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: 0-23885
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 (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 1. FINANCIAL STATEMENTS
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
1998 1997
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ASSETS
Equity in commodity trading accounts:
Cash $48,098,548 $46,416,620
Net unrealized gain on open commodity positions 2,414,327 2,451,210
Options, at market 304,628 362,402
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Net equity 50,817,503 49,230,232
Other receivable 23,185 3,218
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Total assets $50,840,688 $49,233,450
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LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,150,096 $ 1,385,332
Management fee payable 127,102 123,083
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Total liabilities 1,277,198 1,508,415
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Commitments
Trust capital
Limited interests (479,857.15 and 458,613.68 interests
outstanding) 49,067,759 47,217,112
General interests (4,848.00 and 4,933.40 interests outstanding) 495,731 507,923
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Total trust capital 49,563,490 47,725,035
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Total liabilities and trust capital $50,840,688 $49,233,450
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Net asset value per limited and general interest ('Interests') $ 102.25 $ 102.96
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The accompanying notes are an integral part of these statements.
2
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
-----------------------------
1998 1997
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REVENUES
Net realized gain on commodity transactions $ 508,365 $ 2,630,139
Change in net unrealized gain on open commodity positions (223,730) 4,460,200
Interest income 580,684 475,488
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865,319 7,565,827
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EXPENSES
Commissions 1,019,567 722,476
Management fees 394,288 299,319
Incentive fees -- 1,214,408
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1,413,855 2,236,203
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Net income (loss) $ (548,536) $ 5,329,624
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ALLOCATION OF NET INCOME (LOSS)
Limited interests $ (542,816) $ 5,268,601
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General interests $ (5,720) $ 61,023
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NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL INTEREST
Net income (loss) per weighted average limited
and general interest $ (1.11) $ 15.49
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Weighted average number of limited
and general interests outstanding 495,137 344,008
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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, 1997 463,547.08 $47,217,112 $507,923 $47,725,035
Contributions 49,726.31 5,359,300 27,000 5,386,300
Net loss -- (542,816) (5,720 ) (548,536)
Redemptions (28,568.24) (2,965,837) (33,472 ) (2,999,309)
------------ ----------- --------- -----------
Trust capital--March 31, 1998 484,705.15 $49,067,759 $495,731 $49,563,490
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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, 1998
(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, 1998 and
the results of its operations for the three months ended March 31, 1998 and
1997. However, the operating results for the interim periods 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, 1997.
On May 1, 1996, the Trust completed its initial offering with gross proceeds
of $12,686,200 from the sale of 125,352 limited interests and 1,510 general
interests. Additional Interests were offered monthly at the then current net
asset value per Interest until January 31, 1998 (the 'Continuous Offering
Period'). Throughout the Continuous Offering Period, the Trust accepted
additional subscriptions for an aggregate of 489,150 limited interests and 3,665
general interests resulting in additional proceeds to the Trust of $51,242,700.
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, 1998 and 1997 were $1,019,567 and $722,476, respectively.
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. Except for the portion of assets that is deposited as margin to
maintain forward currency contract positions, the Trust's assets are maintained
either on deposit with PSI or, for margin purposes, with the various exchanges
on which the Trust is permitted to trade. PSI credits the Trust monthly with 80%
of the interest it earns on the equity in these accounts and retains the
remaining 20%. As described in the Annual Report, all commissions for brokerage
services are paid to PSI.
The Trust, acting through its trading manager, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and the Trust pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market position of the Trust.
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.
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Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Trust must rely solely on the credit of its broker (PSI) with
respect to forward transactions. The Trust presents unrealized gains and losses
on open forward positions 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 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, 1998 and December 31, 1997, such
segregated assets totalled $38,334,166 and $42,384,065, 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 $12,036,463 and $6,852,627
at March 31, 1998 and December 31, 1997, respectively. There are no segregation
requirements for assets related to forward trading.
