1999
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World Monitor Trust--Series C Annual
Report
LETTER TO LIMITED OWNERS FOR
WORLD MONITOR TRUST--SERIES C
1
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
World Monitor Trust--Series C
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 World Monitor Trust--Series
C at December 31, 1999 and 1998, and the results of its operations for the year
ended December 31, 1999 and for the period from June 10, 1998 (commencement of
operations) to December 31, 1998 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
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
December 31,
-------------------------------
1999 1998
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ASSETS
Cash $17,735,229 $ 10,653,709
Net unrealized gain on open futures contracts 926,878 730,421
Net unrealized gain on open forward contracts 21,916 --
------------ --------------
Total assets $18,684,023 $ 11,384,130
------------ --------------
------------ --------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions payable $ 127,800 $ 71,305
Redemptions payable 52,286 --
Management fees payable 35,938 19,620
Incentive fees payable 100 --
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Total liabilities 216,124 90,925
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Commitments
Trust capital
Limited interests (189,911.407 and 107,003.103
interests outstanding) 18,227,946 11,151,465
General interests (2,500 and 1,360 interests outstanding) 239,953 141,740
------------ --------------
Total trust capital 18,467,899 11,293,205
------------ --------------
Total liabilities and trust capital $18,684,023 $ 11,384,130
------------ --------------
------------ --------------
Net asset value per limited and general interests
('Interests') $ 95.98 $ 104.22
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------------ --------------
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The accompanying notes are an integral part of these statements.
3
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
For the
period from
June 10, 1998
(commencement
Year Ended of operations)
December 31, to December 31,
1999 1998
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REVENUES
Net realized gain (loss) on commodity transactions $ (970,845) $ 26,790
Change in net unrealized gain on open commodity
positions 218,373 730,421
Interest income 821,254 253,993
-------------------- -----------------
68,782 1,011,204
-------------------- -----------------
EXPENSES
Commissions 1,275,546 365,442
Management fees 329,595 94,417
Incentive fees 143,759 85,488
-------------------- -----------------
1,748,900 545,347
-------------------- -----------------
Net income (loss) $ (1,680,118) $ 465,857
-------------------- -----------------
-------------------- -----------------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ (1,655,869) $ 458,452
-------------------- -----------------
-------------------- -----------------
General interests $ (24,249) $ 7,405
-------------------- -----------------
-------------------- -----------------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL INTEREST
Net income (loss) per weighted average limited and
general interest $ (10.83) $ 5.80
-------------------- -----------------
-------------------- -----------------
Weighted average number of limited and general interests
outstanding 155,131 80,300
-------------------- -----------------
-------------------- -----------------
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STATEMENTS OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1997 10.000 $ -- $ 1,000 $ 1,000
Contributions 109,709.375 10,828,547 133,335 10,961,882
Net income -- 458,452 7,405 465,857
Redemptions (1,356.272) (135,534) -- (135,534)
----------- ----------- --------- -----------
Trust capital--December 31, 1998 108,363.103 11,151,465 141,740 11,293,205
Contributions 110,965.263 11,497,940 122,462 11,620,402
Net loss -- (1,655,869) (24,249 ) (1,680,118)
Redemptions (26,916.959) (2,765,590) -- (2,765,590)
----------- ----------- --------- -----------
Trust capital--December 31, 1999 192,411.407 $18,227,946 $239,953 $18,467,899
----------- ----------- --------- -----------
----------- ----------- --------- -----------
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The accompanying notes are an integral part of these statements.
4
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust (the 'Trust') is a business trust organized under the
laws of Delaware on December 17, 1997. The Trust commenced trading operations on
June 10, 1998 and will terminate on December 31, 2047 unless terminated sooner
as provided in the Second Amended and Restated Declaration of Trust and Trust
Agreement. The Trust consists of three separate and distinct series ('Series'):
Series A, B and C. The assets of each Series are segregated from the other
Series, separately valued and independently managed. Each Series was formed to
engage in the speculative trading of a diversified portfolio of futures, forward
and options contracts and may, from time to time, engage in cash and spot
transactions. 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 selling agent for the Trust as well as the commodity broker ('Commodity
Broker') of the Trust.
The Offering
Beneficial interests in each Series ('Interests') are being offered once each
week until each Series' subscription maximum has been issued either through sale
or exchange. On June 10, 1998, a sufficient number of subscriptions for each
Series had been received and accepted by the Managing Owner to permit each
Series to commence trading. Series C completed its initial offering with gross
proceeds of $5,706,177 from the sale of 56,301.77 limited interests and 760
general interests.
