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, 1997
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: 33-80443
WILLOWBRIDGE STRATEGIC TRUST
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(Exact name of Registrant as specified in its charter)
Delaware 13-7075398
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(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
One New York Plaza, 14th 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 1--FINANCIAL STATEMENTS
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
1997 1996
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ASSETS
Equity in commodity trading accounts:
Cash $41,769,309 $27,465,535
Net unrealized gain on open commodity positions 4,924,272 354,215
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Net equity 46,693,581 27,819,750
Other receivable 13,158 4,224
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Total assets $46,706,739 $27,823,974
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LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 378,285 $ 359,352
Management fee payable 116,776 69,560
Incentive fee payable 1,214,409 414,894
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Total liabilities 1,709,470 843,806
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Commitments
Trust capital
Limited interests (374,580.388 and 258,057 interests outstanding) 44,475,236 26,700,158
General interests (4,396.676 and 2,706.31 interests outstanding) 522,033 280,010
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Total trust capital 44,997,269 26,980,168
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Total liabilities and trust capital $46,706,739 $27,823,974
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Net asset value per limited and general interest ('Interests') $ 118.73 $ 103.47
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The accompanying notes are an integral part of these statements
2
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
(Unaudited)
Three months
ended
March 31,
1997
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REVENUES
Net realized gain on commodity transactions $ 2,630,139
Change in net unrealized gain on commodity positions 4,460,200
Interest income 475,488
-------------
7,565,827
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EXPENSES
Commissions 722,476
Management fees 299,319
Incentive fees 1,214,408
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2,236,203
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Net income $ 5,329,624
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-------------
ALLOCATION OF NET INCOME
Limited interests $ 5,268,601
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-------------
General interests $ 61,023
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NET INCOME PER WEIGHTED AVERAGE
LIMITED AND GENERAL INTEREST
Net income per weighted average limited
and general interest $ 15.49
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-------------
Weighted average number of limited
and general interests outstanding 344,008.314
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-------------
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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, 1996 260,763.310 $26,700,158 $280,010 $26,980,168
Contributions 122,799.548 13,040,200 181,000 13,221,200
Net income -- 5,268,601 61,023 5,329,624
Redemptions (4,585.794) (533,723) -- (533,723)
------------ ----------- --------- -----------
Trust capital--March 31, 1997 378,977.064 $44,475,236 $522,033 $44,997,269
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The accompanying notes are an integral part of these statements
3
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Willowbridge Strategic Trust (the 'Trust') as of March 31, 1997 and
the results of its operations for the three months ended March 31, 1997.
However, the operating results for the interim period may not be indicative of
the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Trust's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1996 (the 'Annual Report').
B. Related Parties
Prudential Securities Futures Management Inc. (the 'Managing Owner') or its
affiliates perform services for the Trust which include but are not limited to:
brokerage services, accounting and financial management, registrar, transfer and
assignment functions, investor communications, printing and other administrative
services. The costs charged to the Trust for brokerage services for the three
months ended March 31, 1997 were $722,476.
The Trust maintains its trading and cash accounts with Prudential Securities
Incorporated ('PSI'), the Trust's commodity broker and an affiliate of the
Managing Owner. PSI credits the Trust monthly with 80% of the interest it earns
on the equity in these accounts and retains the remaining 20%. As described in
the Annual Report, all commissions for brokerage services are paid to PSI.
In connection with the Trust's interbank transactions, PSI engages in foreign
currency forward transactions with the Trust and an affiliate of PSI who, as
principal, attempts to earn a profit on the bid-ask spreads (which must be
competitive) on any foreign currency forward transactions entered into between
the Trust and PSI, on the one hand, and PSI and such affiliate on the other. In
connection with its trading of foreign currencies in the interbank market, PSI
may arrange bank lines of credit at major international banks. To the extent
such lines of credit are arranged, PSI does not charge the Trust for maintaining
such lines of credit, but requires margin deposits with respect to forward
contract transactions.
C. Credit and Market Risk
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).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of 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.
4
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's trading manager to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI is the sole
counterparty or broker); limiting the amount of margin or premium required for
any one commodity or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the trading manager 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 March 31, 1997 and December 31, 1996, such
segregated assets totalled $40,778,230 and $23,463,181, respectively. 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 $5,915,351 and $4,356,569
at March 31, 1997 and December 31, 1996, respectively. There are no segregation
requirements for assets related to forward trading.
As of March 31, 1997 and December 31, 1996, all open futures and options
contracts mature within one year.
