-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KcmkOc7oyW+Wh7qz60BYTPEcdtVWUF0wCdicxsC5b/HQvcp5JPDlpXda8zsEthhD dJVdKG9Ony+mee8QjNLrSg== 0000898733-00-000202.txt : 20000331 0000898733-00-000202.hdr.sgml : 20000331 ACCESSION NUMBER: 0000898733-00-000202 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD MONITOR TRUST SERIES B CENTRAL INDEX KEY: 0001051823 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-43041 FILM NUMBER: 588424 BUSINESS ADDRESS: STREET 1: ONE NEW YORK PLAZA 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10292-2013 BUSINESS PHONE: 2127787866 MAIL ADDRESS: STREET 1: ONE NEW YORK PLAZA 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10292-2013 10-K 1 WORLD MONITOR TRUST -- SERIES B UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 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: 0-25787 WORLD MONITOR TRUST--SERIES B - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3985041 - -------------------------------------------------------------------------------- (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 Securities registered pursuant to Section 12(b) of the Act: None - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Limited Interests - ------------------------------------------------------------------------------- (Title of class) Indicate by check mark 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 __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [CK] DOCUMENTS INCORPORATED BY REFERENCE Second Amended and Restated Declaration of Trust and Trust Agreement of the Registrant dated as of March 17, 1998, included as part of the Registration Statement on Form S-1 (File No. 333-43041) filed with the Securities and Exchange Commission on March 23, 1998, pursuant to Rule 424(b) of the Securities Act of 1933, is incorporated by reference into Part IV of this Annual Report on Form 10-K Registrant's Annual Report to Interest holders for the year ended December 31, 1999 is incorporated by reference into Parts II and IV of this Annual Report on Form 10-K Index to exhibits can be found on pages 11 and 12. WORLD MONITOR TRUST--SERIES B (a Delaware Business Trust) TABLE OF CONTENTS
PART I PAGE Item 1 Business......................................................................... 3 Item 2 Properties....................................................................... 4 Item 3 Legal Proceedings................................................................ 4 Item 4 Submission of Matters to a Vote of Interest Holders.............................. 4 PART II Item 5 Market for the Registrant's Interests and Related Interest Holder Matters........ 4 Item 6 Selected Financial Data.......................................................... 5 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 5 Item 7A Quantitative and Qualitative Disclosures About Market Risk....................... 5 Item 8 Financial Statements and Supplementary Data...................................... 8 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................... 8 PART III Item 10 Directors and Executive Officers of the Registrant............................... 8 Item 11 Executive Compensation........................................................... 10 Item 12 Security Ownership of Certain Beneficial Owners and Management................... 10 Item 13 Certain Relationships and Related Transactions................................... 10 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 11 Financial Statements and Financial Statement Schedules........................... 11 Exhibits......................................................................... 11 Reports on Form 8-K.............................................................. 12 SIGNATURES.................................................................................. 13 2 PART I Item 1. Business General World Monitor Trust (the 'Trust') is a business trust organized under the laws of Delaware on December 17, 1997. The Trust commenced trading operations on June 10, 1998 and 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 Agreement'). The Trust consists of 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. Each Series 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 Trust's fiscal year for book and tax purposes ends on December 31. The Offering Beneficial interests in each Series ('Interests') are being offered once each week until each Series' subscription maximum has been issued either through sale or exchange. On June 10, 1998, a sufficient number of subscriptions for each Series had been received and accepted by the managing owner to permit each Series to commence trading. Series B (the 'Registrant') completed its initial offering with gross proceeds of $5,709,093 from the sale of 56,330.929 limited interests and 760 general interests. Series A was offered until it achieved its subscription maximum of $34,000,000 during November 1999. Interests in Series B and Series C will continue to be offered on a weekly basis at the then current net asset value per Interest until the subscription maximum of $33,000,000 for each Series is sold ('Continuous Offering Period'). The Registrant is engaged solely in the business of commodity futures, forward and options trading; therefore, presentation of industry segment information is not applicable. Managing Owner and its Affiliates The managing owner of the Registrant 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 Registrant as well as the commodity broker of the Registrant. The Managing Owner is required to maintain at least a 1% 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 Advisor Each Series has its own independent commodity trading advisor that makes that Series' trading decisions. The Managing Owner, on behalf of the Registrant, entered into an advisory agreement with Eclipse Capital Management, Inc. (the 'Trading Advisor') to make the trading decisions for the Registrant. The advisory agreement may be terminated at the discretion of the Managing Owner. The Managing Owner has allocated 100% of the proceeds from the initial and continuous offering of the Registrant to the Trading Advisor and it is currently contemplated that the Trading Advisor will continue to be allocated 100% of additional capital raised for the Registrant during the Continuous Offering Period. Competition The Managing Owner and its affiliates have formed, and may continue to form, various entities to engage in the speculative trading of futures, forward and options contracts which have certain of the same investment policies as the Registrant. The Registrant is an open-end fund which will solicit the sale of additional Interests on a weekly basis until the subscription maximum is reached. As such, the Registrant may compete with other entities to attract 3 new participants. In addition, to the extent that the Trading Advisor recommends similar or identical trades to the Registrant and other accounts which it manages, the Registrant may compete with those accounts for the execution of the same or similar trades. Employees The Registrant has no employees. Management and administrative services for the Registrant are performed by the Managing Owner and its affiliates pursuant to the Trust Agreement as further discussed in Notes A, C and D to the Registrant's annual report to limited owners for the year ended December 31, 1999 (the 'Registrant's 1999 Annual Report') which is filed as an exhibit hereto. Item 2. Properties The Registrant does not own or lease any property. Item 3. Legal Proceedings There are no material legal proceedings pending by or against the Registrant or the Managing Owner. Item 4. Submission of Matters to a Vote of Interest Holders None PART II Item 5. Market for the Registrant's Interests and Related Interest Holder Matters Information with respect to the offering of Interests is incorporated by reference to Note A to the Registrant's 1999 Annual Report, which is filed as an exhibit hereto. A significant secondary market for the Interests has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in the Trust Agreement limiting the ability of an Interest holder to transfer Interests. However, Interests may be redeemed on a weekly basis, but are subject to a redemption fee if effected within one year of the effective date of purchase. Additionally, Interests owned in one Series may be exchanged, without any charge, for Interests of one or more other Series on a weekly basis for as long as Interests in those Series are being offered to the public. Exchanges and redemptions are calculated based on 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 or redemption request is effected. There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Trust Agreement. No distributions have been made since inception and no distributions are anticipated in the future. As of March 21, 2000, there were 1,674 holders of record owning 199,828.349 Interests which include 2,600 general interests. 4 Item 6. Selected Financial Data The following table presents selected financial data of the Registrant. This data should be read in conjunction with the financial statements of the Registrant and the notes thereto on pages 2 through 9 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto.
