<PAGE>
As filed with the Securities and Exchange Commission on October 23, 1996
Registration No. 33-80443
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 2 TO
F O R M S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WILLOWBRIDGE STRATEGIC TRUST
(Exact name of Registrant as specified in its charter)
Delaware 6799 13-7075398
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation) Industrial Classification) Identification No.)
One New York Plaza, 14th Floor
New York, New York 10292
(212) 214-7860
(Address and Telephone number of Registrant's principal executive offices)
_______________________________
James M. Kelso Copy to:
c/o Prudential Securities Incorporated Fred M. Santo
One New York Plaza, 14th Floor Rosenman & Colin LLP
New York, New York 10292 575 Madison Avenue
(212) 778-7860 New York, New York 10022
_______________________________
SUPPLEMENT DATED OCTOBER [ ], 1996 TO PROSPECTUS DATED FEBRUARY 7, 1996
The Supplement which is annexed hereto contains updated financial,
performance, and other material information, including information required
by CFTC rules.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 1996
WILLOWBRIDGE STRATEGIC TRUST
Minimum Investor Purchases to Commence Trading: $10,000,000
Minimum Initial Purchase: $5,000; IRAs $2,000
Minimum Additional Contribution: $100 increments
Maximum Trust Term: 20 years
Suitability: See "Investment Requirements/Who May Invest"
Willowbridge Strategic Trust (the "Trust") will engage
primarily in the speculative trading of a diversified portfolio of
futures, forward and options contracts. Willowbridge Associates
Inc. (the "Trading Manager") will make the Trust's trading decisions
utilizing a combination of technical and fundamental economic analysis.
Prudential Securities Incorporated ("Prudential Securities") will act
as the Trust's clearing broker. Prudential Securities Futures Management
Inc. (the "Managing Owner"), a wholly owned subsidiary of Prudential
Securities, will manage the Trust's business and affairs. Wilmington Trust
Company, a Delaware Banking Company, will act as the Trust's sole trustee
and will have only nominal duties and liabilities. See page 41.
The Trading Manager is independent of the Trust, Prudential Securities,
the Managing Owner and Wilmington Trust Company.
This is a best-efforts offering of limited liability
beneficial interests ("Interests") in the Trust during an initial
offering period of up to 120 days and a continuous offering period
thereafter. Prudential Securities or its affiliates will pay
all expenses of the organization of the Trust and the offering
of Interests. Accordingly, 100% of the subscription proceeds will
be available to the Trust. The holders of Interests
are referred to herein as "Limited Owners". Subscription
proceeds plus interest will be promptly returned to subscribers
if $10,000,000 is not sold during the initial offering
period. The Managing Owner will have general liability for
all obligations of the Trust in excess of the Trust's assets and
will own general liability interests ("General
Interests") in the Trust. The Limited Owners' liability generally
will be limited to their investment plus profits. See "Liabilities"
at page 72.
THESE ARE SPECULATIVE SECURITIES AND AN INVESTMENT IN THE TRUST
INVOLVES A HIGH DEGREE OF RISK (SEE "RISK FACTORS" AT PAGES
19 TO 25), INCLUDING THE FOLLOWING:
-- futures, forward and options trading is speculative, volatile
and highly leveraged;
-- the Trust is largely reliant on the Trading Manager for success;
-- past performance is not necessarily indicative of future results;
-- a Limited Owner's tax liability is likely to exceed his cash
distributions;
-- substantial charges will be imposed on the Trust; and it
is estimated the Trust will have to achieve net trading
profits (after taking interest income into account) of
approximately 6.55% per annum in order to offset expenses,
and of approximately 9.55% to also offset the 3% redemption
charge imposed on an Interest being redeemed as of
the end of the 12th month following its sale;
-- Limited Owners will have limited voting rights and no
control over the Trust's business;
-- a Limited Owner could lose a substantial portion, or even
all, of his investment;
-- Limited Owners will have a limited ability to liquidate
their Interests because transferability is restricted,
redemption is limited and no trading market exists;
-- actual and potential conflict of interests exist;
-- Prudential Securities and its affiliates have been involved
in several lawsuits, investigations, and enforcement actions
by regulatory authorities, including various
matters surrounding allegations relating to the sale of
interests in over 700 non-commodities limited partnerships.
See pages 42 to 45.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE
MERITS OF PARTICIPATING IN THE TRUST NOR HAS SUCH COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
<TABLE>
<CAPTION>
Price to Public (1) Selling Proceeds to the
Commissions (1) Trust (1)(2)
<S> <C> <C> <C>
Initial Offering Period $100 None $ 100
Continuous Offering Period Net Asset Value* None Net Asset Value*
Total minimum $ 10,000,000 None $ 10,000,000
Total maximum $100,000,000 None $100,000,000
</TABLE>
(Notes 1 and 2 are on pages 2 and 3)
* Net Asset Value is defined on page A-4 of the Trust Agreement (Exhibit A
hereto).
The date of this Prospectus is February 7, 1996
<PAGE>
NOTES
(1) The Interests are being offered through Prudential Securities at a
minimum initial purchase of $5,000 per subscriber, except that a minimum
initial purchase of $2,000 generally is required for any investment made on
behalf of an Individual Retirement Account ("IRA"). The Interests are being
sold initially at $100 per Interest. The $100 per Interest price reflects the
full net Asset Value per Interest and was determined arbitrarily. Following
the conclusion of the initial offering period, Interests will be sold on a
monthly basis at their month-end Net Asset Value per Interest for a period
which will expire no later than two years from the date of this Prospectus.
Existing Limited Owners will be permitted to purchase additional Interests in
increments of $100 during the continuous offering period. Prudential
Securities will receive no selling commissions or concessions on the sale of
Interests. Prudential Securities has no present intention, but reserves the
right to retain certain selected brokers or dealers which are members of the
National Association of Securities Dealers, Inc. ("Additional U.S. Sellers")
and/or certain foreign securities firms ("Additional Foreign Sellers" and,
together with Additional U.S. Sellers, "Additional Sellers"). At no
additional cost to the Trust, Prudential Securities will provide the
Prudential Securities branch office from which a Limited Owner (other than an
Individual Retirement Account of an employee of Prudential Securities) was
sold an Interest with a per Interest sales credit at the time of sale. From
this sales credit, not more than 2.5% of the Net Asset Value per Interest
normally will be paid to the employees of Prudential Securities who have sold
Interests and who have all the appropriate federal and state securities
registrations. Any Additional Sellers retained by the Trust during the
Initial Offering Period will be paid by Prudential Securities, at no
additional cost to the Trust, at rates which will not generally exceed 2.5%
of the Net Asset Value per Interest.
Employees of Prudential Securities who have sold Interests and who are
registered under the Commodity Exchange Act, as amended (the "CE Act"), and
satisfy all applicable proficiency requirements (i.e., have passed the Series
3 or Series 31 examinations or are exempt therefrom), in addition to having
all applicable federal and state securities registrations, will, on an
Interest-by-Interest basis, beginning 12 months after the month in which the
sale of each Interest is effective, receive periodically from Prudential
Securities compensation in consideration for certain additional services
rendered by them on an ongoing basis to Limited Owners (other than an
Individual Retirement Account of employee of Prudential Securities). Such
compensation will be in an amount which will not generally exceed 2% of the
Trust's Net Asset Value per annum. Prudential Securities will not pay any
portion of such compensation to any individual who it no longer employs and
may pay such compensation to certain of its employees who, although not
responsible for the sale of an outstanding Interest, provide certain
continuing services in place of the individual who was responsible for such
sale, provided such individual has the appropriate registrations and
proficiency requirements. Any Additional Sellers retained by the Trust also
will receive such continuing compensation with any employees of Additional
U.S. Sellers receiving such compensation being required to be registered and
qualified in the same manner as Prudential Securities employees. See
"Investment Requirements/Who May Invest" at page 35 and "Plan of Distribution"
at page 38. See also "Fees, Compensation and Expenses" at page 50 and
"Summary of Brokerage Agreement" at page 63.
The Trust has agreed to indemnify Prudential Securities, the Managing
Owner and their respective officers, directors, and affiliates against certain
liabilities. However, no indemnification will be made for liabilities, if
any, under federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court
approves the indemnification, or (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves the indemnification, or (iii) a
court of competent jurisdiction approves a settlement of the claims against
a particular indemnitee and finds that indemnification of the settlement and
related costs should be made to the indemnitee. See "Summary of Trust
2
<PAGE>
Agreement - Indemnification" at page 73 and Section 4.6 of the Trust Agreement
attached hereto as Exhibit A.
(2) The proceeds from the sale of Interests during the initial offering
period will be deposited in escrow at The Bank of New York in New York, N.Y.
(the "Escrow Agent") until the termination of the initial offering period.
The initial offering period shall expire not later than one hundred twenty
(120) days from the date of this Prospectus (the "Initial Offering Period").
In the event an aggregate of 100,000 or more Interests (the "Subscription
Minimum") are sold, the Managing Owner may, at any time thereafter, terminate
the Initial Offering Period. All interest earned, if any, on the proceeds of
subscriptions during the Initial Offering Period will be distributed to
subscribers on a pro rata basis (taking into account both the time and amount
of deposit) within ten (10) business days of the successful conclusion of the
Initial Offering Period, or as soon thereafter as practicable if payment
cannot be made within such time period. The Managing Owner and the Trading
Manager may purchase an unlimited number of Interests for investment purposes
only, and such purchases (up to $500,000) will be counted for the purpose of
determining whether the Subscription Minimum has been sold during the Initial
Offering Period. The Trust will commence its business activities as soon as
practicable after the successful conclusion of the Initial Offering Period.
If the Subscription Minimum is not sold during the Initial Offering Period,
then promptly, but in no event later than ten (10) business days thereafter,
the entire purchase price paid by a subscriber, plus a pro rata share of
interest earned thereon (taking into account both the time and amount of
deposit), if any, will be returned to the subscriber. Interest will be
distributed to subscribers via check from the Escrow Agent. In the case of
IRA accounts, such checks will be transmitted to Prudential Securities (or an
Additional Seller) for deposit into such IRA accounts. See "Plan of
Distribution" at page 38 and "Subscription Procedure and Escrow of Funds" at
page 39. In the event that the return of subscription funds and/or interest
cannot be distributed within the prescribed ten (10) business day time period,
it will be paid as soon thereafter as practicable.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH EITHER SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO.
----------------------------------
Until May 7, 1996 (90 days after the date hereof), all dealers effecting
transactions in the Interests, whether or not participating in this
distribution, may be required to deliver a current copy of this Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to the date hereof.
3
PAGE
<PAGE>
COMMODITY FUTURES TRADING COMMISSION ("CFTC")
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 50-52 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT AT PAGE 18.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT AT PAGE 19.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES
OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY
BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION
TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY
AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF
REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS
WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
ALSO BEFORE YOU DECIDE TO PARTICIPATE IN THIS POOL, YOU SHOULD NOTE THAT
YOUR POTENTIAL LIABILITY AS A PARTICIPANT IN THIS POOL FOR TRADING LOSSES AND
OTHER EXPENSES OF THE POOL IS NOT LIMITED TO THE AMOUNT OF YOUR CONTRIBUTION FOR
THE PURCHASE OF AN INTEREST IN THE POOL AND ANY PROFITS EARNED THEREON. A
COMPLETE DESCRIPTION OF THE LIABILITY OF A PARTICIPANT IN THIS POOL IS EXPLAINED
MORE FULLY IN THIS DISCLOSURE DOCUMENT AT PAGE 72.
4
<PAGE>
TABLE OF CONTENTS
Commodity Futures Trading
Commission "CFTC" Risk
Disclosure Statement. . . . . . . . . . . . . . . . . . . . . . 4
Summary of the Prospectus. . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Trading Risks . . . . . . . . . . . . . . . . . . . . . . . . .20
Risks Relating to the
Trading Manager . . . . . . . . . . . . . . . . . . . . . . .21
Risks Relating to the Trust
and the Offering. . . . . . . . . . . . . . . . . . . . . . .23
Tax and ERISA Risks . . . . . . . . . . . . . . . . . . . . . .24
Regulatory Risks. . . . . . . . . . . . . . . . . . . . . . . .25
Business of the Trust. . . . . . . . . . . . . . . . . . . . . . . .26
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .26
Trust's Trading Limitations and
Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Trading Limitations . . . . . . . . . . . . . . . . . . . . . .28
Trading Policies. . . . . . . . . . . . . . . . . . . . . . . .28
Description of the
Trading Manager . . . . . . . . . . . . . . . . . . . . . . . .29
The Trading Manager and its
Principals . . . . . . . . . . . . . . . . . . . . . . . .29
Initial Trading Approach
to be Used by the Trading
Manager for the Trust . . . . . . . . . . . . . . . . . . . . .31
Investment Requirements/Who May
Invest. . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Minimum Purchases . . . . . . . . . . . . . . . . . . . . . . .35
Net Worth and Income
Requirements . . . . . . . . . . . . . . . . . . . . . . .35
Receipt of Prospectus . . . . . . . . . . . . . . . . . . . . .36
Fundamental Knowledge . . . . . . . . . . . . . . . . . . . . .36
Ineligible Investors. . . . . . . . . . . . . . . . . . . . . .36
Employee Benefit Plan
Considerations. . . . . . . . . . . . . . . . . . . . . . . .36
Publicly Offered Security . . . . . . . . . . . . . . . . . . .37
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . .38
Initial Offering. . . . . . . . . . . . . . . . . . . . . . . .38
Continuous Offering . . . . . . . . . . . . . . . . . . . . . .38
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Subscription Procedure and Escrow
of Funds. . . . . . . . . . . . . . . . . . . . . . . . . . .39
How to Subscribe. . . . . . . . . . . . . . . . . . . . . . . .39
Ways to Subscribe . . . . . . . . . . . . . . . . . . . . . . .39
When Does Subscription
Become Final. . . . . . . . . . . . . . . . . . . . . . . . .39
Escrow of Funds . . . . . . . . . . . . . . . . . . . . . . . .40
Continuous Offering . . . . . . . . . . . . . . . . . . . . . .40
The Trust, Trustee, Managing
Owner and Affiliates. . . . . . . . . . . . . . . . . . . . . .41
Organization. . . . . . . . . . . . . . . . . . . . . . . . . .41
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . .41
Prudential Securities
Group Inc.. . . . . . . . . . . . . . . . . . . . . . . . . .41
Prudential Securities
Incorporated. . . . . . . . . . . . . . . . . . . . . . . . .42
The Managing Owner. . . . . . . . . . . . . . . . . . . . . . .45
Directors and Officers of
the Managing Owner. . . . . . . . . . . . . . . . . . . . . .46
Duties of the Managing Owner . . . . . . . . . . . . . . . . . . . .47
Fiduciary Responsibility . . . . . . . . . . . . . . . . . . . . . .48
Managing Owner's Minimum Purchase
and Net Worth Obligations . . . . . . . . . . . . . . . . . . .49
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . .50
<PAGE>
Fees, Compensation and Expenses. . . . . . . . . . . . . . . . . . .50
Actual and Potential Conflicts of
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Commodity Trading. . . . . . . . . . . . . . . . . . . . . . . . . .57
Summary of Advisory Agreement. . . . . . . . . . . . . . . . . . . .60
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Term and Termination. . . . . . . . . . . . . . . . . . . . . .61
Other Business of the
Trading Manager . . . . . . . . . . . . . . . . . . . . . . .62
Liability and
Indemnification . . . . . . . . . . . . . . . . . . . . . . .63
Name of Trust . . . . . . . . . . . . . . . . . . . . . . . . .63
Summary of Brokerage Agreement . . . . . . . . . . . . . . . . . . .63
Commodity Brokerage . . . . . . . . . . . . . . . . . . . . . .64
Foreign Currency
Transactions. . . . . . . . . . . . . . . . . . . . . . . . .64
Custodial Functions . . . . . . . . . . . . . . . . . . . . . .64
Administrative Functions. . . . . . . . . . . . . . . . . . . .64
Flat Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Liability . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Summary of Trust Agreement . . . . . . . . . . . . . . . . . . . . .65
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Management Responsibilities
of the Managing Owner . . . . . . . . . . . . . . . . . . . .66
Transfer of Interests . . . . . . . . . . . . . . . . . . . . .66
Redemption of Interests . . . . . . . . . . . . . . . . . . . .67
Termination . . . . . . . . . . . . . . . . . . . . . . . . . .68
Reports and Accounting. . . . . . . . . . . . . . . . . . . . .69
Distributions . . . . . . . . . . . . . . . . . . . . . . . . .71
Sharing of Profits
and Losses. . . . . . . . . . . . . . . . . . . . . . . . . .71
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .72
Election or Removal of
Managing Owner. . . . . . . . . . . . . . . . . . . . . . . .73
Exercise of Rights by
Limited Owners. . . . . . . . . . . . . . . . . . . . . . . .73
Indemnification . . . . . . . . . . . . . . . . . . . . . . . .74
Amendments and Meetings . . . . . . . . . . . . . . . . . . . .74
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . .75
Income Tax Consequences. . . . . . . . . . . . . . . . . . . . . . .75
Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . .76
Classification as a
Partnership . . . . . . . . . . . . . . . . . . . . . . . . .76
Other Tax Factors . . . . . . . . . . . . . . . . . . . . . . .79
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Additional Information . . . . . . . . . . . . . . . . . . . . . . .89
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . .90
Management's Discussion of
Financial Condition . . . . . . . . . . . . . . . . . . . . . .94
Financial Statements
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . .95
The Managing Owner and an
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . .99
Past Performance Information
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . 108
Other Pools Sponsored by
the Managing Owner and its
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 108
The Trading Manager . . . . . . . . . . . . . . . . . . . . . 109
Exhibit A - Form of Trust Agreement. . . . . . . . . . . . . . . . A-1
Exhibit B - Form of Request for
Redemption. . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Form of Subscription
Agreement . . . . . . . . . . . . . . . . . . . . . . . C-1
- State Suitability
Requirements . . . . . . . . . . . . . . . . . . . . . C-7
5
PAGE
<PAGE>
SUMMARY OF THE PROSPECTUS
This summary of certain provisions of this Prospectus which is proposed to
be used beginning February 7, 1996, is intended for quick reference only and
does not purport to be complete. More detailed information is found in the
remainder of this Prospectus, and this summary is, therefore, qualified in
its entirety by the information appearing elsewhere herein and in the
exhibits annexed hereto.
Formation of Trust Willowbridge Strategic Trust (the "Trust") was
formed as a Delaware business trust on
October 16, 1995.
The principal offices of the Trust and the
Managing Owner are located at One New York Plaza,
13th floor, New York, New York 10292-2013 and
their telephone number is (212) 778-7866. The
Trust maintains its registered office in the
State of Delaware c/o Wilmington Trust Company
(the "Trustee"), Rodney Square North, 110 North
Market Street, Wilmington, Delaware 1989.
Risk Factors THESE ARE SPECULATIVE SECURITIES AND AN INVESTMENT
IN THE TRUST INVOLVES A HIGH DEGREE OF RISK,
INCLUDING THE FOLLOWING:
-- futures, forward and options trading is
speculative, volatile and highly leveraged;
-- the Trust is reliant on the Trading Manager for
success;
-- past performance is not necessarily indicative
of future results;
-- a Limited Owner's tax liability is likely to
exceed his cash distributions;
-- substantial charges will be imposed on the
Trust; and it is estimated the Trust will have
to achieve net trading profits (after taking
interest income into account) of approximately
6.55% per annum in order to offset expenses,
and of approximately 9.55% to also offset the
3% redemption charge imposed on an Interest
being redeemed as of the end of the 12th month
following its sale;
-- Limited Owners will have limited voting rights
and no control over the Trust's business;
-- a Limited Owner could lose a substantial
portion, or even all, of his investment;
-- Limited Owners will have a limited ability to
liquidate their Interests because
transferability is restricted, redemption is
limited and no trading market exists;
6
PAGE
<PAGE>
-- actual and potential conflict of interests
exist;
-- Prudential Securities and its affiliates have
been involved in several lawsuits,
investigations, and enforcement actions by
regulatory authorities, including various
matters surrounding allegations relating to the
sale of interests in over 700 non-commodities
limited partnerships. See pages 42 to 45.
Liabilities The Trust Agreement provides that the Managing
Owner will have unlimited liability for the
obligations of the Trust in excess of the Trust's
assets. A Limited Owner's capital contribution
is subject to the risks of the Trust's business.
The Delaware Business Trust Statute provides
that, except to the extent otherwise provided in
the Trust Agreement, a Limited Owner shall be
entitled to the same limitation of personal
liability extended to shareholders of private
Delaware corporations for profit. A Limited
Owner in the Trust generally cannot lose more
than his or its investment and his or its share
of the Trust's profits, although under Delaware
law a Limited Owner's potential liability is not
limited to that. See "Summary of Trust
Agreement--Liabilities" at page 72 for a more
complete explanation.
Trading Activities The Trust will engage primarily in the
speculative trading of a diversified portfolio of
commodity futures, forward and options contracts.
Cash and spot transactions also may be effected
from time to time. Willowbridge Associates Inc.
