<PAGE>
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, 1999
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
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Limited Interests
- --------------------------------------------------------------------------------
(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 [CK]
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, 1999 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 12 and 13.
<PAGE>
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
<CAPTION>
PART II
<S> <C> <C>
Item 5 Market for the Registrant's Interests and Related Interest Holder Matters........ 4
Item 6 Selected Financial Data.......................................................... 5
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 5
Item 7A Quantitative and Qualitative Disclosures About Market Risk....................... 5
Item 8 Financial Statements and Supplementary Data...................................... 9
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 9
<CAPTION>
PART III
<S> <C> <C>
Item 10 Directors and Executive Officers of the Registrant............................... 9
Item 11 Executive Compensation........................................................... 10
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 11
Item 13 Certain Relationships and Related Transactions................................... 11
<CAPTION>
PART IV
<S> <C> <C>
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 12
Financial Statements and Financial Statement Schedules........................... 12
Exhibits......................................................................... 12
Reports on Form 8-K.............................................................. 13
SIGNATURES.................................................................................. 14
</TABLE>
2
<PAGE>
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.
The Registrant is engaged solely in the business of commodity futures,
forward and options trading; therefore, presentation of industry segment
information is not applicable.
The Trading Managers
At inception, Prudential Securities Futures Management Inc. (the 'Managing
Owner') entered into an agreement with Willowbridge Associates, Inc.
('Willowbridge'), an independent commodities trading manager, to make the
Trust's commodity trading decisions.
During July 1998, Willowbridge ceased to serve as a trading manager to the
Registrant with regard to assets in 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, the Managing Owner and each Trading Manager. In
conjunction with this change, the Registrant was renamed Prudential Securities
Strategic Trust.
As of February 15, 2000, Willowbridge ceased to serve as a Trading Manager to
the Registrant. The Advisory Agreement was automatically terminated when the
assets allocated to Willowbridge declined by greater than 33 1/3% from their
balance at December 31, 1999. These assets remain unallocated to commodities
trading as the Managing Owner considers other independent commodity trading
managers to trade these assets on behalf of the Registrant.
Managing Owner and its Affiliates
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
3
<PAGE>
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,
1999 ('Registrant's 1999 Annual Report') which is filed as an exhibit hereto.
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 1999 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 were subject to redemption charges of 4% and 3%, respectively, of
the net asset value at which they were 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 were 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 21, 2000, there were 1,578 holders of record owning 244,848.805
Interests which include 2,449 general interests.
4
<PAGE>
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 1999
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Period from
May 1, 1996
(commencement of
Year Ended December 31, operations) to
----------------------------------------- December 31,
1999 1998 1997 1996
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Total revenues (including interest) $ 5,074,264 $13,710,698 $ 4,475,048 $ 4,148,504
----------- ----------- ----------- ----------------
----------- ----------- ----------- ----------------
Net income (loss) $ 847,120 $ 6,950,929 $(1,784,677) $ 2,290,184
----------- ----------- ----------- ----------------
----------- ----------- ----------- ----------------
Net income (loss) per weighted average
Interest $ 2.62 $ 15.76 $ (4.15) $ 10.79
----------- ----------- ----------- ----------------
----------- ----------- ----------- ----------------
Total assets $35,330,685 $48,779,871 $49,239,910 $ 27,823,974
----------- ----------- ----------- ----------------
----------- ----------- ----------- ----------------
Net asset value per Interest $ 127.96 $ 123.81 $ 102.96 $ 103.47
----------- ----------- ----------- ----------------
----------- ----------- ----------- ----------------
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 12 through 14 of the
Registrant's 1999 Annual Report which is filed as an exhibit hereto.
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.
5
<PAGE>
Standard of Materiality
Materiality as used in this section, 'Quantitative and Qualitative
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 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 tables indicate the trading Value at Risk associated with the
Registrant's open positions by market sector at December 31, 1999 and 1998. All
open position trading risk exposures of the Registrant have been included in
calculating the figures set forth below. At December 31, 1999 and 1998, the
Registrant's total capitalization was approximately $33.8 million and $45.0
million, respectively.