Period from June 10, 1998 (commencement of Year ended operations) to December 31, December 31, 1999 1998 ------------ ---------------- Total revenues (including interest) $ 3,514,395 $ 1,732,093 ------------ ---------------- ------------ ---------------- Net income $ 1,116,560 $ 1,059,653 ------------ ---------------- ------------ ---------------- Net income per weighted average Interest $ 6.91 $ 13.06 ------------ ---------------- ------------ ---------------- Total assets $26,285,827 $ 11,558,059 ------------ ---------------- ------------ ---------------- Net asset value per Interest $ 121.63 $ 111.98 ------------ ---------------- ------------ ----------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 11 through 13 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Introduction Past Results Not Necessarily Indicative of Future Performance The Registrant is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and substantially all of the Registrant's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Registrant's main line of business. Market movements result in frequent changes in the fair market value of the Registrant's open positions and, consequently, in its earnings and cash flow. The Registrant's market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Registrant's open positions and the liquidity of the markets in which it trades. The Registrant rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular futures market scenario will affect performance, and the Registrant's past performance is not necessarily indicative of its future results. Value at Risk is a measure of the maximum amount which the Registrant could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Registrant's speculative trading and the recurrence in the markets traded by the Registrant of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Registrant's experience to date (i.e., 'risk of ruin'). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Registrant's losses in any market sector will be limited to Value at Risk or by the Registrant's attempts to manage its market risk. Standard of Materiality Materiality as used in this section, 'Quantitative and Qualitative Disclosures About Market Risk,' is based on an assessment of reasonably possible market movements and the potential losses caused by such 5 movements, taking into account the leverage, optionality and multiplier features of the Registrant's market sensitive instruments. Quantifying the Registrant's Trading Value at Risk Quantitative Forward-Looking Statements The following quantitative disclosures regarding the Registrant's market risk exposures contain 'forward-looking statements' within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The Registrant's risk exposure in the various market sectors traded by the Trading Advisor is quantified below in terms of Value at Risk. Due to the Registrant's mark-to-market accounting, any loss in the fair value of the Registrant's open positions is directly reflected in the Registrant's earnings (realized or unrealized) and cash flow (whereby profits and losses on open positions of exchange-traded contracts are settled daily through variation margin). Exchange maintenance margin requirements have been used by the Registrant as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component which is not relevant to Value at Risk. In quantifying the Registrant's Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine each trading category's aggregate Value at Risk. The diversification effects resulting from the fact that the Registrant's positions are rarely, if ever, 100% positively correlated have not been reflected. The Registrant's Trading Value at Risk in Different Market Sectors The following table indicates the trading Value at Risk associated with the Registrant's open positions by market sector at December 31, 1999. All open position trading risk exposures of the Registrant have been included in calculating the figures set forth below. At December 31, 1999, the Registrant's total capitalization was approximately $26.0 million.
Value at % of Total Market Sector Risk Capitalization ----------------------- ---------- -------------- Interest Rates $ 508,359 1.96% Commodities 305,000 1.17 Currencies 301,887 1.16 Stock Indices 96,070 .37 ---------- ----- Total $1,211,316 4.66% ---------- ----- ---------- -----
Material Limitations on Value at Risk as an Assessment of Market Risk The face value of the market sector instruments held by the Registrant is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally range between approximately 1% and 10% of the contract face value), as well as, many times the total capitalization of the Registrant. The magnitude of the Registrant's open positions creates a 'risk of ruin' not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions, although unusual, but historically recurring from time to time, could cause the Registrant to incur severe losses over a short period of time. The foregoing Value at Risk table, as well as the past performance of the Registrant, give no indication of this 'risk of ruin.' 6 Non-Trading Risk The Registrant has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial. Qualitative Disclosures Regarding Primary Trading Risk Exposures The following qualitative disclosures regarding the Registrant's market risk exposures--except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Registrant manages its primary market risk exposures--constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Registrant's primary market risk exposures as well as the strategies used and to be used by the Managing Owner and the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Registrant's risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Registrant. There can be no assurance that the Registrant's current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Registrant. The primary trading risk exposures of the Registrant at December 31, 1999, by market sector, were: Interest Rates. Interest rate movements directly affect the price of sovereign bond positions held by the Registrant and indirectly affect the value of its stock index and currency positions. Interest rate movements in one country, as well as, relative interest rate movements between countries may materially impact the Registrant's profitability. The Registrant's primary interest rate exposure is to interest rate fluctuations in the U.S. and other G-7 countries. To a lesser extent, the Registrant also takes positions in the government debt of smaller nations--e.g., Australia. The Managing Owner anticipates that G-7 interest rates will remain the primary market exposure of the Registrant in the foreseeable future. The changes in interest rates which have the most effect on the Registrant are changes in long-term, as opposed to short-term, rates. Most of the speculative positions held by the Registrant are in medium- to long-term instruments. Consequently, even a material change in short-term rates would have little effect on the Registrant were the medium- to long-term rates to remain steady. Commodities. The Trading Advisor of the Registrant trades a variety of precious and base metals and energy-related commodities. At year-end, the Registrant's commodities exposure is in copper, zinc and aluminum within the base metals market and in light crude oil and natural gas within the energy market. Currencies. These risks of currency exposure arise from exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Registrant's major exposure has typically resulted from positions in the local currencies of G-7 countries. These include outright, as well as, cross-rate positions--i.e., positions between two currencies other than the U.S. dollar. While it is difficult at this point to evaluate the effect that the introduction of the euro has had on the Registrant, the Managing Owner does not believe that the risk profile of the Registrant's currency sector has significantly changed, although the ultimate effect of the euro's full introduction is yet unknown. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Registrant in expressing Value at Risk in a functional currency other than U.S. dollars. Stock Indices. The Registrant's equity exposure is due to equity price risk in various indices including the S&P 500 (U.S.), FTSE 100 (Britain), and the NIKKEI (Japan). The stock index futures traded by the Registrant are, by law, limited to futures on broadly based indices. 7 Qualitative Disclosures Regarding Non-Trading Risk Exposure At December 31, 1999, the Registrant's primary exposure to non-trading market risk resulted from foreign currency balances held in Canadian dollars. As discussed above, these balances, as well as any risk they represent, are immaterial. Qualitative Disclosures Regarding Means of Managing Risk Exposure The means by which the Managing Owner and the Trading Advisor attempt to manage the risk of the Registrant's open positions is essentially the same in all market categories traded. The Trading Advisor attempts to minimize market risk exposure by applying its own risk management trading policies. In general, the Trading Advisor's portfolio is diversified, consisting of a wide variety of contracts traded in both domestic and foreign markets. Additionally, stop or limit orders may, at the Trading Advisor's discretion, be given with respect to initiating or liquidating positions in order to seek to limit losses or secure profits. The Managing Owner attempts to minimize market risk exposure by requiring the Registrant and its Trading Advisor to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading limitations and policies which include, but are not limited to, limiting the amount of margin or premium required for any one commodity or all commodities combined and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, the Managing Owner shall automatically terminate the Trading Advisor if the net asset value allocated to the Trading Advisor declines by 33 1/3% from the value at the beginning of any year or since the commencement of trading activities. Furthermore, the Trust Agreement provides that the Registrant will liquidate its positions, and eventually dissolve, if the Registrant experiences a decline in the net asset value of 50% from the value at the beginning of any year or since the commencement of trading activities. In each case, the decline in the net asset value is after giving effect for distributions, contributions and redemptions. The Managing Owner may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the Trading Advisor as it, in good faith, deems to be in the best interests of the Registrant. Item 8. Financial Statements and Supplementary Data The financial statements are incorporated by reference to pages 2 through 9 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto. Supplementary data specified by Item 302 of Regulation S-K (selected quarterly financial data) is not applicable. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant There are no directors or executive officers of the Registrant. The Registrant is managed by the Managing Owner. The Managing Owner's directors and executive officers and any person holding more than ten percent of the Registrant's Interests ('Ten Percent Owners') are required to report their initial ownership of such Interests and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 or 5. Such executive officers, directors and Ten Percent Owners are required by Securities and Exchange Commission regulations to furnish the Registrant with copies of all Forms 3, 4 or 5 they file. All of these filing requirements were satisfied on a timely basis. In making these disclosures, the Registrant has relied solely on written representations of the Managing Owner's directors and executive officers and Ten Percent Owners or copies of the reports that they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year. 8 The directors and executive officers of Prudential Securities Futures Management Inc. and their positions with respect to the Registrant are as follows: Name Position Joseph A. Filicetti President and Director Eleanor L. Thomas Executive Vice President and Director Barbara J. Brooks Chief Financial Officer Steven Carlino Vice President and Treasurer Alan J. Brody Director A. Laurence Norton, Jr. Director Guy S. Scarpaci Director Tamara B. Wright Senior Vice President and Director JOSEPH A. FILICETTI, age 37, is the President and a Director of Prudential Securities Futures Management Inc. He had been a Vice President of Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. from October 1998 to March 1999. In April 1999, Mr. Filicetti was named to his current positions at Prudential Securities Futures Management Inc. and became an Executive Vice President and a Director of Seaport Futures Management, Inc. Mr. Filicetti is also a Vice President of PSI and the Director of Sales and Marketing for its Managed Futures department. Prior to joining PSI, Mr. Filicetti was with Rotella Capital Management as Director of Sales and Marketing from September 1996 through September 1998, and was with Merrill Lynch as a market maker trading bonds from July 1992 to August 1996. ELEANOR L. THOMAS, age 45, is the Executive Vice President and a Director of Prudential Securities Futures Management Inc. and is the President and a Director of Seaport Futures Management, Inc. She is primarily responsible for origination, asset allocation, and due diligence for the managed futures department within PSI. She is also a First Vice President of PSI. Prior to joining PSI in March 1993, she was with MC Baldwin Financial Company from June 1990 through February 1993 and Arthur Anderson & Co. from 1986 through May 1990. Ms. Thomas is a certified public accountant. BARBARA J. BROOKS, age 51, is the Chief Financial Officer of Prudential Securities Futures Management Inc. She is a Senior Vice President of PSI. She is also the Chief Financial Officer of Seaport Futures Management, Inc. and serves in various capacities for other affiliated companies. She has held several positions within PSI since April 1983. Ms. Brooks is a certified public accountant. STEVEN CARLINO, age 36, is a Vice President and Treasurer of Prudential Securities Futures Management Inc. He is a First Vice President of PSI. He is also a Vice President and Treasurer of Seaport Futures Management, Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in October 1992, he was with Ernst & Young for six years. Mr. Carlino is a certified public accountant. ALAN J. BRODY, age 48, is a Director of Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. Mr. Brody has been a Senior Vice President and Director of International Sales and Marketing for PSI since 1996. Based in London, Mr. Brody is currently responsible for the marketing and sales of all PSI products and services to international clientele throughout the firm's global branch system. Additionally, Mr. Brody has overall responsibility for the managed futures department within