As of March 31, 1997 and December 31, 1996, gross contract amounts of open
futures and options contracts are:
March 31, December 31,
1997 1996
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Financial Futures Contracts:
Commitments to purchase $ -- $61,090,445
Commitments to sell $ 697,287,547 $22,255,035
Currency Futures Contracts:
Commitments to purchase $ 11,974,405 $ 2,891,650
Commitments to sell $ 7,987,425 $12,957,888
Other Futures and Options
Contracts:
Commitments to purchase $ 58,950,382 $11,829,016
Commitments to sell $ 4,107,519 $ 3,189,296
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or options contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the value of the contracts. As such, the
Trust considers the 'fair value' of its futures, forward and options contracts
to be the net unrealized gain or loss on the contracts (plus premiums on
options). Thus, the amount at risk associated with counterparty nonperformance
of all contracts is the net unrealized gain included in the statements of
financial condition. The market risk associated with the Trust's commitments to
purchase commodities is limited to the gross contract amounts involved, while
the market risk associated with its commitments to sell is unlimited since the
Trust's potential involvement is to make delivery of an underlying commodity at
the contract price; therefore, it must repurchase the contract at prevailing
market prices.
5
At March 31, 1997 and December 31, 1996, the fair values of futures and
options contracts were:
March 31, 1997 December 31, 1996
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Assets Liabilities Assets Liabilities
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Futures Contracts:
Domestic exchanges
Financial $ 1,811,875 $ -- $ 27,000 $ 96,094
Currencies 21,000 187,300 151,650 56,533
Other 1,999,580 507,926 204,414 160,312
Foreign exchanges
Financial 782,676 137,425 73,065 84,446
Other 1,095,189 53,268 307,291 11,820
Options Contracts:
Domestic exchanges
Other 99,871 -- -- --
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$ 5,810,191 $ 885,919 $ 763,420 $ 409,205
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The following table presents the average fair value of futures and options
contracts during the three months ended March 31, 1997.
Assets Liabilities
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Futures Contracts:
Domestic exchanges
Financial $ 494,661 $ 27,991
Currencies 554,318 103,901
Other 1,100,180 320,591
Foreign exchanges
Financial 337,875 133,620
Other 714,508 58,600
Options Contracts:
Domestic exchanges
Other 24,938 --
Foreign exchanges
Other 1,227 --
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$ 3,227,707 $ 644,703
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The following table presents the net realized gains (losses) and the change
in net unrealized gains/losses of futures and options contracts during the three
months ended March 31, 1997.
Net Realized Change in
Gains Net Unrealized
(Losses) Gains/Losses Total
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Futures Contracts:
Domestic exchanges
Financial $ (1,398,932) $1,880,969 $ 482,037
Currencies 1,274,707 (261,417) 1,013,290
Other 2,436,675 1,447,552 3,884,227
Foreign exchanges
Financial (321,921) 656,632 334,711
Other 301,441 746,450 1,047,891
Options Contracts:
Domestic exchanges
Financial 338,169 -- 338,169
Other -- (9,986) (9,986)
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$ 2,630,139 $4,460,200 $7,090,339
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6
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust commenced operations on May 1, 1996 with gross proceeds of
$12,686,200 allocated to commodities trading. Additional Interests are offered
monthly at the then current net asset value per Interest until no later than
January 31, 1998 but in no event after $100,000,000 in limited interests are
sold.
At March 31, 1997, 100% of the Trust's net assets were allocated to
commodities trading. A significant portion of the net assets are held in cash
which is used as margin for the Trust's trading in commodities. Inasmuch as the
sole business of the Trust is to trade in commodities, the Trust continues to
own such liquid assets to be used as margin. PSI credits the Trust monthly with
80% of the interest it earns on the equity in these accounts and retains the
remaining 20%.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in commodity futures contract prices
during a single day by regulations referred to as 'daily limits.' During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Trust from promptly liquidating its commodity
futures positions.
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The Managing Owner attempts to minimize these risks
by requiring the Trust's Trading Manager to abide by various trading limitations
and policies. See Note C to the financial statements for a further discussion of
the credit and market risks associated with the Trust's futures, forward and
options contracts.
Redemptions of limited interests for the three months ended March 31, 1997
were $533,723. Additional contributions raised through the continuous offering
for the period from December 31, 1996 to March 31, 1997 resulted in additional
gross proceeds to the Trust of $13,221,200. Future redemptions and contributions
will impact the amount of funds available for investment in commodity contracts
in subsequent periods.
The Trust does not have, nor does it expect to have, any capital assets.
Results of Operations
The net asset value per Interest as of March 31, 1997 was $118.73, an
increase of 14.76% from the December 31, 1996 net asset value per Interest of
$103.47.
The Trust's positive January performance was primarily the result of profits
earned in the currency, metal, soft and grain sectors. Losses were incurred in
the financial, stock index, energy and meat sectors. In the currency sector, the
dollar's continued strength, which prevailed throughout most of the fourth
quarter of 1996, was attributed to a strong U.S. macroeconomic position with a
sustained moderate growth rate, low inflation and a declining budget deficit.