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Value at % of Total Value at % of Total
Market Sector Risk Capitalization Risk Capitalization
-------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Stock Indices $2,922,101 8.65% $ 323,431 .72%
Commodities 2,632,700 7.79 89,400 .20
Interest Rates 399,718 1.18 1,069,880 2.38
Currencies 365,279 1.08 1,857,167 4.12
---------- ------- ---------- -----
Total $6,319,798 18.70% $3,339,878 7.42%
---------- ------- ---------- -----
---------- ------- ---------- -----
</TABLE>
6
<PAGE>
The following table presents the average trading Value at Risk of the
Registrant's open positions by market sector for the year ended December 31,
1999. During the year ended December 31, 1999, the Registrant's total average
capitalization was approximately $39.1 million.
<TABLE>
<CAPTION>
Value at % of Total
Market Sector Risk Capitalization
------------------------ ---------- --------------
<S> <C> <C>
Stock Indices $2,196,114 5.62%
Commodities 1,863,404 4.76
Interest Rates 1,714,460 4.38
Currencies 1,631,310 4.17
---------- -------
Total $7,405,288 18.93%
---------- -------
---------- -------
</TABLE>
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. 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, 1999 and
during the year then ended, by market sector, were:
Stock Indices. The Registrant's equity exposure represents the principal
market exposure of the Registrant at December 31, 1999 and for the year then
ended. Equity exposure is due to equity price risk in various indices including
the S&P 500, 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 December 31, 1999 and for
the year then ended, the Registrant's commodities exposure resulted primarily
from positions in gold and copper.
7
<PAGE>
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.
Currencies. Currency exposure 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. 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. While it is difficult at this point to evaluate the effect that
the introduction of the euro has had on the Registrant, the Managing Owner does
not believe that the risk profile of the Registrant's currency sector has
significantly changed, although the ultimate effect of the euro's full
introduction is yet unknown. 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.
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. Additionally, the Advisory
Agreement among the Registrant, the Managing Owner and each Trading Manager will
automatically terminate if the net asset value allocated to that Trading Manager
declines by 33 1/3% during any year or since the commencement of trading
activities. See 'Item 1. General' for information regarding the termination of
Willowbridge as a Trading Manager of the Registrant. 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. The Managing Owner may impose
additional 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.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
At December 31, 1999, 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.
8
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 10
of the Registrant's 1999 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. 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
Joseph A. Filicetti President and Director
Eleanor L. Thomas Executive Vice President and Director
Barbara J. Brooks Chief Financial Officer
Steven Carlino Vice President and Treasurer
Alan J. Brody Director
A. Laurence Norton, Jr. Director
Guy S. Scarpaci Director
Tamara B. Wright Senior Vice President and Director
JOSEPH A. FILICETTI, age 37, is the President and a Director of Prudential
Securities Futures Management Inc. He had been a Vice President of Prudential
Securities Futures Management Inc. and Seaport Futures Management, Inc. from
October 1998 to March 1999. In April 1999, Mr. Filicetti was named to his
current positions at Prudential Securities Futures Management Inc. and became
the Executive Vice President and a Director of Seaport Futures Management, Inc.
Mr. Filicetti is also a Vice President of PSI and the Director of Sales and
Marketing for its managed futures department. Prior to joining PSI, Mr.
Filicetti was with Rotella Capital Management as Director of Sales and Marketing
from September 1996 through September 1998, and was with Merrill Lynch as a
market maker trading bonds from July 1992 to August 1996.
ELEANOR L. THOMAS, age 45, is the Executive Vice President and a Director of
Prudential Securities Futures Management Inc. and is the President and a
Director of Seaport Futures Management, Inc. She is primarily responsible for
origination, asset allocation, and due diligence for the managed futures
department 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.
9
<PAGE>
BARBARA J. BROOKS, age 51, 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 36, 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.
