<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 June 30, 2000
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
N/A
--------------------------------------------------------------------------------
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 I. FINANCIAL STATEMENTS
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
---------------------------------------------------------------------------------------------------
ASSETS
Cash $20,570,375 $31,489,773
Net unrealized gain (loss) on open futures and options contracts (408,441) 3,686,345
Premiums paid on options -- 152,364
Other receivable 1,369 2,203
----------- ------------
Total assets $20,163,303 $35,330,685
----------- ------------
----------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 929,756 $ 1,219,087
Unrealized loss on open forward contracts 1,110 205,135
Management fees payable 10,188 65,935
Incentive fees payable -- 37,416
----------- ------------
Total liabilities 941,054 1,527,573
----------- ------------
Commitments
Trust capital
Limited interests (189,269.362 and 261,529.578 interests
outstanding) 19,030,008 33,465,044
General interests (1,912 and 2,642 interests outstanding) 192,241 338,068
----------- ------------
Total trust capital 19,222,249 33,803,112
----------- ------------
Total liabilities and trust capital $20,163,303 $35,330,685
----------- ------------
----------- ------------
Net asset value per limited and general interest ('Interests') $ 100.54 $ 127.96
----------- ------------
----------- ------------
---------------------------------------------------------------------------------------------------
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>
Six months ended Three months ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on commodity
transactions $(3,199,403) $ (117,733) $ 867,998 $(2,833,962)
Change in net unrealized gain/loss on
open commodity positions (3,890,761) 2,303,805 (52,737) 2,393,986
Interest income 576,172 786,067 271,055 390,941
----------- ---------- ---------- -----------
(6,513,992) 2,972,139 1,086,316 (49,035)
----------- ---------- ---------- -----------
EXPENSES
Commissions 647,736 1,627,625 226,671 780,929
Management fees 121,657 478,518 30,093 222,723
Incentive fees -- 357,011 -- 45,161
----------- ---------- ---------- -----------
769,393 2,463,154 256,764 1,048,813
----------- ---------- ---------- -----------
Net income (loss) $(7,283,385) $ 508,985 $ 829,552 $(1,097,848)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $(7,210,539) $ 503,902 $ 821,254 $(1,086,870)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
General interests $ (72,846) $ 5,083 $ 8,298 $ (10,978)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL INTEREST
Net income (loss) per weighted average
limited and general interest $ (31.32) $ 1.46 $ 3.95 $ (3.23)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Weighted average number of limited and
general interests outstanding 232,574 348,084 209,763 339,842
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
------------------------------------------------------------------------------------------------------
</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, 1999 264,171.578 $33,465,044 $338,068 $33,803,112
Net loss -- (7,210,539) (72,846 ) (7,283,385)
Redemptions (72,990.216) (7,224,497) (72,981 ) (7,297,478)
------------ ----------- --------- -----------
Trust capital--June 30, 2000 191,181.362 $19,030,008 $192,241 $19,222,249
------------ ----------- --------- -----------
------------ ----------- --------- -----------
<CAPTION>
-----------------------------------------------------------------------------------------------------
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
JUNE 30, 2000
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential Securities Futures Management Inc. (the 'Managing Owner'), 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 June 30, 2000 and the
results of its operations for the six and three months ended June 30, 2000 and
1999. 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, 1999 (the 'Annual Report').
As of February 15, 2000, Willowbridge Associates Inc. ('Willowbridge') ceased
to serve as a trading manager to the Trust. The advisory agreement among the
Trust, the Managing Owner and Willowbridge was automatically terminated when the
assets allocated to Willowbridge declined by greater than 33 1/3% from their
balance at December 31, 1999. On July 5, 2000, the Managing Owner reallocated
the portion of Trust assets previously traded by Willowbridge to Gamma Capital
Management, LLC ('Gamma'), an independent commodities trading manager. These
assets were not allocated to commodities trading from February 15, 2000 through
July 5, 2000 and, as such, were not subject to management fees or commissions.
The monthly management fee paid to Gamma equals 1/6 of 1% (a 2% 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 Gamma 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. Additionally,
Gamma must recoup the cumulative trading losses of Willowbridge before it is
paid an incentive fee.
