forth in the Trust Agreement limiting the ability of an
Interest holder to transfer Interests. However, redemptions are permitted
monthly on at least ten days' prior written notice at the net asset value per
Interest, but are subject to redemption charges of 4% and 3%, respectively, of
the net asset value at which they are redeemed if effected on or prior to the
end of the first and second successive six-month periods after their effective
date of purchase. These redemption charges are paid to the Managing Owner.
Consequently, holders of Interests may not be able to liquidate their
investments in the event of an emergency or for any other reason.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the Trust
Agreement. No distributions have been made since inception and no distributions
are anticipated in the future.
As of March 4, 1999, there were 2,175 holders of record owning 349,306.656
Interests which include 3,494 general interests.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 2 through 10 of the Registrant's 1998
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year Ended December 31, Period from May 1, 1996
----------------------------- (commencement of operations)
1998 1997 to December 31, 1996
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<S> <C> <C> <C>
Total revenues (including interest) $ 13,710,698 $ 4,475,048 $ 4,148,504
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Net income (loss) $ 6,950,929 $(1,784,677 ) $ 2,290,184
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Net income (loss) per weighted
average Interest $ 15.76 $ (4.15 ) $ 10.79
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Total assets $ 48,605,769 $49,233,450 $ 27,823,974
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Net asset value per Interest $ 123.81 $ 102.96 $ 103.47
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 11 through 13 of the
Registrant's 1998 Annual Report which is filed as an exhibit hereto.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risks
Introduction
Past Results Not Necessarily Indicative of Future Performance
The Registrant is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and
substantially all of the Registrant's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Registrant's main line of business.
Market movements result in frequent changes in the fair market value of the
Registrant's open positions and, consequently, in its earnings and cash flow.
The Registrant's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Registrant's open positions and the liquidity
of the markets in which it trades.
The Registrant rapidly acquires and liquidates both long and short positions
in a wide range of different markets. Consequently, it is not possible to
predict how a particular futures market scenario will affect performance, and
the Registrant's past performance is not necessarily indicative of its future
results.
Value at risk is a measure of the maximum amount which the Registrant could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Registrant's speculative trading and the recurrence in the
markets traded by the Registrant of market movements far exceeding expectations
could result in actual trading or non-trading losses far beyond the indicated
Value at Risk or the Registrant's experience to date (i.e., 'risk of ruin'). In
light of the foregoing, as well as the risks and uncertainties intrinsic to all
future projections, the inclusion of the quantification included in this section
should not be considered to constitute any assurance or representation that the
Registrant's losses in any market sector will be limited to Value at Risk or by
the Registrant's attempts to manage its market risk.
Standard of Materiality
Materiality as used in this section, 'Qualitative and Quantitative
Disclosures About Market Risk,' is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Registrant's
market sensitive instruments.
Quantifying the Registrant's Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Registrant's market risk
exposures contain 'forward-looking statements' within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
The Registrant's risk exposure in the various market sectors traded by the
Trading Managers is quantified below in terms of Value at Risk. Due to the
Registrant's mark-to-market accounting, any loss in the fair value of the
Registrant's open positions is directly reflected in the Registrant's earnings
(realized or unrealized) and cash flow (at least in the case of exchange-traded
contracts in which profits and losses on open positions are settled daily
through variation margin).
Exchange maintenance margin requirements have been used by the Registrant as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the
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more generally available initial margin, because initial margin includes a
credit risk component which is not relevant to Value at Risk.
In the case of market sensitive instruments which are not exchange-traded
(almost exclusively currencies in the case of the Registrant), the margin
requirements for the equivalent futures positions have been used as Value at
Risk. In those rare cases in which a futures-equivalent margin is not available,
dealers' margins have been used.
In quantifying the Registrant's Value at Risk, 100% positive correlation in
the different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Registrant's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
The Registrant's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with the
Registrant's open positions by market sector at December 31, 1998. All open
position trading risk exposures of the Registrant have been included in
calculating the figures set forth below. At December 31, 1998, the Registrant's
total capitalization was approximately $45.0 million.
<TABLE>
<CAPTION>
Value at % of Total
Market Sector Risk Capitalization
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<S> <C> <C>
Currencies $1,857,167 4.12%
Interest Rates 1,069,880 2.38
Stock Indices 323,431 .72
Commodities 89,400 .20
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Total $3,339,878 7.42%
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Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Registrant is
typically many times the applicable maintenance margin requirement (maintenance
margin requirements generally range between approximately 1% and 10% of the
contract face value), as well as, many times the total capitalization of the
Registrant. The magnitude of the Registrant's open positions creates a 'risk of
ruin' not typically found in most other investment vehicles. Because of the size
of its positions, certain market conditions, although unusual, but historically
recurring from time to time, could cause the Registrant to incur severe losses
over a short period of time. The foregoing Value at Risk table, as well as the
past performance of the Registrant, give no indication of this 'risk of ruin.'