PSI. Prior to joining PSI, Mr. Brody was an Executive Director and Senior Vice President with Lehman Brothers' Financial Services Division in London and President of Lehman Brothers Futures Asset Management Corp. from 1990 to 1996. Prior to joining Lehman Brothers, Mr. Brody served as President and Chief Executive Officer of Commodity Exchange, Inc. from 1980 to 1989. Earlier in his career, Mr. Brody was associated with the law firm of Baer Marks & Upham from 1977 to 1980. A. LAURENCE NORTON, JR., age 61, is a Director of Prudential Securities Futures Management Inc. He is an Executive Vice President of PSI and, since March 1994, has been the director of the International and Futures Divisions of PSI. He is also a Director of Seaport Futures Management, Inc. and is a member of PSI's Operating Committee. From October 1991 to March 1994, he held the position of Executive Director of Retail Development 9 and Retail Strategies at PSI. Prior to joining PSI in 1991, Mr. Norton was a Senior Vice President and Branch Manager of Shearson Lehman Brothers. GUY S. SCARPACI, age 53, is a Director of Prudential Securities Futures Management Inc. He is a First Vice President of the Futures Division of PSI. He is also a Director of Seaport Futures Management, Inc. Mr. Scarpaci has been employed by PSI in positions of increasing responsibility since August 1974. TAMARA B. WRIGHT, age 41, is a Director and a Senior Vice President of Prudential Securities Futures Management Inc. She is a Senior Vice President and Chief Administrative Officer for the International and Futures Divisions of PSI. She is also a Director and a Senior Vice President of Seaport Futures Management, Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in July 1988, she was a manager with Price Waterhouse. Effective April 1999, Eleanor L. Thomas and Joseph A. Filicetti were elected as directors of both Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. In addition, Mr. Filicetti was elected as President of Prudential Securities Futures Management Inc. replacing Thomas M. Lane, Jr. and Ms. Thomas was elected as the Executive Vice President of Prudential Securities Futures Management Inc. Additionally, Alan J. Brody was elected as a director of Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. during May 1999. There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing directors and/or executive officers have indefinite terms. Item 11. Executive Compensation The Registrant does not pay or accrue any fees, salaries or any other form of compensation to directors and officers of the Managing Owner for their services. Certain directors and officers of the Managing Owner receive compensation from affiliates of the Managing Owner, not from the Registrant, for services performed for various affiliated entities, which may include services performed for the Registrant; however, the Managing Owner believes that any compensation attributable to services performed for the Registrant is immaterial. (See also Item 13, Certain Relationships and Related Transactions, for information regarding compensation to the Managing Owner.) Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 21, 2000, no director or executive officer of the Managing Owner owns directly or beneficially any interest in the voting securities of the Managing Owner. As of March 21, 2000, no director or executive officer of the Managing Owner owns directly or beneficially any of the Interests issued by the Registrant. As of March 21, 2000, the following owner of limited interests beneficially owns more than five percent (5%) of the limited interests issued by the Registrant:
Title Name and Address of Amount and Nature of Percent of of Class Beneficial Owner Beneficial Ownership Class - ------------------ --------------------------------- ----------------------------- ---------- Limited interests Massachusetts Bay Transportation 17,666.743 limited interests 9% Authority Retirement Fund 99 Summer Street, 17th Floor Boston, MA 02110-1213
Item 13. Certain Relationships and Related Transactions The Registrant has and will continue to have certain relationships with the Managing Owner and its affiliates. However, there have been no direct financial transactions between the Registrant and the directors or officers of the Managing Owner. Reference is made to Notes A, C and D to the financial statements in the Registrant's 1999 Annual Report which is filed as an exhibit hereto, which identify the related parties and discuss the services provided by these parties and the amounts paid or payable for their services. 10 PART IV
Page Number ------------ Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements and Report of Independent Accountants--incorporated by reference to the Registrant's 1999 Annual Report which is filed as an exhibit hereto Report of Independent Accountants 2 Financial Statements: Statements of Financial Condition--December 31, 1999 and 1998 3 Statements of Operations--Year ended December 31, 1999 and the period from June 10, 1998 (commencement of operations) to December 31, 1998 4 Statements of Changes in Trust Capital--Two years ended December 31, 1999 4 Notes to Financial Statements 5 2. Financial Statement Schedules All schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto. 3. Exhibits Description: 3.1 Second Amended and Restated Declaration of Trust and Trust Agreement of and World Monitor Trust dated as of March 17, 1998 (incorporated by reference 4.1 to Exhibits 3.1 and 4.1 to Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998) 4.2 Form of Request for Redemption (incorporated by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998) 4.3 Form of Exchange Request (incorporated by reference to Exhibit 4.3 to Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998) 4.4 Form of Subscription Agreement (incorporated by reference to Exhibit 4.4 to Registrant's Registration Statement on Form S-1, File No. 333-43041, 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 Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998) 10.2 Form of Brokerage Agreement between the Trust and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.2 to Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998)
11
10.3 Form of Advisory Agreement among the Registrant, Prudential Securities Futures Management Inc., and the Trading Advisor (incorporated by reference to Exhibit 10.3 to Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998) 10.4 Form of Representation Agreement Concerning the Registration Statement and the Prospectus among the Registrant, Prudential Securities Futures Management Inc., Prudential Securities Incorporated, Wilmington Trust Company and the Trading Advisor (incorporated by reference to Exhibit 10.4 to Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998) 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 Registrant's Registration Statement on Form S-1, File No. 333-43041, dated as of March 23, 1998) 10.6 Form of Foreign Currency Addendum to Brokerage Agreement between the Trust and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q, File No. 333-43041, for the quarter ended March 31, 1998) 13.1 Registrant's 1999 Annual Report (with the exception of the information and data incorporated by reference in Items 5, 7 and 8 of this Annual Report on Form 10-K, no other information or data appearing in the Registrant's 1999 Annual Report is to be deemed filed as part of this report) (filed herewith) 27.1 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report.