ALAN J. BRODY, age 48, is a Director of Prudential Securities Futures Management
Inc. and Seaport Futures Management, Inc. Mr. Brody has been a Senior Vice
President and Director of International Sales and Marketing for PSI since 1996.
Based in London, Mr. Brody is currently responsible for the marketing and sales
of all products and services to international clientele throughout the firm's
global branch system. Additionally, Mr. Brody has overall responsibility for the
managed futures department within PSI. Prior to joining PSI, Mr. Brody was an
Executive Director and Senior Vice President with Lehman Brothers' Financial
Services Division in London and President of Lehman Brothers Futures Asset
Management Corp. from 1990 to 1996. Prior to joining Lehman Brothers, Mr. Brody
served as President and Chief Executive Officer of Commodity Exchange, Inc. from
1980 to 1989. Earlier in his career, Mr. Brody was associated with the law firm
of Baer Marks & Upham from 1977 to 1980.
A. LAURENCE NORTON, JR., age 61, is a Director of Prudential Securities Futures
Management Inc. He is an Executive Vice President of PSI and, since March 1994,
has been the director of the International and Futures Divisions of PSI. He is
also a Director of Seaport Futures Management, Inc. and is a member of PSI's
Operating Committee. 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 53, 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 41, 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.
Effective April 1999, Eleanor L. Thomas and Joseph A. Filicetti were elected
as Directors of both Prudential Securities Futures Management Inc. and Seaport
Futures Management, Inc. In addition, Mr. Filicetti was elected as President of
Prudential Securities Futures Management Inc. replacing Thomas M. Lane, Jr. and
Ms. Thomas was elected as the Executive Vice President of Prudential Securities
Futures Management Inc. Additionally, Alan J. Brody was elected as a Director of
Prudential Securities Futures Management Inc. and Seaport Futures Management,
Inc. during May 1999.
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.)
10
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 21, 2000, 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 21, 2000, no director or executive officer of the Managing Owner
owns directly or beneficially any of the Interests issued by the Registrant.
As of March 21, 2000, no owners of Interests beneficially own more than five
percent (5%) of the limited interests issued by the Registrant.
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 1999 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.
11
<PAGE>
PART IV
<TABLE>
<CAPTION>
Page
Number
------------
<C> <S> <C>
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 1999 Annual Report which is filed as an
exhibit hereto
Report of Independent Accountants 2
Financial Statements:
Statements of Financial Condition--December 31, 1999 and 1998 3
Statements of Operations--Three years ended December 31, 1999 4
Statements of Changes in Trust Capital--Three years ended December 31,
1999 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>
12
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <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 1999 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 1999 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>
13
<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 30, 2000
----------------------------------------
Steven Carlino
Vice President 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/ Joseph A. Filicetti Date: March 30, 2000
-----------------------------------------
Joseph A. Filicetti
President and Director
By: /s/ Eleanor L. Thomas Date: March 30, 2000
-----------------------------------------
Eleanor L. Thomas
Executive Vice President and Director
By: /s/ Barbara J. Brooks Date: March 30, 2000
-----------------------------------------
Barbara J. Brooks
Chief Financial Officer
By: /s/ Steven Carlino Date: March 30, 2000
-----------------------------------------
Steven Carlino
Vice President and Treasurer
By: /s/ Alan J. Brody Date: March 30, 2000
-----------------------------------------
Alan J. Brody
Director
By: Date:
-----------------------------------------
A. Laurence Norton, Jr.
Director
By: /s/ Guy S. Scarpaci Date: March 30, 2000
-----------------------------------------
Guy S. Scarpaci
Director
By: Date:
-----------------------------------------
Tamara B. Wright
Senior Vice President and Director
14
<PAGE>
1999
- --------------------------------------------------------------------------------
Prudential Securities Annual
Strategic Trust Report
<PAGE>
LETTER TO LIMITED OWNERS FOR
PRUDENTIAL SECURITIES STRATEGIC TRUST
1
<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
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, 1999 and 1998, and the results of its operations for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States 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
January 28, 2000
2
<PAGE>
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Cash $31,489,773 $47,615,180
Net unrealized gain on open futures contracts 3,686,345 1,155,587
Net option premium 152,364 --
------------- -----------
Net equity 35,328,482 48,770,767
Other receivable 2,203 9,104
------------- -----------
Total assets $35,330,685 $48,779,871
------------- -----------
------------- -----------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,219,087 $ 1,735,717
Unrealized loss on open forward contracts 205,135 174,102
Management fees payable 65,935 88,932
Incentive fees payable 37,416 1,766,804
------------- -----------
Total liabilities 1,527,573 3,765,555
------------- -----------
Commitments
Trust capital
Limited interests (261,529.58 and 359,949.43 interests
outstanding) 33,465,044 44,564,154
General interests (2,642 and 3,636 interests outstanding) 338,068 450,162
------------- -----------
Total trust capital 33,803,112 45,014,316
------------- -----------
Total liabilities and trust capital $35,330,685 $48,779,871
------------- -----------
------------- -----------
Net asset value per limited and general interest ('Interests') $ 127.96 $ 123.81
------------- -----------
------------- -----------
- ---------------------------------------------------------------------------------------------------
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>
Year Ended December 31,
------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $1,076,676 $13,284,951 $ 70,832
Change in net unrealized gain/loss on open commodity
positions 2,499,725 (1,597,171) 2,224,441
Interest income 1,497,863 2,022,918 2,179,775
---------- ----------- -----------
5,074,264 13,710,698 4,475,048
---------- ----------- -----------
EXPENSES
Commissions 2,966,784 3,265,316 3,628,875
Management fees 865,933 1,155,091 1,409,961
Incentive fees 394,427 2,339,362 1,220,889
---------- ----------- -----------
4,227,144 6,759,769 6,259,725
---------- ----------- -----------
Net income (loss) $ 847,120 $ 6,950,929 $(1,784,677)
---------- ----------- -----------
---------- ----------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ 838,655 $ 6,882,295 $(1,771,590)
---------- ----------- -----------
---------- ----------- -----------
General interests $ 8,465 $ 68,634 $ (13,087)
---------- ----------- -----------
---------- ----------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL INTEREST
Net income (loss) per weighted average limited and
general interest $ 2.62 $ 15.76 $ (4.15)
---------- ----------- -----------
---------- ----------- -----------
Weighted average number of limited and general
interests outstanding 323,719 441,066 430,048
---------- ----------- -----------
---------- ----------- -----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN TRUST CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
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
Net income -- 838,655 8,465 847,120
Redemptions (99,413.85) (11,937,765) (120,559) (12,058,324)
------------ ------------ --------- ------------
Trust capital--December 31, 1999 264,171.58 $ 33,465,044 $ 338,068 $ 33,803,112
------------ ------------ --------- ------------
------------ ------------ --------- ------------
- ------------------------------------------------------------------------------------------------------
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 assets in 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. As further discussed in Note G to the financial statements, the
Managing Owner terminated Willowbridge as a trading manager of the Trust on
February 15, 2000.
B. Summary of Significant Accounting Policies
Basis of accounting
The financial statements of the Trust are prepared in accordance with
generally accepted accounting principles.
Commodity futures, forward and options 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. 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 year end, adjusted
proportionately for Interests subscribed and redeemed based on their respective
time outstanding during such year.
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>
Certain balances from the prior year have been reclassified to conform with
the current financial statement presentation.
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, 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 were subject to redemption charges of 4% and 3%, respectively, of the
net asset value at which they were redeemed. These redemption charges were paid
to the Managing Owner. Partial redemptions are permitted.
