SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-25789
WORLD MONITOR TRUST--SERIES C
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(Exact name of Registrant as specified in its charter)
Delaware 13-3985042
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One New York Plaza, 13th Floor, New York, New York 10292
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
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Former name, former address and former fiscal year, if changed since last report
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
2000 1999
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ASSETS
Cash $12,968,014 $17,735,229
Net unrealized gain on open futures contracts 605,118 926,878
Net unrealized gain on open forward contracts -- 21,916
Accrued interest receivable 2,002 --
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Total assets $13,575,134 $18,684,023
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LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions payable $ 91,821 $ 127,800
Redemptions payable 47,172 52,286
Net unrealized loss on open forward contracts 27,517 --
Management fees payable 26,295 35,938
Incentive fees payable -- 100
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Total liabilities 192,805 216,124
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Commitments
Trust capital
Limited interests (176,338.669 and 189,911.407 interests
outstanding) 13,195,257 18,227,946
General interests (2,500 interests outstanding) 187,072 239,953
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Total trust capital 13,382,329 18,467,899
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Total liabilities and trust capital $13,575,134 $18,684,023
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Net asset value per limited and general interests ('Interests') $ 74.83 $ 95.98
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The accompanying notes are an integral part of these statements.
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WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
(Unaudited)
For the For the
period from period from
January 1, January 1,
2000 to 1999 to
March 31, March 26,
2000 1999
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REVENUES
Net realized gain (loss) on commodity transactions $(3,469,660) $ 1,099,291
Change in net unrealized gain on open commodity positions (371,193) (575,575)
Interest income 230,627 146,127
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(3,610,226) 669,843
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EXPENSES
Commissions 306,965 232,734
Management fees 79,100 59,986
Incentive fees -- 37,011
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386,065 329,731
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Net income (loss) $(3,996,291) $ 340,112
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ALLOCATION OF NET INCOME (LOSS)
Limited interests $(3,943,410) $ 336,695
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General interests $ (52,881) $ 3,417
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NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net income (loss) per weighted average limited and general interest $ (21.18) $ 2.79
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Weighted average number of limited and general interests outstanding 188,677 121,754
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STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
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Trust capital--December 31, 1999 192,411.407 $18,227,946 $239,953 $18,467,899
Contributions 6,131.874 547,482 -- 547,482
Net loss -- (3,943,410) (52,881 ) (3,996,291)
Redemptions (19,704.612) (1,636,761) -- (1,636,761)
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Trust capital--March 31, 2000 178,838.669 $13,195,257 $187,072 $13,382,329
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The accompanying notes are an integral part of these statements.
3
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential Securities Futures Management Inc. (the 'Managing Owner'), the
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
World Monitor Trust--Series C ('Series C') as of March 31, 2000 and the results
of its operations for the periods from January 1, 2000 to March 31, 2000 ('First
Quarter 2000') and January 1, 1999 to March 26, 1999 ('First Quarter 1999').
However, the operating results for the interim periods may not be indicative of
the results expected for a full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
Series C's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1999 (the 'Annual Report').
B. Related Parties
The Managing Owner of Series C is a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. The Managing Owner or its affiliates perform
services for 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.
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 First Quarter 2000
and for First Quarter 1999 were $306,965 and $232,734, respectively.
All of the proceeds of the offering of Series C are received in the name of
Series C and deposited in trading or cash accounts at PSI, Series C's commodity
broker. 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 March 31, 2000, a non-U.S. affiliate of the Managing Owner owns 230.304
limited interests of Series C. Additionally, a director of the Managing Owner
owns 108.189 limited interests of Series C.
C. Derivative Instruments and Associated Risks
Series C is exposed to various types of risk associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of Series C's investment activities (credit risk).
Market risk
Trading in futures and forward (including foreign exchange transactions)
contracts involves entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or face amount of
the contracts, which is typically many times that of Series C's net assets being
traded, significantly exceeds Series C's future cash requirements since Series C
intends to close out its
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open positions prior to settlement. As a result, Series C 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 derivative instruments to be
the net unrealized gain or loss on the contracts. The market risk associated
with Series C's commitments to purchase commodities is limited to the gross or
face amount of the contracts held. However, when Series C enters into a
contractual commitment to sell commodities, it must make delivery of the
underlying commodity at the contract price and then repurchase the contract at
prevailing market prices. Since the repurchase price to which a commodity can
rise is unlimited, entering into commitments to sell commodities exposes Series
C to unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments Series C holds and the liquidity and inherent
volatility of the markets in which Series C trades.
