EX-13 3 sf15940a.txt WORLD MONITOR TRUST -- 12/31/02 ANNUAL 2002 ------------------------------------------------------------------------------- World Monitor Trust--Series C Annual Report LETTER TO LIMITED OWNERS FOR WORLD MONITOR TRUST--SERIES C 1 PricewaterhouseCoopers (LOGO) PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Telephone (646) 471-4000 Facsimile (646) 471-4100 Report of Independent Accountants To the Managing Owner and Limited Owners of World Monitor Trust--Series C In our opinion, the accompanying statements of financial condition, including the condensed schedules of investments, 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 C at December 31, 2002 and 2001 and the results of its operations and changes in trust capital for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP February 24, 2003 2 WORLD MONITOR TRUST--SERIES C (a Delaware Business Trust) STATEMENTS OF FINANCIAL CONDITION
December 31, --------------------------- 2002 2001 --------------------------------------------------------------------------------------------------- ASSETS Cash in commodity trading accounts $4,516,118 $5,467,182 Net unrealized gain on open futures contracts 178,518 218,663 ------------ ---------- Total assets $4,694,636 $5,685,845 ------------ ---------- ------------ ---------- LIABILITIES AND TRUST CAPITAL Liabilities Commissions payable $ 29,502 $ 33,998 Management fees payable 8,074 9,946 Redemptions payable -- 30,609 ------------ ---------- Total liabilities 37,576 74,553 ------------ ---------- Commitments Trust capital Limited interests (55,085.801 and 74,266.692 interests outstanding) 4,605,806 5,545,728 General interests (613 and 878 interests outstanding) 51,254 65,564 ------------ ---------- Total trust capital 4,657,060 5,611,292 ------------ ---------- Total liabilities and trust capital $4,694,636 $5,685,845 ------------ ---------- ------------ ---------- Net asset value per limited and general interests $ 83.61 $ 74.67 ------------ ---------- ------------ ---------- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 3 WORLD MONITOR TRUST--SERIES C (a Delaware Business Trust) Condensed Schedules of Investments
At December 31, ----------------------------------------------------------------- 2002 2001 ------------------------------- ------------------------------- Net Unrealized Net Unrealized Gain (Loss) Gain (Loss) as a % of Net Unrealized as a % of Net Unrealized Futures Contracts Trust Capital Gain (Loss) Trust Capital Gain (Loss) ------------------------------------------------------------------------------------------------------------- Futures contracts purchased: Stock indices $(12,076) $ 5,543 Interest rates 97,137 1,047 Currencies 35,638 18,150 Commodities 5,300 11,410 -------------- -------------- Net unrealized gain on futures contracts purchased 2.70% 125,999 0.64% 36,150 -------------- -------------- Futures contracts sold: Stock indices 47,072 (1,571) Interest rates 1,750 94,839 Currencies 3,697 81,825 Commodities -- 7,420 -------------- -------------- Net unrealized gain on futures contracts sold 1.13 52,519 3.25 182,513 ------ -------------- ------ -------------- Net unrealized gain on futures contracts 3.83% $178,518 3.89% $218,663 ------ -------------- ------ -------------- ------ -------------- ------ -------------- Settlement Currency--Futures Contracts Euro 0.36% $ 16,954 1.80% $101,142 Hong Kong dollar 0.54 25,146 (0.12) (6,797) Japanese yen 0.10 4,808 0.04 2,252 U.S. dollar 2.83 131,610 2.17 122,066 ------ -------------- ------ -------------- Total 3.83% $178,518 3.89% $218,663 ------ -------------- ------ -------------- ------ -------------- ------ -------------- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 4 WORLD MONITOR TRUST--SERIES C (a Delaware Business Trust) STATEMENTS OF OPERATIONS
Year Ended December 31, -------------------------------------------------- 2002 2001 2000 -------------------------------------------------------------------------------------------------------- REVENUES Net realized gain (loss) on commodity transactions $1,037,859 $ 54,273 $(2,966,111) Change in net unrealized gain on open commodity positions (40,145) (1,145,777) 415,646 Interest income 107,787 322,427 720,545 -------------------- ----------- ----------- 1,105,501 (769,077) (1,829,920) -------------------- ----------- ----------- EXPENSES Commissions 404,170 607,077 590,991 Management fees 104,539 157,049 152,433 -------------------- ----------- ----------- 508,709 764,126 743,424 -------------------- ----------- ----------- Net income (loss) $ 596,792 $(1,533,203) $(2,573,344) -------------------- ----------- ----------- -------------------- ----------- ----------- ALLOCATION OF NET INCOME (LOSS) Limited interests $ 589,864 $(1,515,619) $(2,531,322) -------------------- ----------- ----------- -------------------- ----------- ----------- General interests $ 6,928 $ (17,584) $ (42,022) -------------------- ----------- ----------- -------------------- ----------- ----------- NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST Net income (loss) per weighted average limited and general interest $ 9.14 $ (17.34) $ (17.03) -------------------- ----------- ----------- -------------------- ----------- ----------- Weighted average number of limited and general interests outstanding 65,324 88,445 151,116 -------------------- ----------- ----------- -------------------- ----------- ----------- --------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL INTERESTS INTERESTS INTERESTS TOTAL ----------------------------------------------------------------------------------------------------- Trust capital--December 31, 1999 192,411.407 $18,227,946 $239,953 $18,467,899 Contributions 9,814.185 823,864 -- 823,864 Net loss (2,531,322) (42,022) (2,573,344) Redemptions (97,851.579) (6,887,082) (95,319) (6,982,401) ----------- ----------- --------- ----------- Trust capital--December 31, 2000 104,374.013 9,633,406 102,612 9,736,018 Contributions 3,607.238 323,014 -- 323,014 Net loss (1,515,619) (17,584) (1,533,203) Redemptions (32,836.559) (2,895,073) (19,464) (2,914,537) ----------- ----------- --------- ----------- Trust capital--December 31, 2001 75,144.692 5,545,728 65,564 5,611,292 Contributions 49.340 4,000 -- 4,000 Net income 589,864 6,928 596,792 Redemptions (19,495.231) (1,533,786) (21,238) (1,555,024) ----------- ----------- --------- ----------- Trust capital--December 31, 2002 55,698.801 $ 4,605,806 $ 51,254 $ 4,657,060 ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 5 WORLD MONITOR TRUST--SERIES C (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 those of 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, Prudential Securities Futures Management Inc. (the 'Managing Owner'), is a wholly-owned subsidiary of Prudential Securities Incorporated ('PSI'), which, in turn, is an indirect wholly-owned subsidiary of Prudential Financial, Inc. ('Prudential'). PSI is the selling agent for the Trust, as well as its commodity broker ('Commodity Broker'). In February 2003, Prudential and Wachovia Corp. ('Wachovia') announced an agreement to combine each company's respective retail securities brokerage and clearing operations within a new firm, which will be headquartered in Richmond, Virginia. Under the agreement, Prudential will have a 38% ownership interest in the new firm and Wachovia will own 62%. The transaction, which includes the securities brokerage, securities clearing, and debt capital markets operations of PSI, but does not include the equity sales, trading and research operations or commodity brokerage and derivative operations of PSI, is anticipated to close in the third quarter of 2003. The Managing Owner, as well as the Commodity Broker, will continue to be indirect wholly owned subsidiaries of Prudential. The Offering Beneficial interests in each Series ('Interests') were offered once each week until each Series' subscription maximum was met either through sale or exchange or until the Managing Owner suspended the offering of Interests. 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. World Monitor Trust--Series C ('Series C') completed its initial offering with gross proceeds of $5,706,177 from the sale of 56,301.770 limited interests and 760 general interests. General interests were sold exclusively to the Managing Owner. World Monitor Trust--Series A was offered until it achieved its subscription maximum of $34,000,000 during November 1999. Interests in World Monitor Trust--Series B ('Series B') and Series C continued to be offered on a weekly basis at the then current net asset value per Interest until the Managing Owner suspended the offering of Interests for each Series. The Managing Owner suspended the offering of Interests in Series B and Series C and allowed all selling registrations to expire by April 30, 2002. As such, Interests owned in one Series of the Trust may no longer be exchanged for Interests of one or more other Series. While the Managing Owner does not anticipate doing so, it may, at its own election, reinstate the offering of Interests in Series B and Series C in the future. 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. The Trading Advisor Each Series has its own independent commodity trading advisor that makes that Series' trading decisions. As of June 7, 2000, Hyman Beck & Company, Inc. ('Hyman Beck') ceased to serve as a trading advisor to Series C. The advisory agreement among Series C, the Managing Owner and Hyman Beck was automatically terminated when the assets allocated to Hyman Beck declined by greater than 33 1/3% from their initial allocation on June 10, 1998. On November 13, 2000, the Managing Owner entered into a new advisory agreement with Northfield Trading L.P. (the 'Trading Advisor'), an independent commodities trading advisor, to make the trading decisions for Series C. The new advisory agreement may be terminated for various reasons, including at the 6 discretion of the Managing Owner. The management fee paid to the Trading Advisor equals 0.0385% of Series C's allocated assets determined as of the close of business each Friday (an annual rate of 