Accounting for Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative
Instruments and Hedging Activities, which the Trust adopted effective October 1,
1999. SFAS No. 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. SFAS No. 133
supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments and SFAS No. 105, Disclosure of Information
about Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk which required the disclosure of
average aggregate fair values and contract/notional values, respectively, of
derivative financial instruments for an entity like the Trust which carries its
assets at fair value. The Managing Owner does not believe the adoption of SFAS
No. 133 has a material effect on the carrying value of assets and liabilities
within the financial statements.
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).
6
<PAGE>
Commissions
The Managing Owner, on behalf of the Trust, entered into an 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 sold Interests in
the Trust.
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 costs.
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 position of the Trust.
As of December 31, 1999, 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, 1999, 1998 and 1997 were $2,966,784, $3,265,316, and $3,628,875,
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 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
7
<PAGE>
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 Agreement among the Trust, the Managing Owner and each trading
manager, a trading manager will automatically be terminated if the net asset
value allocated to that trading manager declines by 33 1/3% in any year or since
the initial allocation of assets to that trading manager. Furthermore, the
Second Amended and Restated Declaration of Trust and Trust Agreement (the '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% 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 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 not to commingle such
assets with other assets of PSI. At December 31, 1999, such segregated assets
totalled $24,728,236. 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 $10,600,246 at December 31, 1999. There are no segregation requirements
for assets related to forward trading.
As of December 31, 1999, all open futures and forward contracts mature within
one year.
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). Gross contract amounts
significantly exceed 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.
As of December 31, 1998, the gross contract amounts of open futures and
forward contracts were:
1998
------------
Interest Rate Futures:
Commitments to purchase $ 92,177,040
Commitments to sell 181,380,377
Stock Index Futures:
Commitments to purchase 5,441,988
Currency Futures:
Commitments to purchase 50,575,452
Commitments to sell 45,606,627
Commodity Futures:
Commitments to sell 1,413,262
Currency Forwards:
Commitments to purchase 171,615
Commitments to sell 103,545
8
<PAGE>
At December 31, 1999 and December 31, 1998, the fair values of futures,
forward and options contracts were:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
Futures Contracts:
Domestic exchanges
Interest rates $ 5,455 $ 13,650 $ 33,297 $ 7,775
Stock indices 2,022,713 3,606 -- --
Currencies 142,955 185,257 988,150 166,778
Commodities 206,761 119,006 11,713 --
Foreign exchanges
Interest rates 167,112 181,994 329,643 194,044
Stock indices -- 11,538 179,448 21,617
Commodities 1,670,554 256,879 3,550 --
Forward Contracts:
Currencies -- 8,656 -- 174,102
Commodities -- 196,479 -- --
Options Contracts:
Foreign exchanges
Commodities 395,089 -- -- --
----------- ----------- ----------- -----------
$ 4,610,639 $ 977,065 $ 1,545,801 $ 564,316
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The following table presents the average fair value of futures, forward and
options contracts during the year ended December 31, 1998.
<TABLE>
<CAPTION>
1998
--------------------------
<S> <C> <C>
Assets Liabilities
---------- -----------
Futures Contracts:
Domestic exchanges
Interest rates $ 624,219 $ 101,716
Stock indices 16,546 5,215
Currencies 835,289 395,244
Commodities 248,688 332,016
Foreign exchanges
Interest rates 1,531,709 139,631
Stock indices 62,458 70,770
Commodities 5,348 26,790
Forward Contracts:
Currencies 1,127 27,512
Commodities 92,648 160,820
Options Contracts:
Domestic exchanges
Interest rates 50,847 --
Currencies 31,254 --
Commodities 3,769 --
Foreign exchanges
Interest rates 5,539 --
Commodities 11,642 --
---------- -----------
$3,521,083 $ 1,259,714
---------- -----------
---------- -----------
</TABLE>
9
<PAGE>
The following table presents trading revenues from futures, forward and
options contracts for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Futures Contracts:
Domestic exchanges
Interest rates $ 4,758,105 $(1,163,675)
Stock indices (884,350) (2,431,450)
Currencies 2,400,023 6,682,118
Commodities (5,689,561) 200,123
Foreign exchanges
Interest rates 15,079,412 (557,736)
Stock indices (736,748) (213,251)
Commodities (35,584) 972,431
Forward Contracts:
Currencies (299,241) --
Commodities (1,114,551) (146,888)
Options Contracts:
Domestic exchanges
Interest rates (890,181) (317,560)
Currencies (771,376) (294,634)
Commodities (4,940) (205,597)
Foreign exchanges
Interest rates (65,754) --
Commodities (57,474) (228,608)
----------- -----------
$11,687,780 $ 2,295,273
----------- -----------
----------- -----------
</TABLE>
G. Subsequent Event
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. The portion of Trust assets which were traded by Willowbridge are not
currently allocated to commodities trading and, as such, have not been subject
to management fees or commissions since February 15, 2000. The Managing Owner is
currently considering other independent commodity trading managers to trade
these assets on behalf of the Trust.
