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, 1998
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: 333-43033
333-43041
333-43043
WORLD MONITOR TRUST-SERIES A
WORLD MONITOR TRUST-SERIES B
WORLD MONITOR TRUST-SERIES C
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(Exact name of Registrant as specified in its charter)
13-3985040
13-3985041
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 ___ No _CK_
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLD MONITOR TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998
(Unaudited)
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ASSETS
Series A Series B Series C
-------- -------- --------
Cash................................................................ $ 1,000 $ 1,000 $ 1,000
-------- -------- --------
-------- -------- --------
TRUST CAPITAL
General Interests (10 Interests issued and outstanding for each
Series A, B and C, respectively).................................. $ 1,000 $ 1,000 $ 1,000
-------- -------- --------
-------- -------- --------
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STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997
(Unaudited)
ASSETS
Series A Series B Series C
-------- -------- --------
Cash................................................................ $ 1,000 $ 1,000 $ 1,000
-------- -------- --------
-------- -------- --------
TRUST CAPITAL
General Interests (10 Interests issued and outstanding for each
Series A, B and C, respectively).................................. $ 1,000 $ 1,000 $ 1,000
-------- -------- --------
-------- -------- --------
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The accompanying notes are an integral part of these statements.
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WORLD MONITOR TRUST
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1998
(Unaudited)
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 has not yet commenced
operations. The Trust 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 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 the Trust ('Interests') are being offered pursuant to
Rule 415 of Regulation C under the Securities Act of 1933 in 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.
Up to $100,000,000 of Interests ('Subscription Maximum'); $34,000,000 for
Series A and $33,000,000 each for Series B and C, are being offered to investors
who meet certain established suitability standards, with a minimum initial
subscription of $5,000 per subscriber or, for any investment made on behalf of
an individual retirement account ('IRA'), the minimum initial subscription is
$2,000. A subscriber may purchase Interests in any one or a combination of
Series, although the minimum purchase for any single Series is $1,000.
Initially, the Interests for each Series are being offered through no later
than July 24, 1998, representing up to 120 days after the date of the Prospectus
('Initial Offering Period'). Each Series may commence operations at any time if
the minimum amount of Interests have been sold before the end of the Initial
Offering Period is reached ('Subscription Minimum'). The Subscription Minimum is
$4,000,000 for Series A and $3,000,000 each for Series B and C. If the
Subscription Minimum is not sold for any Series during the Initial Offering
Period, the subscription amount (which will be held in escrow) plus interest
will be returned to the subscriber. The price per Interest during the Initial
Offering Period is $100. Thereafter, or until the Subscription Maximum for each
Series is sold ('Continuous Offering Period'), each Series' Interests will
continue to be offered on a weekly basis at the Net Asset Value per Interest.
Additional purchases may be made in $100 increments.
To date, $1,000 has been contributed to each Series by the Managing Owner and
in return the Managing Owner has received 10 General Interests in each Series.
The Managing Owner is required to maintain at least a one percent 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 Advisors
Each Series has its own professional commodity trading advisor that will make
that Series' trading decisions. The Managing Owner, on behalf of the Trust,
entered into advisory agreements with Eagle Trading Systems, Inc., Eclipse
Capital Management, Inc. and Hyman Beck & Company, Inc. (each a 'Trading
Advisor') to make the trading decisions for Series A, B and C, respectively.
Each advisory agreement may be terminated at the discretion of the Managing
Owner. The Managing Owner will allocate one hundred percent of the proceeds from
the initial offering of each Series' Interests to the Trading Advisor for that
Series and it is currently contemplated that each Series' Trading Advisor will
continue to be allocated one hundred percent of additional capital raised for
that Series during the continuous offering of Interests.
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Exchanges, Redemptions and Termination
Once trading commences, 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 will
be 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 will be 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 will be subject to a redemption fee of four percent and three
percent, respectively, of the net asset value at which they are redeemed.
Redemption fees will be 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
fifty percent or more since the first day of a fiscal year, the Series will
terminate.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of each Series are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Income taxes
Each Series is not required to provide for, or pay, any federal or state
income taxes. Income tax attributes that arise from their operations will be
passed directly to the individual limited owners including the Managing Owner.
Each Series may be subject to other state and local taxes in jurisdictions in
which they operate.
Profit and loss allocations and distributions
Each Series will allocate profits and losses for both financial and tax
reporting purposes to the owners weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions will be made at the
sole discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital balances of the owners; however, the Managing Owner does not
presently intend to make any distributions.