12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 B By: Prudential Securities Futures Management Inc. A Delaware corporation, Managing Owner By: /s/ Steven Carlino Date: March 30, 2000 ---------------------------------------- Steven Carlino Vice President and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities (with respect to the Managing Owner) and on the dates indicated. By: Prudential Securities Futures Management Inc. A Delaware corporation, Managing Owner By: /s/ Joseph A. Filicetti Date: March 30, 2000 ----------------------------------------- Joseph A. Filicetti President and Director By: /s/ Eleanor L. Thomas Date: March 30, 2000 ----------------------------------------- Eleanor L. Thomas Executive Vice President and Director By: /s/ Barbara J. Brooks Date: March 30, 2000 ----------------------------------------- Barbara J. Brooks Chief Financial Officer By: /s/ Steven Carlino Date: March 30, 2000 ----------------------------------------- Steven Carlino Vice President and Treasurer By: /s/ Alan J. Brody Date: March 30, 2000 ----------------------------------------- Alan J. Brody Director By: Date: ----------------------------------------- A. Laurence Norton, Jr. Director By: /s/ Guy S. Scarpaci Date: March 30, 2000 ----------------------------------------- Guy S. Scarpaci Director By: Date: ----------------------------------------- Tamara B. Wright Senior Vice President and Director 13 EX-13 2 ANNUAL REPORT 1999 - -------------------------------------------------------------------------------- World Monitor Trust-- Annual Series B Report LETTER TO LIMITED OWNERS FOR WORLD MONITOR TRUST--SERIES B 1 PricewaterhouseCoopers (LOGO) PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Telephone (212) 596 8000 Facsimile (212) 596 8910 Report of Independent Accountants To the Managing Owner and Limited Owners of World Monitor Trust--Series B In our opinion, the accompanying statements of financial condition and the related statements of operations and changes in trust capital present fairly, in all material respects, the financial position of World Monitor Trust--Series B at December 31, 1999 and 1998, and the results of its operations for the year ended December 31, 1999 and for the period from June 10, 1998 (commencement of operations) to December 31, 1998 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Managing Owner; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the Managing Owner, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP January 28, 2000 2 WORLD MONITOR TRUST--SERIES B (a Delaware Business Trust) STATEMENTS OF FINANCIAL CONDITION
December 31, ---------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------------- ASSETS Cash $25,912,785 $11,239,221 Net unrealized gain on open futures contracts 373,042 318,838 ------------ ------------ Total assets $26,285,827 $11,558,059 ------------ ------------ ------------ ------------ LIABILITIES AND TRUST CAPITAL Liabilities Commissions payable $ 186,575 $ 76,364 Redemptions payable 72,082 -- Management fees payable 49,811 20,626 Incentive fees payable 658 60,812 ------------ ------------ Total liabilities 309,126 157,802 ------------ ------------ Commitments Trust capital Limited interests (210,979.665 and 100,451.891 interests outstanding) 25,660,475 11,249,078 General interests (2,600 and 1,350 interests outstanding) 316,226 151,179 ------------ ------------ Total trust capital 25,976,701 11,400,257 ------------ ------------ Total liabilities and trust capital $26,285,827 $11,558,059 ------------ ------------ ------------ ------------ Net asset value per limited and general interest ('Interests') $ 121.63 $ 111.98 ------------ ------------ ------------ ------------ - ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
3 WORLD MONITOR TRUST--SERIES B (a Delaware Business Trust) STATEMENTS OF OPERATIONS
For the period from June 10, 1998 (commencement Year ended of operations) December 31, to December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------ REVENUES Net realized gain on futures contracts $ 2,457,582 $ 1,155,799 Change in net unrealized gain on open futures contracts 54,204 318,838 Interest income 1,002,609 257,456 --------------- --------------- 3,514,395 1,732,093 --------------- --------------- EXPENSES Commissions 1,540,819 374,878 Incentive fees 458,510 200,596 Management fees 398,506 96,966 --------------- --------------- 2,397,835 672,440 --------------- --------------- Net income $ 1,116,560 $ 1,059,653 --------------- --------------- --------------- --------------- ALLOCATION OF NET INCOME Limited interests $ 1,102,475 $ 1,044,906 --------------- --------------- --------------- --------------- General interests $ 14,085 $ 14,747 --------------- --------------- --------------- --------------- NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST Net income per weighted average limited and general interest $ 6.91 $ 13.06 --------------- --------------- --------------- --------------- Weighted average number of limited and general interests outstanding 161,647 81,115 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL INTERESTS INTERESTS INTERESTS TOTAL - ----------------------------------------------------------------------------------------------------- Trust capital--December 31, 1997 10.000 $ -- $ 1,000 $ 1,000 Contributions 104,078.948 10,450,494 135,432 10,585,926 Net income -- 1,044,906 14,747 1,059,653 Redemptions (2,287.057) (246,322) -- (246,322) ----------- ----------- --------- ----------- Trust capital--December 31, 1998 101,801.891 11,249,078 151,179 11,400,257 Contributions 133,826.024 16,017,261 150,962 16,168,223 Net income -- 1,102,475 14,085 1,116,560 Redemptions (22,048.250) (2,708,339) -- (2,708,339) ----------- ----------- --------- ----------- Trust capital--December 31, 1999 213,579.665 $25,660,475 $316,226 $25,976,701 ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
4 WORLD MONITOR TRUST--SERIES B (a Delaware Business Trust) NOTES TO FINANCIAL STATEMENTS 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 commenced trading operations on June 10, 1998 and 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 consists of 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. Each Series 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 each Series ('Interests') are being offered once each week until each Series' subscription maximum has been issued either through sale or exchange. On June 10, 1998, a sufficient number of subscriptions for each Series had been received and accepted by the Managing Owner to permit each Series to commence trading. Series B completed its initial offering with gross proceeds of $5,709,093 from the sale of 56,330.929 limited interests and 760 general interests. Series A was offered until it achieved its subscription maximum of $34,000,000 during November 1999. Series B and C continue to be offered to investors who meet certain established suitability standards, with a minimum initial subscription of $5,000 ($2,000 for an individual retirement account) per subscriber, although the minimum purchase for any single Series is $1,000. Interests in Series B and Series C will continue to be offered on a weekly basis at the then current net asset value per Interest until the subscription maximum of $33,000,000 for each Series is sold ('Continuous Offering Period'). Additional purchases may be made in $100 increments. The Managing Owner is required to maintain at least a 1% 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 Advisor Each Series has its own independent commodity trading advisor that makes that Series' trading decisions. The Managing Owner, on behalf of the Trust, entered into an advisory agreement with Eclipse Capital Management, Inc. (the 'Trading Advisor') to make the trading decisions for Series B. The advisory agreement may be terminated at the discretion of the Managing Owner. The Managing Owner has allocated 100% of the proceeds from the initial and continuous offering of Series B to the Trading Advisor and it is currently contemplated that the Trading Advisor will continue to be allocated 100% of additional capital raised for Series B during the Continuous Offering Period. Exchanges, Redemptions and Termination 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 is 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 are 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 of purchase are subject to a redemption fee 5 of 4% and 3%, respectively, of the net asset value at which they are redeemed. Redemption fees are 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 50% or more since the commencement of trading activities or the first day of a fiscal year, the Series will terminate. B. Summary of Significant Accounting Policies Basis of accounting The financial statements of Series B are prepared in accordance with generally accepted accounting principles. Commodity futures and forward transactions are reflected in the accompanying statements of financial condition on trade date. The difference between the original contract amount and market value is reflected as net unrealized gain or loss. The market value of each contract is based upon the closing quotation on the exchange, clearing firm or bank on, or through, which the contract is traded. The weighted average number of limited and general interests outstanding was computed for purposes of disclosing net income per weighted average limited and