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 September 30, 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
PRUDENTIAL SECURITIES STRATEGIC TRUST
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-7075398
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
WILLOWBRIDGE STRATEGIC TRUST
- --------------------------------------------------------------------------------
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
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $41,053,649 $46,416,620
Net unrealized gain on open commodity positions 3,663,777 2,451,210
Options, at market -- 362,402
------------- ------------
Net equity 44,717,426 49,230,232
Other receivables 21,786 3,218
------------- ------------
Total assets $44,739,212 $49,233,450
------------- ------------
------------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,127,880 $ 1,385,332
Incentive fees payable 646,724 --
Management fees payable 82,805 123,083
------------- ------------
Total liabilities 1,857,409 1,508,415
------------- ------------
Commitments
Trust capital
Limited interests (402,101.723 and 458,613.680 interests
outstanding) 42,457,347 47,217,112
General interests (4,020 and 4,933.397 interests outstanding) 424,456 507,923
------------- ------------
Total trust capital 42,881,803 47,725,035
------------- ------------
Total liabilities and trust capital $44,739,212 $49,233,450
------------- ------------
------------- ------------
Net asset value per limited and general interest ('Interests') $ 105.59 $ 102.96
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
2
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
------------------------------------ --------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity
transactions $ 1,017,473 $ 1,870,722 $ 7,140,800 $ 151,270
Change in net unrealized gain on
commodity positions 1,085,121 (169,114) 3,051,130 (852,064)
Interest income 1,473,020 1,625,529 424,076 588,806
----------------- --------------- ----------- -----------
3,575,614 3,327,137 10,616,006 (111,988)
----------------- --------------- ----------- -----------
EXPENSES
Commissions 2,417,893 2,700,306 571,579 1,014,613
Management fees 880,518 1,049,966 188,032 390,519
Incentive fees 646,724 1,220,889 646,724 6,481
----------------- --------------- ----------- -----------
3,945,135 4,971,161 1,406,335 1,411,613
----------------- --------------- ----------- -----------
Net income (loss) $ (369,521) $ (1,644,024) $ 9,209,671 $(1,523,601)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ (365,588) $ (1,632,429) $ 9,117,563 $(1,509,206)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
General interests $ (3,933) $ (11,595) $ 92,108 $ (14,395)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
NET INCOME (LOSS) PER WEIGHTED
AVERAGE LIMITED AND GENERAL
INTEREST
Net income (loss) per weighted
average limited and general
interest $ (.80) $ (3.96) $ 21.63 $ (3.27)
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
Weighted average number of limited
and general interests outstanding 463,449 414,874 425,690 466,518
----------------- --------------- ----------- -----------
----------------- --------------- ----------- -----------
- --------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1997 463,547.077 $47,217,112 $ 507,923 $47,725,035
Contributions 49,726.311 5,359,300 27,000 5,386,300
Net loss -- (365,588) (3,933) (369,521)
Redemptions (107,151.665) (9,753,477) (106,534) (9,860,011)
------------- ----------- --------- -----------
Trust capital--September 30, 1998 406,121.723 $42,457,347 $ 424,456 $42,881,803
------------- ----------- --------- -----------
------------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
3
PRUDENTIAL SECURITIES STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 Prudential Securities Strategic Trust (the 'Trust') as of September
30, 1998 and the results of its operations for nine and the three months ended
September 30, 1998. 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.
During July 1998, Willowbridge Associates Inc. ('Willowbridge') ceased to
serve as a trading manager to the Trust with regard to all trading programs with
the exception of its XLIM program, which represented approximately 50% of the
Trust's assets. These assets were assigned to a new trading manager, Bridgewater
Associates, Inc. ('Bridgewater') who began trading Trust assets on August 26,
1998. The monthly management fee paid to Bridgewater equals .0813% (a .9756%
annual rate) of its traded assets as compared to 1/4 of 1% (a 3% annual rate)
paid to Willowbridge. The quarterly incentive fees paid to Bridgewater and
Willowbridge equal 20% of the New High Net Trading Profits as defined in the
Advisory Agreements among the Trust, the Managing Owner and each trading
manager. In conjunction with this change, the Trust was renamed Prudential
Securities Strategic Trust.