("Willowbridge" or the "Trading Manager"), a
professional commodity trading manager, initially
has been selected by the Managing Owner to make
the Trust's commodities trading decisions. The
Trading Manager will be allocated 100% of the
Trust's initial Net Asset Value for trading
purposes. The Trust's investment objective is
the long-term appreciation of its assets, while
controlling risk and volatility. THERE IS NO
ASSURANCE THAT THIS INVESTMENT OBJECTIVE WILL BE
MET AND AN INVESTOR IN THE TRUST COULD LOSE ALL
OR A SUBSTANTIAL PORTION OF HIS INVESTMENT. No
business operations will commence until the
Subscription Minimum is sold. See "Business of
the Trust" at page 26, "Plan of Distribution" at
page 38, "Subscription Procedure and Escrow of
Funds" at page 39, "Trust's Trading Limitations
and Policies" at page 27, and "Description of the
Trading Manager" at page 29.
7
PAGE
<PAGE>
Segregated Accounts/
Interest Income The net proceeds of this offering will be
deposited in cash in a segregated trading account
or accounts at Prudential Securities for as long
as the Trust's brokerage agreement with
Prudential Securities remains in effect.
Prudential Securities will credit the Trust with
80% of the interest it earns on such deposits and
will retain the balance. Currently, such rate is
approximately equal to the Federal Funds rate,
but may change from time to time.
Except with respect to the portion of the Trust's
assets utilized as margin to maintain the Trust's
forward currency contract positions (not expected
to exceed 8%), the Trust's assets will be
maintained with Prudential Securities in
accordance with CFTC segregation requirements as
set forth in the Commodity Exchange Act and the
regulations thereunder. The Trust's funds will
not be invested in or loaned to any other person
or entity. See "Use of Proceeds" at page 26,
"Trust's Trading Limitations and Policies" at
page 27 and "Summary of Brokerage Agreement" at
page 63.
The Trading Manager Trading decisions for the Trust initially will be
effected pursuant to the instructions of
Willowbridge, an independent professional
commodity trading manager retained by the
Managing Owner on the Trust's behalf (the
"Trading Manager"), which will be allocated 100%
of the Trust's initial assets. In its trading on
behalf of the Trust, Willowbridge initially will
allocate the Trust's assets to one or more of the
following five trading strategies: XLIM, Argo,
Titan, Vulcan and Siren. See "Description of the
Trading Manager--Description of the Trading
Manager's Trading Approach" at page 31. The
percentage of Trust assets to be allocated at any
point in time to these trading strategies will be
determined by the Managing Owner after
consultation with the Trading Manager based on
their assessment of market conditions, Trading
Manager capacity (i.e., the amount that the
Trading Manager can trade effectively without
violating its trading and risk management
capabilities), risk/reward considerations,
performance and other factors not currently known
but deemed relevant at the time. It is currently
intended that the initial allocation will be XLIM
- 50%, Argo - 20%, and Titan, Vulcan and Siren -
10% each. This initial allocation may be altered
if the Managing Owner determines it is in the
Trust's best interests to do so. It is also
expected that between 15% and 40% of the Trust's
assets normally will be committed as margin for
commodities trading, but from time to time these
percentages may be substantially more or less.
8
PAGE
<PAGE>
See "Description of the Trading Manager" at page
29 and "Trust's Trading Limitations and Policies"
at page 27.
The Advisory Agreement The Advisory Agreement among the Trust, the
Managing Owner and the Trading Manager (the
"Advisory Agreement") will be for an initial term
of approximately one year, expiring on the later
of (i) the last day of the month ending twelve
full months following the commencement of the
Trust's trading activities and (ii) December 31,
1996, and may be renewed thereafter for
additional successive one-year terms. See
"Summary of Advisory Agreement" at page 60. The
Managing Owner may retain additional or sub-
stitute commodity trading managers, at its
discretion, but has no current intention to do
so.
The Managing Owner Prudential Securities Futures Management Inc.
(the "Managing Owner"), a Delaware corporation,
will administer the business and affairs of the
Trust (exclusive of commodity trading decisions,
except in certain limited, and essentially
emergency, situations). The Managing Owner is a
wholly owned subsidiary of Prudential Securities
Incorporated ("Prudential Securities"). See
"Actual and Potential Conflicts of Interest" at
page 54. The Managing Owner will make such
contributions as are necessary to maintain at
least a 1% interest in the Trust's profits and
losses at all times. See "Managing Owner's
Minimum Purchase and Net Worth Obligations" at
page 49. By the conclusion of the Initial
Offering Period, the Managing Owner will have
contributed between $101,000 and $1,010,000
(depending upon the total number of Interests
sold) to the Trust on the Initial Closing Date
and will receive General Interests in return
therefor.
The Trustee Wilmington Trust Company, a Delaware banking
corporation, is the Trust's sole trustee. The
Trustee has delegated to the Managing Owner all
of the power and authority to manage the business
and affairs of the Trust and will have only
nominal duties and liabilities with respect to
the Trust.
Prudential Securities
Incorporated Prudential Securities, the parent of the Managing
Owner, will act as the clearing broker and may
execute, and will clear, the Trust's futures and
options transactions and will perform certain
administrative services for the Trust including,
without limitation, preparing and transmitting to
Limited Owners account statements and periodic
reports, calculating equity balances and margin
requirements and communicating with Limited
9
PAGE
<PAGE>
Owners. See "Summary of Brokerage Agreement" at
page 64. Prudential Securities is a wholly owned
subsidiary of Prudential Securities Group Inc.
("PSGI"). PSGI is an indirect wholly owned
subsidiary of The Prudential Insurance Company of
America. Because of such affiliations, the fee
to be paid by the Trust to Prudential Securities
was not negotiated at arm's length. See "Actual
and Potential Conflicts of Interest" at page 54.
The Trust also intends to engage in foreign
currency forward transactions with Prudential
Securities, which will in turn engage in
back-to-back transactions with Prudential-Bache
Forex (USA) Inc. and its subsidiaries ("PBFI"),
affiliates of Prudential Securities, as principal
in which PBFI will attempt to earn a profit on
the spread in such transactions. Even though
PBFI is an affiliate, PBFI is required to charge
a competitive spread. All compensation paid to
Prudential Securities will be within the overall
limits set forth in the guidelines for the
Registration of Commodity Pool Programs imposed
by the North American Securities Administrators
Association, Inc. ("NASAA Guidelines").
Income Tax Consequences The Trust has obtained an opinion of counsel to
the effect that, under current federal income tax
law, the Trust will be classified as a
partnership and not as an association taxable as
a corporation and, accordingly, the Limited
Owners in the Trust will be subject to federal
income tax treatment applicable to limited
partners in a partnership. Except as expressly
set forth under the heading "Income Tax
Consequences--Opinion of Counsel", no opinion is
expressed with respect to the tax consequences to
a Limited Owner of this investment.
Assuming the Trust is classified as a partnership
for federal income tax purposes, the Trust itself
is not expected to be subject to federal income
tax. Instead, each Limited Owner generally will
recognize taxable income in an amount equal to
such Owner's allocable share of any Trust trading
profits and other Trust income (whether or not
any cash is distributed). The deductibility of
any losses and expenses relating to the Trust's
trading activities may be subject to significant
limitations. Special tax risks will apply to
tax-exempt Limited Owners and to non-United
States investors. The Internal Revenue Code has
undergone significant changes in recent years,
many of which have not yet been interpreted by
the Internal Revenue Service or the courts, and
the effect of such changes therefore may not
always be determined with certainty. The tax
laws applicable to the Trust and an investment in
Interests are subject to change. For a more
complete discussion of tax risks relating to this
10
<PAGE>
investment, see "Risk Factors - Tax and ERISA
Risks" at page 24 and "Income Tax Consequences"
at page 75.
Investment Requirements/
Who May Invest Each investor must represent and warrant to the
Trust in the Subscription Agreement that, among
other things, the investor's net worth and annual
income satisfy certain minimum requirements.
Generally, such requirements are that subscribers
have a net worth (exclusive of home, home
furnishings and automobiles) of at least $150,000
or a net worth, similarly calculated, of at least
$45,000 and an annual gross income of at least
$45,000, while many states impose greater net
worth and/or income requirements. See "State
Suitability Requirements" in the Subscription
Agreement annexed as Exhibit C hereto. IRAs,
Keogh and other employee benefit plans are
subject to special suitability requirements.
Investors should not subscribe unless they
understand, among other things, (i) the
fundamental risks and possible financial hazards
of the investment, (ii) that the Interests lack
liquidity, (iii) that the Managing Owner will
manage and control the Trust's business and
operations, (iv) the tax consequences of the
investment, (v) the potential limitations on an
Interestholder's limited liability and (vi) the
Trust's structure (including fees) and proposed
trading activities. Moreover, no one may invest
more than 10% of his or her liquid net worth
(exclusive of home, home furnishings and
automobiles) in the Trust. With respect to an
IRA, Keogh and other ERISA subscribers, an
investment in the Trust should comprise no more
than 10% of the IRA, Keogh or ERISA Plan's assets
at the time of subscription. See "Risk Factors"
at page 19, "Description of the Trading Manager"
at page 29, "Investment Requirements/Who May
Invest" at page 35, "Fees, Compensation and
Expenses" at page 50, "Actual and Potential
Conflicts of Interest" at page 54, "Income Tax
Consequences" at page 75, and the Subscription
Agreement (annexed as Exhibit C hereto).
Plan of Distribution The Trust is offering a maximum of $100,000,000
of Limited Interests (the "Interests"). The
Trust may commence operations at any time
following the sale of the $10,000,000
Subscription Minimum. Any subscription may be
rejected in whole or in part by the Managing
Owner for any reason.
11
PAGE
<PAGE>
The Interests are being offered through
Prudential Securities. Additional Sellers also
may be utilized. All subscribers will be
required to have a securities account at
Prudential Securities (or an Additional Seller)
and to have funds in that account at the time of
subscription in an amount at least equal to the
amount subscribed for, which account will be
debited by Prudential Securities or such
Additional Seller for the full amount of the
subscription. The Trust will only accept
subscriptions in cash. In the event a subscriber
determines to sell securities in its Prudential
Securities account in order to subscribe for
Interests in the Trust, such sale will have
income tax consequences to the subscriber.
A subscription is revocable by a subscriber only
within five (5) business days of such
subscriber's receipt of this Prospectus, and
thereafter may not be revoked.
Minimum Purchases The price per Interest initially is $100.
Following the Initial Offering Period, any
Interests which are offered and sold will be
offered and sold at their then month-end Net
Asset Value. No front-end sales charges or
selling commissions will be imposed, nor will the
initial Net Asset Value be diluted by
organization and offering expenses. The minimum
purchase by any one subscriber is $5,000, except
that the minimum purchase for an IRA generally is
$2,000. Existing Limited Owners may purchase
additional Interests in increments of $100 during
the Continuous Offering. See "Investment
Requirements/Who May Invest" at page 35 and "Plan
of Distribution" at page 38.
Organization and Offering
Expenses The Trust will not be responsible for the payment
of any of the expenses associated with the
organization of the Trust and the offering of
Interests, with such expenses being the
obligation of Prudential Securities or an
affiliate. These expenses will not be reimbursed
by the Trust to Prudential Securities. As a
result, 100% of the Trust's offering proceeds
will be immediately available for trading
activities. See "Business of the Trust" at page
26, "Use of Proceeds" at page 26, and "Fees,
Compensation and Expenses" at page 50.
Initial Offering The Interests initially will be offered during
the Initial Offering Period, which is a period of
up to 120 days from the date of this Prospectus,
but may be less if the Subscription Minimum is
reached before that date.
12
<PAGE>
If the Trust does not sell the $10,000,000
Subscription Minimum by the expiration of the
Initial Offering Period, all subscription monies
will be promptly returned to the subscribers, as
well as all interest earned thereon, if any,
during the escrow period (taking into account
both the time and amount of deposit), but in no
event later than ten (10) business days after the
Initial Offering Period, or as soon thereafter as
practicable if payment cannot be made within that
time period.
Escrow of Funds All subscription funds accepted during the
Initial Offering Period will be deposited in an
escrow account at The Bank of New York in New
York, N.Y. and held there until they are either
turned over to the Trust for trading purposes, or
returned to the subscribers. All interest earned
on the proceeds of the subscriptions will be
distributed to subscribers on a pro rata basis
(taking into account both the time and amount of
deposit) within ten (10) business days after the
date of admission as a Limited Owner or as soon
thereafter as practicable if payment cannot be
made within that time period. See "Plan of
Distribution" at page 38 and "Subscription
Procedure and Escrow of Funds" at page 39.
Continuous Offering In the event that $100,000,000 of Interests are
not sold during the Initial Offering Period, it
is intended that Interests will continue to be
offered pursuant to this offering as of the end
of each month during the Continuous Offering
until an aggregate of $100,000,000 of Interests
are sold, but in no event later than two years
from the date of this Prospectus ("Continuous
Offering"). Subscribers will be admitted to the
Trust as Limited Owners as of the first day of
the month following the month in which their
subscription is received and accepted. The
Managing Owner may terminate the Continuous
Offering at any time prior to the sale of
$100,000,000 in Interests or the expiration of
the maximum two year offering period.
Redemption of Interests Redemptions will be permitted as of the end of a
month, and will be effective immediately after
the close of business on such date (a "Redemption
Date"). The first Redemption Date will be the end
of the first full month of Trust trading
activity. Redemptions will be at the then-current
Net Asset Value per Interest (which,
among other things, will be reduced by any
accrued incentive fees to the Trading Manager).
Interests redeemed on or prior to the end of the
first and second successive six-month periods
after their sale will be subject to a redemption
charge of 4% and 3%, respectively, of the Net
Asset Value at which they are redeemed. These
13
<PAGE>
redemption charges will be paid to the Managing
Owner.
All requests for redemption must be received in
writing by the Managing Owner at least ten (10)
days prior to the applicable Redemption Date
(counting the last day as one day). In the event
the Net Asset Value per Interest, after
adjustment for distributions, as of the close of
business of any business day is less than 50% of
the Net Asset Value per Interest as of the end of
the immediately preceding month, trading will
cease while Limited Owners are given the
opportunity to redeem their Interests. In
addition, the Managing Owner may, in certain
circumstances, mandatorily redeem any or all
Interests held by any Limited Owner. See "Risk
Factors" at page 18 and "Summary of Trust
Agreement--Redemption of Interests" at page 66.
Investors should note that Prudential Securities
Financial Advisors have a financial incentive to
advise Limited Owners not to redeem their
Interests. See "Actual and Potential Conflicts
of Interest--Advising on Redemptions" at page 53.
Distributions Distributions to the Limited Owners will be at
the Managing Owner's discretion. Since the
Managing Owner does not presently intend to make
ongoing distributions, the income tax liability
of Limited Owners for any profits of the Trust
will, in all likelihood, exceed any distributions
received from the Trust. See "Risk Factors" at
page 19, "Trust's Trading Limitations and
Policies" at page 27, "Summary of Trust
Agreement" at page 65 and "Income Tax
Consequences" at page 75.
Transfer of Interests The transferability and assignability of the
Interests is restricted by the Trust Agreement
(hereinafter referred to as the "Trust Agreement"
or the "Agreement"). There is and will continue
to be no primary or secondary trading market for
the Interests. See "Summary of Trust Agreement--
Transfer of Interests" at page 66 and "Income Tax
Consequences" at page 75.
Termination The term of the Trust will expire on December 31,
2015 or it may terminate earlier in certain
circumstances, including, but not limited to,
(i) the insolvency or bankruptcy of the Managing
Owner without substitution of a new Managing
Owner; (ii) any event which would make unlawful
the continued existence of the Trust; (iii) the
expiration or termination of the Managing Owner's
registration with the CFTC as a commodity pool
operator; (iv) the vote of Limited Owners holding
a majority in interest of the outstanding
Interests (excluding Interests held by the
Managing Owner or an Affiliate); (v) the
14
<PAGE>
insolvency or bankruptcy of the Trust; (vi) the
determination by the Managing Owner that the
Trust's Net Assets in relation to its operating
expenses makes it unreasonable or imprudent to
continue the Trust's business; or (vii) a decline
in the Net Asset Value of the Trust by 50% from
either the Trust's initial Net Asset Value or the
Trust's Net Asset Value on the first day of a
fiscal year, in each case after appropriate
adjustment for distributions, redemptions and
additional contributions to capital. See
"Summary of Trust Agreement--Termination" at page
68.
Glossary of Terms See the "Glossary of Terms" at page 90 for the
definition of certain key terms used in this
Prospectus.
Reports and Accounting Each Limited Owner shall be furnished as of the
end of each month and as of the end of each
Fiscal Year with (1) such reports (in such
detail) as are required by the CFTC and the
National Futures Association ("NFA"), including,
but not limited to, an annual audited financial
statement certified by independent public
accountants; (2) any other reports (in such
detail) required by any other governmental
authority which has jurisdiction over the
activities of the Trust, including, but not
limited to, the Securities and Exchange
Commission; and (3) any other reports or
information which the Managing Owner, in its
discretion, determines to be necessary or proper.
Appropriate information to permit investors to
file federal and state income tax returns also
will be provided on a timely basis. See "Summary
of Trust Agreement--Reports and Accounting" at
page 69.
Limited Owners also will be notified within seven
(7) business days from the date of (i) any
decline in the Net Asset Value per Interest,
after adjustment for distributions, as of the
close of business on any business day to less
than 50% of the Net Asset Value per Interest as
of the end of the immediately preceding month,
(ii) any material changes in the Trust's Advisory
Agreement, including any modification in
connection with the method of calculating the
incentive fee, or any termination of the Trading
Manager and/or retention of a new trading
manager, (iii) any material change affecting the
compensation arrangements between the Trust and
any party enumerated under "Fees, Compensation
and Expenses", or (iv) any change of Trustee.
15
<PAGE>
<PAGE>
Fiscal Year December 31.
Financial Information The Trust has only recently been organized and
has no financial history. Financial information
concerning the Trust and the Managing Owner
(including an affiliate thereof) is set forth
under "Financial Statements" at page 95
16
<PAGE>
FEES, COMPENSATION AND EXPENSES
No selling commissions or front-end
charges will be imposed by the Trust
Except as set forth below, no compensation will be
paid, directly or indirectly, by the Trust to any other
person, including the Trust's Sponsor and Managing Owner
<TABLE>
CHARGES TO BE PAID BY THE TRUST OR LIMITED OWNERS
<CAPTION>
Entity Form of Compensation Amount of Compensation
<S> <C> <C>
I. Prudential (a) Monthly fee for brokerage services An annual rate of 7.75% of the Trust's
Securities rendered, as well as for assisting the Net Asset Value (as defined in Exhibit A
Managing Owner in managing hereto) as of the first day of each month,
non-commodities assets. Out of this which is equal to approximately $45 per
fee Prudential Securities will be round turn transaction.
responsible for the following:
(i) Compensating its employees who See Note (1) to the cover page.
sell Interests and perform continuing
services; and
(ii) Execution costs, including floor Approximately 1.4% of the Trust's Net
brokerage expenses, give-up charges and Asset Value.
NFA, exchange and clearing fees.
(b) Interest income. 20% of all interest income earned on Trust
assets deposited at Prudential Securities.<PAGE>
II. Managing Owner Redemption charges. 4% and 3% of the Net Asset Value of an
Interest redeemed during the 1st and 2nd
successive six-month periods following
their sale.
<PAGE>
III. Prudential- Bid-asked spread. PBFI will attempt to earn a profit on the
Bache Forex spread on all back-to-back foreign
(USA) Inc. currency forward transactions in which the
and its Trust, Prudential Securities and it are
Subsidiaries involved.
IV. Trading (a) Monthly management fee. An annual rate of 3% of the Trust's Net
Manager Asset Value allocated to its management as
of the end of each month.
(b) Quarterly incentive fee. 20% of the Trust's New High Net Trading
Profits as of the end of each quarter and
upon the redemption of Interests if other
than at the end of a quarter.
<PAGE>
V. The Trust Any extraordinary expenses (e.g., If and as incurred.
litigation and indemnification).
/TABLE
<PAGE>
<TABLE>
CHARGES TO BE PAID BY PRUDENTIAL SECURITIES OR ITS AFFILIATES
<CAPTION>
Entity Description of Charges Amount of Charges
<S> <C> <C>
VI. Prudential (a) Expenses of the organization of the Approximately $650,000.
Securities Trust and the offering of Interests;
or its
Affiliates<PAGE>
(b) Routine operational and adminis- Approximately $125,000 per annum.
trative expenses (e.g., filing,
accounting and computer services);
and
(c) Routine legal, auditing and other Approximately $75,000 per annum.
expenses of third party service
providers, including the Trustee.
</TABLE>
See "ESTIMATED TWELVE-MONTH BREAK-EVEN ANALYSIS" on the next page of this
Summary.