2%), the same as was previously paid to Hyman Beck. The quarterly incentive fee paid to the Trading Advisor equals 20% of the 'New High Net Trading Profits' as defined in the advisory agreement among Series C, the Managing Owner and the Trading Advisor, as compared to 23% paid to Hyman Beck. Additionally, the Trading Advisor must recoup the cumulative trading losses of Hyman Beck before it is paid an incentive fee. Furthermore, since Series C's assets were not allocated to commodities trading from June 8, 2000 until the new Trading Advisor began trading, Series C was not subject to management fees or commissions during that period. The Managing Owner has allocated 100% of the proceeds from the initial and continuous offering of Series C to the Trading Advisor. Exchanges, Redemptions and Termination As a result of the Managing Owner having suspended the offering of Interests in Series B and Series C as discussed in Note A, Interests owned in one Series of the Trust (Series A, B or C) may no longer be exchanged for Interest of one or more other Series. Redemptions are permitted on a weekly basis at the then current net asset value per Interest. Interests redeemed on or before the end of the first and second successive six-month periods after their effective dates of purchase were subject to a redemption fee of 4% and 3%, respectively, of the net asset value at which they were redeemed. Redemption fees were 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 C are prepared in accordance with accounting principles generally accepted in the United States of America. Commodity futures and/or 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. Net unrealized gain or loss on open contracts denominated in foreign currencies and foreign currency holdings are translated into U.S. dollars at the exchange rates prevailing on the last business day of the year. Realized gains and losses on commodity transactions are recognized in the period in which the contracts are closed. The weighted average number of limited and general interests outstanding was computed for purposes of disclosing net income (loss) 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 C 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.' Income taxes Series C is treated as a partnership for Federal income tax purposes. As such, Series C 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 C may be subject to other state and local taxes in jurisdictions in which it operates. Profit and loss allocations and distributions Series C 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 7 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. New Accounting Guidance In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45 ('FIN 45'), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which Series C adopted at December 31, 2002. FIN 45 elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. Consistent with standard business practices in the normal course of business, Series C has provided general indemnifications to the Managing Owner, its Trading Advisor and others when they act, in good faith, in the best interests of Series C. Series C is unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but expects the risk of having to make any payments under these general business indemnifications to be remote. C. Fees Organizational, offering, general and administrative costs PSI or its affiliates paid the costs of organizing Series C and offering its Interests and continue to pay the administrative costs incurred by the Managing Owner or its affiliates for services they perform for Series C. 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 C paid Hyman Beck a management fee at an annual rate of 2% and a quarterly incentive fee equal to 23% of the 'New High Net Trading Profits' until June 2000 when Hyman Beck ceased to serve as trading advisor. As of November 13, 2000 a new advisory agreement was executed with the new Trading Advisor whereby Series C pays the new Trading Advisor a management fee at an annual rate of 2% and a quarterly incentive fee equal to 20% of the 'New High Net Trading Profits' as more fully discussed in Note A. The management fee is determined weekly and the sum of such weekly amounts is paid monthly. 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 C pays a fixed fee for brokerage services rendered at an annual rate of 7.75% of Series C'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 C, 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 Series C's routine operational, administrative, legal and auditing costs. Additionally, PSI or its affiliates paid the costs associated with offering Series C's Interests. The costs charged to Series C for brokerage services for the years ended December 31, 2002, 2001 and 2000 were $404,170, $607,077 and $590,991, respectively. All of the proceeds of the offering of Series C were received in the name of Series C and were deposited in trading or cash accounts at PSI, Series C's commodity broker. Series C's assets are maintained with PSI for margin purposes. PSI credits Series C monthly with 100% of the interest it earns on the average net assets in Series C's accounts. Series C, 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 8 over-the-counter currency transactions are conducted between PSI and Series C pursuant to a line of credit. PSI may require that collateral be posted against the marked-to-market positions of Series C. 