C. Fees
Organizational, offering, general and administrative costs
PSI or its affiliates pay the costs of organizing each Series and offering
their Interests as well as administrative costs incurred by the Managing Owner
or its affiliates for services it performs for each Series. 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
Each Series will pay its Trading Advisor a management fee at an annual rate
of two percent of each Series' net asset value allocated to its management. The
management fee will be determined weekly and the sum of such weekly amounts will
be paid monthly. Each Series will also pay its Trading Advisor a quarterly
incentive fee equal to twenty-three percent for each of Series A and C and
twenty percent for Series B of such Trading Advisor's 'New High Net Trading
Profits' (as defined in each advisory agreement). The incentive fee will also
accrue weekly.
Commissions
The Managing Owner and the Trust entered into a brokerage agreement (the
'Brokerage Agreement') with PSI to act as Commodity Broker for each Series
whereby each Series will pay a fixed fee for brokerage services rendered at an
annual rate of 7.75% of each Series' net asset value. The fee will be determined
weekly and the sum of such weekly amounts will be paid monthly. From this fee,
PSI will pay all organizational, offering, general and administrative expenses
discussed above, execution costs (i.e., floor brokerage expenses, give-up
charges and NFA, clearing and exchange fees), as well as compensation to
employees who sell Interests in each Series.
4
D. Related Parties
The Managing Owner or its affiliates perform services for each Series which
include but are not limited to: brokerage services, accounting and financial
management, 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 organizing the Trust and
offering its Interests as well as the routine operational, administrative, legal
and auditing fees.
All of the proceeds of this offering are received in the name of each Series
and deposited and maintained in cash in segregated trading accounts maintained
for each Series at PSI. Except for that portion of any Series' assets that is
deposited as margin to maintain forward currency contract positions as further
discussed below, each Series' assets will be maintained either on deposit with
PSI or, for margin purposes, with the various exchanges on which the Series are
permitted to trade. PSI will credit each Series with one hundred percent of the
interest earned on the average net assets of each Series on deposit at PSI.
Each Series, acting through its Trading Advisor, may execute
over-the-counter, spot, forward and option foreign exchange transactions with
PSI. PSI will then engage in back-to-back trading with an affiliate,
Prudential-Bache Global Markets Inc. ('PBGM'). PBGM will attempt to earn a
profit on such transactions. PBGM will keep its prices on foreign currency
competitive with other interbank currency trading desks. All over-the-counter
currency transactions will be conducted between PSI and each Series pursuant to
a line of credit. PSI may require that collateral be posted against the
marked-to-market position of each Series.
E. Credit and Market Risk
Since each Series' business will be to trade futures, forward (including
foreign exchange transactions) and options contracts, their capital will be 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) will frequently result in changes in each Series'
unrealized gain (loss) on open commodity positions to be reflected in the
statements of financial condition. Each Series' exposure to market risk will be
influenced by a number of factors including the relationships among the
contracts to be held by each Series as well as the liquidity of the markets in
which the contracts are to be 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, each Series must rely solely on the credit of their broker (PSI)
with respect to forward transactions. Each Series will present unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because they have a master netting agreement with PSI.
The Managing Owner will attempt to minimize both credit and market risks by
requiring each Series' Trading Advisor to abide by various trading limitations
and policies. The Managing Owner will monitor compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI will be the
sole counterparty or broker); limiting the amount of margin or premium required
for any one commodity or all commodities; 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 Advisors as it, in good faith, deems to be in
the best interests of each Series.
PSI, when acting as each Series' futures commission merchant in accepting
orders for the purchase or sale of domestic futures and options contracts, will
be required by Commodity Futures Trading Commission ('CFTC') regulations to
separately account for and segregate as belonging to each Series all assets of
each Series relating to domestic futures and options trading and is not to
commingle such assets with other assets of PSI. Part 30.7 of the CFTC
regulations also will require PSI to secure assets of each Series related to
foreign futures and options trading. There are no segregation requirements for
assets related to forward trading.
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WORLD MONITOR TRUST
(a Delaware Business Trust)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of March 31, 1998 the minimum required capital of $4,000,000 for Series A
and $3,000,000 each for Series B and C through their public offering of
Interests had not yet become available. This caused the Trust to have limited
funds on March 31, 1998. Each Series plans to use the funds raised from
investors by means of this offering of Interests for the speculative trading of
a diversified portfolio consisting of commodity futures, forward and options
contracts and may, from time to time, engage in cash and spot transactions.