17
<PAGE>
PROJECTED TWELVE-MONTH "BREAK-EVEN" ANALYSIS
THE FOLLOWING PROJECTED TWELVE-MONTH BREAK-EVEN ANALYSIS TAKES INTO ACCOUNT
ALL FEES AND EXPENSES ENUMERATED ABOVE (OTHER THAN ADVISORY INCENTIVE FEES AND
EXTRAORDINARY EXPENSES WHICH ARE IMPOSSIBLE TO PREDICT), AND IS EXPRESSED AS
A DOLLAR AMOUNT AND AS A PERCENTAGE OF A $5,000 INITIAL INVESTMENT:
Description $5,000.00 Percentage of a
of Charges Investment $5,000 Investment
Brokerage Fees $ 387.50 7.75%
Advisory Management Fees $ 150.00 3.0%
Advisory Incentive Fees* -- --
Total $ 537.50 10.75%
Less Estimated
Interest Income** ($210.00) 4.2%
Estimated 12-month
Break-Even Level
Without Redemption
Charges $327.50 6.55%
Redemption Charges*** $150.00 3.0%
Estimated 12-month
Break-Even Level
After Redemption
Charges $477.50 9.55%
- -----------------------------
* Advisory Incentive Fees are only paid on "New High Net Trading Profits". New
High Net Trading Profits are determined after Brokerage and Advisory
Management Fees, and without regard to interest income. The Trust could pay
Advisory Incentive Fees in years in which the Trust breaks even, or even
loses money, due to the quarterly, rather than annual, nature of such fees.
** The Trust will receive 80% of all interest income earned on its assets at
the currently estimated Federal Funds rate of 5.25%.
*** An early redemption charge of 3% will be assessed on an Interest redeemed
after the end of the 6th, but on or before the end of the 12th, full month
after its sale. An early redemption charge of 4% will be assessed on an
Interest redeemed before the end of the 6th full month after its sale.<PAGE>
18
<PAGE>
RISK FACTORS
The Trust is a new venture in a high risk business. An investment in the
Interests is very speculative and should be made only after consulting with
independent, qualified sources of investment and tax advice. A purchase of the
Interests should be made only by those persons whose financial condition will
permit them to bear the risk of a total loss of their investment in the Trust.
Investment in the Interests should be considered only as a long-term investment.
Moreover, in order to properly evaluate the risks described below, as well as
the risks set forth in the CFTC Risk Disclosure Statement, each investor must
familiarize himself with the various relevant terms and concepts relating to
commodities trading and the regulation of commodities trading which is discussed
below in this Prospectus in the sections captioned "Commodity Trading" and
"Trust's Trading Limitations and Policies".
Among the risks of investing in the Trust are the following:
(1) GENERAL
Past Performance is Not Necessarily Indicative of Future Performance. The
selection of the Trading Manager was made with the benefit of hindsight and was
made because the Trading Manager has performed well to date. Prospective
investors must consider the uncertain significance of past performance in
determining whether or not to invest in the Trust and should not place any
substantial degree of reliance for predictive purposes on the Trading Manager's
or the Managing Owner's record to date. It should not be assumed that trading
decisions made by the Trading Manager in the future will avoid substantial
losses, no less be profitable or result in performance for the Trust comparable
to the Trading Manager's or the Managing Owner's past performance. In fact, a
significant amount of academic attention has been focused on the fact that
futures funds more frequently than not underperform the past performance records
included in the prospectus through which the funds are distributed.
Because investors will both acquire and redeem Interests at different
times, certain investors may experience a loss on their Interests even though
other investors, and the Trust as a whole, are profitable. Consequently, even
the past performance of the Trust itself (when available) may not be
representative of all investors' investment experience in it.
The Trust's Performance will Not be Correlated to the Debt or Equity
Markets. The Trust anticipates that over time its performance will be
non-correlated with the general equity and debt markets, meaning that the
Trust may or may not have performance similar to that of the general
financial markets.
Non-correlation, however, is not negative correlation. The Trust will by
no means necessarily be profitable during downward cycles in stock and bond
prices. Non-correlation means only that the performance of the Trust may or may
not be similar to that of the general financial markets; not that there should
be an inverse relationship between them -- stock indices may rise while Interest
values fall as well as while Interest values rise. During certain periods, the
Trust may perform in a manner very similar to more traditional portfolio
holdings, providing little, if any, diversification benefits.
There is No "Principal Protection" Feature. Purchasers of Interests in the
Trust are not assured of any minimum Net Asset Value per Interest. They could
lose their entire investment (including any undistributed profits), in addition
to the use of their subscription funds during the lifetime of the Trust;
moreover, under Delaware law, the purchaser or an Interest could theoretically
lose even more than that. See "Summary of Trust Agreement-Liabilities" at page
72 for a more complete explanation.
The Trust has No Operating History. THE TRUST HAS NOT COMMENCED TRADING
AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
19
<PAGE>
(2) TRADING RISKS
Commodity Interest Trading is Volatile. A principal risk in futures,
forward and options trading is volatile performance. Moreover, in a single
advisor fund such as the Trust, where the Trading Manager makes all the trading
decisions, that volatility may increase as compared to a fund with several
trading advisors, assuming such advisors are non-correlated with each other and,
therefore, collectively, have diversified risk to a greater extent. See
"Description of the Trading Manager" at page 29 and "Commodity Trading" at page
55.
Futures Trading is Highly Leveraged. The low margin normally required in
futures, forward and options trading provides a large amount of leverage, i.e.,
contracts having a value substantially greater than the margin may be traded for
a comparatively small amount of money. Thus, a relatively small change in the
market price of an open position can produce a disproportionately large profit
or loss. See "Commodity Trading--Margins" at page 58 and "Summary of Trust
Agreement--Liabilities" at page 72.
Commodity Trading may be Illiquid. Although the Trust generally intends
to purchase and sell actively traded contracts (see "Trust's Trading Limitations
and Policies" at page 27), no assurance can be given that orders will be
executed at or near the desired price, particularly in thinly traded markets,
markets which lack trading liquidity, or because of the applicability of
"daily price fluctuation limits", "speculative position limits" or market
disruptions. Market illiquidity or disruptions could cause major losses.
Technical Trading Systems Require Trending Markets and Sustained Price
Moves to be Profitable. The Trading Manager, like many other trading managers,
uses a technical trading system for many of its trading decisions. See
"Description of the Trading Manager-Description of the Trading Manager's Trading
Approach" at page 31. The profitability of any technical trading system depends
upon price moves or trends in some commodities which are of enough significance
to the system to dictate an entry or exit decision. Technical trading systems
will not be profitable if there are no trends of the kind such systems seek to
follow, and such trendless markets have occurred in the past and are likely to
recur. Technical systems may be profitable for a period of time, after which
the system fails to detect correctly any future price movements. Accordingly,
technical followers may modify and alter their systems on a periodic basis. Any
factor (such as increased governmental control of, or participation in, the
markets traded) that may lessen the prospect of sustained price moves in the
future may reduce the prospect that any commodity trading advisor's ("CTA")
technical systems will be profitable. A number of markets traded by the Trust,
in particular the currency and interest-rate markets, may be likely targets for
governmental intervention.
The Large Number of Existing Technical Traders Could Adversely Affect the
Trust. The Managing Owner believes that there has been, in recent years, a
substantial increase in the use of technical trading systems. Different
technical systems will tend to generate different trading signals. However, the
significant increase in the use of technical systems as a proportion of the
overall trading volume in the Trust's markets as a whole as well as for
particular markets included in the Trust's portfolio could result in traders
attempting to initiate or liquidate substantial positions at or about the same
time as the Trust, or otherwise alter historical trading patterns or affect the
execution of trades, to the significant detriment of the Trust.
Discretionary Decision-Making May Result in Missed Opportunities for the
Trust. The Trading Manager's trading strategies do involve discretionary aspects
as well as technical factors. Discretionary decision-making may result in the
Trading Manager failing to capitalize on certain price trends or making
unprofitable trades in a situation where a systematic approach might not have
done so. See "Description of the Trading Manager--Description of the Trading
Manager's Trading Approach" at page 31.
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Trading on Exchanges Outside the United States may be Riskier than Trading
on U.S. Exchanges. The Trading Manager presently trades on non-U.S. exchanges
in certain of the programs which it will utilize for the Trust. These exchanges,
whether or not linked to a U.S. exchange, are not regulated by the CFTC or any
other United States governmental agency or instrumentality and therefore,
trading thereon may be subject to more risks than similar trading on U.S.
exchanges. See the CFTC Risk Disclosure Statement on page 4 above.
The Unregulated Nature of the Forward Markets Creates Counter-Party Risks
that do not Exist on U.S. Futures Exchanges. Forward contracting is not
regulated by the CFTC or any other U.S. government agency and such contracts are
not guaranteed by an exchange or its clearing house. The failure of a
counterparty with which the Trust deals as a principal would most likely result
in a default thereby depriving the Trust of any profit potential or force the
Trust to cover its commitments for resale, if any, at the then current market
price.
Since the Trust intends to execute its forward trading exclusively with
Prudential Securities (and its affiliates, PBFI), as principal, liquidity
problems might be greater in the Trust's forward trading than they would be were
trades to be placed with and through a larger number of forward market
participants. The imposition of exchange and credit controls or the fixing of
currency exchange rates by governmental authorities might eliminate or
substantially reduce trading in certain currencies and might limit such forward
trading to less than desired levels. The imposition of credit controls also
might require that Prudential Securities or PBFI obtain lines of credit prior to
commencement of any such trading. There is no assurance that such lines can be
obtained. The amount of loss which may be claimed for tax purposes in respect
of the Trust's unprofitable forward trades may be limited. Also, to the extent
forward contracts are offset by futures positions or other forward positions,
the loss limitation rules applicable to "offsetting positions" might prevent
the allowance of losses for tax purposes. See "Income Tax Consequences" at
page 75.
Options Trading can be More Volatile and Expensive than Futures Trading.
The Trading Manager will trade options on futures. Although successful options
trading requires many of the same skills as successful futures trading, the
risks involved are somewhat different. For example, the assessment of
near-term market volatility -- which is directly reflected in the price
of outstanding options -- can be of much greater significance in trading
options than it is in many long-term futures strategies. The use of
options can be extremely expensive if market volatility is incorrectly
predicted.
The Start-up Period Entails Increased Investment Risks. The Trust will
encounter a start-up period following the Initial Offering Period as well as
each subsequent closing during the Continuous Offering in which it will
incur certain risks relating to the initial investment of the assets
received at such times. Specifically, the development of a fully
diversified portfolio cannot be achieved instantly upon the commencement
of trading. A decline in the initial Net Asset Value could result
from the fact that the level of diversification in the Trading
Manager's trading activities at the outset may be lower than in
a fully committed portfolio.
(3) RISKS RELATING TO THE TRADING MANAGER
Reliance on the Trading Manager for Success. Commodity trading decisions
for the Trust will be made by the Trading Manager, upon whose judgment and
abilities the success of the Trust largely will depend. No assurance can be
given that the Trading Manager's trading on behalf of the Trust will prove
successful under all or any market conditions.
No Assurance of Continued Services of Trading Manager or Its Trading
Strategies. There is no assurance that (i) the Trading Manager, or the Trust,
will not exercise their respective rights to terminate the Advisory Agreement
under certain conditions, (ii) the Advisory Agreement with the Trading Manager
will be renewed on the same terms as the current Advisory Agreement following
its expiration, (iii) the Trading Manager will continue to have access
to four of the
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five trading strategies initially contemplated being used for the Trust
following the expiration of the term of the licensing agreement with
Caxton Corporation, or (iv) if new trading advisors are retained
they will be (a) retained on terms as favorable to the Trust as
those negotiated with the Trading Manager or (b) required to
recoup losses sustained previously before being entitled to receive
incentive fees. Moreover, there is no assurance that the level of the Trust's
capitalization will permit the Trading Manager to use all five trading
strategies at all times. See "Summary of Advisory Agreement" at page 60 and
"Fees, Compensation and Expenses" at page 50. In addition, the termination
of the Trading Manager's license agreement with Caxton Corporation
could have a material adverse effect on the Trust because four of
the five trading strategies expected to be used for an aggregate
of approximately half of the Trust's assets initially would then no
longer be available to the Trading Manager to use on behalf of the
Trust.
The Trading Manager's Past Performance Record is Inconsistent. The
performance record of the Trading Manager also reflects significant variations
in profitability from period to period. Moreover, the combination of trading
strategies to be used by the Trading Manager does not have a performance
history, although each individual trading strategy has a past performance
record. See "Description of the Trading Manager" at page 29 and "Past
Performance Information--The Trading Manager" at page 113.
Pro Forma Performance Record Is Not Indicative of How the Trust will
Perform. The performance information shown in Capsule K, which attempts to show
the relative weightings of the five trading strategies to be used by the Trading
Manager for the Trust on a pro forma basis since January 1991, should not be
taken as an indication of how the Trust will perform, or would have performed,
over the same time period.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF
WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT THE TRUST WILL
OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE
ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND
THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE
GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL
TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN
COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR
EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING
PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY
AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE
MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM
WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING
RESULTS.
Other Clients of the Trading Manager May Compete with the Trust. The Trust
may experience increased competition for the same contracts because the Trading
Manager will be managing and advising large amounts of other funds for other
clients at the same time as it is managing Trust assets. See "Description of the
Trading Manager" at page 29, "Actual and Potential Conflicts of Interest" at
page 54 and "Past Performance Information--The Trading Manager" at page 113.
Possible Adverse Effects of Increasing the Assets Under the Trading
Manager's Discretion. The Trading Manager has not agreed to limit the amount of
additional equity which it may manage. There can be no assurance that the
Trading Manager's strategies will not be adversely effected by any additional
equity accepted by the Trading Manager,to the extent that the acceptance of such
additional equity affects the Trading Manager's capacity (i.e., the amount that
the Trading Manager can trade effectively without violating its trading and risk
management capabilities).
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(4) RISKS RELATING TO THE TRUST AND THE OFFERING
Investors will have a Limited Ability to Liquidate Their Interests. There
is and will be no primary or secondary market for the Interests. In addition,
the Trust Agreement, included as Exhibit A hereto, establishes restrictions on
transfers and assignments of Interests. Redemptions of Interests generally will
be permitted as of the close of business on the last day of each month (each, a
"Redemption Date"). The first Redemption Date will be the end of the first full
month of Trust trading activity. Interests will be redeemed at 100% of Net Asset
Value. Interests redeemed on or prior to the end of the first and second
successive six-month periods after their sale will be subject to a redemption
charge of 4% and 3%, respectively, of the Net Asset Value at which they are
redeemed. These redemption charges will be paid to the Managing Owner.
Redemptions of substantial numbers of Interests could require the Trust to
liquidate commodity positions at potentially unfavorable prices. Under extra-
ordinary circumstances, such as an inability to liquidate positions, the Trust
may delay redemption payments to Limited Owners beyond the period specified in
the Trust Agreement. See "Summary of Trust Agreement--Transfer of Interests;
- --Redemption of Interests" at pages 66 and 67, respectively.
The Trust will Pay Substantial Fees and Commissions. The Trust is subject to
substantial costs which could deplete its assets, including a 7.75% annual fee
to Prudential Securities for brokerage and other services, and a 3% annual
management fee to the Trading Manager. Therefore, it is estimated that such
fixed fees and expenses will, in the aggregate, equal 12% during the first
twelve months of trading. Interests redeemed on or prior to the end of the first
and second successive six-month periods after their sale will be subject to a
redemption charge of 4% and 3%, respectively, of the Net Asset Value at which
they are redeemed. These redemption charges will be paid to the Managing Owner.
See "Fees, Compensation and Expenses" at page 50.
The Trust will have to Overcome Substantial Fees and Commissions in Order
to Break-even each Year. After taking into account (i) all fees and expenses to
be paid by the Trust, but excluding the advisory incentive fee (which only is
paid on New High Net Trading Profits) and extraordinary expenses (which are
impossible to predict) and (ii) estimated interest income of approximately 4.2%
per annum expected to be earned on Trust assets, it is currently estimated that
the Trust will have to achieve annual net trading profits of approximately 6.55%
in order to offset the first twelve months of expenses, and of approximately
9.55% to also offset the 3% redemption charge imposed on an Interest being
redeemed as of the end of the 12th month following its sale. This break-even
level will be higher or lower to the extent that interest rates decrease or
increase, respectively, in the future. See "Projected Break-Even Analysis" at
page 17.
The Payment of Quarterly Incentive Fees do not Assure the Realization of
Profits. The Trust also will pay to the Trading Manager a quarterly incentive
fee based upon the "New High Net Trading Profits" earned by the Trading Manager
on the Trust's Net Asset Value allocated to the Trading Manager, which profits
will include unrealized appreciation on open positions. Accordingly, it is
possible that the payment of an incentive fee may be followed by the
non-realization of the trading profits (in whole or in part) on which such
incentive fee was paid. Any incentive fee paid will be retained by the Trading
Manager even if subsequent losses are incurred. Since the incentive fee is paid
quarterly, it is possible that such payment may be made during a year in which
the Net Asset Value per Interest ultimately declines from the outset because of
losses occurring subsequent to the date of an incentive fee payment or because
of the non-realization of profits on which an incentive fee was paid. See "Fees,
Compensation and Expenses" at page 50.
The Trust is Subject to Conflicts of Interest. A number of actual and
potential conflicts of interest exist in the operation of the Trust's business,
including conflicts involving (i) the affiliates of the Managing Owner,
Prudential Securities and PSGI, (ii) Prudential Securities-related activities,
(iii) Prudential Securities advising on redemptions, (iv) other commodity funds
sponsored by Prudential Securities, and (v) management of other accounts by the
Trading Manager. See "Actual and Potential Conflicts of Interest" at page 54.
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Investors will have Limited Rights. Pursuant to the Trust Agreement,
Limited Owners will be unable to exercise any control of the business of the
Trust. However, certain actions may be taken, or approved, upon the affirmative
vote of Limited Owners owning more than fifty percent (50%) of the Interests
then owned by Limited Owners (excluding Interests owned by the Managing Owner
and its affiliates), such as termination or dissolution of the Trust. See
"Summary of Trust Agreement--Exercise of Rights by Limited Owners;--Termination"
at pages 73 and 68, respectively.
There was no Independent Investigation of the Terms of the Offering or the
Trust's Structure. Prudential Securities is an affiliate of the Managing Owner,
and has made no independent investigation of the terms of this offering or the
structure of the Trust. The offering price per Interest has been established
arbitrarily. Except for the agreements with the Trading Manager and the Trustee,
the terms of this offering and the structure of the Trust have not been
established as the result of arm's length negotiation.
The Interests are being Sold on a "Best Efforts" Basis. In a "best
efforts" offering, there is no assurance that the minimum amount of capital
necessary to commence trading will be sold, so that subscribers may commit their
subscriptions to escrow without ultimately having an opportunity to participate
in the Trust's business.
(5) TAX AND ERISA RISKS
Limited Owners' Tax Liability May Exceed Distributions. For federal income
tax purposes, the amount of taxable income or loss of a Limited Owner for each
taxable year of the Trust will be determined on the basis of such Limited
Owner's allocable share of Trust ordinary income and loss, as well as
capital gains and losses recognized during such year. If the Trust
has taxable income for a year, such income will be taxable to
the Limited Owners in accordance with their allocable shares of
Trust income, whether or not any amounts have been or will be
distributed to them. Under certain circumstances, all or part of such income
would be taxable to Plans (as defined below) and other tax-exempt Limited
Owners. Also, the Trust might sustain losses offsetting its profits after the
end of a year, so that a Limited Owner who did not redeem his or its Interests
as of such year-end might never receive the profits on which he or it
has been taxed. The Managing Owner, in its discretion, will determine whether,
and in what amount, the Trust will make distributions. There is no present
intention to make distributions. See "Summary of Trust Agreement--Sharing
of Profits and Losses;---Distributions" at page 71. Accordingly, it is
likely that Limited Owners will incur tax liabilities as a result of
being allocated Trust taxable income, but will not receive distributions
of cash with which to pay such taxes.
The ability of Limited Owners to claim current deductions for certain
expenses or losses, including their share of any Trust capital losses, will be
subject to various limitations. Thus, the income tax effects of the Trust's
transactions may differ from the economic consequences of such transactions.
See "Income Tax Consequences" at page 75.
Partnership Status is not Guaranteed. The Trust has received an opinion
of counsel to the effect that, under current federal income tax law, the Trust
will be classified as a partnership and not as an association taxable as a
corporation for federal income tax purposes. The Trust has not requested, and
does not intend to request, a ruling from the Internal Revenue Service (the
"IRS") to this effect. An opinion of counsel is not binding on the IRS or the
courts, and is subject to any changes in applicable tax laws. If the Trust were
treated as an association taxable as a corporation for federal income tax
purposes, the net income of the Trust would be taxed to the Trust at corporate
income tax rates, no losses of the Trust would be allowable as deductions to the
Limited Owners, and distributions by the Trust to the Limited Owners, other than
liquidating distributions, would constitute dividends to the extent of the
Trust's current or accumulated earnings and profits and would be taxable
as such.
The Internal Revenue Code of 1986, as amended (the "Code"), includes a pro-
vision that treats certain publicly traded partnerships as corporations. This
provision will not affect the Trust provided certain restrictions on the
offering
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and transfer of Interests are enforced and subject to any changes affecting the
accuracy of the facts and the representations of the Managing Owner set forth
in this Prospectus. See "Income Tax Consequences" at page 75.