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. Derivative Instruments and Associated Risks Series C is exposed to various types of risks associated with the derivative instruments and related markets in which it invests. These risks include, but are not limited to, risk of loss from fluctuations in the value of derivative instruments held (market risk) and the inability of counterparties to perform under the terms of Series C's investment activities (credit risk). Market risk Trading in futures and forward contracts (including foreign exchange) involves entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The gross or face amount of the contracts, which is typically many times that of Series C's net assets being traded, significantly exceeds Series C's future cash requirements since Series C intends to close out its open positions prior to settlement. As a result, Series C is generally subject only to the risk of loss arising from the change in the value of the contracts. As such, Series C considers the 'fair value' of its derivative instruments to be the net unrealized gain or loss on the contracts. The market risk associated with Series C's commitments to purchase commodities is limited to the gross or face amount of the contracts held. However, when Series C enters into a contractual commitment to sell commodities, it must make delivery of the underlying commodity at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the repurchase price to which a commodity can rise is unlimited, entering into commitments to sell commodities exposes Series C to unlimited risk. Market risk is influenced by a wide variety of factors including government programs and policies, political and economic events, the level and volatility of interest rates, foreign currency exchange rates, the diversification effects among the derivative instruments Series C holds and the liquidity and inherent volatility of the markets in which Series C trades. Credit risk When entering into futures or forward contracts, Series C is exposed to credit risk that the counterparty to the contract will not meet its obligations. The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearinghouse associated with the particular exchange. In general, clearinghouses are backed by their corporate members who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members (i.e., some foreign exchanges), it is normally backed by a consortium of banks or other financial institutions. On the other hand, if Series C enters into forward transactions, the sole counterparty is PSI, Series C's commodity broker. Series C has entered into a master netting agreement with PSI and, as a result, when applicable, presents unrealized gains and losses on open forward positions as a net amount in the statements of financial condition. The amount at risk associated with counterparty non-performance on all of Series C's contracts is the net unrealized gain included in the statements of financial condition; however, counterparty non-performance on only certain of Series C's contracts may result in greater loss than non-performance on all of Series C's contracts. There can be no assurance that any counterparty, clearing member or clearinghouse will meet its obligations to Series C. The Managing Owner attempts to minimize both credit and market risks by requiring Series C 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; 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 C, the Managing Owner and the trading advisor, Series C shall automatically terminate the Trading Advisor if the net asset value allocated to the Trading Advisor declines by 33 1/3% from 9 the value at the beginning of any year or since the effective date of the advisory agreement. Furthermore, the Second Amended and Restated Declaration of Trust and Trust Agreement provides that Series C will liquidate its positions, and eventually dissolve, if Series C 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 trading limitations and policies) upon the trading activities of the Trading Advisor as it, in good faith, deems to be in the best interest of Series C. PSI, when acting as Series C's futures commission merchant in accepting orders for the purchase or sale of domestic futures contracts, is required by Commodity Futures Trading Commission ('CFTC') regulations to separately account for and segregate as belonging to Series C all assets of Series C relating to domestic futures trading and is not permitted to commingle such assets with other assets of PSI. At December 31, 2002, such segregated assets totalled $1,676,320. Part 30.7 of the CFTC regulations also requires PSI to secure assets of Series C related to foreign futures trading which totalled $3,018,316 at December 31, 2002. There are no segregation requirements for assets related to forward trading. As of December 31, 2002, all of Series C's open futures contracts mature within six months. G. Financial Highlights