Non-Trading Risk
The Registrant has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as any market risk they
represent) are immaterial.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Registrant's market risk
exposures--except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Registrant manages its primary market
risk exposures--constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Registrant's primary market risk exposures as well as
the strategies used and to be used by the Managing Owner and the Trading
Managers for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual results of the
Registrant's risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political upheavals,
changes in historical price relationships, an influx of new market participants,
increased regulation and many other factors could result in material losses as
well as in material changes to the risk exposures and the risk management
strategies of the Registrant.
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There can be no assurance that the Registrant's current market exposure and/or
risk management strategies will not change materially or that any such
strategies will be effective in either the short- or long-term. Investors must
be prepared to lose all or substantially all of their investment in the
Registrant.
The primary trading risk exposures of the Registrant at December 31, 1998, by
market sector, were:
Currencies. Currency exposure represents the principal market exposure of the
Registrant at December 31, 1998. These risks arise from exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Registrant's major exposure has typically
resulted from positions in the local currencies of G-7 countries. These include
outright, as well as, cross-rate positions--i.e., positions between two
currencies other than the U.S dollar. The Managing Owner does not anticipate
that the risk profile of the Registrant's currency sector will change
significantly in the future, although it is difficult at this point to predict
the effect of the introduction of the Euro on the Trading Managers' currency
trading strategies. The currency trading Value at Risk figure includes foreign
margin amounts converted into U.S. dollars with an incremental adjustment to
reflect the exchange rate risk inherent to the dollar-based Registrant in
expressing Value at Risk in a functional currency other than U.S. dollars.
Interest Rates. Interest rate movements directly affect the price of
sovereign bond positions held by the Registrant and indirectly affect the value
of its stock index and currency positions. Interest rate movements in one
country, as well as, relative interest rate movements between countries may
materially impact the Registrant's profitability. The Registrant's primary
interest rate exposure is to interest rate fluctuations in the U.S. and other
G-7 countries. To a lesser extent, the Registrant also takes positions in the
government debt of smaller nations--e.g., Australia. The Managing Owner
anticipates that G-7 interest rates will remain the primary market exposure of
the Registrant in the foreseeable future. The changes in interest rates which
have the most effect on the Registrant are changes in long-term, as opposed to
short-term, rates. Most of the speculative positions held by the Registrant are
in medium- to long-term instruments. Consequently, even a material change in
short-term rates would have little effect on the Registrant were the medium- to
long-term rates to remain steady.
Stock Indices. The Registrant's equity exposure is due to equity price risk
in various indices including the FIB 30 (Italy), FTSE 100 (Britain), TSE TOPIX
(Japan) and Australian All Ordinaries Index. The stock index futures traded by
the Registrant are, by law, limited to futures on broadly based indices.
Commodities. The Trading Managers of the Registrant trade a variety of
agricultural, metal and energy-related commodities. At year-end, the
Registrant's commodities exposure is in copper within the base metals market.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Managing Owner and the Trading Managers, severally,
attempt to manage the risk of the Registrant's open positions is essentially the
same in all market categories traded.
Each Trading Manager attempts to minimize market risk exposure by applying
its own risk management trading policies. In general, each Trading Manager's
portfolio is diversified, consisting of a wide variety of contracts traded in
both domestic and foreign markets. Additionally, stop or limit orders may, in
each Trading Manager's discretion, be given with respect to initiating or
liquidating positions in order to seek to limit losses or secure profits.
The Managing Owner attempts to minimize market risk exposure by requiring the
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, 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
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of each Trading Manager as it, in good faith, deems
to be in the best interests of the Registrant. Additionally, the Managing Owner
may terminate a Trading Manager if the net asset value
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allocated to the Trading Manager declines by 33 1/3% during any year or since
the commencement of trading activities. Furthermore, the Trust Agreement
provides that the Registrant will liquidate its positions, and eventually
dissolve, if the Registrant experiences a decline in the net asset value of 50%
in any year or since the commencement of trading activities. In each case, the
decline in the net asset value is after giving effect for distributions,
contributions and redemptions.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
At December 31, 1998, the Registrant's primary exposure to non-trading market
risk resulted from foreign currency balances held in Canadian dollars. As
discussed above, these balances, as well as any risk they represent, are
immaterial.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 10
of the Registrant's 1998 Annual Report which is filed as an exhibit hereto.
Supplementary data specified by Item 302 of Regulation S-K (selected
quarterly financial data) is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the Managing Owner.
The Managing Owner's directors and executive officers and any person holding
more than 10% of the Registrant's Interests ('Ten Percent Owners') are required
to report their initial ownership of such Interests and any subsequent changes
in that ownership to the Securities and Exchange Commission on Forms 3, 4 or 5.
Such executive officers, directors and Ten Percent Owners are required by
Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these filing requirements were
satisfied on a timely basis (other than Tamara B. Wright who did not file Form 3
in a timely manner upon becoming a Director but subsequently filed and is now
current in all filings). In making these disclosures, the Registrant has relied
solely on written representations of the Managing Owner's directors and
executive officers and Ten Percent Owners or copies of the reports that they
have filed with the Securities and Exchange Commission during and with respect
to its most recent fiscal year.