general interest. The weighted average limited and general interests are equal to the number of Interests outstanding at period end, adjusted proportionately for Interests subscribed and redeemed based on their respective time outstanding during such period. Series B has elected not to provide a Statement of Cash Flows as permitted by Statement of Financial Accounting Standards No. 102, 'Statement of Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale.' Certain balances from the prior period have been reclassified to conform with the current financial statement presentation. Income taxes Series B is treated as a partnership for Federal income tax purposes. As such, Series B is not required to provide for, or pay, any Federal or state income taxes. Income tax attributes that arise from its operations are passed directly to the individual Interest holders including the Managing Owner. Series B may be subject to other state and local taxes in jurisdictions in which it operates. Profit and loss allocations and distributions Series B allocates profits and losses for both financial and tax reporting purposes to its Interest holders weekly on a pro rata basis based on each owner's Interests outstanding during the week. Distributions (other than redemptions of Interests) may be made at the sole discretion of the Managing Owner on a pro rata basis in accordance with the respective capital balances of the Interest holders; however, the Managing Owner does not presently intend to make any distributions. Accounting for Derivative Instruments In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative Instruments and Hedging Activities, which Series B adopted effective October 1, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires that an entity recognize all derivatives as assets or liabilities measured at fair value. SFAS No. 133 supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments and SFAS No. 105 Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity like Series B which carries its assets at fair value. The adoption of SFAS No. 133 has not had a material effect on the carrying value of assets and liabilities within the financial statements. 6 C. Fees Organizational, offering, general and administrative costs PSI or its affiliates paid the costs of organizing Series B and continue to pay the costs of offering its Interests as well as administrative costs incurred by the Managing Owner or its affiliates for services it performs for Series B. 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 Series B pays its Trading Advisor a management fee at an annual rate of 2% of Series B's net asset value allocated to its management. The management fee is determined weekly and the sum of such weekly amounts is paid monthly. Series B also pays its Trading Advisor a quarterly incentive fee equal to 20% of such Trading Advisor's 'New High Net Trading Profits' (as defined in the advisory agreement). The incentive fee also accrues weekly. Commissions The Managing Owner and the Trust entered into a brokerage agreement with PSI to act as Commodity Broker for each Series whereby Series B pays a fixed fee for brokerage services rendered at an annual rate of 7.75% of Series B's net asset value. The fee is determined weekly and the sum of such weekly amounts is paid monthly. From this fee, PSI pays execution costs (including floor brokerage expenses, give-up charges and NFA, clearing and exchange fees), as well as compensation to employees who sell Interests. D. Related Parties The Managing Owner or its affiliates perform services for Series B 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. As further described in Note C, except for costs related to brokerage services, PSI or its affiliates pay the costs of these services in addition to costs of offering Series B's Interests as well as its routine operational, administrative, legal and auditing costs. The costs charged to Series B for brokerage services for the year ended December 31, 1999 and the period from June 10, 1998 (commencement of operations) to December 31, 1998 were $1,540,819 and $374,878, respectively. All of the proceeds of the offering of Series B are received in the name of Series B and are deposited in trading or cash accounts at PSI. Series B's assets are maintained either with PSI or, for margin purposes, with the various exchanges on which Series B is permitted to trade. PSI credits Series B monthly with 100% of the interest it earns on the average net assets in Series B's accounts. Series B, acting through its Trading Advisor, may execute over-the-counter, spot, forward and/or option foreign exchange transactions with PSI. PSI then engages in back-to-back trading with an affiliate, Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM keeps its prices on foreign currency competitive with other interbank currency trading desks. All over-the-counter currency transactions are conducted between PSI and Series B pursuant to a line of credit. PSI may require that collateral be posted against the marked-to-market positions of Series B. As of December 31, 1999, a non-U.S. affiliate of the Managing Owner owns 101.245 limited interests of Series B. E. Income Taxes There have been no differences between the tax basis and book basis of Interest holders' capital since inception of the Trust. F. Credit and Market Risk Since Series B's business is to trade futures, forward (including foreign exchange transactions) 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). 7 Futures, forward and options contracts involve varying degrees of off-balance sheet risk; and changes in the level or 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 unrealized gain (loss) on open futures contracts reflected in the statements of financial condition. Series B's exposure to market risk is influenced by a number of factors including the relationships among the contracts held by Series B 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, Series B must rely solely on the credit of its broker (PSI) with respect to forward transactions. Series B presents unrealized gains and losses on open forward positions, if any, 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 Series B and its Trading Advisor to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading limitations and policies which include, but are not limited to, executing and clearing all trades with creditworthy counterparties (currently, PSI is the sole counterparty or broker); limiting the amount of margin or premium required for any one commodity or all commodities combined; and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, pursuant to the Advisory Agreement among Series B, the Managing Owner and the Trading Advisor, Series B shall automatically terminate the Trading Advisor if the net asset value allocated to the Trading Advisor declines by 33 1/3% from the value at the beginning of any year or since the commencement of trading activities. Furthermore, the Second Amended and Restated Declaration of Trust and Trust Agreement provides that Series B will liquidate its positions, and eventually dissolve, if Series B experiences a decline in the net asset value of 50% from the value at the beginning of any year or since the commencement of trading activities. In each case, the decline in net asset value is after giving effect for distributions, contributions and redemptions. The Managing Owner may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the Trading Advisor as it, in good faith, deems to be in the best interests of Series B. PSI, when acting as the 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 Series B all assets of Series B relating to domestic futures and options trading and is not to commingle such assets with other assets of PSI. At December 31, 1999, such segregated assets totalled $23,549,423. Part 30.7 of the CFTC regulations also requires PSI to secure assets of Series B related to foreign futures and options trading which totalled $2,736,404 at December 31, 1999. There are no segregation requirements for assets related to forward trading. As of December 31, 1999, all open futures contracts mature within six months. Gross contract amounts represent Series B's potential involvement in a particular class of financial instrument (if it were to take or make delivery on an underlying futures contract). Gross contract amounts significantly exceed future cash requirements as Series B 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, Series B considers the 'fair value' of its futures contracts to be the net unrealized gain or loss on the contracts. 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 Series B'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 its potential involvement is to make delivery of an underlying commodity at the contract price; therefore, it must repurchase the contract at prevailing market prices. 8 As of December 31, 1998, gross contract amounts of open futures contracts for Series B were:
1998 ------------ Stock Index Futures: Commitments to purchase $ 2,063,543 Commitments to sell 431,061 Interest Rate Futures: Commitments to purchase 18,765,253 Commitments to sell 33,264,891 Currency Futures: Commitments to purchase 2,212,998 Commitments to sell 4,951,649 Commodity Futures: Commitments to purchase 95,361 Commitments to sell 2,291,372
The following table presents the fair value of futures contracts at December 31, 1999 and 1998.