Year ended December 31, -------------------------------------- 2002 2001 ----------------- ----------------- Performance per Interest Net asset value, beginning of period $ 74.67 $ 93.28 -------- ----------------- Net realized gain and change in net unrealized gain on commodity transactions 15.13 (13.51) Interest income 1.65 3.53 Expenses (7.84) (8.63) -------- ----------------- Net increase (decrease) for the period 8.94 (18.61) -------- ----------------- Net asset value, end of period $ 83.61 $ 74.67 -------- ----------------- -------- ----------------- Total return 11.97% (19.95)% Ratio to average net assets Interest income 2.07% 4.11% Expenses 9.76% 9.74%
These financial highlights represent the overall results of Series C during 2002 and 2001. An individual limited owner's actual results may differ depending on the timing of contributions and redemptions. 10 -------------------------------------------------------------------------------- I hereby affirm that, to the best of my knowledge and belief, the information contained herein relating to World Monitor Trust--Series C is accurate and complete. PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC. (Managing Owner) By: Steven Weinreb Chief Financial Officer -------------------------------------------------------------------------------- 11 WORLD MONITOR TRUST--SERIES C (a Delaware Business Trust) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Series C commenced operations on June 10, 1998 with gross proceeds of $5,706,177 allocated to commodities trading. Additional contributions raised through the continuous offering from the sales of Interests for the years ended December 31, 2002 and 2001 and for the period from June 10, 1998 (commencement of operations) to December 31, 2002 result in additional gross proceeds to Series C of $4,000, $323,014 and $18,027,985, respectively. The Managing Owner suspended the offering of Interests in Series B and Series C and allowed all selling registrations to expire by April 30, 2002 as more fully discussed in Note A to the financial statements. Interests in Series C 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 and general interests for the year ended December 31, 2002 were $1,533,786 and $21,238, respectively; for the year ended December 31, 2001 were $2,895,073 and $19,464, respectively; and for the period from June 10, 1998 (commencement of operations) to December 31, 2002 were $14,267,065 and $136,021, respectively. Future redemptions will impact the amount of funds available for investment in commodity contracts in subsequent periods. At December 31, 2002, 100% of Series C's net assets were allocated to commodities trading. A significant portion of the net assets was held in cash, which was used as margin for Series C's trading in commodities. Inasmuch as the sole business of Series C is to trade in commodities, Series C continues to own such liquid assets to be used as margin. PSI credits Series C monthly with 100% of the interest it earns on the average net assets in Series C'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 C from promptly liquidating its commodity futures positions. Since Series C's business is to trade futures and forward 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 C'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 C's speculative trading, as well as the development of drastic market occurrences, could result in monthly losses considerably beyond Series C'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 C and its trading advisor to abide by various trading limitations and policies, which include limiting margin amounts, trading only in liquid markets and permitting the use of stop loss provisions. See Note F to the financial statements for a further discussion on the credit and market risks associated with Series C's futures and forward contracts. Series C does not have, nor does it expect to have, any capital assets. Results of Operations The net asset value per Interest as of December 31, 2002 was $83.61, an increase of 11.97% from the December 31, 2001 net asset value per Interest of $74.67, which was a decrease of 19.95% from the December 31, 2000 net asset value per Interest of $93.28. The CISDM Fund/Pool Qualified Universe Index (formerly the Zurich Fund/Pool Qualified Universe Index) returned 11.99% and 7.52% for the years ended December 31, 2002 and 2001, respectively. The CISDM Fund/Pool Qualified Universe Index is the dollar weighted, total return of all commodity pools tracked by Managed Account Reports, LLC. Past performance is not necessarily indicative of future results. 