The directors and executive officers of Prudential Securities Futures
Management Inc. and their positions with respect to the Registrant are as
follows:
Name Position
Eleanor L. Thomas First Vice President
Barbara J. Brooks Chief Financial Officer
Steven Carlino Vice President, Chief Accounting Officer and
Treasurer
A. Laurence Norton, Jr. Director
Guy S. Scarpaci Director
Tamara B. Wright Senior Vice President and Director
ELEANOR L. THOMAS, age 44, has been a Vice President of Prudential Securities
Futures Management Inc. and Seaport Futures Management, Inc. since April 1993
and a First Vice President since October 1998. She is primarily responsible for
origination, asset allocation, and due diligence for the managed futures group
within PSI. She is also a First Vice President of PSI. Prior to joining PSI in
March 1993, she was with MC Baldwin Financial Company from June 1990 through
February 1993 and Arthur Andersen & Co. from 1986 through May 1990. Ms. Thomas
is a certified public accountant.
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BARBARA J. BROOKS, age 50, is the Chief Financial Officer of Prudential
Securities Futures Management Inc. She is a Senior Vice President of PSI. She
is also the Chief Financial Officer of Seaport Futures Management, Inc. and
serves in various capacities for other affiliated companies. She has held
several positions within PSI since April 1983. Ms. Brooks is a certified
public accountant.
STEVEN CARLINO, age 35, is a Vice President and Treasurer of Prudential
Securities Futures Management Inc. He is a First Vice President of PSI. He is
also a Vice President and Treasurer of Seaport Futures Management, Inc. and
serves in various capacities for other affiliated companies. Prior to joining
PSI in October 1992, he was with Ernst & Young for six years. Mr. Carlino is a
certified public accountant.
A. LAURENCE NORTON, JR., age 60, is a Director of Prudential Securities Futures
Management Inc. He is an Executive Vice President of PSI and, since March 1994,
has been the head of the International and Futures Divisions of PSI. He is also
a Director of Seaport Futures Management, Inc. From October 1991 to March 1994,
he held the position of Executive Director of Retail Development and Retail
Strategies at PSI. Prior to joining PSI in 1991, Mr. Norton was a Senior Vice
President and Branch Manager of Shearson Lehman Brothers.
GUY S. SCARPACI, age 52, is a Director of Prudential Securities Futures
Management Inc. He is a First Vice President of the Futures Division of PSI. He
is also a Director of Seaport Futures Management, Inc. Mr. Scarpaci has been
employed by PSI in positions of increasing responsibility since August 1974.
TAMARA B. WRIGHT, age 40, is a Senior Vice President and Director of Prudential
Securities Futures Management Inc. She is a Senior Vice President and Chief
Administrative Officer for the International and Futures Divisions of PSI. She
is also a Senior Vice President and Director of Seaport Futures Management, Inc.
and serves in various capacities for other affiliated companies. Prior to
joining PSI in July 1988, she was a manager with Price Waterhouse.
During the fourth quarter of 1998, Steven Carlino replaced Barbara J. Brooks
as Treasurer of Prudential Securities Futures Management Inc. and Seaport
Futures Management, Inc. Additionally, during December 1998, Tamara B. Wright
was elected as a Senior Vice President and Director of Prudential Securities
Futures Management Inc. and Seaport Futures Management, Inc. On March 26, 1999,
Thomas M. Lane, Jr. resigned as President and Director of Prudential Securities
Futures Management Inc. and Seaport Futures Management, Inc.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and/or executive officers
have indefinite terms.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the Managing Owner for their services.
Certain directors and officers of the Managing Owner receive compensation from
affiliates of the Managing Owner, not from the Registrant, for services
performed for various affiliated entities, which may include services performed
for the Registrant; however, the Managing Owner believes that any compensation
attributable to services performed for the Registrant is immaterial. (See also
Item 13, Certain Relationships and Related Transactions, for information
regarding compensation to the Managing Owner.)
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 4, 1999, no director or executive officer of the Managing Owner
owns directly or beneficially any interest in the voting securities of the
Managing Owner.
As of March 4, 1999, no director or executive officer of the Managing Owner
owns directly or beneficially any of the Interests issued by the Registrant.
As of March 4, 1999, no owners of Interests beneficially own more than five
percent (5%) of the limited interests issued by the Registrant.
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Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
Managing Owner and its affiliates. However, there have been no direct financial
transactions between the Registrant and the directors or officers of the
Managing Owner.
Reference is made to Notes A, C and D to the financial statements in the
Registrant's 1998 Annual Report which is filed as an exhibit hereto, which
identify the related parties and discuss the services provided by these parties
and the amounts paid or payable for their services.
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PART IV
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Number
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Report of Independent Accountants--incorporated
by reference to the Registrant's 1998 Annual Report which is filed as an
exhibit hereto
Report of Independent Accountants 2
Financial Statements:
Statements of Financial Condition--December 31, 1998 and 1997 3
Statements of Operations--Two years ended December 31, 1998 and the
period from May 1, 1996 (commencement of operations) to December 31, 1996 4
Statements of Changes in Trust Capital--Three years ended December 31,
1998 4
Notes to Financial Statements 5
2. Financial Statement Schedules
All schedules have been omitted because they are not applicable or the
required information is included in the financial statements or notes
thereto.