There is the Possibility of a Tax Audit. There can be no assurance that
the Trust's tax returns will not be audited by a taxing authority or that such
audits will not result in adjustments to the Trust's returns. If an audit
results in an adjustment, Limited Owners may be required to file amended returns
and to pay additional taxes plus interest. See "Income Tax Consequences" at
page 75.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS
AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE TRUST. SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF
DIFFERENT INVESTORS, AND COULD BE AFFECTED BY CHANGES IN THE TAX LAWS. SEE
"INCOME TAX CONSEQUENCES" AT PAGE 75.
Employee Benefit Plan considerations. Special considerations apply to
investments in the Trust by pension, profit sharing, stock bonus, Keogh or other
employee benefit plans or by IRAs (collectively, "Plans"). See "Investment
Requirements/Who May Invest" at page 35.
(6) REGULATORY RISKS
The Clearing Broker's Regulatory and Other Legal Problems. Prudential
Securities and its affiliates have been involved in several lawsuits,
investigations, and enforcement actions by regulatory authorities, including
various matters surrounding allegations relating to the sale of interests in
over 700 non-commodities limited partnerships. See "The Trust, Trustee, Managing
Owner and Affiliates--Prudential Securities Incorporated" at page 42.
Government Regulations may Change. Considerable regulatory attention has
recently been focused on publicly distributed partnerships, and, in particular,
"commodity pools" such as the Trust. In addition, tax law revisions could have
a materially adverse effect on the Trust. Concern has also been expressed
regarding the effects of speculative pools of capital trading in the currency
markets with the potential to disrupt central banks' attempts to influence
exchange rates. In the current environment, prospective investors must recognize
the possibility of future regulatory change altering, perhaps to a material
extent, the nature of an investment in the Trust.
The Trust's currency trading will take place in the interbank currency
markets as well as the futures markets. Not only are the interbank currency
markets substantially unregulated, but also it is possible that the CFTC or
certain other governmental bodies may in the future attempt to prevent the Trust
from trading in these markets. Were the Trust to become unable to trade in the
interbank currency markets, the prospects of it achieving its objectives could
be materially adversely affected.
Failure of the Trust's Clearing Broker or Other Counterparties. The Trust
may be unable to recover its assets in the event of the bankruptcy of Prudential
Securities, its clearing broker or any other counterparty with whom it trades.
CFTC Registrations Could be Terminated. In the event any of the CE Act
registrations or NFA memberships of the Managing Owner, the Trading Manager or
Prudential Securities is no longer effective, such entities would not be able
to act for the Trust.
The foregoing risk factors do not purport to be a complete explanation of
all the risks involved in purchasing Interests in a fund involved in investing
in the highly speculative, highly leveraged trading of futures, forwards and
options. Potential investors should read this entire Prospectus before
determining to subscribe for Interests.
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BUSINESS OF THE TRUST
Formation of the Trust
The Trust was formed on October 16, 1995 as a Delaware Business Trust
pursuant to the requirements of the Delaware Business Trust Statute (the
"Business Trust Statute"). The Business Trust Statute provides that, except as
otherwise provided in the Trust Agreement, Interestholders in a Delaware
Business Trust will have the same limitation of liability as do shareholders
of private, for-profit, Delaware corporations. The Trust Agreement
confers substantially the same limited liability, and contains the
same limited exceptions thereto, as a would a limited partnership
agreement for a Delaware limited partnership engaged in like
transactions as the Trust. In addition, pursuant to the Trust Agreement,
the Managing Owner of the Trust is liable for obligations of the Trust
in excess of Trust assets. See "Summary of Trust Agreement--Exercise
of Rights by Limited Owners; --Liabilities" at pages 71-72, respectively.
Trading Activities
The Trust will engage primarily in the speculative trading of a diversified
portfolio of futures, forward and options contracts. Willowbridge Associates
Inc. (the "Trading Manager") will be allocated 100% of the Trust's initial
assets. In its trading on behalf of the Trust, Willowbridge initially will
allocate the Trust's assets to one or more of the following five trading
strategies: XLIM, Argo, Titan, Vulcan and Siren. The percentage of Trust assets
to be allocated at any point in time to these trading strategies will be
determined by the Managing Owner after consultation with the Trading Manager
based on their assessment of market conditions, Trading Manager capacity (as
described (i.e., the amount that the Trading Manager can trade effectively
without violating its trading and risk management capabilities), risk/reward
considerations, performance and other factors not currently known but deemed
relevant at the time. It is currently intended that the initial allocation will
be XLIM - 50%, Argo - 20%, and Titan, Vulcan and Siren - 10% each. This initial
allocation may be altered if the Managing Owner determines it is in the Trust's
best interests to do so. In the event the Trading Manager wishes to add or
delete a trading program, it must obtain the consent of the Managing Owner. It
is also expected that between 15% and 40% of the Trust's assets normally will be
committed as margin for commodities trading, but from time to time these
percentages may be substantially more or less. See "Description of the Trading
Manager" at page 29 and "Trust's Trading Limitations and Policies" at page 27.
USE OF PROCEEDS
Segregated Accounts/Interest Income
All of the proceeds of this offering will be received in the Trust's name
and deposited and maintained in cash in a segregated trading account or accounts
at Prudential Securities for as long as the Trust's Brokerage Agreement with
Prudential Securities remains in effect. Prudential Securities will credit the
Trust with 80% of the interest it earns on such deposits and retain the balance.
Currently, such rate is approximately equal to the Federal Funds rate but may
change from time to time. The Managing Owner will not commingle the property of
the Trust with the property of another person. Except with respect to Trust
assets which are deposited as margin to maintain the Trust's forward currency
contract positions (not expected to exceed 8% of the Trust's total assets), all
Trust assets will be segregated in accordance with requirements of the Commodity
Exchange Act and the regulations thereunder, which means that the Trust's assets
will be maintained either on deposit with Prudential Securities or, for margin
purposes, with the various exchanges on which the Trust is permitted to trade.
Trust assets also may be maintained on deposit in U.S. banks, although there is
no present intention to do so. Trust assets will not be maintained in foreign
banks.
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Proceeds to the Trust
Minimum Maximum
Offering Size Offering Size
Limited Owner Contributions $10,000,000 $100,000,000
Initial Syndication Expenses* None None
Maximum Net Proceeds to Trust
from Limited Owner Contributions $10,000,000 (100%) $100,000,000 (100%)
____________________
* All of the Trust's organization and offering expenses (estimated at
approximately $650,000) will be paid by Prudential Securities or an
affiliate and will not be reimbursed by the Trust. Accordingly, there
will be no dilution to the Trust's initial Net Asset Value resulting from
such expenses.
Maintenance Minimum Maximum
of Proceeds Offering Size Offering Size
CFTC segregated funds $9.2 to $10 million $92 to $100 million
on deposit with (92-100%) (92-100%)
Prudential Securities
Unregulated deposits to 0 to $800,000 0 to $8 million
maintain forward positions (up to 8%) (up to 8%)
Domestic bank accounts 0 0
Foreign bank accounts 0 0
____________________
TRUST'S TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable to the Trust as a
whole and at the outset to the Trading Manager individually; since the Trading
Manager initially will manage 100% of the Trust's assets, the application of
these limitations and policies is identical initially for the Trust and the
Trading Manager. The Trading Manager sometimes may be prohibited from taking
positions for the Trust which it would otherwise prefer to acquire due to the
need to comply with these limitations and policies. The Managing Owner will
monitor compliance with the trading limitations and policies of the Trust set
forth below, and it may impose additional restrictions (through modification of
such limitations and policies) upon the trading activities of the Trading
Manager, as it, in good faith, deems appropriate in the best interests of the
Trust, subject to the terms of the Advisory Agreement (see "Summary of Advisory
Agreement" at page 60).
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The Managing Owner will not approve a material change in the following
trading limitations and policies without obtaining the prior written approval of
Limited Owners owning more than 50% of the Interests. The Managing Owner may,
however, impose additional trading limitations on the trading activities of the
Trust without obtaining such approval if the Managing Owner determines such
additional limitations to be necessary in the best interests of the Trust.
Trading Limitations
The Trust will not: (i) engage in pyramiding its commodities positions
(i.e., the use of unrealized profits on existing positions to provide margin for
the acquisition of additional positions in the same or a related commodity), but
may take into account open trading equity on existing positions in determining
generally whether to acquire additional commodities positions; (ii) borrow or
loan money (except with respect to the initiation or maintenance of the Trust's
commodities positions or obtaining lines of credit for the trading of forward
currency contracts; provided, however, that the Trust is prohibited from
incurring any indebtedness on a non-recourse basis); (iii) permit rebates to be
received by the Managing Owner or its affiliates, or permit the Managing Owner
or any affiliate to engage in any reciprocal business arrangements which would
circumvent the foregoing prohibition; (iv) permit the Trading Advisor to share
in any portion of the commodity brokerage fees paid by the Trust; (v) commingle
its assets, except as permitted by law; or (vi) permit the churning of its
commodity accounts.
The Trust will conform in all respects to the rules, regulations and
guidelines of the markets on which its trades are executed.
Trading Policies
Subject to the foregoing limitations, the Trading Manager has agreed to
abide by the trading policies of the Trust, which currently are as follows:
(1) Trust funds will generally be invested in contracts which are
traded in sufficient volume to permit taking and liquidating positions.
(2) Stop or limit orders may, in the Trading Advisor's discretion,
be given with respect to initiating or liquidating positions in order to
seek to limit losses or secure profits. If stop or limit orders are used,
no assurance can be given, however, that Prudential Securities will be able
to liquidate a position at a specified stop or limit order price, due to
either the volatility of the market or the inability to trade because of
market limitations.
(3) The Trust generally will not initiate an open position in a
futures contract (other than a cash settlement contract) during any
delivery month in that contract, except when required by exchange rules,
law or exigent market circumstances. This policy does not apply to forward
and cash market transactions.
(4) The Trust may occasionally make or accept delivery of a
commodity including, without limitation, currencies. The Trust also may
engage in EFP transactions (i.e., an exchange of futures for physicals
transaction, as permitted on the relevant exchange) involving currencies
and metals and other commodities in such volume as may be agreed upon
between the Trust and the Trading Advisor.
(5) The Trust may, from time to time, employ trading techniques
such as spreads, straddles and conversions.
(6) The Trust will not initiate open positions which would result
in net long or short positions requiring as margin or premium for
outstanding positions in excess of 15% of the Trust's Net Asset Value for
any one commodity, or in excess of 662 3% of the Trust's Net Asset Value for
all commodities combined. Under certain market conditions, such as an
inability to liquidate open commodities positions because of daily price
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fluctuations, the Managing Owner may be required to commit as margin in
excess of the foregoing limits and in such case the Managing Owner will
cause the Trading Advisor to reduce its open positions to comply to these
limits before initiating new commodities positions.
(7) To the extent the Trust engages in transactions in forward
currency contracts other than with or through Prudential Securities and/or
PBFI, the Trust will only engage in such transactions with or through a
bank which as of the end of its last fiscal year had an aggregate balance
in its capital, surplus and related accounts of at least $100,000,000, as
shown by its published financial statements for such year, and through
other broker-dealer firms with an aggregate balance in its capital, surplus
and related accounts of at least $50,000,000.
DESCRIPTION OF THE TRADING MANAGER
The Managing Owner initially will allocate 100% of the proceeds from the
Initial Offering of Interests to the Trading Manager for commodities trading
purposes. It is currently contemplated that the Trading Manager will be
allocated 100% of any additional Trust capital raised during the Continuous
Offering of Interests. The Trading Manager was selected based upon the Managing
Owner's evaluation of its past performance (See "Past Performance Information--
The Trading Manager" at page 113) and its trading portfolios and strategies. The
Trading Manager is not affiliated with the Trust, the Trustee,the Managing Owner
or Prudential Securities, but does currently act as a commodity trading advisor
to other public and private funds sponsored by Prudential Securities. See "Past
Performance Information--Other Pools Sponsored by the Managing Owner and its
Affiliate" at page 111. Neither the Trading Manager nor any of its principals
currently has any beneficial interest in the Trust, but some or all of such
persons may acquire such an interest in the future.
Set forth below is a description of the Trading Manager and its principals
and a general description of the trading strategies and trading portfolios which
the Trading Manager will employ in its trading on behalf of the Trust. This
description was derived by the Managing Owner in part from information contained
in the Trading Manager's CFTC Disclosure Document, which was prepared by the
Trading Manager. In addition, since the Trading Manager's trading strategies are
proprietary and confidential, the description which follows is of necessity
general in nature. If the Trading Manager's trading reaches a level where
certain position limits restrict its trading, the Trading Manager will modify
its trading instructions for the Trust and its other accounts in a good faith
effort to achieve an equitable treatment of all accounts.
The Trading Manager and Its Principals
The Trading Manager is a Delaware corporation, organized in January 1988,
with offices at 101 Morgan Lane, Suite 180, Plainsboro, New Jersey 08536. The
Trading Manager became a registered commodity trading advisor and commodity pool
operator with the CFTC and a member of the United States National Futures
Association (the "NFA") on May 3, 1988.
Philip L. Yang, born in 1959, has been sole shareholder, Director and
President of the Trading Manager since September 1, 1992, and also held those
positions from the time he formed the Trading Manager in January 1988 through
September 1989. Mr. Yang is registered as an associated person of the Trading
Manager. He is individually registered pursuant to the CE Act as a CPO and CTA
and is a member of the NFA in such capacities. He is also a principal and an
associated person of Doublewood, Inc., a registered CPO and CTA, and a NFA
member. Mr. Yang has full responsibility with respect to the trading activities
of the Trading Manager, except in the case of MTech, the discretionary approach
of Michael Gan. From 1983 through August 1988 and from October 1989 through
August 1992, Mr. Yang was a Senior Vice President at Caxton Corporation, a
commodity trading advisory firm, serving initially as Director of Research,
where his research concentration was in the development of and application of
computerized trading models for a broad range of financial markets, and later as
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Director of Commodity Trading. Mr. Yang obtained a bachelor's degree with honors
from the University of California at Berkeley, where he was inducted into Phi
Beta Kappa. He received his master's degree from the Wharton School of the
University of Pennsylvania.
Michael Y. Gan, born in 1958, has been the Executive Vice President of the
Trading Manager since September 1, 1992. Mr. Gan is registered as an associated
person of the Trading Manager. He is individually registered pursuant to the CE
Act as a CPO and CTA and is a member of the NFA in such capacities. He is also
a principal and an associated person of Doublewood, Inc., a registered CPO and
CTA, and an NFA member. Mr. Gan was the sole shareholder, Director and President
of the Trading Manager from October 1989 through August 1992. From 1983 to 1989,
he worked in the foreign exchange trading group at Marine Midland Bank in New
York. In this capacity, Mr. Gan was responsible for research into technical
analysis, as well as proprietary trading for the firm in currency futures and
options. He had been promoted to Assistant Vice President prior to his
resignation. Mr. Gan graduated summa cum laude from the University of the
Philippines with a B.S. in Chemical Engineering and subsequently graduated with
honors from the Wharton School of the University of Pennsylvania with an M.B.A.
in Finance.
Theresa C. Morris, born in 1953, has been employed by the Trading Manager
since August 1988. She has been the Vice President of the Trading Manager since
May 1, 1994 and is registered as an associated person of the Trading Manager.
Ms. Morris is also a principal and an associated person of Doublewood, Inc. (see
"Description of Philip Yang" above). Ms. Morris oversees administration,
operations and compliance at the Trading Manager. Prior to her current duties,
Ms. Morris was responsible for analyzing and trading the technical signals
generated by the computerized trading models. Ms. Morris has twenty years
experience in the futures and financial industry. She attended Brookdale
College, majoring in international business.
Richard G. Faux, Jr., born in 1937, is Executive Director of the Trading
Manager. From April 1995 to the present, Mr. Faux has served as a consultant to
Willowbridge and concurrently to MC Baldwin Financial Company. He is registered
as an associated person and a principal of the Trading Manager. He co-founded
MC Baldwin in 1989 and served as that company's Co-Chief Executive until April
1995. MC Baldwin is an international trading manager and develops futures funds
for its partner, Mitsubishi Corporation, and other institutional clients. Prior
to forming MC Baldwin, Mr. Faux was President of Merrill Lynch Options/Futures
Management Inc., a futures fund subsidiary of Merrill Lynch. Before Mr. Faux
joined Merrill Lynch in 1985, it had raised only $13 million in futures funds.
When he left, the company had raised $930 million, including one of the first
multi-advisor futures funds. Previously, he spent four years at Thomson McKinnon
Securities, Inc. where he helped develop some of the earliest futures funds,
including one of the first financial futures funds. Earlier, Mr. Faux spent ten
years at Kuhn Loeb & Co. (now Lehman Brothers). He is a graduate of Brown
University and the Columbia University Graduate School of Business.
John C. Plimpton, born in 1966, is Director of Investment Services. He
joined Willowbridge in February 1995 and is responsible for marketing the firm's
various investment strategies as well as maintaining client service. Mr.
Plimpton is registered as an associated person and principal of Willowbridge.
His prior futures industry experience was with Beacon Management Corporation
(USA), a commodity trading advisor and commodity pool operator, where he held a
marketing position specializing in the Japanese institutional market from
January 1989 to December 1990. From January 1991 to August 1994, as a
representative of Prudential Life Insurance, and from August 1994 to
present, as sole shareholder and President of Plimpton Financial Group,
a financial services company, Mr. Plimpton concentrated on insurance
and benefit services for wealthy families and venture businesses. Since
1985, Mr. Plimpton has been involved in a number of businesses
privately held by his family, as well as serving as director of Inolex
Chemical Company, a specialty chemical company owned by his family. He earned
his B.A. degree in Economics from the University of Chicago and his M.B.A. in
Corporate Finance and Corporate Accounting from the William E. Simon School of
Management at the University of Rochester.
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Initial Trading Approach to be Used by the Trading Manager for the Trust
Traders generally rely on either fundamental or technical analysis, or a
combination thereof, in making trading decisions and attempting to identify
price trends. Fundamental analysis involves the evaluation of
factors external to the markets which affect the price of a futures
contract, commodity, financial instrument or currency in order
to predict prices. Fundamental factors which influence the price
of futures contracts, physical commodities, financial instruments
and currencies include changing money supply and demand relationships;
the trade, fiscal, monetary and exchange control programs and policies
of various governments; national and international political and
economic events; and changes in interest rates. Technical analysis is not based
on the evaluation of fundamental factors but instead on the theory that a study
of the markets themselves will provide a means of anticipating price changes.
Technical analysis generally includes a study of actual daily, weekly and
monthly price fluctuations, volume variations and changes in open interest,
utilizing charts and computers for analysis of these items.
The Trading Manager makes trading decisions for the Trust based upon
fundamental and/or technical trading analysis, depending on the strategy used.
Fundamental analysis is used to determine long-term trends in the various
markets and to determine the instruments in which the Trust will
invest. This analysis examines, among other things, relative economic
trends, such as real growth, production and inflation, levels of
currency volatility, investment preferences, and financial trends,
such as monetary and fiscal policies, interest rates and
external debt levels and political conditions. The Trading
Manager's technical analysis involves review of historical market
data, cyclical analysis, mathematical relationships, momentum models
and a review of certain technical models.
The Trading Manager relies on judgmental decisions by Mr. Yang in
determining trades for the Trust pursuant to certain of its trading strategies.
The various decisions include which instruments to trade, whether to take a long
or short position, the maturity of the contract being purchased or written, the
size of the positions to be taken, and the timing of the executions of trades.
No assurance can be given that all of the factors discussed above or all of the
pertinent information will be available to the Trading Manager in formulating
any particular trading decision. The Trading Manager's failure to consider any
of those factors may cause the Trust to miss significant profit opportunities
or to incur substantial losses.
Willowbridge initially will allocate the Trust's assets to one or more of
the following five trading strategies: XLIM, Argo, Titan, Vulcan and Siren. The
percentage of Trust assets to be allocated at any point in time to these five
trading strategies will be determined by the Managing Owner after consultation
with the Trading Manager based on their assessment of market conditions, Trading
Manager capacity (i.e.,the amount that the Trading Manager can trade effectively
without violating its trading and risk management capabilities), risk/reward
considerations, performance and other factors deemed relevant at the time. It
is currently intended that the initial allocation will be XLIM-50%, Argo-20%,
and Titan, Vulcan and Siren - 10% each. This initial allocation will change
automatically following the start of trading because of trading gains and losses
and otherwise may be altered if the Managing Owner determines it is in the
Trust's best interests to do so using the factors enumerated above. Limited
Owners will be given prompt written notice of any material change in the
trading strategies used for the Trust.
The XLIM Trading Approach
XLIM, which was first applied in February 1988, is traded on a discretionary
basis by Mr. Yang. Trading decisions are based primarily on Mr. Yang's analysis
of technical factors, fundamentals and market action. XLIM trades a wide variety
of futures contracts, forwards, spot and options on both the United States and
international markets, including, but not limited to, financial instruments,
currencies, precious and base metals and agricultural commodities.