B. Related Parties
The Managing Owner is a wholly owned subsidiary of Prudential Securities
Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of Prudential
Securities Group Inc. 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, PSI or its affiliates pay the costs of these
services in addition to the Trust's routine operational, administrative, legal
and auditing costs as well as costs paid to organize the Trust and offer its
Interests.
The costs charged to the Trust for brokerage services for the six months
ended June 30, 2000 and 1999 were $647,736, and $1,627,625, respectively. The
costs charged to the Trust for brokerage services for the three months ended
June 30, 2000 and 1999 were $226,671 and $780,929, respectively.
The Trust's assets are maintained either in trading or cash accounts at 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 average net assets in the Trust's 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 positions of the Trust.
As of June 30, 2000, a non-U.S. affiliate of the Managing Owner owns 538.703
limited interests of the Trust.
4
<PAGE>
C. Derivative Instruments and Associated Risks
The Trust is exposed to various types of risks associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of the Trust's investment activities (credit risk).
Market risk
Trading in futures and forward (including foreign exchange transactions)
contracts involves entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or face amount of
the contracts, which is typically many times that of the Trust's net assets
being traded, significantly exceeds the Trust's future cash requirements since
the Trust intends to close out its open positions prior to settlement. As a
result, the Trust 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 and forwards to be the net unrealized gain or loss on the
contracts. The market risk associated with the Trust's commitments to purchase
commodities is limited to the gross or face amount of the contracts held.
However, when the Trust enters into a contractual commitment to sell
commodities, it must make delivery of the underlying commodity at the contract
price and then repurchase the contract at prevailing market prices. Since the
repurchase price to which a commodity can rise is unlimited, entering into
commitments to sell commodities exposes the Trust to unlimited risk.
Trading in options involves the payment or receipt of a premium and the
corresponding right or obligation, as the case may be, to either purchase or
sell the underlying commodity for a specified price during a limited period of
time. Purchasing options involves the risk that the underlying commodity does
not change price as expected, so that the option expires worthless and the
premium is lost. On the other hand, selling options involves unlimited risk
because the Trust is exposed to the potentially unlimited price movement in the
underlying commodity.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments the Trust holds and the liquidity and inherent
volatility of the markets in which the Trust trades.
Credit risk
When entering into futures, forward or options contracts, the Trust is
exposed to credit risk that the counterparty to the contract will not meet its
obligations. The counterparty for futures and options contracts traded in the
United States and on most foreign futures and options exchanges is the
clearinghouse associated with such exchanges. In general, clearinghouses are
backed by the corporate members of the clearinghouse who are required to share
any financial burden resulting from the non-performance by one of its members
and, as such, should significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e., some foreign
exchanges), it is normally backed by a consortium of banks or other financial
institutions. On the other hand, the sole counterparty to the Trust's forward
transactions is PSI, the Trust's commodity broker. The Trust has entered into a
master netting agreement with PSI and, as a result, presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition. The amount at risk associated with counterparty
non-performance of all of the Trust's contracts is the net unrealized gain (plus
premiums paid on options) included in the statements of financial condition.
There can be no assurance that any counterparty, clearing member or
clearinghouse will meet its obligations to the Trust.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust and its 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. Additionally, pursuant
to the Advisory Agreements among the Trust, the Managing Owner and the trading
managers, the Trust shall automatically terminate a trading manager if the net
asset value allocated to that trading manager declines by 33 1/3% from the value
at the beginning of any year or since the initial allocation of assets to that
trading manager. (See Note A for a discussion of the termination
5
<PAGE>
of Willowbridge as a trading manager to the Trust.) Furthermore, the Second
Amended and Restated Declaration of Trust and Trust Agreement provides that the
Trust will liquidate its positions, and eventually dissolve, if the Trust
experiences a decline in the net asset value of 50% from the value at the
beginning of any year or since the commencement of trading activities. In each
case, the decline in net asset value is after giving effect for distributions
and redemptions. 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 is not to commingle
such assets with other assets of PSI. At June 30, 2000, such segregated assets
totalled $9,752,214. 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 $10,409,720 at June 30, 2000. There are no segregation requirements for
assets related to forward trading.