As of March 31, 1998, all open futures, forward and options contracts mature
within one year.
As of March 31, 1998 and December 31, 1997, gross contract amounts of open
futures, forward and options contracts are:
1998 1997
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Financial Futures and Options
Contracts:
Commitments to purchase $ 241,305,137 $ 522,213,105
Commitments to sell 37,172,325 7,592,575
Currency Futures and Options
Contracts:
Commitments to purchase 79,174,383 101,737
Commitments to sell 101,650,350 74,270,062
Other Futures and Options
Contracts:
Commitments to purchase 15,159,605 29,375,203
Commitments to sell 2,794,950 1,551,520
Other Forward Contracts:
Commitments to purchase 11,777,218 939,873
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, forward 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
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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.
At March 31, 1998 and December 31, 1997, the fair values of open futures,
forward and options contracts was:
1998 1997
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Assets Liabilities Assets Liabilities
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Futures Contracts:
Domestic exchanges
Financial $ 4,781 $ 129,344 $ 792,100 $ 240,225
Currencies 1,819,549 318,427 624,975 89
Other 624,902 334,260 713,857 1,004,794
Foreign exchanges
Financial 476,697 176,445 1,621,656 46,687
Other -- -- -- 3,123
Forward Contracts:
Other 446,874 -- -- 6,460
Options Contracts:
Domestic exchanges
Financial 152,000 -- 68,002 --
Currencies 105,600 -- 294,400 --
Foreign exchanges
Other 47,028 -- -- --
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$ 3,677,431 $ 958,476 $ 4,114,990 $ 1,301,378
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The following table presents the average fair value of futures, forward and
options contracts during the three months ended March 31, 1998 and 1997,
respectively.
1998 1997
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Assets Liabilities Assets Liabilities
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Futures Contracts:
Domestic exchanges
Financial $ 574,598 $ 140,440 $ 494,661 $ 27,991
Currencies 754,604 134,385 554,318 103,901
Other 643,162 561,735 1,100,180 320,591
Foreign exchanges
Financial 2,334,453 91,580 337,875 133,620
Other -- 781 714,508 58,600
Forward Contracts:
Other 283,825 1,614 -- --
Options Contracts:
Domestic exchanges
Financial 55,001 -- -- --
Currencies 100,000 -- -- --
Other -- -- 24,938 --
Foreign exchanges
Other 11,757 -- 1,227 --
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$ 4,757,400 $ 930,535 $ 3,227,707 $ 644,703
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The following table presents the Trust's trading revenues from futures,
forward and options contracts for the three months ended March 31, 1998 and
1997.
1998 1997
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Futures Contracts:
Domestic exchanges
Financial $(1,499,065) $ 482,037
Currencies (1,554,698) 1,013,290
Other (1,712,147) 3,884,227
Foreign exchanges
Financial 4,895,516 334,711
Other -- 1,047,891
Forward Contracts:
Other 582,546 --
Options Contracts:
Domestic exchanges
Financial (143,660) 338,169
Currencies (268,938) --
Other -- (9,986)
Foreign exchanges
Other (14,919) --
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$ 284,635 $7,090,339
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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 were offered
monthly at the then current net asset value per Interest until the continuous
offering period expired on January 31, 1998. Additional contributions made
during the continuous offering period totalled $51,242,700.
At March 31, 1998, 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, 1998
were $2,965,837 and were $33,472 for general interests. Redemptions of limited
interests and general interests recorded from commencement of operations, May 1,
1996, through March 31, 1998 were $14,288,909 and $33,472, respectively. Future
redemptions 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, 1998 was $102.25, a decrease
of .69% from the December 31, 1997 net asset value per Interest of $102.96.