3. Exhibits
3.1 Second Amended and Restated Declaration of Trust and Trust Agreement of
and the Registrant dated as of January 31, 1996 (incorporated by reference to
4.1 Exhibits 3.1 and 4.1 of Registrant's Registration Statement on Form S-1,
File No. 33-08443)
4.2 Subscription Agreement (incorporated by reference to Exhibit 4.2 of
Registrant's Registration Statement on Form S-1, File No. 33-08443)
4.3 Request for Redemption (incorporated by reference to Exhibit 4.3 of
Registrant's Registration Statement on Form S-1, File No. 33-08443)
10.1 Form of Escrow Agreement among the Registrant, Prudential Securities
Futures Management Inc., Prudential Securities Incorporated and The Bank
of New York (incorporated by reference to Exhibit 10.1 of the
Registrant's Registration Statement on Form S-1, File No. 33-08443)
10.2 Brokerage Agreement between the Registrant and Prudential Securities
Incorporated (incorporated by reference to Exhibit 10.2 of the
Registrant's Registration Statement on Form S-1, File No. 33-08443)
10.3 Advisory Agreement, among the Registrant, Prudential Securities Futures
Management Inc. and Willowbridge Associates Inc. (incorporated by
reference to Exhibit 10.3 of the Registrant's Registration Statement on
Form S-1, File No. 33-08443)
10.4 Representation Agreement Concerning the Registration Statement and the
Prospectus among the Registrant, Prudential Securities Futures Management
Inc., Prudential Securities Incorporated, Wilmington Trust Company and
Willowbridge Associates Inc. (incorporated by reference to Exhibit 10.4
of the Registrant's Registration Statement on Form S-1, File No.
33-08443)
</TABLE>
11
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.5 Net Worth Agreement between Prudential Securities Futures Management Inc.
and Prudential Securities Group Inc. (incorporated by reference to
Exhibit 10.5 of the Registrant's Registration Statement on Form S-1, File
No. 33-08443)
10.6 Secured Demand Note between Prudential Securities Group Inc. and
Prudential Securities Futures Management Inc. (incorporated by reference
to Exhibit 10.6 of the Registrant's Registration Statement on Form S-1,
File No. 33-08443)
10.7 Secured Demand Note Collateral Agreement between Prudential Securities
Futures Management Inc. and Prudential Securities Group Inc.
(incorporated by reference to Exhibit 10.7 of the Registrant's
Registration Statement on Form S-1, File No. 33-08443)
10.8 Form of Foreign Currency Addendum to Brokerage Agreement between the
Registrant and Prudential Securities Incorporated (incorporated by
reference to Exhibit 10.8 of the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1996)
10.9 Advisory Agreement dated August 25, 1998 among the Registrant, Prudential
Securities Futures Management Inc. and Bridgewater Associates, Inc.
(incorporated by reference to Exhibit 10.9 of the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1998)
13.1 Registrant's 1998 Annual Report (with the exception of the information
and data incorporated by reference in Items 5, 7 and 8 of this Annual
Report on Form 10-K, no other information or data appearing in the
Registrant's 1998 Annual Report is to be deemed filed as part of this
report) (filed herewith)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
</TABLE>
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Prudential Securities Strategic Trust
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: March 31, 1999
----------------------------------------
Steven Carlino
Vice President, Chief Accounting Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the Managing Owner) and on the
dates indicated.
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Eleanor L. Thomas Date: March 31, 1999
-----------------------------------------
Eleanor L. Thomas
First Vice President
By: /s/ Barbara J. Brooks Date: March 31, 1999
-----------------------------------------
Barbara J. Brooks
Chief Financial Officer
By: /s/ Steven Carlino Date: March 31, 1999
-----------------------------------------
Steven Carlino
Vice President and Treasurer
By: Date:
-----------------------------------------
A. Laurence Norton, Jr.
Director
By: /s/ Guy S. Scarpaci Date: March 31, 1999
-----------------------------------------
Guy S. Scarpaci
Director
By: /s/ Tamara B. Wright Date: March 31, 1999
-----------------------------------------
Tamara B. Wright
Senior Vice President and Director
13
<PAGE>
1998
- --------------------------------------------------------------------------------
Prudential Securities Annual
Strategic Trust Report
<PAGE>
LETTER TO LIMITED OWNERS FOR
PRUDENTIAL SECURITIES STRATEGIC TRUST
1
<PAGE>
<PAGE>
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
January 26, 1999
To the Managing Owner and
Limited Owners of
Prudential Securities Strategic Trust
In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in trust capital present fairly, in
all material respects, the financial position of
Prudential Securities Strategic Trust at December 31, 1998 and 1997, and the
results of its operations for the years ended December 31, 1998 and 1997 and for
the period from May 1, 1996 (commencement of operations) to December 31, 1996 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the managing owner; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the managing owner,
and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
2
<PAGE>
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $47,615,180 $ 46,416,620
Net unrealized gain on open commodity positions 981,485 2,451,210
Options, at market -- 362,402
------------- ------------
Net equity 48,596,665 49,230,232
Other receivable 9,104 3,218
------------- ------------
Total assets $48,605,769 $ 49,233,450
------------- ------------
------------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,735,717 $ 1,385,332
Management fee payable 88,932 123,083
Incentive fee payable 1,766,804 --
------------- ------------
Total liabilities 3,591,453 1,508,415
------------- ------------
Commitments
Trust capital
Limited interests (359,949.43 and 458,613.68 interests
outstanding) 44,564,154 47,217,112
General interests (3,636 and 4,933.40 interests outstanding) 450,162 507,923
------------- ------------
Total trust capital 45,014,316 47,725,035
------------- ------------
Total liabilities and trust capital $48,605,769 $ 49,233,450
------------- ------------
------------- ------------
Net asset value per limited and general interests $ 123.81 $ 102.96
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
May 1, 1996
(commencement of
Year Ended December 31, operations) to
----------------------------- December 31,
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 13,284,951 $ 70,832 $ 3,130,423
Change in net unrealized gain on open commodity
positions (1,597,171) 2,224,441 354,215
Interest income 2,022,918 2,179,775 663,866
------------ ------------ ----------------
13,710,698 4,475,048 4,148,504
------------ ------------ ----------------
EXPENSES
Commissions 3,265,316 3,628,875 1,033,462
Incentive fees 2,339,362 1,220,889 414,894
Management fees 1,155,091 1,409,961 409,964
------------ ------------ ----------------
6,759,769 6,259,725 1,858,320
------------ ------------ ----------------
Net income (loss) $ 6,950,929 $(1,784,677 ) $ 2,290,184
------------ ------------ ----------------
------------ ------------ ----------------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ 6,882,295 $(1,771,590 ) $ 2,268,174
------------ ------------ ----------------
------------ ------------ ----------------
General interests $ 68,634 $ (13,087 ) $ 22,010
------------ ------------ ----------------
------------ ------------ ----------------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED
AND GENERAL INTEREST
Net income (loss) per weighted average limited
and general interest $ 15.76 $ (4.15 ) $ 10.79
------------ ------------ ----------------
------------ ------------ ----------------
Weighted average number of limited and general
interests outstanding 441,066 430,048 212,276
------------ ------------ ----------------
------------ ------------ ----------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN TRUST CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Initial trust capital--December 31,
1995 10.00 $ -- $ 1,000 $ 1,000
Contributions 283,101.20 26,724,000 257,000 26,981,000
Net income -- 2,268,174 22,010 2,290,184
Redemptions (22,347.89) (2,292,016) -- (2,292,016)
------------ ------------ --------- ------------
Trust capital--December 31, 1996 260,763.31 26,700,158 280,010 26,980,168
Contributions 286,839.40 31,319,600 241,000 31,560,600
Net loss -- (1,771,590) (13,087) (1,784,677)
Redemptions (84,055.63) (9,031,056) -- (9,031,056)
------------ ------------ --------- ------------
Trust capital--December 31, 1997 463,547.08 47,217,112 507,923 47,725,035
Contributions 49,726.31 5,359,300 27,000 5,386,300
Net income -- 6,882,295 68,634 6,950,929
Redemptions (149,687.96) (14,894,553) (153,395) (15,047,948)
------------ ------------ --------- ------------
Trust capital--December 31, 1998 363,585.43 $ 44,564,154 $ 450,162 $ 45,014,316
------------ ------------ --------- ------------
------------ ------------ --------- ------------
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
Prudential Securities Strategic Trust, formerly known as Willowbridge
Strategic Trust, (the 'Trust') was organized under the Delaware Business Trust
Statute on October 16, 1995 and commenced trading operations on May 1, 1996. The
Trust will terminate on December 31, 2015 unless terminated sooner as provided
in the Second Amended and Restated Declaration of Trust and Trust Agreement (the
'Trust Agreement'). The Trust was formed to engage in the speculative trading of
commodity futures, forward and options contracts. The Trustee of the Trust is
Wilmington Trust Company. The managing owner is Prudential Securities Futures
Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI'), which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. PSI is the principal underwriter and selling
agent for the Trust's interests (the 'Interests') as well as the commodity
broker ('Commodity Broker') of the Trust. The Managing Owner is required to
maintain at least a 1% interest in the Trust so long as it is acting as the
Managing Owner.
On May 1, 1996, the Trust completed its initial offering with gross proceeds
of $12,686,200 from the sale of 125,352 limited interests and 1,510 general
interests. Additional Interests were offered monthly at the then current net
asset value per Interest until the continuous offering period expired on January
31, 1998. Additional contributions raised during the continuous offering period
resulted in additional proceeds to the Trust of $51,242,700.
At inception, the Managing Owner, on behalf of the Trust, entered into an
agreement with Willowbridge Associates, Inc. ('Willowbridge'), an independent
commodity trading manager to make the Trust's commodities trading decisions.