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Vulcan Trading System
Vulcan is a computerized technical trading system. It is not a
trend-following system, but does ride a trend when the opportunity
arises. Vulcan uses the concepts of pattern recognition, support/resistance
levels, and counter-trend liquidations in making trading decisions
(see "Glossary"). In effect, Vulcan is more akin to a systematic
technical charting system (see "Glossary"), as opposed
to most computer systems which are based on pure trend-following
calculations.
The Vulcan system is based on general technical trading principles that
over time have repeatedly shown their validity as price movement forecasters.
It applies these principles to a diversified portfolio of commodities and
currencies. Given that the system is based on general principles, the system
parameters (see "Glossary") used are the same for all items in the portfolio and
are not optimized, and are not particularized by commodity.
Vulcan determines, on a daily basis, whether to be long, short or flat the
various commodities in its portfolio. It is intended that approximately fifteen
to forty percent (15-40%) of the assets utilizing the Vulcan system will
normally be committed as margin for Commodities trading, but from time to time,
the percentage of assets committed may be substantially more or less. Positions
are generally held from 10 to 15 trading days. For allocations of less than
$1 million in assets, the Trading Manager may not be able to trade the full
Vulcan portfolio.
Titan Trading System
Titan, which commenced trading in 1986, is a technical trend following
system coupled with a mechanism for adding to, or subtracting from, the initial
position on a counter-trend or retracement basis as described below.
Unlike Vulcan, Titan applies various technical factors in an attempt to
monitor the overall market environment to attempt to recognize major trends. If
the system initially perceives a low degree of risk, a relatively greater number
of positions are initiated. Likewise, when the system initially perceives a high
level of risk, relatively fewer positions will be initiated until a lower degree
of risk is perceived. Thereafter positions may be added or subtracted as a
result of a perceived temporary discontinuance of a trend. This ability to
adjust the number of positions held is Titan's primary risk-control tool.
Through this combination, Titan attempts to maximize profits in markets with
strong secular trends (see "Glossary") running over a six to twelve month period
of time, while minimizing the risks which otherwise involve taking a large
position at the start of the perceived move.
Titan's portfolio composition generally is the same as Vulcan's although
the number of days the system will hold a position, based on an average of the
number of days the initial base position would be held combined with the number
of days any additional positions would be held, is generally fifteen days. It
is intended that approximately fifteen to forty percent (15-40%) of the assets
under management pursuant to the Titan system will normally be committed as
margin for Commodity Interest trading, but from time to time the percentage of
assets committed may be substantially more or less. For allocations of less than
$1,000,000.00 in assets, Willowbridge may not be able to trade the full Titan
portfolio.
Argo Trading System
Argo commenced trading in 1987. Argo essentially incorporates Vulcan's
concepts of pattern recognition, support/resistance levels and counter-trend
liquidations to trade a portfolio similar to Vulcan. However, Argo has a
relatively slower time horizon than Vulcan and attempts to capture longer-term
price moves in a manner similar to Titan (described below). It is intended that
Argo's positions generally will be held from 20 to 30 trading days with
approximately fifteen to forty percent (15-40%) of assets utilizing the Argo
System committed as margin for Commodities trading, but from time to time, the
percentage of assets committed may be substantially more or less. For
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allocations of less than $1 million in assets, the Trading Manager may not be
able to trade the full Argo portfolio.
Siren Trading System
Siren, which commenced trading January 1991, is a system based on the
principles of market profiles and other techniques that utilize real time price
information. Siren can best be characterized as a top and bottom picking system.
Siren tries to determine acquisition and distribution patterns that often signal
the end and reversal of a major trend bias. When it identifies such a change,
it will attempt to initiate a countervailing position. Siren's time frame is
generally 18 to 25 trading days.
It is intended that approximately fifteen to forty percent (15-40%) of the
assets utilizing the Siren system will normally be committed as margin for
Commodities trading, but from time to time, the percentage of assets committed
may be substantially more or less. Positions are generally held from 18 to 25
tradings. For allocations of less than $1 million in assets, the Trading Manager
may not be able to trade the full Siren portfolio.
Additional Trading Strategies and Licensing Agreement
The Trading Manager utilizes additional trading strategies not described
herein for other clients. It is not contemplated that the Trading Manager will
use any of these additional trading strategies for the Trust. In addition,
pursuant to a licensing agreement between Caxton Corporation, a registered
commodity trading advisor, and the Trading Manager, the Trading Manager has been
granted the sole and exclusive right to apply, modify, implement and otherwise
use four of the five trading systems (excluding XLIM) described above. The
licensing agreement will continue until December 31, 1997 and shall be renewed
for successive one-year terms unless either the Trading Manager or Caxton has
given 90 days' notice to the other prior to such date of its intention not to
renew. The licensing agreement may also be terminated in the case of uncured
material breach or in other extraordinary situations. The Trading Manager pays
royalties to Caxton based on fees generated by the Trading Manager's trading.
Commodities and Markets Traded
(1) The consolidated portfolio for the five trading strategies to be used
by the Trading Manager for the Trust currently consists of:
Grains: Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil
Livestock: Live Cattle, Live Hogs, Pork Bellies
Softs: Coffee, Cocoa, Sugar, Cotton, Orange Juice
Energies: Crude Oil, Heating Oil, Unleaded Gasoline, Natural Gas
Precious Metals: Gold, Silver, Platinum
Base Metals: Copper, Aluminum, Nickel, Tin, Zinc, Lead
Domestic Financial Instruments: Treasury Bills, Treasury Notes, Treasury Bonds,
Euro-Dollars, Standard & Poors 500, CRB Index
Foreign Financial Instruments: Italian Bonds, Euro-Lira, Euro-Marks, Euro-Yen,
Euro-Swiss, Gilts, Short-Sterling, French Notional Bonds, Paris Interbank
Offered Rate (Pibor), Financial Times Stock Index (FT-SE), Comtrat Assiste
en Contitu (CAC 40 Stock Index), Long-Term German Government Bonds (Bunds),
Medium-Term German Bonds (Bobls), German Stock Index (DAX), Japanese Bonds
(JGB), Nikkei Stock Average, Hang Seng, TOPIX Stock Index, Australian
Treasury Bonds, Australian Treasury Bills, All Ordinaries, Canadian
Bank Acceptances, Canadian Bonds, ECU Bonds
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Currencies: Japanese Yen, DMark, Swiss Franc, British Pound, Canadian Dollar,
Australian Dollar, New Zealand Dollar, French Franc, Italian Lira,
Sterling/Mark, Sterling/Yen, Mark/Yen, Mark/Paris, Mark/Krona, Mark/Swiss,
Mark/Lira
Subject to the terms of the Advisory Agreement (see "Summary of Advisory
Agreement" at page 57), the Trading Manager may add and delete commodities from
this list.
Set forth below for calendar year 1995 is a bar graph showing the volume
of trades effected by the Trading Manager in the foregoing commodities using the
five trading strategies to be used for the Trust on a weighted average basis.
This weighting will change as market conditions change and there is no assurance
that these weightings will be similar during future periods.
(GRAPH)
(2) The domestic and non-U.S. exchanges on which the above commodities
currently are traded are:
Domestic exchanges: Chicago Board of Trade (CBOT), Chicago Mercantile
Exchange (CME), Commodity Exchange Inc. (Comex), Coffee Sugar and Cocoa Exchange
Inc. (CSC), New York Mercantile Exchange (NYME), New York Cotton Exchange
(NYCE), New York Futures Exchange (NYFE), and International Monetary Market
of the CME (IMM).
Non-U.S. exchanges: London International Financial Futures Exchange
(LIFFE), Marche a Terme International de France (MATIF), Singapore International
Monetary Exchange (SIMEX), Tokyo Stock Exchange (TSE), Hong Kong Futures
Exchange (HKFE), Tokyo International Financial Exchange (TIFFE), and
Deutsche Terminbourse (DTB). Proposed in the future: Sydney Futures
Exchange (SFE) and Financial International Exchange (FINEX).
To the extent that Commodities transactions are effected for the Trust in
the forward markets, the only forward markets currently permitted to be utilized
are the interbank foreign currency markets and the London Metal Exchange. The
utilization of other forward markets requires the consent of the Managing Owner.
Past Performance Information
The past performance history of the Trading Manager appears on pages 109
to 110 and pages 113 to 126 of this Prospectus. PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
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INVESTMENT REQUIREMENTS/WHO MAY INVEST
Prudential Securities and each employee of Prudential Securities selling
Interests in the Trust is obligated to make every reasonable effort to determine
that the purchase of Interests is a suitable and appropriate investment for each
subscriber, based on information provided by the subscriber regarding his or its
financial situation and investment objective.
A PURCHASE OF THE INTERESTS SHOULD BE MADE ONLY BY THOSE PERSONS WHOSE
FINANCIAL CONDITION WILL PERMIT THEM TO BEAR THE RISK OF A TOTAL LOSS OF THEIR
INVESTMENT IN THE TRUST. INVESTMENT IN THE INTERESTS SHOULD BE CONSIDERED ONLY
AS A LONG-TERM INVESTMENT.
Investors should not purchase Interests with the expectation of tax
benefits in the form of losses or deductions. See "Risk Factors--Limited Owners'
Tax Liability May Exceed Distributions" at page 24. If losses accrue to the
Trust, a Limited Owner's distributive share of such losses will, in all
probability, be treated as a capital loss and generally will be available only
for offsetting capital gains from other sources. To the extent that a Limited
Owner has no capital gains, capital losses can be used only to a very limited
extent as a deduction from ordinary income. See "Income Tax Consequences" at
page 75.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF INDIVIDUAL RETIREMENT ACCOUNTS OR
OTHER EMPLOYEE BENEFIT PLANS IS IN NO RESPECT A REPRESENTATION BY THE TRUST, THE
MANAGING OWNER, THE TRADING MANAGER, PRUDENTIAL SECURITIES OR ANY OTHER PARTY
THAT THIS INVESTMENT MEETS SOME OR ALL OF THE RELEVANT LEGAL REQUIREMENTS WITH
RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT THIS INVESTMENT IS
APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT DISCRETION
SHOULD CONSULT WITH HIS ATTORNEY AND FINANCIAL ADVISERS AS TO THE PROPRIETY OF
SUCH AN INVESTMENT IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND
CURRENT TAX LAW.
Subscriptions for the purchase of the Interests are subject to the
following conditions:
Minimum Purchases.
-- Initial Purchase - $5,000; $2,000 (IRAs)
-- Additional Purchases - $100 increments
Net Worth and Income Requirements. Each subscriber (other than a
subscriber which is a pension, profit sharing, stock bonus, Keogh Plan or other
employee benefit plans or an IRA (collectively, "Plans") must represent and
warrant in the Subscription Agreement (Exhibit C hereto) that the subscriber has
a net worth (exclusive of home, home furnishings and automobiles) of at least
$150,000, or a net worth (similarly calculated) of at least $45,000 and annual
gross income of at least $45,000 and that the investment in the Trust does not
exceed 10% of such subscriber's liquid net worth.
Each subscriber that is an IRA or a Keogh Plan covering no common law
employees, and the participant covered by such IRA or Keogh Plan, must
represent and warrant in the Subscription Agreement (Exhibit C hereto)
that the participant has a net worth (exclusive of home, home furnishings
and automobiles) of at least $150,000, or a net worth (similarly
calculated) of at least $45,000 and annual gross income of at least
$45,000 and that the IRA or Keogh Plan's aggregate investment in the
Trust does not exceed 10% of the assets of such IRA or Keogh Plan.
Each subscriber that is a Plan (other than an IRA or a Keogh Plan covering
no common law employees) must represent and warrant in the Subscription
Agreement (Exhibit C hereto) that it has net assets of at least $150,000
and that the Plan's aggregate investment in the Trust does not exceed
10% of the assets of such Plan. When a Plan (other than an IRA or Keogh
Plan covering no common law employees) is considering an investment
in the Trust, the fiduciary with respect
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to such Plan should consider, among other things, whether the investment
is prudent, considering the nature of the Trust.
UNDER THE SECURITIES LAWS OF CERTAIN STATES, RESIDENTS OF THOSE STATES WILL
BE SUBJECT TO GREATER NET WORTH AND/OR INCOME REQUIREMENTS THAN ARE NOTED ABOVE
(AS SET FORTH IN THE SUBSCRIPTION AGREEMENT ANNEXED AS EXHIBIT C HERETO UNDER
THE CAPTION "STATE SUITABILITY REQUIREMENTS"), AND THE TRUST MAY IMPOSE
GREATER NET WORTH OR INCOME REQUIREMENTS ON SUBSCRIBERS WHO PROPOSE TO
PURCHASE MORE THAN THE MINIMUM NUMBER OF INTERESTS.
Receipt of Prospectus. Each subscriber must represent and warrant in the
Subscription Agreement that, among other things, the subscriber has received a
Prospectus. No subscription will be final and binding on any subscriber until
such subscriber has been in receipt of a final Prospectus for at least five (5)
business days. Thereafter, all subscriptions are irrevocable by subscribers.
Fundamental Knowledge. Each subscriber should make sure that it under-
stands, among other things, (i) the fundamental risks and possible financial
hazards of the investment, (ii) that the Interests lack liquidity, (iii) that
the Managing Owner will manage and control the Trust's business operations,
(iv) the tax consequences of the investment, (v) the potential limitations
on an Interestholder's limited liability and (vi) the Trust's structure
(including fees) and proposed trading activities. In addition, the
Managing Owner must consent to each subscription, which consent may be
withheld in whole or in part for any reason.
Ineligible Investors. Interests may not be purchased with the assets of
a Plan if the Trustee, the Managing Owner, Prudential Securities, the Trading
Manager or any of their respective affiliates (a) is an employer maintaining or
contributing to such Plan, or (b) has investment discretion with respect to the
investment of such plan assets. An investment in the Trust is not suitable for
Charitable Remainder Annuity Trusts or Charitable Remainder Unit Trusts. See
"Risk Factors--Employee Benefit Plan considerations" at page 25.
Employee Benefit Plan Considerations. Section 404(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and the regulations
promulgated thereunder by the United States Department of Labor (the "DOL")
provide as a general rule that a fiduciary with respect to a Plan which is
subject to Title I of ERISA (which would exclude certain Keogh Plans and IRAs
which are not employee benefit plans under section 3(2) of ERISA) must discharge
his duties with respect to such Plan in a prudent manner and must consider
several factors in determining whether to enter into an investment or engage in
an investment course of action. If a fiduciary with respect to any such Plan
acts imprudently with regard to selecting an investment or an investment course
of action for such Plan, the fiduciary may be held personally liable for losses
incurred by the Plan as a result of such imprudence. Among the factors that
should be considered are (i) the diversification and liquidity of the Plan's
portfolio; (ii) the potential return on the proposed investment and the effect
on that return if any portion of the Trust's income constitutes "unrelated
business taxable income" (see "Income Tax Consequences - Tax-Exempt Limited
Owners and Unrelated Business Taxable Income" at page 86); and (iii) the place
the proposed investment would occupy in the Plan's portfolio taken as a whole.
The acceptance of a subscription by the Managing Owner from a Plan does not
constitute a representation or judgment by the Managing Owner that an investment
in the Trust is an appropriate investment for that entity or that such an
investment meets the legal requirements applicable to such entity.
Generally, under Title I of ERISA, the Plan trustees or duly authorized in-
vestment managers (within the meaning of section 3(38) of ERISA) have exclusive
authority and discretion to manage and control assets of the Plan. ERISA also
prohibits a fiduciary from causing a Plan to enter into transactions involving
Plan assets with various parties in interest (within the meaning of section
3(14) of ERISA) with regard to the Plan. If such a "prohibited transaction"
is entered into, certain excise taxes may be payable, and the Plan
fiduciaries may be liable to the Plan for any losses incurred.
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If the assets of the Trust are deemed to be "plan assets" with respect to
the investing Plans, the Managing Owner will be deemed to be a fiduciary with
respect to each investing plan and the general prudence and fiduciary
responsibility provisions of ERISA will be applicable to the Managing Owner, and
certain transactions entered into by the Trust may be prohibited transactions.
Under a regulation (the "Regulation") of the DOL if (1) a Plan acquires a
"publicly-offered security" or (2) equity participation by "benefit plan
investors" is "not significant" (as such terms are used in the Regulation), the
issuer of the security is not deemed to hold plan assets.
Publicly Offered Security. In order for the Interests to be considered
publicly offered, they must be "widely held", "freely transferable" and must
satisfy certain registration requirements under federal securities laws. Under
the Regulation, a class of securities is considered "widely held" if it is owned
by 100 or more investors who are independent of the issuer and of one another.
In order to assure satisfaction of this condition, the Managing Owner will not
close the offering of Interests unless more than 150 investors acquire
Interests. Whether a security is "freely transferable" is a factual question to
be determined on the basis of all relevant facts and circumstances. However, the
Regulation sets forth a number of factors which will not ordinarily, either
alone or in combination, affect a finding that securities are freely
transferable. In particular, the Regulation provides that a restriction
or prohibition against transfers or assignments that would result in
either the termination or reclassification of an entity for federal
income tax purposes ordinarily will not cause securities issued by
such entity to fail to be freely transferable. A 1989
DOL Advisory Opinion reiterated this position with respect to transfer
restrictions imposed by a Trust to insure against reclassification of the Trust
under I.R.C. Section 7704 (which did not exist when the Regulation was adopted)
for federal income tax purposes. Based on the terms of the Regulation and this
advisory opinion, counsel to the Trust has advised the Trust that, in its view,
the assets of an investing Plan will include its investment in the Trust, but
will not, solely by reason of such investment, include any of the underlying
assets of the Trust, assuming the 100 investor rule discussed above is
satisfied, and assuming that the Interests are registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
within 120 days or such later time as may be allowed by the
Securities and Exchange Commission (the "SEC") after the end of
the Trust's fiscal year during which the offering of the Interests occurred and
assuming that the Managing Owner does not impose transfer restrictions which
would violate the "freely transferable" requirement. See "Summary of Trust
Agreement--Transfer of Interests" at page 66. In the event that, for any reason,
the assets of the Trust are deemed to be plan assets, and if any transactions
would or might constitute prohibited transactions under ERISA or the Code and an
exemption for such transaction or transactions cannot be obtained from the DOL
(or the Managing Owner determines not to seek such exemption), the Managing
Owner reserves the right, upon notice to but without the consent of any Limited
Owner, to mandatorily redeem out any Limited Owner which is a Plan investor. See
"Summary of Trust Agreement--Redemption of Interests" at page 67.
Certain Plan investors may currently maintain relationships with Prudential
Securities and its affiliates whereby Prudential Securities or such affiliate
provide brokerage services or other services to such Plans. These relationships
may cause Prudential Securities and/or its affiliates to be deemed to be
fiduciaries of those Plans. The DOL has issued a regulation defining the term
"fiduciary" which provides that a registered broker will not be deemed a
fiduciary with respect to an employee benefit plan solely because the broker
executes transactions for the purchase and sale of securities on behalf of the
Plan in the ordinary course of its business as a broker pursuant to specific
instructions within narrowly drawn parameters. However, Prudential Securities
will be deemed a party-in-interest with respect to such Plan. The regulation
further provides that a broker who either has discretionary control over Plan
assets or renders advice concerning investments on a regular basis for a fee
(which includes commissions) pursuant to an understanding that such advice will
serve as a primary basis for the Plan's investment decisions, and that such
broker will render individualized investment advice to the Plan based on the
needs of such Plan, such broker will be deemed a fiduciary (but only with
respect
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to that portion of the Plan's assets with respect to which the broker has such
discretionary control or renders such advice, as the case may be).
Under ERISA, investment in the Trust by Plans with such pre-existing
relationships could possibly be interpreted to constitute a prohibited use of
plan assets because it has the effect of directly or indirectly benefiting one
or more parties-in-interest. Prudential Securities has determined that it will
not recommend an investment in Interests of any Plan assets with respect to
which it believes it is a fiduciary, nor will it or any affiliate
allocate any employee benefit plan assets over which it has discretionary
control to the Trust. Prudential Securities believes that with respect
to the assets of a Plan with which it has a non-fiduciary,
party-in-interest brokerage relationship, any investment in the
Trust which is undertaken on behalf of such Plan by an independent
plan fiduciary who possesses the requisite experience and acumen to
understand the operation of the Trust and who determines that the
investment is appropriate and in the best interests of the Plan and
which is made under arm's-length conditions should not be viewed
as a prohibited transaction. Plan investors should pay particular
attention to the section of this Prospectus entitled "Income
Tax Consequences - Tax-Exempt Limited Owners and Unrelated
Business Taxable Income" at page 86.
PLAN OF DISTRIBUTION
Initial Offering
The Interests will be offered for sale, pursuant to Rule 415 under the
Securities Act of 1933, as amended, through Prudential Securities (or such
Additional Sellers as may be retained by Prudential Securities). Initially, the
Interests will be offered for a period of up to one hundred and twenty (120)
days after the date of this Prospectus, but may be less if the Subscription
Minimum is reached before that date (the "Initial Offering Period"). The Trust
may commence operations at any time following the sale of the $10,000,000
Subscription Minimum. Voluntary contributions of the Managing Owner up to
$500,000 will be counted toward the Subscription Minimum.