10
<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
- --------------------------------------------------------------------------------
11
<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.
The Trust Agreement provides that an Interest holder may redeem its Interests
as of the last business day of any month at the then current net asset value per
Interest. Redemptions of limited interests recorded for the years ended December
31, 1999, 1998 and 1997 were $11,937,765, $14,894,553 and $9,031,056,
respectively. Redemptions by the Managing Owner for the years ended December 31,
1999 and 1998 were $120,559 and $153,395, respectively. Redemptions of limited
interests and general interests from the commencement of operations, May 1, 1996
through December 31, 1999 totalled $38,155,390 and $273,954, respectively.
Future redemptions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
At December 31, 1999, 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 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's 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 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.
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, 1999 was $127.96, an
increase of 3.35% from the December 31, 1998 net asset value per Interest of
$123.81, which was an increase of 20.25% from the December 31, 1997 net asset
value per Interest of $102.96. The MAR (Managed Account Reports) Fund/Pool
Index, which tracked the performance of 317 and 281 futures funds during 1999
and 1998, returned gains of 1.48% and 6.81%, respectively. Past performance is
not necessarily indicative of future results.
12
<PAGE>
In 1999, profits in the metal, financial, index, and energy sectors outpaced
losses in the currency and grain sectors.
The metal sector recorded substantial gains in the third quarter from long
positions in gold. Gold prices rose following the Bank of England's auction
which yielded higher-than-expected prices. The market later surged following a
joint announcement by 15 European central banks that they would not sell or
lease any reserves other than those previously designated for sale, for a
five-year period. This announcement removed a tremendous amount of supply
uncertainty from the market, allowing producer demand to send prices higher.
Financial sector profits earned in the first and second quarters exceeded
losses in the third and fourth quarters. During the first quarter, significant
gains resulted from short U.S. Treasury bond positions which profited from
falling prices as the U.S. economy continued to grow at a rapid pace. Gains were
also experienced from short European bond positions which declined in price as
political pressures within Europe delayed central bank interest rate reductions.
Second quarter gains were driven by positions in U.S. Treasury and Japanese
government bonds. Global bond markets followed the U.S. bond market's lead to
higher interest rates and lower prices. By mid-June, the U.S. 30-year Treasury
bond yield was back above 6% in anticipation of tightening by the U.S. Federal
Reserve (FED). Subsequently, on June 30, the FED raised the federal funds rate
by 25 basis points. In Japan, the possibility of an improving economy triggered
a bond market rally.
Long positions in the energy sector, specifically crude oil and derivative
products, provided gains in the second and third quarters. In the first quarter,
energy markets surged as OPEC announced substantial cuts in crude oil exports.
Crude oil prices continued to rally into the second quarter as extremely hot
U.S. weather drove increased utility demand during June and following statements
by Saudi Arabian and Mexican oil ministers reporting a high degree of compliance
with OPEC production cuts. These production cuts continued to prove beneficial
for the Trust's long positions into the third quarter.