1999 1998 ---------------------------- ------------------------ Assets Liabilities Assets Liabilities ------------ ----------- -------- ----------- Domestic exchanges Stock indices $ -- $ 20,100 $ 24,250 $ -- Interest rates 126,538 -- 1,059 -- Currencies 35,254 130,915 156,861 4,900 Commodities 12,320 23,740 9,860 19,030 Foreign exchanges Stock indices 17,878 -- 43,079 -- Interest rates 110,580 9,267 187,766 45,758 Commodities 360,789 106,295 77,834 112,183 ------------ ----------- -------- ----------- $663,359 $ 290,317 $500,709 $ 181,871 ------------ ----------- -------- ----------- ------------ ----------- -------- -----------
The following table presents the average fair value and trading revenues of futures contracts for the period from June 10, 1998 (commencement of operations) through December 31, 1998.
Average Fair Value ---------------------------- Trading Assets Liabilities Revenues ------------ ----------- ---------- Domestic exchanges Stock indices $ 3,593 $ 1,322 $ 35,676 Interest rates 64,477 1,186 542,824 Currencies 134,149 14,868 661,699 Commodities 41,831 10,790 (290,729) Foreign exchanges Stock indices 23,604 6,608 3,084 Interest rates 152,397 18,819 740,433 Commodities 16,478 110,824 (218,350) ------------ ----------- ---------- $436,529 $ 164,417 $1,474,637 ------------ ----------- ---------- ------------ ----------- ----------
9 - -------------------------------------------------------------------------------- I hereby affirm that, to the best of my knowledge and belief, the information contained herein relating to World Monitor Trust--Series B is accurate and complete. PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC. (Managing Owner) by: Barbara J. Brooks Chief Financial Officer - -------------------------------------------------------------------------------- 10 WORLD MONITOR TRUST--SERIES B (a Delaware Business Trust) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Series B commenced operations on June 10, 1998 with gross proceeds of $5,709,093 allocated to commodities trading. Additional contributions raised through the continuous offering for the period from June 10, 1998 (commencement of operations) through December 31, 1999 resulted in additional gross proceeds to Series B of $21,046,056. Additional Interests of Series B will continue to be offered on a weekly basis at the net asset value per Interest until the Subscription Maximum of $33,000,000 is sold. Interests in Series B may be redeemed on a weekly basis, but are subject to a redemption fee if transacted within one year of the effective date of purchase. Redemptions of limited interests for the year ended December 31, 1999 were $2,708,339 and for the period from June 10, 1998 (commencement of operations) through December 31, 1999 were $2,954,661. Additionally, Interests owned in one Series may be exchanged, without charge, for Interests of one or more other Series on a weekly basis for as long as Interests in those Series are being offered to the public. Future contributions, redemptions and exchanges will impact the amount of funds available for investment in commodity contracts in subsequent periods. At December 31, 1999, 100% of Series B's net assets were allocated to commodities trading. A significant portion of the net assets was held in cash which is used as margin for Series B's trading in commodities. Inasmuch as the sole business of Series B is to trade in commodities, Series B continues to own such liquid assets to be used as margin. PSI credits Series B monthly with 100% of the interest it earns on the average net assets in Series B's accounts. The commodities contracts are subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, commodity exchanges limit fluctuations in certain commodity futures contract prices during a single day by regulations referred to as 'daily limits.' During a single day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract for a particular commodity has increased or decreased by an amount equal to the daily limit, positions in the commodity can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Commodity futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent Series B from promptly liquidating its commodity futures positions. Since Series B's business is to trade futures, forward and options contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk). Series B's exposure to market risk is influenced by a number of factors including the volatility of interest rates and foreign currency exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of Series B's speculative trading as well as the development of drastic market occurrences could result in monthly losses considerably beyond Series B's experience to date and could ultimately lead to a loss of all or substantially all of investors' capital. The Managing Owner attempts to minimize these risks by requiring Series B and its Trading Advisor to abide by various trading limitations and policies, which include limiting margin amounts, trading only in liquid markets and utilizing stop loss provisions. See Note F to the financial statements for a further discussion on the credit and market risks associated with Series B's futures, forward and options contracts. Series B does not have, nor does it expect to have, any capital assets. Results of Operations Series B commenced trading operations on June 10, 1998, and as such, a comparative analysis of the 1999 full year results versus the 1998 partial year results is not meaningful. Additionally, Series B's asset levels have continually increased since the commencement of operations in June 1998, primarily from additional contributions. The rising asset levels have led to proportionate increases in the amount of interest earned by Series B as well as commissions and management fees incurred. 