Series A was offered until it achieved its subscription maximum of
$34,000,000 during November 1999. Series B and C continue to be offered to
investors who meet certain established suitability standards, with a minimum
initial subscription of $5,000 ($2,000 for an individual retirement account) per
subscriber, although the minimum purchase for any single Series is $1,000.
Interests in Series B and C will continue to be offered on a weekly basis at the
net asset value per Interest until the subscription maximum of $33,000,000 for
each Series is sold ('Continuous Offering Period'). Additional purchases may be
made in $100 increments.
The Managing Owner is required to maintain at least a 1% interest in the
capital, profits and losses of each Series so long as it is acting as the
Managing Owner, and it will make such contributions (and in return will receive
such general interests) as are necessary to effect this requirement.
The Trading Advisor
Each Series has its own independent commodity trading advisor that makes that
Series' trading decisions. The Managing Owner, on behalf of the Trust, entered
into an advisory agreement with Hyman Beck & Company, Inc. (the 'Trading
Advisor') to make the trading decisions for Series C. The advisory agreement may
be terminated at the discretion of the Managing Owner. The Managing Owner has
allocated 100% of the proceeds from the initial and continuous offering of
Series C to the Trading Advisor and it is currently contemplated that the
Trading Advisor will continue to be allocated 100% of additional capital raised
for Series C during the Continuous Offering Period.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as Interests
in those Series are being offered to the public. Exchanges are made at the
applicable Series' then current net asset value per Interest as of the close of
business on the Friday immediately preceding the week in which the exchange
request is effected. The exchange of Interests is treated as a redemption of
Interests in one Series (with the related tax consequences) and the simultaneous
purchase of Interests in the Series exchanged into.
Redemptions are permitted on a weekly basis. Interests redeemed on or before
the end of the first and second successive six-month periods after their
effective dates of purchase are subject to a redemption fee
5
of 4% and 3%, respectively, of the net asset value at which they are redeemed.
Redemption fees are paid to the Managing Owner.
In the event that the estimated net asset value per Interest of a Series at
the end of any business day, after adjustments for distributions, declines by
50% or more since the commencement of trading activities or the first day of a
fiscal year, the Series will terminate.
B. Summary of Significant Accounting Policies
Basis of accounting
The financial statements of Series C are prepared in accordance with
generally accepted accounting principles.
Commodity futures and/or forward transactions are reflected in the
accompanying statements of financial condition on trade date. The difference
between the original contract amount and market value is reflected as net
unrealized gain or loss. 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 per weighted average limited and
general interest. The weighted average limited and general interests are equal
to the number of Interests outstanding at period end, adjusted proportionately
for Interests subscribed and redeemed based on their respective time outstanding
during such period.
Series C 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.'
Certain balances from the prior period have been reclassified to conform with
the current financial statement presentation.
Income taxes
Series C is treated as a partnership for Federal income tax purposes. As
such, Series C 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 including the Managing Owner. Series
C may be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocations and distributions
Series C allocates profits and losses for both financial and tax reporting
purposes to its Interest holders weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions (other than
redemptions of Interests) may be made at the sole discretion of the Managing
Owner on a pro rata basis in accordance with the respective capital balances of
the Interest holders; however, the Managing Owner does not presently intend to
make any distributions.
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 Series C 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 Series C which carries its
assets at fair value. The adoption of SFAS No. 133 has not had a material effect
on the carrying value of assets and liabilities within the financial statements.
6
C. Fees
Organizational, offering, general and administrative costs
PSI or its affiliates paid the costs of organizing Series C and continue to
pay the costs of offering its Interests as well as administrative costs incurred
by the Managing Owner or its affiliates for services it performs for Series C.
These costs include, but are not limited to, those discussed in Note D below.
Routine legal, audit, postage and other routine third party administrative costs
also are paid by PSI or its affiliates.
Management and incentive fees
Series C pays its Trading Advisor a management fee at an annual rate of 2% of
Series C's net asset value allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts is paid monthly. Series C
also pays its Trading Advisor a quarterly incentive fee equal to 23% of such
Trading Advisor's 'New High Net Trading Profits' (as defined in the advisory
agreement). The incentive fee also accrues weekly.
Commissions
The Managing Owner and the Trust entered into a brokerage agreement with PSI
to act as Commodity Broker for each Series whereby Series C pays a fixed fee for
brokerage services rendered at an annual rate of 7.75% of Series C's net asset
value. The fee is determined weekly and the sum of such weekly amounts is paid
monthly. From this fee, PSI pays execution costs (including floor brokerage
expenses, give-up charges and NFA, clearing and exchange fees), as well as
compensation to employees who sell Interests.