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
reallocated to a new trading manager to the Trust, 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. Summary of Significant Accounting Principles
Basis of accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. Options transactions are reflected in the statements of financial
condition at market value, which is inclusive of the net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
The weighted average number of limited and general interests outstanding was
computed for purposes of disclosing net income (loss) per weighted average
limited and general interest. The weighted average limited and general interests
are equal to the number of Interests outstanding at period end, adjusted
proportionately for Interests subscribed and redeemed based on their respective
time outstanding during such period.
The Trust has elected not to provide a Statement of Cash Flows as permitted
by Statement of Financial Accounting Standards No. 102, 'Statement of Cash
Flows--Exemption of Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale.'
5
<PAGE>
<PAGE>
Income taxes
The Trust is treated as a partnership for Federal income tax purposes. As
such, the Trust is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual Interest holders. The Trust may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocation, subscriptions, distributions and redemptions
Net realized profits or losses for tax purposes are allocated first to
Interest holders who redeem Interests to the extent the amounts received on
redemption are greater than or are less than the amounts paid for the redeemed
Interests by the Interest holders. Net realized profits or losses remaining
after these allocations are allocated monthly to each Interest holder in
proportion to such Interest holder's capital account at month-end. Net income or
loss for financial reporting purposes is allocated monthly to all Interest
holders on a pro rata basis based on each Interest holder's number of Interests
outstanding during the month.
Distributions (other than redemptions of Interests) are made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital accounts of the Interest holders. No distributions have been
made since inception.
Additional Interests were offered monthly at their month-end net asset value
per Interest until the continuous offering period expired as discussed in Note
A.
Redemptions are permitted as of the last business day of each month, on at
least 10 days' prior written notice. Redemptions are at the then current net
asset value per Interest; however, Interests redeemed on or prior to the end of
the first and second successive six-month periods after their effective date of
purchase are subject to redemption charges of 4% and 3%, respectively, of the
net asset value at which they are redeemed. These redemption charges are paid to
the Managing Owner. Partial redemptions are permitted.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'),
which the Trust is required to adopt effective January 1, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that an entity recognize all derivatives as
assets or liabilities measured at fair value. The Trust does not believe the
effect of adoption will be material.
C. Fees
Organizational, offering and general and administrative costs
PSI or its affiliates paid the costs of organizing the Trust and offering its
Interests and also pay administrative costs incurred by the Managing Owner or
its affiliates for services it performs for the Trust. These costs include, but
are not limited to, those discussed in Note D below. Routine legal, audit,
postage and other third party costs are also paid by PSI or its affiliates.
Management and incentive fees
The Trust pays each trading manager a monthly management fee ranging from
.0813% (a .9756% annual rate) to 1/4 of 1% (a 3% annual rate) of the portion of
the Trust's net assets allocated to each trading manager as of the last day of
each month. In addition, the Trust pays each trading manager a quarterly
incentive fee of 20% of 'New High Net Trading Profits' (as defined in the
Advisory Agreements among the Trust, the Managing Owner and each trading
manager).
Commissions
The Managing Owner, on behalf of the Trust, entered into an agreement (the
'Brokerage Agreement') with PSI to act as Commodity Broker whereby the Trust
pays a fixed monthly fee for brokerage and other services rendered. Effective
September 1, 1998, the Trust pays PSI commissions at a flat rate of 5/8 of 1%
(7.5% per annum) of the Trust's net asset value as of the first day of each
month. Prior to September 1, 1998, the Trust paid commissions at a flat rate of
.64583 of 1% (7.75% per annum.) From this fee, PSI pays all of the Trust's
execution (including floor brokerage expenses, give-up charges and NFA, clearing
and exchange fees) and account maintenance costs, as well as compensation to
employees who sell Interests in the Trust.
6
<PAGE>
D. Related Parties
The Managing Owner or 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 costs
related to brokerage services as further discussed below, 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 the routine operational, administrative, legal
and auditing fees.
The Trust's assets are maintained either in trading or cash accounts 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 December 31, 1998, a non-U.S. affiliate of the Managing Owner owns
293.003 limited interests of the Trust.
The costs charged to the Trust for brokerage services for the years ended
December 31, 1998 and December 31, 1997 and for the period from May 1, 1996
(commencement of operations) to December 31, 1996 were $3,265,316 and
$3,628,875, and $1,033,462, respectively.
E. Income Taxes
There have been no differences between the tax basis and book basis of
Interest holders' capital since inception of the Trust.
F. Credit and Market Risk
Since the Trust's business is to trade futures, forward (including foreign
exchange transactions) 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).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level or 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
7
<PAGE>
<PAGE>
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 December 31, 1998, such segregated assets
totalled $46,253,029. 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 $2,517,738 at December 31, 1998. There are no segregation requirements
for assets related to forward trading.
As of December 31, 1998, all open futures and forward contracts mature within
one year.