The net proceeds to the Trust from this offering will be $10,101,000 if the
minimum of 100,000 Interests ($10,000,000) are sold during the Initial Offering
Period and $101,010,000 if 1,000,000 Interests ($100,000,000) are sold during
the Initial Offering Period, in each case after taking into account the Managing
Owner's contribution. Since Prudential Securities or an affiliate will be
responsible for payment of the Trust's organization and offering expenses, 100%
of the proceeds of the initial offering will be available for the Trust's
trading activities.
Continuous Offering
In the event that $100,000,000 of Interests are not sold during the Initial
Offering Period, it is intended that Interests will continue to be offered
pursuant to this offering as of the end of each month during the Continuous
Offering until an aggregate of $100,000,000 of Interests are sold, but in no
event later than two years from the date of this Prospectus ("Continuous
Offering"). Subscribers will be admitted to the Trust as Limited Owners as of
the first day of the month following the month in which their subscription is
received and accepted. The Managing Owner may terminate the Continuous Offering
at any time prior to the sale of $100,000,000 in Interests or the expiration of
the maximum two year offering period.
General
The Trust will not, directly or indirectly, pay or award any finder's fees,
commissions or other compensation to any persons engaged by a potential Limited
Owner for investment advice as an inducement to such investment adviser to
advise the potential Limited Owner to purchase Interests in the Trust. Aggregate
expenses incurred in connection with retail salaries, expenses, reimbursement,
sales seminars, bonus and sales incentives will not exceed the limitation
imposed on such expenses by the National Association of Securities Dealers, Inc.
("NASD").
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THE MANAGING OWNER MAY REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART AT ITS
DISCRETION. A subscriber's subscription will not be final and binding until five
business days' following the subscriber's receipt of a final Prospectus.
Subscriptions may be accepted or rejected by the Managing Owner within four
business days of its receipt of subscriptions from Prudential Securities.
In connection with this offering, Prudential Securities is an "underwriter"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). The Trading Manager is not an underwriter, promoter or organizer of the
Trust.
For a tabular summary of the pro forma capitalization of the Trust giving
effect to the sale of all of the Interests offered hereby and to the purchase of
the Managing Owner's General Interests, see "Capitalization".
SUBSCRIPTION PROCEDURE AND ESCROW OF FUNDS
How to Subscribe
In order to subscribe for Interests, a subscriber must
-- have an account at Prudential Securities;
-- complete a Subscription Application (Exhibit C);
-- have cash in its Prudential Securities account to cover the
subscription;
-- deliver the Subscription Agreement to a Prudential Securities
Financial Advisor in a timely manner; and
-- meet established suitability standards.
Ways to Subscribe
-- Individual or joint tenant - Individual accounts are owned by one
person. Joint accounts can have two or
more owners.
-- Gifts or transfers to a - An individual can give up to $10,000
minor (UGMA or UTMA) a year per child without paying federal
gift tax. Depending on state law, you
can set up a custodial account under the
Uniform Gift to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
-- Trust - The trust must be established before an
account can be opened.
-- Business or Organization - Corporations, partnerships, associations
or other groups.
-- Retirement Accounts - IRA, Keogh Plan and other Employee
Benefit Plans.
When Does Subscription Become Final
Subscriptions will not be final or binding on any subscriber until five (5)
business days following such subscriber's receipt of a final Prospectus.
Thereafter, all subscriptions will be irrevocable on the part of the subscriber.
If a subscription is rejected by the Managing Owner, in whole or in part, for
any reason, or if the subscriber determines to revoke his or its subscription
within the five business day period described above, the subscription funds, or
applicable portion thereof, will be returned promptly to the subscriber, as well
as any interest earned thereon. The principal amount of any such subscription
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funds will be credited to the subscriber's Prudential Securities account; any
interest earned thereon will be returned by delivering a check to the subscriber
in an amount equal to the allocable interest earned on the proceeds. In the case
of IRA subscribers, checks will be transmitted to Prudential Securities (or an
Additional Seller) for deposit into such IRA account. All accepted subscribers
will receive written confirmation of acceptance into the Trust.
Escrow of Funds
Within two business days of receipt by the Managing Owner of accepted final
subscription documents, funds in the full amount of a subscription will be
transferred from the subscriber's Prudential Securities account (or from the
subscriber's account at an Additional Seller) and deposited by Prudential
Securities (or the Additional Seller) in an escrow account in the Trust's name
at The Bank of New York in New York, N.Y. (the "Escrow Agent"), where such funds
will be held during the Initial Offering Period or until this offering is
terminated, in which event the subscription amounts will be refunded, with
interest or until such funds are turned over to the Trust for trading purposes.
The Managing Owner will direct the Escrow Agent to invest the funds held in
escrow in U.S. Treasury Obligations or any other investment specified by the
Managing Owner which is consistent with the provisions of Rule 15c2-4 of the
Securities Exchange Act of 1934, as amended.
All interest earned on the proceeds of the subscription amounts held in
escrow by the Escrow Agent during the Initial Offering Period will be
distributed to subscribers on a pro rata basis (taking into account
both the time and amount of deposit) within ten (10) business days
of the subscriber's admission date or as soon thereafter as practicable
in the event payment cannot be made within that time period,
by delivering a check to the subscriber in an amount equal to the
allocable interest earned on the proceeds. In the case of IRA subscribers,
checks will be transmitted to Prudential Securities (or an Additional Seller)
for deposit into such IRA account. The Managing Owner, Prudential Securities,
the Trustee, the Trading Manager and their respective principals, stockholders,
directors, officers, employees and affiliates may subscribe for Interests, but
any Interests subscribed for by such persons will not be counted for purposes of
determining whether the Subscription Minimum has been met. If at least the
$10,000,000 Subscription Minimum is not sold during the Initial Offering Period,
all subscription funds, plus any interest thereon, will be returned to
subscribers for Interests on a pro rata basis (taking into account both the time
and amount of deposit), promptly, but in no event later than ten (10) business
days following the termination of the Initial Offering Period, or as soon
thereafter as practicable if payment cannot be made within that time period.
Continuous Offering
A subscriber's subscription agreement must be received by the Managing
Owner at its principal office, and sufficient funds must be in the subscriber's
Prudential Securities account, at least five business days prior to the end of
the month in which the subscription is submitted in order for such subscriber to
be admitted as of the first day of the next month. In the event that funds in
the subscriber's account are insufficient to cover the requested subscription
amount, the Managing Owner may, in its sole discretion, reject such subscription
for that month in whole or in part. Funds from accepted subscriptions will have
been transferred from the subscriber's Prudential Securities account (or from
the subscriber's account at an Additional Seller) and deposited in the Trust's
trading account. Once the month-end Net Asset Value per Interest is determined,
a confirmation of each accepted subscription will be sent to subscribers.
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THE TRUST, TRUSTEE, MANAGING OWNER AND AFFILIATES
Organization
Prudential Securities
Group Inc.
100%
Prudential Securities
Incorporated Wilmington Trust
Company
100%
Managing Trustee
Prudential Securities Owner
Futures Management Inc. Trust
The Trust was formed on October 16, 1995 under the Business Trust Statute
of the State of Delaware. The sole trustee of the Trust is Wilmington Trust
Company, a Delaware Banking Company (the "Trustee"). The Trustee has delegated
its duty and authority, and will have no liability, for the management of the
business and affairs of the Trust to Prudential Securities Futures Management
Inc. (the "Managing Owner"), a Delaware corporation formed in May 1973. The
Trustee will accept service of legal process upon the Trust in the State of
Delaware. See "Summary of Trust Agreement--The Trustee" at page 65. The Man-
aging Owner is a wholly-owned subsidiary of Prudential Securities, the Trust's
commodity broker and selling agent, which in turn is wholly-owned by Prudential
Securities Group Inc., ("PSGI"), an indirect wholly-owned subsidiary of The
Prudential Insurance Company of America.
PSGI, Prudential Securities and the Managing Owner may each be deemed to
be, and the Trustee will not be deemed to be, a "Promoter" of the Trust within
the meaning of the Securities Act. None of the foregoing persons is an
"affiliate" (as that term is used for purposes of the Securities Act) of the
Trading Manager. PSGI and the Managing Owner may each be deemed to be a "parent"
of the Trust within the meaning of the federal securities laws.
A brief description of the Trustee, PSGI, Prudential Securities, the
Managing Owner, and the officers and directors of the Managing Owner, follows:
The Trustee
Wilmington Trust Company, a Delaware banking corporation (the "Trustee"),
is the sole trustee of the Trust. The Trustee's principal offices are located
at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001. The Trustee is unaffiliated with each of Prudential Securities
Group Inc., Prudential Securities, the Managing Owner and the
Trading Manager. The Trustee's duties and liabilities with respect
to the offering of the Interests and the administration of the
Trust are limited to its express obligations under the Trust
Agreement. See "Summary of the Trust Agreement--The Trustee" at page 65.
Limited Owners will be notified by the Managing Owner of any change of the
Trust's Trustee.
Prudential Securities Group Inc.
PSGI is a holding company whose principal subsidiary is Prudential
Securities (the Trust's selling agent and commodity broker). PSGI is an indirect
wholly owned subsidiary of The Prudential Insurance Company of America, a major
mutual insurance company.
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Prudential Securities Incorporated
Prudential Securities' main business office is located at Prudential
Securities Building, One New York Plaza, 13th Floor, New York, New York 10292,
telephone (212) 214-1000. Prudential Securities, in its capacity as selling
agent for the Trust, is registered as a broker-dealer with the SEC and is a
member of the NASD. Prudential Securities is a major securities firm with a
large commodity brokerage business. It has over 270 offices in 43 states, the
District of Columbia, and 18 foreign countries. Prudential Securities is a
clearing member of the Chicago Board of Trade, Chicago Mercantile Exchange,
Commodity Exchange, Inc., and all other major United States commodity exchanges.
From time to time Prudential Securities (in its respective capacities as
a commodities broker and as a securities broker-dealer) and its principals are
involved in numerous legal actions, some of which individually and all of which
in the aggregate, seek significant or indeterminate damages. However, except for
the actions described below, during the five years preceding the date of this
Prospectus, there has been no administrative, civil, or criminal action,
including actions which are pending, on appeal or concluded, against Prudential
Securities or any of its principals which is material, in light of all the
circumstances, to an investor's decision to invest in the Trust.
On September 29, 1992, Prudential Securities entered into a settlement with
the CFTC in which, without admitting or denying the allegations of the
complaint, Prudential Securities consented to findings by the CFTC that it
failed to supervise employees in connection with the commodity trading
activities of a customer of Prudential-Bache Securities Inc. (the
predecessor of Prudential Securities) who was indicted and convicted
of fraud and the trading practices of two account executives formerly
employed by Prudential-Bache Securities Inc. Prudential Securities
further admitted to findings of recordkeeping violations
and for employing an unregistered associated person in connection with this
matter. Pursuant to the settlement, Prudential Securities agreed to pay a
$240,000 civil penalty and to cease and desist from engaging in further
violations of the rules and regulations with which they had been charged.
On July 22, 1993, Prudential Securities entered into a Settlement Agreement
with the Office of the Secretary of State of the State of South Carolina.
Without admitting or denying the allegations, Prudential Securities agreed to
pay $225,000 in settlement of all administrative inquiries, investigations and
other proceedings against Prudential Securities and its agents in South Carolina
relating to the supervisory and retail sales activities of Prudential Securities
and certain of its registered representatives.
On October 21, 1993, Prudential Securities entered into an omnibus
settlement with the SEC, state securities regulators in 51 jurisdictions (49
states, the District of Columbia and Puerto Rico) and the NASD to resolve
allegations that had been asserted against Prudential Securities with respect to
the sale of interests in more than 700 limited partnerships generated by
Prudential Securities' Direct Investment Group and sold from January 1, 1980
through December 31, 1990. The limited partnerships principally involved real
estate, oil and gas producing properties and aircraft leasing ventures.
The allegations against Prudential Securities were set forth in a Complaint
filed by the SEC on October 21, 1993 and in an Administrative Order issued by
the SEC also on October 21, 1993. It was alleged that federal and state
securities laws had been violated through sales of the limited partnership
interests (and a limited number of certain other securities) to
persons for whom such securities were not suitable in light of
their investment objectives, financial status, or investment
sophistication. It was also alleged that the safety, potential
returns and liquidity of the investments had been misrepresented. Prudential
Securities neither admitted nor denied the allegations asserted against it. The
Administrative Order included findings that Prudential Securities' conduct
violated the federal securities laws and that an order issued by the SEC in 1986
requiring Prudential Securities to adopt, implement and maintain certain
supervisory procedures had not been complied with. The Administrative Order (to
which Prudential Securities consented without admitting or denying the SEC's
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findings), directed Prudential Securities to cease and desist from violating the
federal securities laws and imposed a $10 million civil penalty. The
Administrative Order also required Prudential Securities to adopt certain
remedial measures including the establishment of a Compliance Committee of its
Board of Directors.
Prudential Securities' settlement with the state securities regulators
included an agreement to pay a penalty of $500,000 per jurisdiction. In settling
the NASD disciplinary action, Prudential Securities consented to a censure and
to the payment of a $5 million fine to the NASD.
In connection with the settlement of the allegations asserted against it,
and pursuant to a Final Order and Judgment entered on October 21, 1993 in the
action commenced by the SEC, Prudential Securities has deposited $330 million as
a fund to be used for the resolution of claims for compensatory damages asserted
by persons who purchased the limited partnership interests from Prudential
Securities, and has agreed to provide additional funds, if necessary, for that
purpose. The fund is to be administered by a court-approved Claims Administrator
who is a former SEC Commissioner. Prudential Securities also consented to the
establishment of a court-supervised expedited claims resolution procedures with
respect to such claims.
On December 17, 1993, Prudential Securities agreed to the entry of a
Consent Order issued by the State of Rhode Island, Department of Business
Regulation, Division of Securities. The allegations against Prudential Secu-
rities were that ten employees of Prudential Securities engaged in investment
advisory activities with clients in Rhode Island although these employees were
neither licensed as investment advisor representatives nor exempt from the
licensing requirements of Section 204 of the Rhode Island Uniform Securities Act
(the "RI Act"). Prudential Securities consented to the payment of a civil
penalty in the amount of $33,000 and agreed to cease and desist from further
violations of Section 203 of the RI Act. Prudential Securities also agreed to
modify relevant internal marketing and training materials distributed to its
sales force. Prior to the entry of the Consent Order discussed above, Prudential
Securities entered into a series of Consent Agreements with the Department
involving similar allegations concerning the registration of Prudential
Securities investment adviser representatives.
On January 18, 1994, Prudential Securities agreed to the entry of a Final
Consent Order and a Parallel Consent Order by the Texas State Securities Board.
The firm also entered into a related Agreement with the Texas State Securities
Commissioner. The allegations against Prudential Securities were that the firm
had engaged in improper sales practices and other improper conduct resulting in
pecuniary losses and other harm to investors residing in Texas with respect to
purchases and sales of limited partnership interests during the period of
January 1, 1980 through December 31, 1990. Without admitting or denying the
allegations, Prudential Securities consented to a reprimand, agreed to cease
and desist from further violations, and to provide voluntary donations to
the State of Texas in the aggregate amount of $1,500,000. The firm agreed
to suspend the creation of new customer accounts, the general solicitation
of new accounts, and the offer for sale of securities in or from Prudential
Securities' North Dallas office, irrespective of the place of
residence of such new customers, during a period of twenty
consecutive business days. Prudential Securities further agreed to
suspend the creation of new customer accounts, the general solicitation of new
customer accounts, and offer for sale of securities into or from the State of
Texas to any new customers, irrespective of the place of residence of such new
customers, during a period of five consecutive business days. Prudential
Securities also agreed to comply with the terms of the Administrative Order
entered by the SEC on October 21, 1993 (as discussed above) and to institute
training programs for its securities salesmen in Texas.
On January 25, 1994, Prudential Securities agreed to the entry of a Consent
Order issued by the Banking Commissioner (the "Commissioner") of the State of
Connecticut, Department of Banking. The allegations against Prudential
Securities were that from January 1992 through at least July 1993, Prudential
Securities employed investment adviser agents who solicited investment advisory
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business in Connecticut without being registered to do so. This conduct was
found by the Commissioner to be in violation of the Connecticut Uniform
Securities Act (the "Act") and in violation of the terms and conditions of a
Stipulation and Agreement entered into between the Commissioner and Prudential
Securities on February 20, 1992. It was further alleged with respect to
Prudential Securities' investment advisory business, that certain Prudential
Securities agents held themselves out to the public in Connecticut under a
business name other than Prudential Securities. Without admitting or denying the
allegations, Prudential Securities agreed to be censured by the Department of
Banking, to cease and desist from violation of the provisions of the Act, and
agreed to pay a civil penalty to the Department of Banking in the amount of
$150,000. Further, Prudential Securities agreed to be subject to a period of
administrative probation which will conclude upon Prudential Securities'
completion of certain remedial actions, including but not limited to, the
following: (a) Prudential Securities shall review, implement and maintain
supervisory procedures designed to ensure its compliance with the provision of
the Act; and (b) commencing on April 1, 1994 and continuing until April 1, 1996,
Prudential Securities shall file quarterly reports with the Securities and
Business Investments Division of the Department of Banking (the "Division")
relating to its investment advisory business. In addition, Prudential Securities
has agreed to pay the Department of Banking the cost of two or more examinations
of any of its offices by the Division, such amount not to exceed $10,000.
On March 10, 1994, Prudential Securities agreed to the entry of a Consent
Order issued by the State of Missouri, Commissioner of Securities. The
allegations against Prudential Securities were that the firm failed to supervise
a former registered representative, in violation of Missouri securities laws.
Without admitting or denying the allegations, Prudential Securities agreed to
the following: (a) to maintain and make available to the Missouri Division of
Securities all customer and regulatory complaints concerning any Prudential
Securities employee working in a branch located in Missouri or any security sold
by such employees; (b) beginning 30 days from the date of the Consent Order and
continuing for a period of three years, to include at least one public service
information piece selected by the Commissioner of Securities in all of
Prudential Securities' new account packages mailed to Missouri residents;
(c) for a period of three years from the date of the Consent Order, to
annually provide a notice to Prudential Securities' Missouri customers
which details the procedures for filing a complaint with Prudential
Securities and the applicable regulatory authorities. In addition,
Prudential Securities agreed to pay a fine in the amount of $175,000.
On June 8, 1994, the Business Conduct Committee of the New York Mercantile
Exchange ("NYMEX" or "Exchange") accepted an Offer of Settlement submitted by
Prudential Securities concerning allegations that Prudential Securities violated
NYMEX rules regarding pre-arranged trades and wash trades. Without admitting or
denying the allegations, Prudential Securities consented to a finding by the
Exchange that it had violated NYMEX Rule 8.55(A)(18) relating to conduct
substantially detrimental to the interest of the welfare of the Exchange; agreed
to cease and desist from future violations of Rule 8.55; and agreed to pay a
fine in the amount of $20,000.
On September 19, 1994, Prudential Securities consented to the entry of an
Agreement and Order issued by the State of Idaho, Department of Finance,
Securities Bureau (the "Department"). The allegations against Prudential Secu-
rities were that the firm failed to supervise certain employees in connection
with the securities and options trading activities entered into on behalf of
Idaho clients, in violation of the Idaho Securities Act (the "Act"). It was
further alleged that Prudential Securities failed to amend the Forms U-4 for
certain employees. Prudential Securities agreed to a number of sanctions and
remedial measures including, but not limited to, the following: (a) To install
a new branch manager in the Prudential Securities Boise branch office, who is to
function in a supervisory capacity only; (b) to designate a regional quality
review officer to review all securities options accounts and securities options
trading activities of Idaho customers in three Prudential Securities offices;
(c) to implement procedures reasonably designed to ensure compliance with
regulations concerning the timely delivery of prospectuses; and (d) to cooperate
in the
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<PAGE>
Department's ongoing investigation and to comply with all provisions
of the Act. In addition, Prudential Securities agreed to pay a fine to the
State of Idaho in the amount of $300,000. In addition, Prudential Securities
has voluntarily reimbursed certain customers for losses suffered in their
accounts in the amount of $797,518.49.
On October 27, 1994, Prudential Securities and Prudential Securities Group
entered into an agreement with the Office of the United States Attorney for the
Southern District of New York (the "U.S. Attorney") deferring prosecution of
charges contained in a criminal complaint. The complaint alleged that Prudential
Securities committed fraud in connection with the sale of certain oil and gas
limited partnership interests between 1983 and 1990 in violation of federal
securities laws. The agreement requires that Prudential Securities deposit an
additional $330,000,000 into an account established by the Securities and
Exchange Commission to pay restitution to the investors who purchased the oil
and gas partnership interests. Prudential Securities further agreed to appoint a
mutually acceptable outsider to sit on the Board of Directors of Prudential
Securities Group and the Compliance Committee of Prudential Securities. The
outside director will serve as an "ombudsman" whom Prudential Securities'
employees can contact anonymously with complaints about ethics or compliance.
Prudential Securities will report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports of his findings every three months for a three year
period. If, upon completion of a three-year period, Prudential Securities has
complied with the terms of the agreement then the government will not pursue the
charges in the complaint. If Prudential Securities does not comply with the
agreement then the government may elect to pursue the charges.