D. Related Parties
The Managing Owner or its affiliates perform services for Series C 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. As further described
in Note C, except for costs related to brokerage services, PSI or its affiliates
pay the costs of these services in addition to costs of offering Series C's
Interests as well as its routine operational, administrative, legal and auditing
costs.
The costs charged to Series C for brokerage services for the year ended
December 31, 1999 and for the period from June 10, 1998 (commencement of
operations) to December 31, 1998 were $1,275,546 and $365,442, respectively.
All of the proceeds of the offering of Series C are received in the name of
Series C and are deposited in trading or cash accounts at PSI. Series C's assets
are maintained either with PSI or, for margin purposes, with the various
exchanges on which Series C is permitted to trade. PSI credits Series C monthly
with 100% of the interest it earns on the average net assets in Series C's
accounts.
Series C, acting through its Trading Advisor, may execute 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 Series C pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market positions of Series C.
As of December 31, 1999, a non-U.S. affiliate of the Managing Owner owns
103.156 limited interests of Series C. Additionally, a director of the Managing
Owner owns 108.189 limited interests of Series C.
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 Series C'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).
7
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 unrealized gain (loss)
on open futures and forward positions reflected in the statements of financial
condition. Series C's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by Series C 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, Series C must rely solely on the credit of its broker (PSI) with
respect to forward transactions. Series C presents unrealized gains and losses
on open forward positions, if any, as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring Series C and its Trading Advisor 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 Agreement among Series C, the Managing Owner and the Trading
Advisor, Series C shall automatically terminate the Trading Advisor if the net
asset value allocated to the Trading Advisor declines by 33 1/3% from the value
at the beginning of any year or since the commencement of trading activities.
Furthermore, the Second Amended and Restated Declaration of Trust and Trust
Agreement provides that Series C will liquidate its positions, and eventually
dissolve, if Series C 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, contributions and redemptions. The Managing Owner may impose
additional restrictions (through modifications of such trading limitations and
policies) upon the trading activities of the Trading Advisor as it, in good
faith, deems to be in the best interests of Series C.
PSI, when acting as the 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 Series C all assets of Series C relating to
domestic futures and options trading and is not to commingle such assets with
other assets of PSI. At December 31, 1999, such segregated assets totalled
$17,395,553. Part 30.7 of the CFTC regulations also requires PSI to secure
assets of Series C related to foreign futures and options trading which totalled
$1,266,554 at December 31, 1999. There are no segregation requirements for
assets related to forward trading.
As of December 31, 1999, all open futures contracts mature within one year.
Gross contract amounts represent Series C's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures contract). Gross contract amounts significantly exceed
future cash requirements as Series C 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, Series C considers the
'fair value' of its futures contracts to be the net unrealized gain or loss on
the contracts. 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 Series C'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 its potential involvement is to make delivery of an underlying
commodity at the contract price; therefore, it must repurchase the contract at
prevailing market prices.
8
As of December 31, 1998, gross contract amounts of open futures contracts for
Series C were:
Stock Index Futures:
Commitments to purchase $ 609,252
Commitments to sell 3,994,656
Interest Rate Futures:
Commitments to purchase 47,880,206
Commitments to sell 113,068,840
Currency Futures:
Commitments to purchase 4,412,265
Commitments to sell 7,040,770
Commodity Futures:
Commitments to purchase 414,073
Commitments to sell 6,486,721
The following table presents the fair value of futures and forward contracts
at December 31, 1999 and 1998.
1999 1998
-------------------------- ------------------------
Assets Liabilities Assets Liabilities
---------- ----------- -------- -----------
Futures Contracts:
Domestic exchanges
Stock indices $ 74,920 $ 48,180 $ 18,850 $ --
Interest rates 130,618 -- 32,524 7,494
Currencies 442,034 124,200 101,585 76,033
Commodities 251,343 66,057 106,122 6,522
Foreign exchanges
Stock indices 179,998 235,856 22,194 20,543
Interest rates 125,892 17,912 503,310 5,981
Commodities 359,687 145,409 74,713 12,304
Forward Contracts:
Currencies 30,613 8,697 -- --
---------- ----------- -------- -----------
$1,595,105 $ 646,311 $859,298 $ 128,877
---------- ----------- -------- -----------
---------- ----------- -------- -----------
The following table presents the average fair value and trading revenues for
the period from June 10, 1998 (commencement of operations) through December 31,
1998.