Credit risk
When entering into futures or forward contracts, Series C is exposed to
credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded in the United States and on most
foreign futures exchanges is the clearinghouse associated with such exchanges.
In general, clearinghouses are backed by the corporate members of the
clearinghouse who are required to share any financial burden resulting from the
non-performance by one of its members and, as such, should significantly reduce
this credit risk. In cases where the clearinghouse is not backed by the clearing
members (i.e., some foreign exchanges), it is normally backed by a consortium of
banks or other financial institutions. On the other hand, the sole counterparty
to Series C's forward transactions is PSI, Series C's commodity broker. Series C
has entered into a master netting agreement with PSI and, as a result, presents
unrealized gains and losses on open forward positions as a net amount in the
statements of financial condition. The amount at risk associated with
counterparty non-performance of all of Series C's contracts is the net
unrealized gain included in the statements of financial condition. There can be
no assurance that any counterparty, clearing member or clearinghouse will meet
its obligations to Series C.
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 Series C's futures commission merchant in accepting
orders for the purchase or sale of domestic futures 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 trading and is not to commingle such assets with other assets
of PSI. At March 31, 2000, such segregated assets totalled $13,589,022. Part
30.7 of the CFTC regulations also requires PSI to secure assets of Series C
related to foreign futures trading. There are no segregation requirements for
assets related to forward trading.
As of March 31, 2000, Series C's open futures and forward contracts generally
mature within one year.
5
The following table presents the fair value of futures and forward contracts
at March 31, 2000 and December 31, 1999:
March 31, 2000 December 31, 1999
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Assets Liabilities Assets Liabilities
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Futures Contracts:
Domestic exchanges
Interest rates $ 340,957 $ -- $ 130,618 $ --
Stock indices -- 1,613 74,920 48,180
Currencies 302,840 156,363 442,034 124,200
Commodities 207,056 31,942 251,343 66,057
Foreign exchanges
Interest rates 141,181 21,673 125,892 17,912
Stock indices 14,670 60,554 179,998 235,856
Commodities 10,288 139,729 359,687 145,409
Forward Contracts:
Currencies 4,785 32,302 30,613 8,697
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$1,021,777 $ 444,176 $1,595,105 $ 646,311
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WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
ITEM 2. 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) to March 31, 2000 resulted in additional gross proceeds to Series
C of $17,424,589. 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 First Quarter 2000 and for the period from
June 10, 1998 (commencement of operations) to March 31, 2000 were $1,636,761 and
$4,537,885, respectively. 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 March 31, 2000, 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 C to the financial
statements for a further discussion on the credit and market risks associated
with Series C's futures and forward contracts.
Series C does not have, nor does it expect to have, any capital assets.
Results of Operations
The net asset value per Interest as of March 31, 2000 was $74.83, a decrease
of 22.04% from the December 31, 1999 net asset value per Interest of $95.98.
Series C's gross trading gains/(losses) were ($3,840,853) during First
Quarter 2000 compared to $523,716 during First Quarter 1999. Due to the nature
of Series C's trading activities, a period to period comparison of its trading
results is not meaningful. However, a detailed discussion of Series C's current
quarter trading results is presented below.
7
Quarterly Market Overview
While the Y2K scare passed without incident, the new year brought renewed
volatility to the world's financial markets. As stock indices reached new highs,
stock valuations appeared driven more by investor interest than each company's
fundamental earnings. March marked a reversal of the differences between 'old'
economy and 'new' economy stocks as the technology laden indices slumped and
many traditional indices recovered lost ground.
The U.S. Federal Reserve, European Central Bank, Bank of England, Reserve
Bank of Australia, and Bank of Canada increased interest rates in early
February. The rate increases shared motivation of strong economic growth and
concerns about inflation. Despite rate hikes and news of robust worldwide
economic growth, global bond markets continued to rally partially due to
investors seeking refuge from volatile equity markets.
In the currency markets, the U.S. dollar advanced sharply in early 2000. The
dollar's advance had been driven by strong growth and soaring asset prices,
resulting in record levels of foreign capital coming into the United States.