As of June 30, 2000, the Trust's open futures and forward contracts generally
mature within one year.
At June 30, 2000 and December 31, 1999, the fair values of futures, forward
and options contracts were:
<TABLE>
<CAPTION>
2000 1999
------------------------ --------------------------
Assets Liabilities Assets Liabilities
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Interest rates $ 2,189 $ 113,753 $ 5,455 $ 13,650
Stock indices -- 1,000 2,022,713 3,606
Currencies 17,450 334,960 142,955 185,257
Commodities -- 3,600 206,761 119,006
Foreign exchanges
Interest rates 93,893 92,308 167,112 181,994
Stock indices 57,500 28,411 -- 11,538
Commodities 4,250 9,691 1,670,554 256,879
Forward Contracts:
Currencies -- 1,110 -- 8,656
Commodities -- -- -- 196,479
Options Contracts:
Foreign exchanges
Commodities -- -- 395,089 --
-------- ----------- ---------- -----------
$175,282 $ 584,833 $4,610,639 $ 977,065
-------- ----------- ---------- -----------
-------- ----------- ---------- -----------
</TABLE>
6
<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 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.
The Trust Agreement provides that an Interest holder may redeem its Interests
as of the last day of any month at the then current net asset value per
Interest. Redemptions of limited interests for the six and three months ended
June 30, 2000 were $7,224,497 and $2,690,395, respectively. Redemptions by the
Managing Owner recorded for the six and three months ended June 30, 2000 were
$72,981 and $27,225, respectively. Redemptions of limited interests and general
interests from commencement of operations, May 1, 1996, through June 30, 2000
were $45,379,887 and $346,935, respectively. Future redemptions will impact the
amount of funds available for investment in commodity contracts in subsequent
periods.
A significant portion of the net assets of the Trust 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 average net assets 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 relationships 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 and its trading managers to abide by various trading
limitations and policies, which include limiting margin amounts, trading only in
liquid markets and utilizing stop loss provisions. See Note C to the financial
statements for a further discussion of the credit and market risks associated
with the Trust's futures and forward contracts.
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 June 30, 2000 was $100.54, a decrease
of 21.43% from the December 31, 1999 net asset value per Interest of $127.96,
and an increase of 4.04% from the March 31, 2000 net asset value per Interest of
$96.64.
The Trust's gross trading gains/(losses) were $(7,090,000) and $815,000
during the six and three months ended June 30, 2000 compared to $2,186,000 and
$(440,000) for the corresponding periods in the prior year. Due to the nature of
the Trust's trading activities, a period to period comparison of its trading
results is
7
<PAGE>
not meaningful. However, a detailed discussion of the Trust's current quarter
trading results is presented below.
Quarterly Market Overview
U.S. economic growth remained rapid throughout April and May, evidenced by
economic indicators across the board. Consumer spending trended upward strongly
and housing demand was high. Industrial production and wages expanded briskly in
response to burgeoning domestic demand. Labor markets continued to be very tight
as employment surged. Signs of an economic slowdown appeared towards the end of
the quarter as markets reacted to higher than expected unemployment numbers at
the end of May. However, economic expansion remained robust in most world
markets throughout the quarter. The Japanese economy showed indications of
increased demand in the first five months of 2000. Economic activity in
developing countries also continued. Key South American economies recovered from
recent recessions, while several Asian emerging market countries settled into
growth at a more sustained rate.
During the quarter, financial markets were dominated by continued volatility
in the equity sector. U.S. equity markets, especially more speculative
technology stocks, experienced a sell-off in April as investors' confidence
declined. Stock indices rallied toward the end of June, but the S&P, Dow, and
NASDAQ all ended the first half of the year down.
Global bond markets mirrored the volatility of the equity markets. Early in
the quarter, both U.S. and European prices on interest rate instruments fell due
to a rate hike by the European Central Bank at the end of April and a strong
U.S. economy. Global bond prices plummeted again in May in anticipation of a
U.S. interest rate hike. The U.S. Federal Reserve raised rates by 50 basis
points to 6.5%. This forceful policy (more than the 25 basis point increases
implemented since mid 1999) was due to the persistent strength of overall demand
and growing pressure in a tight labor market. As the quarter continued and new
economic data was released, it became apparent that the U.S. economy was
decelerating and bond prices rallied slightly.