On June 19, 1995, Prudential Securities entered into a settlement with the
CFTC in which, without admitting or denying the allegations of the complaint,
Prudential Securities consented to findings by the CFTC of certain recordkeeping
violations and failure to supervise in connection with the commodity trading
activities, in 1990 and early 1991, of a former broker of Prudential Securities.
Pursuant to the settlement, Prudential Securities agreed to (i) pay a civil
penalty of $725,000, (ii) the entry of a cease and desist order with respect to
the violations charged and (iii) an undertaking directing the Prudential
Securities Compliance Committee to review certain of the firm's commodity
compliance and supervisory policies and procedures and a report be submitted to
the CFTC, as well as a report to the CFTC on the actions taken as a result of
the review.
The Managing Owner
Prudential Securities Futures Management Inc., a Delaware corporation
formed in May 1973, is the managing owner of the Trust. The Managing Owner has
been registered with the CFTC as a commodity pool operator since June 1989 and
as a commodity trading advisor since November 1990, and is a member of NFA in
such capacities. The Managing Owner's main business office is located at One New
York Plaza, 13th floor, New York, New York 10292, telephone (212) 778-7866.
The Managing Owner is currently the general partner/managing owner and
commodity pool operator of three publicly owned commodity pool limited
partnerships (Prudential-Bache Capital Return Futures Fund 2, L.P., Prudential
Securities Aggressive Growth Fund, L.P. and Diversified Futures Trust I) and
three non-public commodity funds (Prudential Securities Financial Futures Fund,
L.P., Prudential Securities Foreign Financials Fund, L.P. and Signet Partners
II, L.P.). Seaport Futures Management Inc. ("Seaport"), an affiliate of the
Managing Owner, acts as the general partner and commodity pool operator of
five publicly owned commodity funds, as well as a public commodity fund
which terminated on January 31, 1995. See "Past Performance Information--Other
Pools Sponsored by the Managing Owner and its Affiliate" at page 111.
Since 1980 Prudential Securities has sponsored seventeen public and private
commodity pools prior to the Trust. The first six pools (started between 1980
and 1982) terminated after an average term of five and one half years; the sixth
pool (started in March 1988) terminated after approximately six and three-
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quarters years on January 31, 1995; the remaining eleven pools (started between
1988 and 1995) are still in existence.
Directors and Officers of the Managing Owner
The current officers and directors of the Managing Owner are as follows:
James M. Kelso, born 1954, has been the President and a Director of the
Managing Owner since May 1995. Mr. Kelso has also been the President and a
Director of Seaport since May 1995. Mr. Kelso is a Senior Vice President of
Futures Administration for Prudential Securities and serves in various
capacities for other affiliated companies. Mr. Kelso joined Prudential
Securities in July 1981 and has held positions of increasing responsibility
since that time.
Barbara J. Brooks, born 1948, became the Treasurer and Chief Financial
Officer of the Managing Owner in May 1990 when she also became the Treasurer and
Chief Financial Officer of Seaport. She is a Senior Vice President of Prudential
Securities and is Vice President-Finance, Chief Financial Officer and Director
of various entities affiliated with Prudential Securities. She has been employed
by Prudential Securities since 1983. Ms. Brooks is a Certified Public
Accountant.
Donald Levine, born 1955, has been Secretary of both the Managing Owner and
Seaport since May 1990. Mr. Levine is a First Vice President and Associate
General Counsel in the Law Department of Prudential Securities. Prior to joining
Prudential Securities in March 1989, he was employed by Kidder, Peabody & Co.,
Inc. from May 1988 to February 1989 and E.F. Hutton & Co. from May 1984 to April
1988.
David Buchalter, born 1958, has been Assistant Secretary of both the
Managing Owner and Seaport since October 1995. Mr. Buchalter is a Senior Vice
President and Associate General Counsel in the Law Department of Prudential
Securities. Prior to joining Prudential Securities in January 1992, Mr.
Buchalter was associated with the law firm of Rosenman & Colin LLP from April
1988 to January 1992. Prior to that, from May 1983 though March 1988, Mr.
Buchalter served as in-house counsel for Shearson Lehman Hutton, Inc. and its
predecessor firm, E.F. Hutton, Inc.
Pamela Morgan, born 1959, has been a Vice President of the Managing Owner
since October 1994. Ms. Morgan is a First Vice President of Finance and
Administration in the Futures Division of Prudential Securities, with
responsibility for Risk Management, Credit, Finance, Compliance and Audit. She
has managed a variety of departments with increasing levels of responsibility
within Prudential Securities, most recently as Director of Marketing
Communications and Design. Ms. Morgan also has been a Vice President of Seaport
since October 1994. Prior to joining Prudential Securities in 1986, Ms. Morgan,
a certified public accountant, was employed by Arthur Andersen & Company for
five years.
A. Laurence Norton, Jr., born 1939, has been a Director of the Managing
Owner since October 1994. Mr. Norton has also been a Director of Seaport since
March 1994. Mr. Norton is an Executive Vice President of Prudential Securities
and is the President of its Futures Division. Prior to joining Prudential
Securities in November 1991, Mr. Norton was the branch manager of the Shearson
Lehman Brothers' Greenwich, Connecticut branch. Mr. Norton joined Shearson
Lehman Brothers as a branch manager in 1975.
Guy S. Scarpaci, born 1947, has been a Director of the Managing Owner since
July 1987 and was Assistant Treasurer from May 1988 until December 1989. In
addition, Mr. Scarpaci has been a Director of Seaport since May 1989. Mr.
Scarpaci was first affiliated with the Managing Owner in July 1987. Mr. Scarpaci
has been employed by Prudential Securities in positions of increasing
responsibility since August 1974 and is currently a Vice President of the
Futures Division.
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Eleanor L. Thomas, born 1954, has been a Vice President of the Managing
Owner since April 1993 and also has held such positions with Seaport since such
date. Ms. Thomas is a First Vice President of Prudential Securities and also
serves in various capacities for other affiliated companies. Prior to joining
Prudential Securities in March 1993, she was with MC Baldwin Financial Company
from June 1990 through February 1993 and Arthur Andersen & Co. from 1986 through
May 1990. Ms. Thomas is a certified public accountant.
Steven Carlino, born 1964, has been a Vice President and the Chief
Accounting Officer of the Managing Owner since June 1995 and also has held such
positions with Seaport since such date. Mr. Carlino is a Vice President of
Prudential Securities and also serves in various capacities for other affiliated
companies. Prior to joining Prudential Securities in October 1992, he was with
Ernst & Young for six years. Mr. Carlino is a certified public accountant.
The most recent statement of financial condition of the Managing Owner and
report of the independent certified public accountants thereon is set forth
under "Report of Independent Public Accountants and Statement of Financial
Condition of Prudential Securities Futures Management Inc.", on page 103
of this Prospectus.
DUTIES OF THE MANAGING OWNER
Management of the Trust
The Managing Owner will manage the Trust's business and affairs, but will
not (except in certain limited, and essentially emergency, situations) direct
the Trust's trading activities. The Managing Owner will be responsible for the
renewal of the agreement with the Trading Manager, as well as the selection of
additional and/or substitute trading managers, provided, however, that in no
event shall the Managing Owner retain a commodity trading advisor affiliated
with Prudential Securities. See "Summary of Advisory Agreement" at page 60. In
addition, the Managing Owner has selected the Trustee, and will be responsible
for determining whether to retain or replace the Trustee.
The Managing Owner will be directly responsible for preparing monthly and
annual reports to the Limited Owners, filing reports required by the CFTC, the
SEC and any other federal or state agencies or self-regulatory organizations,
and calculating Net Asset Value of the Trust and all fees and expenses to be
paid by the Trust. The Managing Owner will provide suitable facilities and
procedures for handling redemptions, transfers, distributions, and the
orderly liquidation of the Trust, and effecting each of the foregoing.
Although it is expected that Prudential Securities may act as the Trust's
executing broker, and will act as the Trust's clearing broker, the Managing
Owner is responsible for selecting another futures commission merchant
in the event Prudential Securities is unable or unwilling to continue
in that capacity.
Retention of Affiliates
The Managing Owner may retain affiliates to provide certain administrative
services necessary to the prudent operation of the Trust so long as the Managing
Owner has made a good faith determination that: (i) the affiliate which it
proposes to engage to perform such services is qualified to do so (considering
the prior experience of the affiliate or the individuals employed thereby); (ii)
the terms and conditions of the agreement pursuant to which such affiliate is to
perform services for the Trust are no less favorable to the Trust than could be
obtained from equally-qualified unaffiliated third parties; and (iii) the
maximum period covered by any agreement pursuant to which such affiliate is to
perform services for the Trust shall not exceed one year, and such agreement
shall be terminable without penalty upon 30 days' prior written notice by the
Trust. The fees of any such affiliates will be paid by Prudential Securities
or an affiliate.
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Notification of Decline in Net Asset Value
The Managing Owner will notify the Limited Owners of any decline, as of the
end of any business day, in the estimated Net Asset Value per Interest to less
than 50% of the Net Asset Value per Interest as of the end of the immediately
preceding month within seven (7) business days of any such occurrence. Included
in such notification shall be a description of the Limited Owners' voting and
redemption rights.
Maximum Contract Term
The Trust is prohibited from entering into any contract with the Managing
Owner or its affiliates which has a term of more than one year and which is not
terminable by the Trust without penalty upon sixty (60) days' prior written
notice.
The Managing Owner will participate in the income and losses of the Trust
in the proportion which its ownership of General Interests bears to the total
number of Interests on the same basis as the Limited Owners, but the Managing
Owner will receive no fees or other remuneration from the Trust.
FIDUCIARY RESPONSIBILITY
Accountability
Pursuant to the Business Trust Statute, the Trustee has delegated to the
Managing Owner responsibility for the management of the business and affairs of
the Trust, and has no duty or liability to supervise or monitor the performance
of the Managing Owner, nor shall the Trustee have any liability for the acts or
omissions of the Managing Owner. The Managing Owner is accountable to each
Limited Owner as a fiduciary and must exercise good faith and fairness in all
dealings affecting the Trust. The Trustee retains a statutory fiduciary duty to
the Trust only for the performance of its express obligations which it retains
under the Trust Agreement, which are limited to the making of certain filings
under the Business Trust Statute and accepting service of process on the Trust
in the State of Delaware, and the Trustee owes no other duties to the Trust.
Pursuant to the Business Trust Statute, to the extent that, in law or equity,
the Trustee or the Managing Owner have duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to the Limited Owners, (i) the
Trustee and the Managing Owner shall not be liable for their good faith reliance
on the provisions of the Trust Agreement, and (ii) the Trustee's and the
Managing Owner's duties and liabilities may be expanded or restricted by the
express provisions of the Trust Agreement. The Managing Owner may not contract
away its fiduciary obligations.
Legal Proceedings
If a Limited Owner believes that the Managing Owner has violated its
fiduciary duty to the Limited Owners, a Limited Owner may seek legal relief for
himself (or itself) or, subject to the satisfaction of certain conditions, on
behalf of the Trust to recover damages from, or require an accounting by, the
Managing Owner. A Limited Owner may have the right to institute legal action on
behalf of himself and all other similarly situated Limited Owners (a class
action) to recover damages from the Managing Owner for violations of fiduciary
duties. See "Summary of Trust Agreement--Indemnification" at page 73. Potential
defenses, among others, to any claim by a Limited Owner of breach of fiduciary
duty include that discretion was reasonably exercised or that the action at
issue was contractually authorized. In addition, (i) Limited Owners may have the
right, subject to procedural and jurisdictional requirements, to bring Trust
class actions in federal court to enforce their rights under the federal
securities and commodities laws; and (ii) Limited Owners who have suffered
losses in connection with the purchase or sale of their Trust Interests may
be able to recover such losses from the Managing Owner where the losses
result from a violation by the Managing Owner of the antifraud provisions
of the federal securities and commodities laws.
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Reparations and Arbitration Proceedings
Limited Owners also have the right to institute a reparations proceeding
before a CFTC administrative law judge against the Managing Owner (a registered
commodity pool operator), Prudential Securities (a registered futures commission
merchant) or the Trading Manager (a registered commodity trading advisor) under
the CE Act, and the rules promulgated thereunder, as well as the right to
initiate arbitration proceedings in lieu thereof.
Basis for Liability
Potential investors should be aware, however, that because of certain
provisions in the Advisory Agreement, the Brokerage Agreement and the Trust
Agreement, it generally will be more difficult to establish a basis for
liability against such entities than it would be absent such provisions,
including, (a) the provisions in the Advisory Agreement giving broad
discretion to the Trading Manager, and (b) the exculpatory and
indemnity provisions contained in the Advisory Agreement,
the Brokerage Agreement and the Trust Agreement. See "Summary of
Advisory Agreement" at page 60, "Summary of Brokerage Agreement" at
page 63 and "Summary of Trust Agreement--Indemnification" at page 73. Payment
of any indemnity to any such person by the Trust pursuant to such provisions
would reduce the assets of the Trust. The Managing Owner does not carry
insurance covering such potential losses, and the Trust carries no liability
insurance covering its potential indemnification exposure.
Because the foregoing summary involves rapidly developing and changing
areas of the law, Limited Owners who believe that the Trustee, the Managing
Owner, Prudential Securities or the Trading Manager may have violated applicable
law should consult with their own counsel as to their evaluation of the status
of the law at such time.
MANAGING OWNER'S MINIMUM PURCHASE AND NET WORTH OBLIGATIONS
Minimum Purchase Obligation
The Managing Owner has contributed $1,000 to the Trust in order to effect
the organization of the Trust and has received General Interests in return for
its contribution. This contribution represents the extent of its beneficial
interest in the Trust. The Managing Owner will contribute an additional amount
between $100,000 and $1,009,000, depending on the number of Interests sold
during the Initial Offering Period and the Continuous Offering.
In return, the Managing Owner will receive additional General
Interests and will have at least a 1% interest in the capital,
profits and losses of the Trust. The Managing Owner is required
to maintain at least a 1% interest in the Trust's capital, profits and
losses so long as it is acting as the Managing Owner of the Trust and it will
make such purchases as are necessary to effect this requirement. All General
Interests purchased by the Managing Owner will be held for investment purposes
only and not for resale. No principal of the Managing Owner owns any beneficial
interest in the Trust.
Net Worth Obligation
General. The Managing Owner has represented that its net worth will equal
an amount at least equal to 5% of the total contributions to the Trust,
excluding its interests in and receivables from the Trust, and that
such net worth will be in addition to any minimum net worth
being maintained by the Managing Owner with respect to all
other entities in which it is a managing owner or a general partner,
which minimum net worth, calculated with respect to each such other
entity in the same manner as for the Trust, shall not be less than 5% of the
total capital contributions made to such entity. The Managing Owner and PSGI
have each agreed that at all times after the Initial Offering Period (assuming
that the Subscription Minimum is sold) and so long as the Managing Owner remains
the Managing Owner of the Trust, they will not take or voluntarily permit to be
taken any affirmative action to reduce the Managing Owner's net worth below the
foregoing amount. PSGI has agreed to make available to the Managing Owner
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additional capital (in the form of a demand promissory note) in an amount
sufficient to permit the Managing Owner to meet its net worth obligation. PSGI
will secure the Note by depositing United States Treasury securities in an
amount at least equal to the value of the Note in a collateral
account for the benefit of the Managing Owner. The Managing Owner
believes that PSGI will incur its obligations in connection with the
Note and the collateral pledged thereunder (the "Collateral") in
good faith, without an intent to hinder, delay or defraud any of
its present or future creditors, and that PSGI will receive reasonable and
fair consideration therefor. As such, the Managing Owner believes (i) the Note
will constitute a legal, valid and binding obligation of PSGI, (ii) it will have
a duly perfected security interest in the Collateral, and (iii) that such
security interest would be valid in any proceeding commenced by or against PSGI
under the U.S. Bankruptcy Code.
The Managing Owner's net worth obligation may be modified if the Managing
Owner is advised by tax counsel that the proposed modification will not
adversely affect the classification of the Trust as a partnership for
federal income tax purposes. See Section 4.3(i) of the Trust Agreement.
CAPITALIZATION
The table below shows the pro forma capitalization of the Trust (i) on the
date hereof, (ii) as adjusted for the sale of the minimum $10,000,000 and the
maximum $100,000,000 of Interests offered hereby (after the minimum required
contribution of the Managing Owner) and (iii) assuming that all Interests are
sold during the Initial Offering Period:
As Adjusted
Title of Class Outstanding Minimum Maximum
General Interests . . . 10(a) 1,010(a) 10,100
Limited Interests . . . 100,000 1,000,000
Total Initial Contribution. $1,000(a) $10,101,000(a) $101,010,000
(a) The Managing Owner has contributed $1,000 to effect the organization of
the Trust and has received General Interests in return for such
contribution. The Managing Owner will make an additional contribution of
$100,000 if the Subscription Minimum is sold.
FEES, COMPENSATION AND EXPENSES
Charges to be paid by the Trust
(1) Brokerage Fee to Prudential Securities
The Trust will pay Prudential Securities for commodity brokerage and other
administrative services, a fixed fee, payable monthly as of the first day of
each month, equal on an annual basis to 7.75% of the Trust's Net Asset Value.
See "Actual and Potential Conflicts of Interest--Affiliation of the Managing
Owner, Prudential Securities and PSGI" at page 54. The first payment will be
made on the date trading commences, and will be pro-rated for the number of days
remaining in the month (assuming trading does not commence on the first business
day of a month), with each subsequent payment made on the first business day of
each month. No material change related to such brokerage fee will be made except
upon twenty business days' prior notice to Limited Owners and no increase in
such fees shall take effect except at the beginning of a quarter. In no event
will the brokerage fee paid by the Trust exceed any limitations imposed
by the NASAA
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Guidelines, or be increased without the approval of at least a
majority in interest of the Limited Owners.
Assuming that the Trading Manager's level of trading volume for the Trust
will be at or about the same level as it has experienced in the management of
its accounts since 1991 in trading the futures and forward markets and
instruments to be traded for the Trust pursuant to the initially
agreed upon Willowbridge trading approach, and assuming that the
initial allocations among the five Willowbridge trading strategies
to be used are as currently contemplated, the Managing Owner has
estimated that the fixed brokerage fee would be the equivalent of
a commission rate for futures transactions of approximately $45 per round turn
(i.e., the total for executing and closing out the transaction). The Trust
intends to include in its annual report, which will be mailed to all Limited
Owners, the actual annual round-turn equivalent brokerage commission rate.
From its fixed brokerage fee, Prudential Securities will be responsible for
the payment of the following:
(a) Compensation to Prudential Securities Employees. See Note (1)
to the cover page of this Prospectus.
(b) Execution Costs. All of the Trust's floor brokerage expenses
and give-up charges, as well as the NFA, exchange and clearing fees
incurred in connection with the Trust's futures trading activities. These
costs are estimated to be between 1/2 of 1% and 1% per annum of the
Trust's Net Asset Value.
In addition, Prudential Securities will credit the Trust with 80% of the
interest income it earns on the Trust's deposits with it and will retain
the balance for itself.
(2) Forward Transactions through Prudential-Bache Forex (USA) Inc.
Many of the Trust's currency trades will be executed in the forward
markets, in which no brokerage commissions are charged. Instead, participants
trade with a spread between the prices at which they are prepared to buy and
sell a particular currency. The "bid-ask" spreads charged by the forward
counterparties with which the Trust will trade cannot be quantified, but could
be substantial.
PBFI will attempt to earn a profit on the bid-ask spreads (which must be
competitive) on any back-to-back foreign currency forward transactions entered
into between the Trust and Prudential Securities on the one hand and Prudential
Securities and PBFI on the other. In connection with its trading of foreign
currencies in the interbank market, Prudential Securities may arrange bank lines
of credit at major international banks. To the extent such lines of credit are
arranged, Prudential Securities will not charge the Trust for maintaining such
lines of credit, but will require margin deposits with respect to forward
contract transactions. See "Risk Factors--Forward Contracts" at page 20. Except
as discussed above, Prudential Securities will receive no other compensation for
the services it provides the Trust.
(3) Management and Incentive Fees to the Trading Manager
During the term of the Advisory Agreement among the Trust, the Managing
Owner and the Trading Manager, the Trading Manager will receive a quarterly
incentive fee (if it achieves New High Net Trading Profits) and a monthly
management fee, in each instance based on the Trust's Net Asset Value. See
"Summary of Advisory Agreement" at page 60. In no event will the management and
incentive fees to the Trading Manager exceed any limitations imposed by
the NASAA Guidelines.
(a) Management Fee. The Trust will pay the Trading Manager a
monthly management fee of 1/4 of 1% of the portion of the Trust's Net
Asset Value allocated to its management (the "Allocated Assets") as of the
last day of each calendar month (an annualized rate of 3%). The
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management fee will not be reduced on account of any (i) redemptions,
(ii) distributions, (iii) accrued Management Fees being calculated,
(iv) accrued Incentive Fees being calculated, (v) accrued but unpaid
extraordinary expenses, or (vi) reallocations of assets to any other
trading manager that may be retained in the future to provide advisory
services to the Trust (an "Other Advisor"), made as of the end of the
month for which the calculation is being made.