B. Related Parties
Prudential Securities Futures Management Inc., a wholly owned subsidiary of
Prudential Securities Incorporated ('PSI'), is the managing owner of the Trust
(the 'Managing Owner'). The Managing Owner and 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.
Except for the 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 its routine operational, administrative, legal
and auditing fees. As described in the Annual Report, all commissions for
brokerage services are paid to PSI.
The Trust maintains its trading and cash accounts with 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%.
The Trust, acting through its trading managers, 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.
As of September 30, 1998, a non-U.S. affiliate of the Managing Owner owns
293.003 limited interests 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).
4
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. 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 managers 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 managers 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 September 30, 1998 and December 31, 1997,
such segregated assets totalled $28,754,403 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 $16,133,874 and
$6,852,627 at September 30, 1998 and December 31, 1997, respectively. There are
no segregation requirements for assets related to forward trading.
As of September 30, 1998, all open futures and options contracts generally
mature within one year.
As of September 30, 1998 and December 31, 1997, gross contract amounts of
open futures, forward and options contracts are:
1998 1997
------------- -------------
Financial Futures and Options
Contracts:
Commitments to purchase $ 793,312,025 $ 522,213,105
Commitments to sell 172,831,702 7,592,575
Currency Futures and Options
Contracts:
Commitments to purchase 145,779,350 101,737
Commitments to sell 30,246,740 74,270,062
Other Futures Contracts:
Commitments to purchase 3,866,086 29,375,203
Commitments to sell 9,468 1,551,520
Other Forward Contracts:
Commitments to purchase 171,615 939,873
Commitments to sell 251,085 --
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
5
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.
At September 30, 1998 and December 31, 1997, the fair values of futures,
forward and options contracts were:
1998 1997
--------------------------- ---------------------------
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 3,210,559 $ 116,237 $ 792,100 $ 240,225
Currencies 806,137 920,841 624,975 89
Other 162,955 -- 713,857 1,004,794
Foreign exchanges
Financial 1,715,387 955,922 1,621,656 46,687
Other 35,331 102,741 -- 3,123
Forward Contracts:
Other 764 171,615 -- 6,460
Options Contracts:
Domestic exchanges
Financial -- -- 68,002 --
Currencies -- -- 294,400 --
----------- ----------- ----------- -----------
$ 5,931,133 $ 2,267,356 $ 4,114,990 $ 1,301,378
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The following table presents the average fair value of futures, forward and
options contracts during the nine months ended September 30, 1998 and 1997,
respectively.
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 787,562 $ 134,009 $ 406,350 $ 35,031
Currencies 814,093 315,517 983,915 206,216
Other 322,124 431,621 898,058 309,928
Foreign exchanges
Financial 1,904,090 204,298 291,249 160,998
Other 3,751 28,544 735,114 297,858
Forward Contracts:
Currencies 1,465 90 -- --
Other 120,443 190,690 11,410 8
Options Contracts:
Domestic exchanges
Financial 66,101 -- 21,330 --
Currencies 40,630 -- 2,460 --
Other 4,900 -- 41,871 --
Foreign exchanges
Financial 7,201 -- -- --
Other 15,134 -- 45,025 --
---------- ----------- ---------- -----------
$4,087,494 $ 1,304,769 $3,436,782 $ 1,010,039
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
6
The following table presents the average fair value of futures, forward and
options contracts during the three months ended September 30, 1998 and 1997,
respectively.
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $1,389,901 $ 60,775 $ 464,342 $ 23,234
Currencies 696,090 492,384 1,724,134 402,694
Other 132,465 226,164 426,299 221,110
Foreign exchanges
Financial 2,118,801 414,203 344,150 121,846
Other 9,377 70,578 561,388 615,353
Forward Contracts:
Currencies 3,663 226 -- --
Other 191 258,552 28,525 --
Options Contracts:
Domestic exchanges
Financial -- -- 53,325 --
Currencies -- -- 6,150 --
Other 12,250 -- 62,771 --
Foreign exchanges
Other 9,868 -- 111,335 --
---------- ----------- ---------- -----------
$4,372,606 $ 1,522,882 $3,782,419 $ 1,384,237
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
The following tables present the Trust's trading revenues from futures,
forward and options contracts during the nine and three months ended September
30, 1998 and 1997, respectively.