The value of the U.S. dollar appreciated considerably against most major
currencies at the beginning of the quarter, reflecting, in part, the larger
increases in U.S. long-term yields relative to rates in most foreign countries.
The dollar's rise against the euro was sizable, but it also made moderate gains
against the British pound, Japanese yen, and Canadian dollar. In June, as the
U.S. economy showed signs of slowing down, the U.S. dollar weakened against most
major currencies. The euro reached all time lows in May before rallying in June
as a result of solid European economic data and sentiment that the currency was
undervalued. In May, the Japanese yen rose against the U.S. dollar supported by
expectations of a possible change in the Bank of Japan's zero-interest rate
policy. As the Japanese economy failed to sustain its recovery momentum, the yen
lost some ground. The Canadian dollar rallied towards the end of the quarter due
to steady Canadian economic data combined with signs of softening in the U.S.
economy.
Increased demand caused oil prices to surge at the beginning of the quarter.
In June, OPEC countries agreed to increase oil production as higher gas prices
put inflationary pressure on global economies and oil prices reversed downward.
In the metals markets, the trend of falling prices in April and May reversed
itself later in the quarter as gold soared driven, in part, by weakening in the
U.S. dollar and U.S. economy.
Quarterly Trust Performance
The following is a summary of performance for the major sectors in which the
Trust traded:
Currency (+): The European Central Bank raised interest rates by 50 basis
points to 4.25% resulting in gains in long euro positions. Long British pound
positions were profitable for the Trust as the Bank of England left interest
rates unchanged and the pound bounced back from its May decline.
Financial (+): Short U.S. Treasury note positions lost value as prices
rallied in response to a higher than expected unemployment number in May and
lack of action by the U.S. Federal Reserve at its meeting in June. Long Japanese
government bond positions resulted in gains toward the end of the quarter as the
Japanese government deferred their decision to change their current zero
interest rate policy.
Index (+): The second quarter brought a reversal to some global equity
markets. A strong U.S. economy began showing signs of slowdown and U.S. equity
markets experienced an April sell-off. Overall, continued volatility in world
markets resulted in gains in S&P and euro DAX positions.
8
<PAGE>
Metal (+): Long copper positions resulted in gains for the Trust as the metal
markets rallied due to a weakening in the U.S. economy.
As of February 15, 2000, Willowbridge ceased to serve as a trading manager to
the Trust. The advisory agreement among the Trust, the Managing Owner and
Willowbridge was automatically terminated when the assets allocated to
Willowbridge declined by greater than 33 1/3% from their balance at December 31,
1999. On July 5, 2000, the Managing Owner reallocated the portion of Trust
assets previously traded by Willowbridge to Gamma, an independent commodities
trading manager. These assets were not allocated to commodities trading from
February 15, 2000 through July 5, 2000 and, as such, were not subject to
management fees or commissions. The monthly mangement fee paid to Gamma equals
1/6 of 1% (a 2% 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 Gamma
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. Additionally, Gamma must recoup the cumulative trading losses of
Willowbridge before it is paid an incentive fee.
Interest income is earned on the equity balances held at PSI and, therefore,
varies monthly according to interest rates, trading performance and redemptions.
Interest income decreased by $210,000 and $120,000 for the six and three months
ended June 30, 2000 as compared to the same periods in 1999 primarily due to
redemptions during 1999 and 2000 as well as weak trading performance during the
first quarter of 2000.
Commissions are calculated on the Trust's net asset value at the beginning of
each month and, therefore, vary according to trading performance and
redemptions. Commissions decreased by $980,000 and $554,000 for the six and
three months ended June 30, 2000 as compared to the same periods in 1999 due
primarily to redemptions during 1999 and 2000 and poor trading performance
during the first quarter of 2000, as well as the postponement of commissions
charged to the Trust by PSI on the portion of net assets which were unallocated
to commodities trading as discussed above.
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 and redemptions. Management fees decreased by $357,000 and $193,000
for the six and three months ended June 30, 2000 as compared to the same periods
in 1999 for the same reasons commissions decreased as discussed above.