As of December 31, 1998 and 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 $ 97,619,028 $522,213,105
Commitments to sell 181,380,377 7,592,575
Currency Futures and Options
Contracts:
Commitments to purchase 50,575,452 101,737
Commitments to sell 45,606,627 74,270,062
Other Futures Contracts:
Commitments to purchase -- 29,375,203
Commitments to sell 1,413,262 1,551,520
Other Forward Contracts:
Commitments to purchase 171,615 939,873
Commitments to sell 103,545 --
</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 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.
8
<PAGE>
<PAGE>
At December 31, 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 $ 33,297 $ 7,775 $ 792,100 $ 240,225
Currencies 988,150 166,778 624,975 89
Other 11,713 -- 713,857 1,004,794
Foreign exchanges
Financial 509,091 215,661 1,621,656 46,687
Other 3,550 -- -- 3,123
Forward Contracts:
Currencies -- 174,102 -- --
Other -- -- -- 6,460
Options Contracts:
Domestic exchanges
Financial -- -- 68,002 --
Currencies -- -- 294,400 --
----------- ----------- ----------- -----------
$ 1,545,801 $ 564,316 $ 4,114,990 $ 1,301,378
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The following table presents the average fair value of futures, forward and
options contracts during the years ended December 31, 1998 and December 31,
1997.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 640,765 $ 106,931 $ 451,587 $ 48,625
Currencies 835,289 395,244 1,062,719 235,250
Other 248,688 332,016 844,081 354,329
Foreign exchanges
Financial 1,594,167 210,401 458,503 138,751
Other 5,348 26,790 566,081 239,244
Forward Contracts:
Currencies 1,127 27,512 -- --
Other 92,648 160,820 8,777 19,953
Options Contracts:
Domestic exchanges
Financial 50,847 -- 24,081 --
Currencies 31,254 -- 47,927 --
Other 3,769 -- 32,208 --
Foreign exchanges
Financial 5,539 -- -- --
Other 11,642 -- 34,635 --
---------- ----------- ---------- -----------
$3,521,083 $ 1,259,714 $3,530,599 $ 1,036,152
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
9
<PAGE>
<PAGE>
The following table presents trading revenues from futures, forward and
options contracts for the years ended December 31, 1998 and December 31, 1997
and for the period from May 1, 1996 (commencement of operations) through
December 31, 1996.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 3,873,755 $(3,595,125) $ 453,351
Currencies 2,400,023 6,682,118 733,619
Other (5,689,561) 200,123 (1,831,051)
Foreign exchanges
Financial 14,342,664 (770,987) 4,479,714
Other (35,584) 972,431 255,725
Forward Contracts:
Currencies (299,241) -- --
Other (1,114,551) (146,888) --
Options Contracts:
Domestic exchanges
Financial (890,181) (317,560) (146,094)
Currencies (771,376) (294,634) (195,150)
Other (4,940) (205,597) (181,779)
Foreign exchanges
Financial (65,754) -- (83,697)
Other (57,474) (228,608) --
----------- ----------- -----------
$11,687,780 $ 2,295,273 $ 3,484,638
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
10
<PAGE>
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
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 on January 31, 1998. Additional contributions made
during the continuous offering period totalled $51,242,700, including $375,000
of contributions from the Managing Owner.
At December 31, 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 Trust's exposure to market risk is influenced
by a number of factors including the volatility of interest rates and foreign
currency exchange rates, the liquidity of the markets in which the contracts are
traded and the relationship among the contracts held. The inherent uncertainty
of the Trust's speculative trading as well as the development of drastic market
occurrences could result in monthly losses considerably beyond the Trust's
experience to date and could ultimately lead to a loss of all or substantially
all of investors' capital. 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 F 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 recorded for the years ended December 31,
1998, 1997 and for the period from May 1, 1996 (commencement of operations)
through December 31, 1996 were $14,894,553, $9,031,056 and $2,292,016,
respectively. Redemptions by the Managing Owner for the year ended December 31,
1998 were $153,395. Redemptions of limited interests and general interests from
the commencement of operations, May 1, 1996 through December 31, 1998 totalled
$26,217,625 and $153,395, 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.
Results of Operations
The net asset value per Interest as of December 31, 1998 was $123.81, an
increase of 20.25% from the December 31, 1997 net asset value per Interest of
$102.96, which was a decrease of .49% from the December 31, 1996 net asset value
per Interest of $103.47. The MAR (Managed Account Reports) Fund/Pool Index,
which tracked the performance of 281 and 315 futures funds during 1998 and 1997,
returned 6.57% and 9.34%, respectively. Past performance is not necessarily
indicative of future results.
The Trust accumulated gains in the currency and financial sectors while
incurring losses in the energy, grain, index, metal, soft, and meat sectors.
11
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<PAGE>
The financial sector provided the most significant profits in 1998, nearly
all of which were earned in the second half. The year opened with a rally in
bond prices as a result of an imbalance between stock and bond levels. Market
reversals brought losses in March and April, however a rising Japanese bond
market contributed profits in May. In June, the Trust benefited from long
positions in 30-year U.S. Treasury bonds as prices rose on expectations of low
inflation and more moderate U.S. economic growth. Third quarter profits resulted
from investors moving to the safety of government bonds due to events in Japan
and the devaluation of the Russian ruble. The Trust gained from long positions
in German 10-year, U.S. Treasury, British, Eurodollar and French notional bonds.