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Futures Contracts:
Domestic exchanges
Financial $ 1,850,457 $(3,055,444 ) $ 3,689,540 $(2,036,475 )
Currencies (3,540,488) 5,493,527 1,073,196 2,742,479
Other (5,631,904) 1,407,569 (1,601,657) (134,627 )
Foreign exchanges
Financial 12,604,230 (2,838,681 ) 7,475,224 (216,087 )
Other 3,303 1,040,851 3,303 (596,192 )
Forward Contracts:
Currencies (116,004) -- (116,004) --
Other (1,277,277) 114,100 (177,351) 114,100
Options Contracts:
Domestic exchanges
Financial (890,181) 123,224 -- (229,634 )
Currencies (722,951) (174,734 ) (66,426) (150,260 )
Other (4,940) (180,197 ) -- (35,816 )
Foreign exchanges
Financial (65,754) (14,941 ) -- --
Currencies (48,425) -- (48,425) --
Other (57,472) (213,666 ) (39,470) (158,282 )
------------ ------------ ------------ ------------
$ 2,102,594 $ 1,701,608 $ 10,191,930 $ (700,794 )
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
7
PRUDENTIAL SECURITIES 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 January 31, 1998. Additional contributions made during
the continuous offering period totalled $51,242,700.
At September 30, 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 managers 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 nine months and three months ended
September 30, 1998 were $9,753,477 and $2,642,961, respectively. Redemptions by
the Managing Owner recorded for the nine and three months ended September 30,
1998 were $106,534 and $31,159, respectively. Redemptions of limited interests
and general interests recorded from commencement of operations, May 1, 1996,
through September 30, 1998 were $21,076,549 and $106,534, 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.
Year 2000 Risk
Investment funds, like financial and business organizations and individuals
around the world, depend on the smooth functioning of computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way in which dates are encoded. This is
commonly known as the 'Year 2000 Problem.' The Trust could be adversely affected
if computer systems used by it or any third party with whom it has a material
relationship do not properly perform date comparisons and calculations
concerning dates on or after January 1, 2000, which in turn could have a
negative impact on the handling or determination of trades and prices and the
services provided to the Trust.
The Trust has engaged third parties to perform primarily all of the services
it needs. Accordingly, the Trust's Year 2000 Problems, if any, are not its own
but those that center on the ability of the Trustee, Managing Owner, Prudential
Securities Incorporated, its trading managers and any other third party with
whom the Trust has a material relationship (individually, a 'Service Provider,'
and collectively, the 'Service Providers') to address and correct problems that
may cause their systems not to function as intended as a result of the Year 2000
Problem.
8
The Trust has received assurances from its Managing Owner and Prudential
Securities Incorporated that they anticipate being able to continue their
operations without any material adverse impact from the Year 2000 Problem.
Although other Service Providers, such as the Trust's Trustee and trading
managers, have not made similar representations to the Trust, the Trust has no
reason to believe that these Service Providers will not take steps necessary to
avoid any material adverse impact on the Trust, though there can be no assurance
that this will be the case. The costs or consequences of incomplete or untimely
resolution of the Year 2000 Problem by the Service Providers, or by governments,
exchanges, clearing houses, regulators, banks and other third parties, are
unknown to the Trust at this time, but could have a material adverse impact on
the operations of the Trust. The Managing Owner will promptly notify the Trust's
limited owners in the event it determines that the Year 2000 Problem will have a
material adverse impact on the Trust's operations.
The Trust has considered various alternatives as a contingency plan. If the
Year 2000 Problems are systemic, for example, the federal government, the
banking system, exchanges or utilities are affected materially, there may be no
adequate contingency plan for the Trust to follow other than to suspend
operations. If the Year 2000 Problems are related to one or more of the other
Service Providers selected by the Trust, the Trust believes that each such
Service Provider is prepared to address any Year 2000 Problems which arise that
could have a material adverse impact on the Trust's operations.