Incentive fees are based on the New High Net Trading Profits generated by
each trading manager, as defined in the Advisory Agreements among the Trust, the
Managing Owner and each trading manager. Incentive fees of approximately
$357,000 and $45,000 were earned during the six and three months ended June 30,
1999. No incentive fees were earned during the six and three months ended June
30, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 305(c) of Regulation S-K requires disclosure during each interim
reporting period of material changes in the quantitative and qualitative market
risk information provided as of the end of the immediately preceding year. The
following information should be read in conjunction with the Trust's Form 10-K
as filed with the Securities and Exchange Commission for the year ended December
31, 1999.
The following table presents the trading Value at Risk of the Trust's open
positions by market sector as of June 30, 2000 and December 31, 1999. As of June
30, 2000 and December 31, 1999, the Trust's total capitalization was
approximately $19.2 million and $33.8 million, respectively.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
% of Total % of Total
Market Sector Value at Risk Capitalization Value at Risk Capitalization
------------------------------------- ------------- --------------- ------------- ---------------
Currencies $ 775,770 4.04% $ 365,279 1.08%
Interest Rates 639,772 3.33 399,718 1.18
Stock Indices 267,104 1.39 2,922,101 8.65
Commodities 27,000 0.14 2,632,700 7.79
------------- ------- ------------- -------
Total $ 1,709,646 8.90% $ 6,319,798 18.70%
------------- ------- ------------- -------
------------- ------- ------------- -------
</TABLE>
9
<PAGE>
The following table presents the average trading Value at Risk of the Trust's
open positions by market sector for the six and three months ended June 30,
2000.
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, 2000 June 30, 2000
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
% of Total % of Total
Market Sector Value at Risk Capitalization Value at Risk Capitalization
------------------------------------ ------------- --------------- ------------- ---------------
Currencies $ 688,225 2.86% $ 751,626 3.71%
Interest Rates 919,383 3.82 799,998 3.95
Stock Indices 989,908 4.11 185,884 0.92
Commodities 672,029 2.79 25,500 0.13
------------- ------- ------------- -------
Total $ 3,269,545 13.58% $ 1,763,008 8.71%
------------- ------- ------------- -------
------------- ------- ------------- -------
</TABLE>
The overall decrease in the Trust's Value at Risk since December 31, 1999 is
primarily the result of the termination of Willowbridge as a trading manager to
the Trust as more fully described in Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations above.
The primary trading risk exposures of the Trust at June 30, 2000 and during
the three months then ended, by market sector, were:
Currencies. Currency market risk arises 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. Similar to prior periods, the Trust's major exposure as of June 30,
2000 and during the six and three months then ended resulted from positions in
the local currencies of G-7 countries.
Interests Rates. Interest rate movements directly affect the price of
sovereign bond positions held by the Trust and indirectly affect the value of
its stock index and currency positions. The Trust's primary interest rate
exposure is to interest rate fluctuations in the U.S. and other G-7 countries,
particularly fluctuations in long-term, as opposed to short-term, rates. At June
30, 2000 and during the six and three months then ended, positions in Montreal
Bankers Acceptances, LIFFE 3 month Euribor, LIFFE gilts and SFE (Australia)
Treasury bills and bonds account for the majority of interest rate trading risk
for the Trust.
Stock Indices. Although the trading manager trades various indices, the
Trust's primary equity index exposure at June 30, 2000 and during the six and
three months then ended resulted from positions in the S&P 500 Index, DAX
(Germany), MIB 30 Index (Italy) and the Tokyo Stock Price Index (TOPIX). The
stock index futures traded by the Trust are, by law, limited to futures on
broadly based indices.
Commodities. Positions in copper account for the majority of the commodities
trading risk exposure at June 30, 2000 and during the six and three months then
ended.
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<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--Effective July 2000, Joseph A. Filicetti resigned as
President and a Director of the Managing Owner.
Item 6. Exhibits and Reports on Form 8-K:
(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)
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)
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)
10.10--Advisory Agreement dated June 30, 2000 among the
Registrant, Prudential Securities Futures Management Inc.
and Gamma Capital Management, LLC (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: August 14, 2000
----------------------------------------
Steven Carlino
Vice President and Treasurer
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