The U.S. dollar was also buoyed when the U.S. Treasury Department stated that 'a
strong dollar is to the U.S.'s benefit'. The Canadian dollar rose on indications
of its own strengthening economic position. Canadian dollar, German mark,
Japanese yen and Swiss franc positions were profitable. In the metal sector,
copper prices rose on increased demand and gold prices fell on market concerns
regarding the partial sell-off of reserves by central banks. Positions in gold,
aluminum and silver were profitable. In the soft sector, a sharp rise in the
price of coffee driven by a labor strike at Colombia's largest port for coffee
exports pushed prices higher and benefited the Trust's long position. In the
financial sector, German and French interest rates declined as both countries
continued to encounter sluggish economic growth and high unemployment. Early in
the month, the U.S. interest rate market fell in response
7
to concerns that stronger growth might prompt the U.S. Federal Reserve to raise
interest rates. U.S., German, British and Japanese bond positions were
unprofitable.
The Trust's positive February performance was the result of profits earned in
the metal, soft, grain, financial, currency and meat sectors. Losses were
incurred in the energy sector. In the metal sector, copper, aluminum, nickel,
zinc and silver positions posted gains. Base metal prices rose during the month
on expectations of rising demand from developing and industrialized countries.
Copper prices also soared on news of decreased London stockpiles. In the soft
sector, coffee positions were profitable. The two-month bull trend in coffee
prices continued as unfavorable weather in Brazil and Colombia threatened
1997-1998 crop production and labor strife curtailed delivery of supplies. In
the grain sector, soybean by-products, corn and wheat positions were profitable.
Prices rose as the markets focused attention on historically low supplies in the
major grain producing regions of the world coupled with signs of stronger
demand. In the financial sector, U.S., German, French, Italian and Japanese bond
positions posted profits. Interest rate market prices reflected concerns about
possible delays to European economic and monetary union. In the currency sector,
German mark, Japanese yen and Swiss franc positions were profitable. Despite the
best efforts of G-7 nations to talk the U.S. dollar down from its lofty peaks,
defiant market players pushed the greenback to new highs against the German
mark, Japanese yen and Swiss franc. Later in the month, hints by the Chairman of
the U.S. Federal Reserve of a possible interest rate hike sent the dollar
soaring, as it seemed the U.S. currency would retain its high-yield status in
the global marketplace.
The Trust's positive March performance was the result of profits earned in
the grain, financial, stock index and energy sectors. Losses were incurred in
the currency, meat, metal and soft sectors. In the grain sector, soybean,
soybean meal, corn and wheat positions posted gains. The price of soybean
futures moved higher on reports by the U.S. Department of Agriculture which
showed continued high levels of export sales. In other grain markets, wheat
futures rose on strong export demand, particularly from Asia, and weather
concerns for wheat planting regions. In the financial sector, U.S., Italian and
Eurodollar positions were profitable. Positions in U.S. bonds gained after the
U.S. Federal Reserve raised its key short-term interest rate by a quarter of a
percentage point, the first increase in more than two years. The rise in the
targeted federal funds rate to 5.5% was intended to 'cool off' the U.S. economy
and stem potential inflationary pressures. Upon the announcement, the U.S. bond
market initially moved higher, but prices fell as worries set in that the raise
in rates could be the first in a series. In the stock index sector, S&P
positions were profitable as U.S. stock markets tumbled in anticipation of
further interest rate increases. The Trust also profited from positions in the
Honk Kong Hang Seng.
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 was approximately $476,000 for the three months
ended March 31, 1997.
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 for the three months ended March 31, 1997 were
approximately $722,000.
All trading decisions for the Trust are made by Willowbridge Associates Inc.,
the trading manager. Management fees are based on the Trust's net asset value at
the end of each month and, therefore, are affected by trading performance,
contributions and redemptions. Management fees for the three months ended March
31, 1997 were approximately $299,000.
Incentive fees are based on the New High Net Trading Profits generated by the
trading manager, as defined in the Advisory Agreement between the Trust, the
Managing Owner and the trading manager. Incentive fees for the three months
ended March 31, 1997 were approximately $1,214,000.
8
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
Agreement of the Registrant dated as of December 14, 1995
(incorporated by reference to Exhibit 3.1 to 4.1 to the
Registrant's Registration Statement on Form S-1, File No.
33-80443, dated as of December 14, 1995)
4.2-- Subscription Agreement (incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1, File No. 33-80443, dated as of December 14, 1995)
4.3-- Request for Redemption (incorporated by reference to
Exhibit 4.3 to the Registrant's Registration
Statement on Form S-1, File No. 33-80443, dated as of
December 14, 1995)
27.1-- Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
9
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.
WILLOWBRIDGE STRATEGIC TRUST
By: Prudential Securities Futures Management
Inc.A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: May 15, 1997
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
10