12 Series C's trading gains/(losses) before commissions were $998,000, $(1,092,000) and $(2,550,000) during the years ended December 31, 2002, 2001 and 2000, respectively. Due to the nature of Series C's trading activities, a period to period comparison of its trading results is not meaningful. Additionally, Series C did not participate in commodities trading during the period from the termination of Hyman Beck as a trading advisor to Series C to the commencement of trading activities by Northfield Trading L.P. as further discussed below. However, a detailed discussion of Series C's 2002 trading results is presented below. Net losses for Series C were experienced in the softs sector. Profits were the result of gains in the energy, currency, interest rate and index sectors. In the commodity markets, cotton rallied in the second quarter of the year as news of excessive rain and unseasonably cold weather in China led to a reduction of the estimated cotton crop output. Short cotton positions incurred losses resulting in net losses for Series C. Energy markets were volatile at the beginning of the year, but rose toward the first quarter-end as the escalating conflict in the Middle East prompted fears of an interruption in supplies. This, together with hopes for increased U.S. energy demand due to a recovering economy, reinforced the normal seasonal upward pressure on energy prices. Energy prices declined in the second quarter amid increased U.S. stock suggesting ample supply for the summer season and anticipation that Russia would discontinue output restrictions. Through the end of the year, energy markets climbed as fears of impending war with Iraq and the Venezuelan oil strike pushed crude oil prices up significantly. Crude oil rose from the low $20's per barrel earlier in the year to approximately $30 a barrel at year-end. Net gains for the Trust resulted from long natural gas and crude oil positions. In foreign exchange markets, the U.S. dollar remained strong in the first quarter against most major foreign currencies as the U.S. economy exhibited signs of recovery. The Japanese yen started the first quarter down against the U.S. dollar, but rose towards quarter-end as a result of a rally in the Japanese stock market and investors repatriating capital in anticipation of Japan's March 31st fiscal year-end. Most European currencies and the euro were weak early in the first quarter but rallied in March amid hopes of an economic recovery. In the second quarter, weak U.S. economic growth in relation to other economies and concerns regarding accounting irregularities in major U.S. corporations drove the dollar downward against the euro, British pound, Swiss franc and Japanese yen. The U.S. dollar reversed its trend in the beginning of the fourth quarter but traded lower against many major foreign currencies in December. The euro surpassed parity with the U.S. dollar early in the fourth quarter as investors1 desire for U.S. assets decreased, but ended the quarter lower, while the Japanese yen weakened as worries regarding the Japanese economy persisted. The market reacted to the sluggish U.S. economy, weaker foreign demand for the U.S. dollar and expectations of war with Iraq. The Japanese yen was weak throughout the quarter as a result of Japan's poor economy and the country's banking crisis while the British pound and Canadian dollar strengthened as a result of positive economic data. Long Japanese yen and euro positions resulted in net gains for Series C. Global bond markets trended lower through most of the first quarter amid growing prospects for imminent interest rate hikes by central banks. In the U.S., interest rates rose towards the end of the first quarter in response to stronger than expected economic data and indications that the U.S. Federal Reserve Bank (the 'Fed') would lean towards increasing rates in the near future. The Fed kept rates unchanged at 1.75% throughout the first three quarters of the year. Other central banks, including the European Central Bank and the Bank of Japan, generally followed the lead of the Fed leaving rates unchanged and foreign bond markets rose as well. In the second half of the year, the Japanese bond market was particularly strong as the Japanese economy continued to struggle with recession and investors fled to bonds for safety. Global bond prices in the fourth quarter were slightly weaker as interest rates rose in response to the stock market rally and optimism on economic prospects. This trend reversed when the Fed cut interest rates by 50 basis points to 1.25%, a new 40-year low, at its first quarterly meeting in November. This was the first rate cut of 2002, following 11 cuts in 2001. The Fed also switched its economic outlook for the near future from a bias toward 'economic weakness' to 'balanced'. U.S., Japanese and European bond markets ended the year strong, resulting in net gains for long European and U.S. Treasury bond positions. Global equity indices began the year choppily due to continuing weak economies and concerns about balance sheet reporting and accounting irregularities. Positive data and hopes of an economic recovery boosted stock markets towards the middle of the first quarter. However, as investor