Profits in the fourth quarter were earned in early October as bond prices
continued to rise. However, the Trust remained mostly on the sidelines for the
remainder of the quarter as many markets were trendless and less liquid
following such a large directional price movement.
The currency sector began 1998 on a negative note as market reversals in
January and February made for difficult trading, but ended the year profitably.
The strongest performance came in the third quarter and October as the Deutsche
mark rose against the U.S. dollar. Profits were also achieved in Canadian dollar
and Japanese yen positions. As with positions in the financial sector, the Trust
scaled back in November and December when many of the markets were trendless and
less liquid.
Trading in the metal sector was unprofitable as positions across the board
generated losses. The most extensive losses were in silver. In March, short gold
positions lost value as the market rose in response to increased buying as a
hedge against inflation. The Trust incurred further losses as silver reversed in
April when prices fell on news that a major investor was selling significant
holdings. Another market reversal in silver during May added more losses.
Finally, Middle East tensions during the fourth quarter generated further losses
in silver and copper.
During July 1998, Willowbridge Associates, Inc. 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 reallocated to a new trading manager to the Trust, Bridgewater
Associates, Inc., 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, commissions and management fees incurred during the year
ended December 31, 1997 were not comparable to the period from May 1, 1996
(commencement of operations) to December 31, 1996, and increased in connection
with the increase in traded assets as a result of additional contributions
throughout 1997.
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 by $157,000 for the year ended
December 31, 1998 as compared to 1997 primarily due to declining interest rates
during the current year, poor trading performance during 1998 through the second
quarter and redemptions. Interest income increased $1,516,000 for the year ended
December 31, 1997 as compared to the period from May 1, 1996 (commencement of
operations) through December 31, 1996.
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 by $364,000 for the year ended December
31, 1998 as compared to 1997 primarily due to poor trading performance during
1998 through the second quarter and redemptions. The reallocation of assets from
Willowbridge to Bridgewater as discussed above also resulted in a decrease to
1998 commissions. Additionally, effective September 1, 1998, the annual rate of
commissions charged to the Trust was reduced from 7.75% to 7.5% of the net asset
value of the Trust. Commissions increased $2,595,000 for the year ended December
31, 1997 as compared to the period from May 1, 1996 (commencement of operations)
through December 31, 1996.
At December 31, 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 by $255,000 for the year ended December 31, 1998 as
compared to 1997,
12
<PAGE>
<PAGE>
primarily for the same reasons commissions decreased as discussed above.
Management fees increased $1,000,000 for the year ended December 31, 1997 as
compared to the period from May 1, 1996 (commencement of operations) through
December 31, 1996.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Managers, as defined in the Advisory Agreements among the Trust, the
Managing Owner and each Trading Manager. Incentive fees of $2,339,000 and
$415,000 were earned for the year ended December 31, 1998 and for the period
from May 1, 1996 (commencement of operations) through December 31, 1996,
respectively. Although the Trust ended 1997 with a loss, Willowbridge earned
incentive fees of $1,221,000. These fees were primarily attributable to strong
trading performance during the first three months of the 1997 year. The payment
of these fees is not contingent upon future trading performance and therefore is
unaffected by the Trust's poor trading performance during the remainder of the
1997 year.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'),
which the Trust is required to adopt effective January 1, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that an entity recognize all derivatives as
assets or liabilities measured at fair value. The Trust does not believe the
effect of adoption will be material.
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 Partnership's Year 2000 Problems, if any, are not its
own but those that center around the ability of the 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.
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, clearinghouses, 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.
Inflation
Inflation has had no material impact on operations or on the financial
condition of the Trust from inception through December 31, 1998.
13
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
I hereby affirm that, to the best of my knowledge and belief, the
information contained herein relating to Prudential Securities Strategic Trust
is accurate and complete.
PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC.
(Managing Owner)
By: Barbara J. Brooks
Chief Financial Officer
- --------------------------------------------------------------------------------
14
<PAGE>
<PAGE>
OTHER INFORMATION
The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1998 was $46.
The Trust's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited owners without charge upon written
request to:
Prudential Securities Strategic Trust
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
15
<PAGE>
Peck Slip Station BULK RATE
P.O. Box 2016 U.S. POSTAGE
New York, NY 10272 PAID
Automatic Mail
WILLO/17225
<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> Dec-31-1998
<PERIOD-TYPE> 12-Mos
<CASH> 47,615,180
<SECURITIES> 981,485
<RECEIVABLES> 9,104
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,605,769
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,605,769
<CURRENT-LIABILITIES> 3,591,453
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 45,014,316
<TOTAL-LIABILITY-AND-EQUITY> 48,605,769
<SALES> 0
<TOTAL-REVENUES> 13,710,698
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,759,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,950,929
<EPS-PRIMARY> 15.76
<EPS-DILUTED> 0
</TABLE>