The Trust's positive January performance was primarily the result of profits
earned in the financial, soft, metal and energy sectors. Losses were experienced
in the currency, index, grain and meat sectors. The Trust saw gains during the
month in both its discretionary and systematic trading programs. In the
financial sector, the Trust continued to be profitable. During the latter part
of 1997 and into early 1998, it became clear that a number of factors,
particularly the increasing amount of bonds made available for sale by central
banks, pointed to an imbalance in the relationship between stock and bond
levels. This imbalance caused bond prices to rally in the U.S. and certain
European countries, resulting in profits for the Trust. In the soft sector,
coffee positions were quite profitable as prices rose on supply concerns due to
tight stockpiles and dry weather in producing areas. Gains in silver made for a
profitable metal sector. In the energy sector, profits were driven by gains in
natural gas and light crude oil. Gains were somewhat offset by losses in the
currency sector as price reversals in the Japanese yen, British pound and Swiss
franc created losses for the Trust. Additionally, positions in the S&P 500 index
incurred losses due, in part, to a lack of direction
8
throughout the month. Finally, in the grain sector, soybean meal and soybean oil
positions were unprofitable as were lean hogs and live cattle in the meat
sector.
The Trust's negative February performance resulted primarily from losses in
the currency, soft, index, meat, grain and financial sectors. Gains were
experienced in the metal and energy sectors. The currency sector provided the
majority of February's losses as the deutsche mark fell from its earlier highs
and the Japanese yen reversed on market hopes that the Japanese government might
take stronger fiscal action to improve the economy. Soft sector positions were
also unprofitable as coffee positions suffered from price reversals. Sugar and
cocoa were unprofitable as well. In the discretionary portion of the Trust,
index sector positions incurred losses. Specifically, short positions in the S&P
500 were unprofitable as it rose over 7% during the month. Trust losses were
partially offset by gains in the metal and energy sectors. Volatility in silver
drove metal sector profits. Long silver positions gained as a major purchaser of
silver forced prices to a 9 1/2-year high before reversing as a result of profit
taking at month's end. In the energy sector, the price of light crude oil
dropped amid reports of significant inventories, profiting the Trust's short
positions.
The Trust's negative March performance resulted from losses in the financial,
metal, soft, grain and index sectors. Gains were achieved in the currency and
energy sectors. The majority of the Trust's losses was the result of trading in
the financial sector. Late in the month, U.S. bond yields reversed direction and
rose due to reduced expectations for a deflationary market, causing losses in
long U.S. Treasury note and bond positions. In addition, various markets in the
financial sector experienced dramatic swings during the month. For instance, the
differing expectations as to the amount of economic stimulus that would take
place in Japan had a significant affect on the Japanese yen. Additionally,
market uncertainty over the rate of economic growth in Europe and the U.S. and
the continuing Asian economic problems had an affect on many traded sectors.
These 'choppy markets' proved to be difficult for the Trust. Metal sector
positions were unprofitable across the board. For example, short gold positions
lost value as prices soared in response to increased buying as a hedge against
inflation. In the currency sector, the Trust recognized gains in both Swiss
franc and Japanese yen positions.
Interest income earned and commissions and management fees incurred during
the three months ended March 31, 1998 were not comparable to the prior period,
and increased in connection with the increase in traded assets as a result of
the additional contributions discussed in Liquidity and Capital Resources above.
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 for the three months ended March 31, 1998 and
1997 was approximately $581,000 and $475,000, respectively.
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, 1998 and 1997
were approximately $1,020,000 and $722,000, respectively.
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, 1998 and 1997 were approximately $394,000 and $299,000, respectively.
Incentive fees are based on the New High Net Trading Profits generated by the
trading manager, as defined in the Advisory Agreement among the Trust, the
Managing Owner and the trading manager. Incentive fees of approximately
$1,214,000 were earned during the three months ended March 31, 1997, as a result
of strong trading performance during that period. No incentive fees were earned
during the three months ended March 31, 1998.
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. Exhibits and Reports on Form 8-K:
(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
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.
WILLOWBRIDGE STRATEGIC TRUST
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
11