Results of Operations
The net asset value per Interest as of September 30, 1998 was $105.59, an
increase of 2.55% from the December 31, 1997 net asset value per Interest of
$102.96. Additionally, the net asset value per Interest increased 26.36% during
the third quarter.
The Trust's trading resulted in a positive return for the third quarter.
Gains were seen in the financial and currency sectors. Losses were incurred in
the index, grain, metal, energy and soft sectors. The majority of third quarter
market movement occurred in the financial and currency sectors. These markets
were both influenced by significant world events including the weakness of large
Japanese banks and the devaluation of the Russian ruble. These events caused a
reevaluation of the outlook on the global economy resulting in falling world
stock markets. This drop prompted a flight to safety driving government bond
prices higher. As a result, the Trust's long positions in German ten-year, U.S.
Treasury, British, Eurodollar and French notional bond positions were
profitable. Through the second half of the quarter, the value of the German
deutsche mark rose as the U.S. dollar fell, profiting the Trust's long
positions. Gains were also achieved in the Canadian dollar and Japanese yen.
Stock market volatility led to losses across the Trust's index positions,
including the S&P 500, German DAX and Italian FIB 30.
During July 1998, Willowbridge ceased to serve as a trading manager to the
Trust with regard to all trading programs with the exception of its XLIM
program, which represented approximately 50% of the Trust's assets. These assets
were assigned to a new trading manager, Bridgewater, who began trading Trust
assets on August 26, 1998. As a result, the Trust did not incur commissions or
management fees during the period these assets were not allocated for
commodities trading. The monthly management fee paid to Bridgewater equals
.0813% (a .9756% annual rate) of its traded assets as compared to 1/4 of 1% (a
3% annual rate) paid to Willowbridge. The quarterly incentive fees paid to
Bridgewater and Willowbridge equal 20% of the New High Net Trading Profits as
defined in the Advisory Agreements among the Trust, the Managing Owner and each
trading manager.
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 decreased during the nine and three months
ended September 30, 1998 as compared to 1997 by approximately $153,000 and
$165,000, respectively. These fluctuations were largely the result of poor
trading performance from April 1997 through the second quarter of 1998,
declining interest rates during the current year and redemptions offset, in
part, by continually increasing asset levels due to contributions made during
1997 and 1998 through January 31 when the continuous offering period expired.
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 decreased during the nine and three months ended
September 30, 1998 as compared to 1997 by approximately $282,000 and $443,000,
respectively. The effect on the monthly net asset values of poor trading
performance from April 1997 through the second quarter of 1998, as well as
redemptions, caused a majority of these decreases.
9
The reallocation of assets from Willowbridge to Bridgewater as discussed
above also resulted in decreases to commissions.
As of September 30, 1998, all trading decisions were made by Willowbridge and
Bridgewater (the 'Trading Managers'). Management fees are calculated on the net
asset value allocated to each Trading Manager at the end of each month and,
therefore, are affected by trading performance, contributions and redemptions.
Management fees decreased during the nine and three months ended September 30,
1998 as compared to 1997 by approximately $169,000 and $202,000, respectively,
primarily for the same reasons commissions decreased as discussed above.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Managers, as defined in the Advisory Agreements between the Trust, the
Managing Owner and each Trading Manager. Incentive fees for the nine and three
months ended September 30, 1998 were approximately $647,000 as a result of
strong trading performance during the third quarter of 1998. Incentive fees for
the nine months ended September 30, 1997 were approximately $1,221,000 as a
result of strong trading performance during the first quarter of 1997.
10
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)
10.9-- Advisory Agreement dated August 25, 1998 among
the Registrant, Prudential Securities Futures
Management Inc. and Bridgewater Associates,
Inc. (filed herewith)
27.1-- Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
11
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.
PRUDENTIAL SECURITIES STRATEGIC TRUST
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: November 16, 1998
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
12