Average
Fair Value
-------------------------- Trading
Assets Liabilities Revenues
---------- ----------- ----------
Futures Contracts:
Domestic exchanges
Stock indices $ 6,903 $ 48,974 $(273,252)
Interest rates 88,607 6,979 458,179
Currencies 136,249 31,162 (696,724)
Commodities 91,090 25,068 (35,884)
Foreign exchanges
Stock indices 39,593 28,269 (155,869)
Interest rates 238,693 3,346 1,615,355
Commodities 27,793 45,081 (18,197)
Forward Contracts:
Currencies 37,124 43,588 (136,397)
---------- ----------- ----------
$ 666,052 $ 232,467 $ 757,211
---------- ----------- ----------
---------- ----------- ----------
9
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I hereby affirm that, to the best of my knowledge and belief, the information
contained herein relating to World Monitor Trust--Series C is accurate and
complete.
PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC.
(Managing Owner)
By: Barbara J. Brooks
Chief Financial Officer
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10
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Series C commenced operations on June 10, 1998 with gross proceeds of
$5,706,177 allocated to commodities trading. Additional contributions raised
through the continuous offering for the period from June 10, 1998 (commencement
of operations) through December 31, 1999 resulted in additional gross proceeds
to Series C of $16,877,107. Additional Interests of Series C will continue to be
offered on a weekly basis at the net asset value per Interest until the
subscription maximum of $33,000,000 is sold.
Interests in Series C may be redeemed on a weekly basis, but are subject to a
redemption fee if transacted within one year of the effective date of purchase.
Redemptions of limited interests for the year ended December 31, 1999 were
$2,765,590 and for the period from June 10, 1998 (commencement of operations)
through December 31, 1999 were $2,901,124. Additionally, Interests owned in one
Series may be exchanged, without any charge, for Interests of one or more other
Series on a weekly basis for as long as Interests in those series are being
offered to the public. Future contributions, redemptions and exchanges will
impact the amount of funds available for investment in commodity contracts in
subsequent periods.
At December 31, 1999, 100% of Series C's net assets were allocated to
commodities trading. A significant portion of the net assets was held in cash
which is used as margin for Series C's trading in commodities. Inasmuch as the
sole business of Series C is to trade in commodities, Series C continues to own
such liquid assets to be used as margin. PSI credits Series C monthly with 100%
of the interest it earns on the average net assets in Series C's accounts.
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 certain 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 Series C from promptly liquidating its commodity
futures positions.
Since Series C'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). Series C'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 Series C's speculative trading as well as the development of drastic market
occurrences could result in monthly losses considerably beyond Series C'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 Series C and its Trading Advisor 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 on the credit and market risks associated
with Series C's futures, forward and options contracts.
Series C does not have, nor does it expect to have, any capital assets.
Results of Operations
Series C commenced trading operations on June 10, 1998, and as such, a
comparative analysis of the 1999 full year results versus the 1998 partial year
results is not meaningful. Additionally, Series C's asset levels have
continually increased throughout the majority of the 1998 and 1999 periods
primarily from additional contributions. These increased asset levels have led
to proportionate increases in the amount of interest earned by Series C as well
as the commission and management fees paid by Series C.
11
The net asset value per Interest as of December 31, 1999 was $95.98, a
decrease of 7.91% from the December 31, 1998 net asset value per Interest of
$104.22, which was an increase of 4.22% from the June 10, 1998 initial net asset
value per Interest of $100.00. The MAR (Managed Account Reports) Fund/Pool Index
returned gains of 1.48% in 1999 and 4.74% for the June 1998 through December
1998 period. MAR tracked the performance of 317 and 281 futures funds in 1999
and 1998, respectively.
Series C's unfavorable performance in 1999 was attributed to losses from
positions in the index, financial, grain, metal, and meat sectors. The currency
and energy sectors recognized gains.
Index sector trading during the first half of 1999 was profitable for Series
C. During the third quarter long positions in the Euro DAX (Germany), Nikkei Dow
(Japan) and S&P 500 incurred losses. In Germany, political events weighed on the
German stock market. In Japan, the Nikkei Dow moved sideways and downward,
closing lower by quarter end, but not demonstrating a bear trend. The U.S. stock
market fell 12% from its 1999 high in July in anticipation of an August interest
rate hike. Global stock markets followed the U.S. market's lead. Pressure to
raise interest rates repressed global stock prices through the end of the
quarter. In the fourth quarter, increased merger activity in Europe and Asia,
better than expected growth in Hong Kong and Japan, and China's pending
admission to the World Trade Organization, fueled stock markets around the
world. Consequently, short positions in Euro DAX, Hong Kong Heng Seng, CAC 40
(Paris), and S&P 500 index positions posted losses.