confidence collapsed in response to concerns about accounting transparency at some firms, heightened tension in the Middle East, and decreased corporate sales and profits, global equity markets moved sharply lower throughout the second quarter. This resulted in investors re-evaluating their outlook for a near-term economic recovery. Equity markets rallied in mid October, triggered by a surge of global economic optimism, but fell once again 13 towards the end of the year providing a negative return for the third consecutive year. Overall, equity markets around the world showed poor performance for 2002. In the U.S., the Dow Jones Industrial Average was down 16.76% for the year while the S&P 500 was down 23.37%. The London FTSE returned a negative 24.48% and the Hong Kong Hang Seng Index ended the year down 18.21%. Overall, short positions in the Hong Kong Hang Seng and Euro DAX resulted in net gains for Series C. As of June 7, 2000, Hyman Beck ceased to serve as trading advisor to Series C. The advisory agreement among Series C, the Managing Owner and Hyman Beck was automatically terminated when the assets allocated to Hyman Beck declined by greater than 33 1/3% from their initial allocation on June 10, 1998. On November 13, 2000, the Managing Owner entered into a new advisory agreement with the Trading Advisor to make the trading decisions for Series C. The management fee paid to the Trading Advisor equals 0.0385% of Series C's allocated assets determined as of the close of business each Friday (an annual rate of 2%), the same fee as was previously paid to Hyman Beck. The quarterly incentive fee paid to the Trading Advisor equals 20% of the 'New High Net Trading Profits' as defined in the advisory agreement among Series C, the Managing Owner and the Trading Advisor, as compared to 23% paid to Hyman Beck. Additionally, the Trading Advisor must recoup the cumulative trading losses of Hyman Beck before it is paid an incentive fee. Furthermore, since Series C's assets were not allocated to commodities trading from June 8, 2000 until the new Trading Advisor began trading, Series C was not subject to management fees or commissions during that period. Fluctuations in overall average net asset levels have led to corresponding fluctuations in interest earned and commissions and management fees incurred by Series C, which are largely based on the level of its net assets. Series C's average net asset levels were significantly lower during the year ended December 31, 2002 versus 2001, primarily due to redemptions offset, in part, by favorable trading performance during 2002. Series C's average net asset levels were significantly lower during the year ended December 31, 2001 versus 2000, primarily from redemptions and unfavorable trading performance during 2001. Interest income is earned on Series C's average net assets held at PSI and, therefore, varies weekly according to weekly trading performance, contributions and redemptions. Interest income decreased by $215,000 during 2002 as compared to 2001, primarily due to fluctuations in net asset levels as discussed above. Interest income decreased $398,000 during 2001 as compared to 2000 due to the fluctuations in net asset levels as discussed above. Additionally, declining interest rates during 2002 and 2001 contributed to the decrease in interest income earned. Commissions are calculated on Series C's net asset value at the end of each week and, therefore, vary according to weekly trading performance, contributions and redemptions. Commissions decreased $203,000 during 2002 as compared to 2001, but increased $16,000 during 2001 as compared to 2000 due to the fluctuations in average net asset levels, as well as the postponement of commissions charged to Series C by PSI on the net assets unallocated to commodities trading as discussed above. Management fees are calculated on Series C's net asset value at the end of each week and, therefore, are affected by weekly trading performance, contributions and redemptions. Management fees decreased $53,000 during 2002 as compared to 2001, but increased $5,000 during 2001 as compared to 2000 due to the fluctuations in average net asset levels, as well as the termination of Hyman Beck as the trading advisor of Series C as discussed above. Incentive fees are based on the 'New High Net Trading Profits' generated by the trading advisor, as defined in the advisory agreement among Series C, the Managing Owner and the trading advisor. Series C did not incur an incentive fee during 2000, 2001 and 2002. Inflation Inflation has had no material impact on operations or on the financial condition of Series C from inception through December 31, 2002. 14 OTHER INFORMATION The actual round-turn equivalent of brokerage commissions paid per contract for the year ended December 31, 2002 was $22. Series C'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 C/0TH Peck Slip Station P.O. Box 2303 New York, New York 10273-0005 15 0TH Peck Slip Station BULK RATE P.O. Box 2303 U.S. POSTAGE New York, NY 10273-0005 PAID Automatic Mail