11 As of December 31, 1999, Series B reported a net asset value per Interest of $121.63, an increase of 8.62% from the December 31, 1998 net asset value per Interest of $111.98, which was an increase of 11.98% from the June 10, 1998 initial net asset value per Interest of $100. These returns compare favorably to the MAR (Managed Account Reports) Fund/Pool Index which returned 1.48% in 1999 and 4.74% for the June 1998 through December 1998 period. MAR tracked the performance of 317 and 281 futures funds in 1999 and 1998, respectively. Net profits for Series B were the result of gains in the energy, index, metal, and financial sectors. Losses were experienced in the currency sector. Trading in the energy sector contributed the most profits to Series B during 1999. OPEC production cuts and low inventories drove the rally in crude oil and derivative products throughout most of the year. Also boosting crude oil's rise was high energy demand due to an unusually hot June and the threat of a Venezuelan oil workers strike in the third quarter. Long positions in crude and heating oil and unleaded gas provided profits in the first, second, and third quarters. Long index sector positions in the first quarter benefited from a global equity rally which was fueled into the second quarter by improving global economies. Third quarter performance was dampened when the U.S. stock market fell in expectation of an August interest rate hike. Global stock markets followed the U.S. market's lead. A market reversal in mid-October continued into November and December as it shrugged off interest rate increases and Y2K-related concerns. Long positions in the FTSE (London), CAC40 (Paris), S&P 500, SFE (Australia), and Nikkei Dow (Japan) indices posted gains. Most metal sector gains were achieved in the third quarter. Profits were derived from long copper, aluminum, zinc, and gold positions. Base metals benefited from the planned consolidation of aluminum and copper producers, as it promised better control of production and supply. Also, base metal prices, including zinc, moved higher as both growing demand and various production problems caused a decline in warehouse stocks. Gold prices rose following an auction by the Bank of England which yielded higher-than-expected prices. The market later surged following a joint announcement by 15 European Central Banks that they would not sell or lease any reserves, other than those previously designated for sale, for a period of five years. This announcement removed a tremendous amount of supply uncertainty from the market and allowed demand to send prices higher. Profits accumulated in the currency sector in the first, second, and third quarters were not enough to cover losses in the fourth. The Japanese yen surged to a four-year high against the U.S. dollar in November. The yen kept strengthening despite a disappointing Japanese economic stimulus package. Though ineffective, Japanese officials intervened during December to dampen the yen's appreciation. As a result, short Japanese yen positions incurred losses. In Europe, the euro fell amid fears that the European economic recovery was stagnating. The continuing strength of the U.S. economy along with the slow pace of German economic reforms helped to maintain pressure on the euro. Consequently, long euro positions added to Series B's losses. Interest income is earned on the average net assets held at PSI and, therefore, varies monthly according to interest rates, trading performance, contributions and redemptions. Interest income was approximately $1,003,000 and $257,000 for the year ended December 31, 1999 and the period from June 10, 1998 to December 31, 1998, respectively. As discussed above, the increase in interest income during 1999 versus 1998 was due primarily to the difference in the 1999 and 1998 periods covered as well as the increasing net assets as a result of additional contributions. However, lower overall interest rates in 1999 as compared with interest rates in 1998 offset some of the increase. Commissions are calculated on Series B's net asset value at the end of each week and therefore, vary according to weekly trading performance, contributions and redemptions. Commissions were approximately $1,541,000 and $375,000 for the year ended December 31, 1999 and the period from June 10, 1998 to December 31, 1998, respectively. Incentive fees are based on the New High Net Trading Profits generated by the Trading Advisor, as defined in the Advisory Agreement among the Trust, the Managing Owner and the Trading Advisor. Incentive fees were approximately $459,000 and $201,000 for the year ended December 31, 1999 and the period from June 10, 1998 to December 31, 1998, respectively. 12 All trading decisions for Series B are made by Eclipse Capital Management, Inc. (the 'Trading Advisor'). Management fees are calculated on Series B's net asset value at the end of each week and therefore, are affected by weekly trading performance, contributions and redemptions. Management fees were approximately $399,000 and $97,000 for the year ended December 31, 1999 and the period from June 10, 1998 to December 31, 1998, respectively. Accounting for Derivative Instruments In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative Instruments and Hedging Activities, which Series B adopted effective October 1, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires that an entity recognize all derivatives as assets or liabilities measured at fair value. SFAS No. 133 supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments and SFAS No. 105 Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity like Series B which carries its assets at fair value. The adoption of SFAS No. 133 has not had a material effect on the carrying value of assets and liabilities within the financial statements. Year 2000 Risk The arrival of year 2000 was much anticipated and raised serious concerns about whether or not computer systems around the world would continue to function properly and the degree of 'Year 2000 Problems' that would have to be resolved. Series B engages third parties to perform primarily all of the services it needs and also relies on other third parties such as governments, exchanges, clearinghouses, vendors and banks. Series B has not experienced any material adverse impact on operations related to Year 2000 Problems. While Series B believes that it has mitigated its Year 2000 risk, Series B cannot guarantee that an as yet unknown Year 2000 failure will not have a material adverse effect on Series B's operations. Inflation Inflation has had no material impact on operations or on the financial condition of Series B from inception through December 31, 1999. 13 OTHER INFORMATION The actual round-turn equivalent of brokerage commissions paid per contract for the year ended December 31, 1999 was $68. Series B's Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available to limited owners without charge upon written request to: World Monitor Trust--Series B P.O. Box 2016 Peck Slip Station New York, New York 10272-2016 14 Peck Slip Station BULK RATE P.O. Box 2016 U.S. POSTAGE New York, NY 10272 PAID Automatic Mail EX-27 3 ART. 5 FDS FOR 10-K
5 The Schedule contains summary financial information extracted from the financial statements for World Monitor Trust-Series B and is qualified in its entirety by reference to such financial statements 1051823 World Monitor Trust-Series B 1 Dec-31-1999 Jan-1-1999 Dec-31-1999 12-Mos 25,912,785 373,042 0 0 0 26,285,827 0 0 26,285,827 309,126 0 0 0 0 25,976,701 26,285,827 0 3,514,395 0 0 2,397,835 0 0 0 0 0 0 0 0 1,116,560 6.91 0
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