Currency sector positions recorded net losses from the second to the fourth
quarters. The Trust suffered primarily from losses in the Japanese yen and Swiss
franc. In Japan, the economy showed signs of a recovery during the second
quarter, but Japanese officials feared a premature strengthening of the yen
might dampen growth. The Bank of Japan intervened at various points throughout
the year by selling yen. During November, the Japanese yen surged to a 4-year
high against the U.S. dollar. Consequently, from the second through the fourth
quarters, short yen positions added to losses. The Trust experienced losses in
the Swiss franc in the second and fourth quarters. The Swiss franc fell further
against the U.S. dollar during the second quarter as it lost its safe haven
attraction when the Kosovo war ended and the Federal Reserve Bank increased
interest rates. In the fourth quarter, the Swiss franc lost value when the Swiss
National Bank added liquidity to their domestic money market in an attempt to
keep interest rates from rising due to millennium-related liquidity concerns. As
a result, long Swiss franc positions contributed to losses.
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 Bridgewater, a new trading manager to the Trust, 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. As further discussed in Note G to the financial statements, as
of February 15, 2000, Willowbridge was terminated as a trading manager to the
Trust.
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 $525,000 for the year ended
December 31, 1999 as compared to 1998 primarily due to redemptions and, to a
lesser extent, declining interest rates. Interest income decreased by $157,000
for the year ended December 31, 1998 as compared to 1997 primarily due to
declining interest rates during 1998, poor trading performance during 1998
through the second quarter and redemptions.
13
<PAGE>
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 $299,000 for the year ended December
31, 1999 as compared to 1998 primarily due to 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 effect of the reallocation of assets from Willowbridge to
Bridgewater during 1998 as discussed above partially offset the decrease in the
1999 commissions versus 1998 and added to the decrease in the 1998 commissions
versus 1997. 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.
At December 31, 1999, 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 $289,000 and $255,000 for the years ended December
31, 1999 and 1998, respectively, as compared to the prior years, primarily 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 $394,000, $2,339,000,
and $1,221,000 were earned for the years ended December 31, 1999, 1998 and 1997,
respectively. Although the Trust ended 1997 with an overall loss, incentive fees
were generated by strong trading performance during the first three months of
1997. The payment of these fees is not contingent upon future trading and,
therefore, is unaffected by the Trust's poor trading performance during the
remainder of the 1997 year.
Accounting for Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative
Instruments and Hedging Activities, which the Trust adopted effective October 1,
1999. SFAS No. 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. SFAS No. 133
supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments and SFAS No. 105, Disclosure of Information
about Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk which required the disclosure of
average aggregate fair values and contract/notional values, respectively, of
derivative financial instruments for an entity like the Trust which carries its
assets at fair value. The Managing Owner does not believe the adoption of SFAS
No. 133 has a material effect on the carrying value of assets and liabilities
within the financial statements.
Year 2000 Risk
The arrival of year 2000 was much anticipated and raised serious concerns
about whether or not computer systems around the world would continue to
function properly and the degree of 'Year 2000 Problems' that would have to be
resolved.
The Trust engages third parties to perform primarily all of the services it
needs and also relies on other third parties such as governments, exchanges,
clearinghouses, vendors and banks. The Trust has not experienced any material
adverse impact on operations related to Year 2000 Problems. While the Trust
believes it has mitigated its Year 2000 risk, the Trust cannot guarantee that an
as yet unknown Year 2000 failure will not have a material adverse effect 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, 1999.
14
<PAGE>
OTHER INFORMATION
The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1999 was $52.
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-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Dec-31-1999
<PERIOD-TYPE> 12-Mos
<CASH> 31,489,773
<SECURITIES> 3,838,709
<RECEIVABLES> 2,203
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,330,685
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,330,685
<CURRENT-LIABILITIES> 1,527,573
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,803,112
<TOTAL-LIABILITY-AND-EQUITY> 35,330,685
<SALES> 0
<TOTAL-REVENUES> 5,074,264
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,227,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847,120
<EPS-BASIC> 2.62
<EPS-DILUTED> 0
</TABLE>