Positions in the financial sector in the third and fourth quarters
contributed losses exceeding sector profits in the first two quarters. Pressure
to raise interest rates in Europe and the U.S. repressed bond prices during the
third quarter. Global interest rate markets followed the U.S. as rates moved
higher. On August 24th, the Federal Open Market Committee increased the Federal
funds rate by 25 basis points. In Japan, long-term interest rates rose during
the first half of the quarter on concerns that more government bonds might be
issued to finance the bailout of weaker Japanese banks. Positions in Japanese
government bonds and U.S. Treasury bonds incurred losses. Fourth quarter
financial sector losses were incurred in a combination of long and short
positions. Global bond markets rallied in November, but fell in December on a
resurgence of inflation and interest rate fears initiated by consistently strong
U.S. economic data, evidence of rising inflation in Germany and increased oil
prices.
The first three quarters of 1999 were profitable for Series C's currency
sector positions. A smooth transition to a single currency in January gave
currency markets increasing comfort with the euro as the trading vehicle of
choice throughout Europe. The U.S. dollar rose against the euro and Swiss franc
as evidence mounted for the continuing strength of the U.S. economy.
Deteriorating confidence in the euro and Italy's possible retraction from the
European Economic Union added to the euro's slide. 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 June, the British pound fell to a new low versus the U.S.
dollar as the Bank of England lowered interest rates and indicated further cuts
would be forthcoming. Short Swiss franc, euro and British pound positions
recorded gains. Long Japanese yen positions recognized gains in the third
quarter as the yen rallied against the U.S. dollar and European currencies
following a stronger than expected second quarter GDP report. The rally was
further sustained by optimism regarding the Japanese economy and meaningful
intervention by the Bank of Japan.
Long positions in the energy sector, specifically crude oil and derivative
products, provided gains as prices rose throughout 1999. 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 oil markets throughout the third and fourth quarters.
Interest income is earned on the average net assets held at PSI and,
therefore, varies monthly according to interest rates, trading performance,
contributions and redemptions. Interest income was approximately $821,000 and
$254,000 for the year ended December 31, 1999 and for the period from June 10,
1998 to December 31, 1998. As discussed above, the increase in interest income
during 1999 versus 1998 was due primarily to the difference in the 1999 and 1998
periods covered as well as the increasing net assets as a result of additional
contributions. However, lower overall interest rates in 1999 as compared with
interest rates in 1998 offset some of the increase.
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Commissions are calculated on Series C's net asset value at the end of each
week and therefore, vary according to weekly trading performance, contributions
and redemptions. Commissions were approximately $1,276,000 and $365,000 for the
year ended December 31, 1999 and for the period from June 10, 1998 to December
31, 1998.
All trading decisions for Series C are made by Hyman Beck & Company, Inc.
(the 'Trading Advisor'). Management fees are calculated on Series C's net asset
value at the end of each week and therefore, are affected by weekly trading
performance, contributions and redemptions. Management fees were approximately
$330,000 and $94,000 for the year ended December 31, 1999 and for the period
from June 10, 1998 to December 31, 1998.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Advisor, as defined in the Advisory Agreement among Series C, the
Managing Owner and the Trading Advisor. Incentive fees were approximately
$145,000 and $85,000 for the year ended December 31, 1999 and for the period
from June 10, 1998 to December 31, 1998. Although Series C ended 1999 with an
overall loss, incentive fees were generated by strong trading performance during
the first six months of the year. The payment of these fees is not contingent
upon future trading performance and, therefore, is unaffected by Series C's poor
trading performance during the remainder of the 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 Series C 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 Series C which carries its
assets at fair value. The adoption of SFAS No. 133 has not had 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.
Series C 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. Series C has not experienced any material
adverse impact on operations related to Year 2000 Problems. While Series C
believes it has mitigated its Year 2000 risk, Series C cannot guarantee that an
as yet unknown Year 2000 failure will not have a material adverse effect on
Series C's operations.
Inflation
Inflation has had no material impact on operations or on the financial
condition of Series C from inception through December 31, 1999.
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OTHER INFORMATION
The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1999 was $40.
Series C'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:
World Monitor Trust--Series C
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
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