Since its inception a year ago, the euro has declined more than 17% against the
U.S. dollar, 21% against the Japanese yen and 11% against the British pound. The
euro touched an all time low at .9500 against the U.S. dollar in March. The
currency's weakness has raised political problems for the European Central Bank
and contributed to the recent decision to hike interest rates without any clear
inflation threat. The Swiss franc had spent most of the last few months drifting
lower against the U.S. dollar, tracking the euro's trend. The Japanese yen
rallied sharply, gaining on the U.S. dollar and most other currencies in the
final months of Japan's fiscal year (which ended March 31st). This is attributed
to positive sentiment regarding Japan's economic recovery. Additionally,
uncertainty regarding the direction of U.S. equities prompted many market
participants to convert assets into yen.
Energy prices continued their climb throughout January and February and into
the first week of March. Crude oil futures prices rose above $33 a barrel, the
highest level for a front-month (the most liquid) contract since the Gulf War in
1991. The energy sector reached a high early in March just prior to OPEC's
agreement to increase production sufficiently to stabilize prices. Political
pressure by the United States, along with a desire among OPEC members to
maintain a crude oil price in the range of $22-$28 per barrel, prompted the
cartel to announce a production increase. The May contract closed below $27 a
barrel at quarter end.
Quarterly Performance of Series C
The following is a summary of performance for the major sectors in which
Series C traded:
Interest rates (-): Global bond yields generally declined while inflationary
pressure continued to build and economies improved. Losses incurred at the
beginning of the quarter in short Japanese government bond and 30-year U.S.
Treasury bond positions were partially offset by profits on long positions in
U.S. Treasury notes and European bonds in March.
Metals (-): Net losses in the metal sector resulted from short zinc positions
as that market rallied amid evidence of increased demand. Series C's long
exposure to gold also provided losses as prices drifted lower during the second
half of the quarter.
Stock indices (-): Despite profits in the German DAX, exposure in the index
sector led to net losses due to long positions in the British FTSE and Japanese
Nikkei.
Currencies (-): Japanese yen gained on the U.S. dollar and most other
currencies in the final month of Japan's fiscal year. Short yen positions as
well as Japanese yen/British pound cross-rate positions resulted in losses.
Softs (+): Short sugar positions contributed gains as that market fell during
the first two months of the quarter.
Series C's average net asset levels during First Quarter 2000 have increased
from First Quarter 1999 primarily due to additional contributions received
during 1999 and First Quarter 2000 offset, in part, by weak trading performance
and redemptions during 1999 and First Quarter 2000. The increased average net
asset levels have led to proportionate increases in the amount of interest
earned by Series C as well as the commissions and management fees paid by Series
C.
8
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 increased $85,000 during First
Quarter 2000 as compared to First Quarter 1999 due to the increase in net assets
as discussed above as well as higher interest rates during 2000.
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 increased $74,000 during First Quarter 2000 as
compared to First Quarter 1999 due to the increase in net assets as discussed
above.
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 increased $19,000
during First Quarter 2000 as compared to First Quarter 1999 due to the increase
in net assets as discussed above.
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 $37,000 for First
Quarter 1999. No incentive fee was generated during First Quarter 2000.
Year 2000 Risk
A discussion of Year 2000 and its effects on the operations of Series C is
included in Series C's Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market
risk is not required pursuant to Item 305(e) of Regulation S-K.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--There are no material legal proceedings pending by or
against the Registrant or the Managing Owner.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. (a) Exhibits--
3.1
and
4.1-- Second Amended and Restated Declaration of Trust and Trust Agreements of
World Monitor Trust dated as of March 17, 1998 (incorporated by reference
to Exhibits 3.1 and 4.1 to Series C's Registration Statement on Form S-1,
File No. 333-43043)
4.2-- Form of Request for Redemption (incorporated by reference to Exhibit 4.2
to Series C's Registration Statement on Form S-1, File No. 333-43043)
4.3-- Form of Exchange Request (incorporated by reference to Exhibit 4.3 to
Series C's Registration Statement on Form S-1, File No. 333-43043)
4.4-- Form of Subscription Agreement (incorporated by reference to Exhibit 4.4
to Series C's Registration Statement on Form S-1, File No. 333-43043)
27.1--Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD MONITOR TRUST--SERIES C
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: May 12, 2000
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Steven Carlino
Vice President and Treasurer
11