Additional Interests of each Series will continue to be offered on a weekly
basis at the Net Asset Value per Interest until the Subscription Maximum of
$34,000,000 for Series A and $33,000,000 each for Series B and C is sold.
Each Series' net assets will be held in accounts at PSI. Except for that
portion of any Series' assets that is deposited as margin to maintain forward
currency contract positions, each Series' assets will be maintained either on
deposit with PSI or, for margin purposes, with the various exchanges on which
the Series are permitted to trade. PSI will credit each Series with one hundred
percent of the interest earned on the average net assets of each Series on
deposit with PSI.
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 a Series from promptly liquidating its commodity
futures positions.
Since each Series' business will be to trade futures, forward (including
foreign exchange transactions) and options contracts, its capital will be 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 will attempt to minimize these risks by requiring the
Series' Trading Advisors to abide by various trading limitations and policies.
See Note E to the financial statements for a further discussion of the credit
and market risks associated with each Series' futures, forward and options
contracts.
No Series has, nor do they expect to have, any capital assets.
Future redemptions and contributions will impact the amount of funds
available for investment in commodity contracts in subsequent periods.
Results of Operations
Through March 31, 1998, no Series had operations.
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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. Exhibits and Reports on Form 8-K
(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 Exhibit 3.1 and 4.1 to each of
Series A, B and C's Registration Statements on Form S-1,
File Nos. 333-43033, 333-43041 and 333-43043, respectively,
dated as of March 23, 1998)
4.2-- Form of Request for Redemption (incorporated by reference to
Exhibit 4.2 to each of Series A, B and C's Registration
Statements on Form S-1, File Nos. 333-43033, 333-43041 and
333-43043, respectively, dated as of March 23, 1998)
4.3-- Form of Exchange Request (incorporated by reference to
Exhibit 4.3 to each of Series A, B and C's Registration
Statements on Form S-1, File Nos. 333-43033, 333-43041
and 333-43043, respectively, dated as of March 23,
1998)
4.4-- Form of Subscription Agreement (incorporated by
reference to Exhibit 4.4 to each of Series A, B
and C's Registration Statements on Form S-1, File
Nos. 333-43033, 333-43041 and 333-43043,
respectively, dated as of March 23, 1998)
10.1-- Form of Escrow Agreement among the Trust,
Prudential Securities Futures Management,
Inc., Prudential Securities Incorporated
and the Bank of New York (incorporated by
reference to Exhibit 10.1 to each of Series
A, B and C's Registration Statements on
Form S-1, File Nos. 333-43033, 333-43041
and 333-43043, respectively, dated as of
March 23, 1998)
10.2-- Form of Brokerage Agreement among
the Trust and Prudential Securities
Incorporated (incorporated by
reference to Exhibit 10.2 to each of
Series A, B and C's Registration
Statements on Form S-1, File Nos.
333-43033, 333-43041 and 333-43043,
respectively, dated as of March 23, 1998)
10.3-- Form of Advisory Agreement
among the Trust, Prudential
Securities Futures Management
Inc., and each Trading Advisor
(incorporated by reference to
Exhibit 10.3 to each of Series
A, B and C's Registration
Statements on Form S-1, File
Nos. 333-43033, 333-43041 and
333-43043, respectively, dated
as of March 23, 1998)
10.4-- Form of Representation
Agreement Concerning the
Representation Statement
and the Prospectus among
the Trust, Prudential
Securities Futures
Management Inc.,
Prudential Securities
Incorporated, Wilmington
Trust Company and the
Trading Advisors (incorporated by
reference to Exhibit 10.4 to each of Series A, B
and C's Registration Statements on Form S-1,
File Nos. 333-43033, 333-43041 and 333-43043,
respectively, dated as of March 23, 1998)
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10.5-- Form of Net Worth Agreement between
Prudential Securities Futures
Management Inc. and Prudential Securities Group
Inc. (incorporated by reference to
Exhibit 10.5 to each of Series A, B and C's
Registration Statements on Form S-1, File Nos.
333-43033, 333-43041 and 333-43043,
respectively, dated as of March 23, 1998)
10.6-- Form of Foreign Currency Addendum to Brokerage Agreement between
World Monitor Trust and Prudential Securities Incorporated (filed
herewith)
27.1-- Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD MONITOR TRUST--SERIES A
WORLD MONITOR TRUST--SERIES B
WORLD MONITOR TRUST--SERIES C
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: May 14, 1998
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
9