(b) Incentive Fee. The Trust will pay the Trading Manager an
incentive fee of 20% of any New High Net Trading Profits generated by it
as of the last day of each calendar quarter on the Allocated Assets. The
first incentive fee which may be due and owing to the Trading Manager
shall be computed as of the end of the first calendar quarter during which
the Trading Manager has managed the Allocated Assets for at least forty-
five (45) days. New High Net Trading Profits is computed in the Advisory
Agreement as the excess (if any) of (A) the Allocated Assets, including
realized and unrealized gains and losses thereon, as of the last day of a
calendar quarter, after deduction of Management Fees paid or payable in
respect of the such Allocated Assets as of the last day of such quarter,
but before deduction of incentive fees payable for such quarter, minus
(B) the Allocated Assets, including realized and unrealized gains and
losses thereon, as of the last day of the most recent preceding calendar
quarter for which an incentive fee in respect of such Allocated Assets was
earned (or the date the Trust commenced trading activities, whichever date
the Allocated Assets were greater), after deduction of management fees and
incentive fees paid or payable in respect of such Allocated Assets for
such prior quarter. In determining whether an incentive fee is due from
quarter to quarter, it is not required that unrealized gains or losses in
one period be matched with subsequently realized gains or losses in
another period. In computing New High Net Trading Profits, the difference
between (A) and (B) in the preceding sentence shall be (i) decreased by
all interest earned on the Allocated Assets between the dates referred to
in (A) and (B) as well as all additions to the Allocated Assets and
positive reallocations of Allocated Assets from Other Advisors between the
dates referred to in (A) and (B), and (ii) increased by the Trading
Manager's allocable portion (initially 100%) of any distributions or
redemptions paid or payable by the Trust as of, or subsequent to, the date
in (B) through the date in (A), as well as losses (including losses
incurred from the date of the last incentive fee paid or payable), if any,
associated with the Trading Manager's allocable portion of redemptions and
any losses associated with negative reallocations of Allocated Assets, and
any negative reallocations of Allocated Assets between the dates referred
to in (A) and (B), and extraordinary expenses not related to the Trading
Manager from the date in (B) to the last day of the calendar quarter as of
which the current incentive fee calculation is made. For purposes of
calculating the first incentive fee payable to the Trading Manager, the
date referred to in (B) shall be the date on which the Trust commences
trading. The term "extraordinary expenses" as used above, and below under
the heading "the Managing Owner" shall have the meaning ascribed to it
under Section 4.7(a) of the Trust Agreement. All incentive fees paid to
the Trading Manager will be retained by the Trading Manager despite any
subsequent losses which may be incurred. To the extent that a
redemption of an Interest occurs at any time other than the end of a
quarter, an incentive fee will be paid to the Trading Manager as if such
redemption occurred as of the end of a quarter.
As a result of the foregoing, it can be seen that the incentive fee to be
paid to the Trading Manager under the Advisory Agreement will not be paid after
a calendar quarter in which it incurs losses until sufficient New High Net
Trading Profits are generated in subsequent periods to recoup any losses
incurred and New High Net Trading Profits are achieved.
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Example of Incentive Fee
A simple numerical example with respect to the Interests will illustrate
how the quarterly incentive fee will be calculated, as follows:
A. Assumptions
(1) The Trust commences trading activities on April 1, 1996 with
$100,000,000 in Interests and the Trading Manager is allocated 100%
of that amount.
B. Quarterly Data
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7)
<S> <C>
Beginning Gross Fees for Advisory Net Interest Ending
Net Asset Realized & Brokerage Management Trading Income Net Asset
Value Unrealized Services Fee Profit Value***
Trading and Related (Loss)**
Profit Out-of-pocket
(Loss)* Costs
4/1-6/30 $100,000,000 $12,000,000 $1,937,500 $1,000,000 $9,062,500 $100,000 $109,162,500
</TABLE>
* $6,000,000 realized and $6,000,000 unrealized.
** Column (2) minus the sum of Columns (3) and (4)
*** Column (1) plus Column (5) plus Column (6), and before computation of the
advisory incentive fee.
C. Incentive Fee Calculation
(1) Quarterly incentive fee is calculated as follows:
$9,062,500 [Column (5)] 20% = $1,812,500
(2) If in the next quarter, the Trading Manager experienced Net
Trading (Losses) computed on both a realized and unrealized basis,
it would not receive another incentive fee until it recouped its
losses and achieved New High Net Trading Profits (both realized and
unrealized). If, however, the fees and expenses in the next quarter
totaled $3,000,000, and the only Net Trading Profit consisted of
realization of only $4,000,000 of the $6,000,000 unrealized gain
from the prior quarter, the Trading Manager would be eligible for an
incentive fee on the $1,000,000 New High Net Trading Profit.
(4) Extraordinary Expenses
To the extent that any extraordinary expenses are incurred including,
without limitation, legal claims and liabilities and litigation costs and
any indemnification related thereto, the Trust will be responsible for
such expenses. See Section 4.7(b) of the Trust Agreement.
Charges of the Trust to be paid by Prudential Securities or its Affiliates.
Prudential Securities or an affiliate will be responsible for the payment
of the following charges and will not be reimbursed by the Trust therefor:
(1) Routine Operational, Administrative and Other Expenses. All of
the Trust's routine operational and administrative expenses including, but
not limited to, accounting and computer services, filing fees, printing,
mailing and duplication costs will be paid by Prudential Securities or one
of its affiliates. These operational and administrative expenses are
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estimated at approximately $125,000 per annum, depending on the size of
the Trust. Prudential Securities or an affiliate will also be
responsible for all routine legal, auditing and other expenses of third
party service providers, including the Trustee. Such fees and expenses
are estimated at approximately $75,000 per year.
(2) Organization and Offering Expenses. All expenses incurred in
connection with the organization of the Trust and the offering of
Interests during the Initial and Continuous Offering Periods, estimated at
approximately $650,000.
Charges to be Paid by Limited Owners
Redemption Charges. Limited Owners who redeem their Interests during the
first twelve months following their sale to such Limited Owner will be subject
to the following redemption charges: Interests redeemed on or prior to the end
of the first and second successive six-month periods after their sale will pay
a redemption charge of 4% and 3%, respectively, of the Net Asset Value at which
they are redeemed. These redemption charges will be paid to the Managing Owner.
In the event that an investor acquires Interests at more than one closing date,
such Interests will be treated on a "first-in, first-out" basis for redemption
purposes (including determining the amount of any applicable redemption charge).
Redemption charges do not reduce Net Asset Value or New High Net Trading Profit
for any purpose, only the amount which Interestholders receive upon redemption.
Projected Twelve-Month Break-Even Analysis
A projected twelve-month break-even analysis, taking into account all fees
and expenses enumerated above (other than advisory incentive fees and
extraordinary expenses, which are impossible to predict), is set forth at page
17 above under the heading "Projected Break-Even Analysis", and is expressed as
a dollar amount and as a percentage of a $5,000 initial investment.
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
(1) Affiliation of the Managing Owner, Prudential Securities and PSGI.
The Managing Owner is a wholly-owned subsidiary of Prudential Securities, which
will act as the Trust's selling agent and clearing broker and perform other
services for the Trust. Prudential Securities is a wholly-owned subsidiary of
PSGI. See "The Trust, Trustee, Managing Owner and Affiliates" at page 41 and
"Summary of Brokerage Agreement" at page 63. PBFI, affiliates of Prudential
Securities, also will attempt to earn a spread on any foreign currency forward
transactions between the Trust and Prudential Securities, on the one hand, and
Prudential Securities and PBFI on the other. Because the Managing Owner is an
affiliate of Prudential Securities, the fixed brokerage fee it will receive is
not the result of arm's-length negotiations. Other customers of Prudential
Securities may pay commissions which are effectively lower than the fixed
brokerage fee payable by the Trust when Prudential Securities determines, in its
sole discretion, that the size of any such other account, the anticipated volume
and frequency of its trading and the costs associated with the servicing of such
account, or any other reasons, justify a lower rate. To the extent that other
brokers would charge commission rates effectively below those charged by
Prudential Securities, the Trust will pay effectively higher commissions for
similar trades. However, Limited Owners obtain several benefits from investing
in the Trust which might otherwise not be available to them for an investment as
low as the minimum investment in the Trust (e.g., limited liability, investment
diversification, and administrative convenience).
In addition, since the Managing Owner and Prudential Securities are each
affiliates of PSGI, and PBFI is an affiliate of Prudential Securities, the
Managing Owner may have an incentive to retain Prudential Securities as the
Trust's clearing broker and to engage in foreign currency forward transactions
with PBFI as the counterparty. However, the Managing Owner has a fiduciary
obligation to the Trust notwithstanding its relationship with Prudential
Securities and PBFI, and it will be mindful of this obligation in all dealings
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affecting the Trust. Accordingly, the Managing Owner will not continue to retain
such affiliated entities if it determines that it would not be in the best
interest of the Trust to do so.
As a result of the flat brokerage fee to be charged the Trust, the Managing
Owner may have a conflict of interest in two additional respects. First, the
Managing Owner will be responsible for determining whether distributions are to
be made to Limited Owners by the Trust. However, because any distributions will
reduce the Trust's assets which serve as the basis on which Prudential
Securities's fixed brokerage fee is calculated, the Managing Owner will have an
incentive to reduce or eliminate distributions in order to maximize such
brokerage fee. Second, the Managing Owner was responsible for selecting the
Trading Manager and will be responsible for selecting any new commodity trading
managers for the Trust and may have an incentive to select trading managers
which do not trade frequently since Prudential Securities will receive the same
fee regardless of how many transactions are effected for the Trust. The Trust
Agreement requires that the Managing Owner determine whether the Trust is
receiving the best price and services available under the circumstances, and
whether the rates are competitive, and if necessary to renegotiate the brokerage
fee structure to obtain such rates and services for the Trust. In making the
foregoing determinations, the Managing Owner may not rely solely on the
brokerage fees paid by other major commodity pools.
The officers, directors and employees of the Managing Owner and of
Prudential Securities, and agents and correspondents of Prudential Securities,
from time to time may trade in commodities for their own accounts and for the
account of Prudential Securities itself. In addition, Prudential Securities is
a futures commission merchant, handling customer business in commodities. Thus,
Prudential Securities may effect transactions in which the other parties to the
transactions are Prudential Securities, officers, directors or employees of
Prudential Securities or the Managing Owner, or customers, agents or
correspondents of Prudential Securities, or employees of such agents or
correspondents. Such persons or entities might also compete with the Trust in
bidding or offering on purchases or sales of contracts without knowing that the
Trust also is so bidding or offering. Transactions for Prudential Securities,
for the officers, directors or employees of Prudential Securities or the
Managing Owner, or for customers, agents or correspondents of Prudential
Securities or employees of such agents or correspondents, might
be effected when similar Trust trades are not executed or are
executed at less favorable prices. Although Limited Owners will
not be permitted to inspect such persons' trading records in
light of their confidential nature, the Managing Owner will have access
to these records.
Certain of the officers and directors of the Managing Owner (who are also
employees of and are compensated by Prudential Securities) may individually
receive from Prudential Securities compensation and bonuses based on various
factors including brokerage fees generated by the Trust.
(2) Prudential Securities-related Activities. As part of its commodity
brokerage services, Prudential Securities maintains managed accounts serviced by
outside commodity trading managers, as well as discretionary and guided
commodity accounts through which Prudential Securities services commodity
accounts for customers meeting certain investment requirements. The selection
of commodity trades for such accounts is made through the judgment
of the particular person servicing the account. Prudential Securities
also maintains a commodity research department which makes fundamental
and technical information available daily to its Financial Advisors
and certain customers. In addition, from time to time it makes
recommendations as to market positions. In servicing managed accounts,
discretionary accounts and/or guided accounts, Prudential Securities Financial
Advisors may take or advocate a position similar or opposite to that taken by
Prudential Securities and/or the Trust, and there is no assurance that the
Trust's positions will prove more profitable than those of such other accounts.
However, since Prudential Securities does not have discretion over the positions
taken on behalf of the Trust, it will not be able to affect, either positively
or negatively, the Trust's positions.
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(3) Prudential Securities Advising on Redemptions. Prudential Securities
Financial Advisors who are appropriately registered and qualified will receive
continuing compensation for services rendered to the Trust on an ongoing basis,
including rendering advice to Limited Owners on redemptions. See "Summary of
Brokerage Agreement" at page 63. This compensation is paid by Prudential
Securities out of the fixed monthly brokerage fee it receives from the Trust in
proportion to the number of then outstanding Interests for which each Financial
Advisor provides ongoing services. This compensation ceases to be paid to
Financial Advisors with respect to redeemed Interests. Accordingly, Prudential
Securities Financial Advisors have a financial incentive to advise Limited
Owners not to redeem Interests in the Trust. However, Prudential Securities
Financial Advisors are expected to act in the best interests of their clients,
notwithstanding any personal interests to the contrary.
(4) Other Commodity Funds Sponsored by Prudential Securities. Prudential
Securities is the sponsor of other publicly and privately offered commodity
funds, which may or may not be similar to the Trust. These funds and other
commodity funds established from time to time by Prudential Securities may
compete with the Trust for the execution of trades and there is no assurance
that the Trust will obtain the most favorable prices on such
trades. Since Prudential Securities has no discretion over the selection
of the positions taken by these funds or the timing of the initiation
thereof, it will not be able to influence the favorability of the
price of the Trust's transactions. See "Past Performance Information--
Other Pools Sponsored by the Managing Owner and its Affiliate" at
page 111.
(5) Management of Other Accounts by the Trading Manager. The Trading
Manager will be permitted to manage and trade accounts for other investors
(including other commodity pools) and to trade commodities for its own account
and the accounts of its principals and will continue to be free to do so, so
long as the Trading Manager's ability to carry out its obligations and duties to
the Trust under the Advisory Agreement is not materially impaired thereby. See
"Summary of Advisory Agreement" at page 60. The Trading Manager and its
principals have specifically indicated their intention to continue to trade for
their own account(s). The Trading Manager might therefore compete with the Trust
in bidding or offering on purchases or sales of contracts through the same or a
different trading program than that to be used by the Trust. There can be no
assurance that any such trades will be consistent with those of the Trust, or
that the Trading Manager or its principals will not be the other party to a
trade entered into by the Trust. In addition, certain affiliates of the Trading
Manager operate commodity pools which may be competitive with the Trust.
Pursuant to the Advisory Agreement, the Trading Manager must treat the Trust
equitably and has agreed to provide the Managing Owner with access to
information so that the Managing Owner can be assured of such equitable
treatment. Limited Owners will not have any inspection rights. See
"Summary of Advisory Agreement" at page 60. In addition, because
the financial incentives of the Trading Manager in certain other
accounts managed by it may exceed any incentives payable by the Trust,
the Trading Manager might have an incentive to favor those accounts as
against the Trust in trading. The Trading Manager's management of other clients'
accounts may increase the level of competition among such clients and the Trust
for the execution of the same or similar transactions and affect the priority of
order entry. All open positions held in the accounts owned or controlled by the
Trading Manager and its principals and affiliates will be aggregated for
purposes of applying speculative position limits in the United States. Thus,
the Trust might be unable to enter into or hold certain positions if such
positions, when added to contracts held for other accounts of the
Trading Manager or for the Trading Manager itself, would exceed the
applicable speculative position limits. See "Risk Factors--Commodity
trading may be Illiquid" at page 20.
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COMMODITY TRADING
Futures Contracts
Futures contracts are contracts made on or through a commodity exchange and
provide for future delivery of agricultural and industrial commodities, precious
metals, foreign currencies or financial instruments, and in the case of certain
contracts, such as stock index futures contracts and Eurodollar futures con-
tracts, provide for cash settlement. Such contracts are uniform for each com-
modity on each exchange and vary only with respect to price and delivery time.
A contract to buy or sell may be satisfied either by making or taking delivery
of the commodity and payment or acceptance of the entire purchase price therefor
or by offsetting the obligation with a contract containing a matching
contractual obligation on the same (or a linked) exchange prior
to delivery. United States commodity exchanges individually or, in
certain limited situations, in conjunction with certain foreign
exchanges, provide a clearing mechanism to facilitate the matching of
offsetting trades. Once trades made between members of an exchange
have been confirmed, the clearinghouse becomes substituted for the
clearing member acting on behalf of each buyer and each seller of contracts
traded on the exchange and in effect becomes the other party to the trade.
Thereafter, each clearing member firm party to the trade looks only to the
clearinghouse for performance. Clearinghouses do not deal with customers, but
only with member firms, and the "guarantee" of performance under open positions
provided by the clearinghouse does not run to customers. If a customer's
commodity broker becomes bankrupt or insolvent, or otherwise defaults on such
broker's obligations to such customer, the customer in question may not receive
all amounts owning to such customer in respect of his trading, despite the
clearinghouse fully discharging all of its obligations.
Hedgers and Speculators
The two broad classifications of person who trade in commodity futures are
"hedgers" and "speculators." Commercial interests that market or process
commodities use the futures market to a significant extent for hedging. Hedging
is a protective procedure designed to minimize losses that may occur because of
price fluctuations, for example, between the time a merchandiser or processor
makes a contract to sell a raw or processed commodity and the time he must
perform the contract. The commodity markets enable the hedger to shift the risk
of price fluctuations to the speculator. The speculator, unlike the hedger,
generally expects neither to deliver nor receive the physical commodity; rather,
the speculator risks his capital with the hope of making profits from price
fluctuations in commodity futures contracts. Speculators rarely take delivery
of physical commodities but rather close out their futures positions by entering
into offsetting purchases or sales of futures contracts.
Forward Trading
Futures contracts are but one category of organized commodity trading. Two
other categories of transactions are "spot" contracts and "forward" contracts.
Both of these are varieties of cash commodity transactions, as opposed to
futures transactions, in that they relate to the purchase and
sale of specific physical commodities and may differ from each
other with respect to quantity, payment, grade, mode of shipment,
penalties, risk of loss and the like. In recent years, the terms of
certain forward contracts have become more standardized and may, in
lieu of requiring actual delivery and acceptance, provide a right of offset or
cash settlement. For example, foreign currencies may also be purchased or sold
for future delivery in the international foreign exchange market among banks,
money market dealers and brokers. The bank or other institution generally acts
as a principal in such forward contract transactions and includes its
anticipated profit and cost in the price it quotes for such contract.
Such forward contracts bear substantial similarities to exchange
traded futures, but are not generally regulated by the CFTC. Although
United States banks, which are major participants in the forward market,
are regulated in various ways by the Federal Reserve Board,
the Comptroller of the Currency and other federal and state banking
officials, banking authorities do not regulate forward trading in foreign
currencies. Likewise, forward trading in foreign currencies is not regulated by
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any foreign governmental agency although exchange control restrictions on the
movement of foreign currencies are in effect in many nations.
Cash Transactions
Cash commodity transactions may arise in conjunction with futures
transactions. For example, if the holder of a long contract satisfies it by
taking delivery of the commodity, such holder is said to have a cash commodity
position. This cash position, if it is not to be used or processed by the
holder, may be sold through spot or forward contracts or delivered in
satisfaction of a futures contract.
Margins
Margins are good faith deposits which must be made with a commodity broker
in order to initiate or maintain an open position in a futures contract. When
futures contracts are traded in the United States and on most exchanges abroad,
both buyer and seller are required to post margins with the broker handling
their trades as security for the performance of their buying and selling
undertakings, and to offset losses on their trades due to daily fluctuations
in the markets. Minimum margins usually are set by the exchanges.
A customer's margin deposit is treated as "equity" in his account. A
change in the market price of the futures contract will increase or decrease
the equity. If this equity decreases below the "maintenance margin" amount
(generally 75% of the initial margin requirement), the broker will issue a
"variation" margin call requiring the customer to increase the account's equity
to the initial margin. Failure to honor such a margin call generally will result
in the closing out of the open position. If, at the time such open position is
closed the account equity is negative, then the equity in the customer's
remaining open positions, if any, in excess of their required margins, as well
as the customer's cash reserves will be used to offset such debit balance, and
if such equities and reserves are not sufficient the customer will be liable for
the remaining unpaid balance.
United States Regulations
(a) Commodity Exchange Act. The United States Congress enacted the
CE Act to regulate trading in commodities, the exchanges on which they are
traded, the individual brokers who are members of such exchanges, and
commodity professionals and commodity brokerage houses that trade in these
commodities in the United States.
(b) Commodity Futures Trading Commission. The CFTC is an independent
governmental agency which administers the CE Act and is authorized to
promulgate rules thereunder. A function of the CFTC is to implement the
objectives of the CE Act in preventing price manipulation and excessive
speculation and promoting orderly and efficient commodity futures markets.
The CFTC has adopted regulations covering, among other things, (a) the
designation of contract markets; (b) the monitoring of United States
commodity exchange rules; (c) the establishment of speculative position
limits; (d) the registration of commodity brokers and brokerage houses,
floor brokers, introducing brokers, leverage transaction merchants,
commodity trading advisors, commodity pool operators and their principal
employees engaged in non-clerical commodities activities ("associated
persons"), and (e) the segregation of customers' funds and recordkeeping
by, and minimum financial requirements and periodic audits of, such
registered commodity brokerage houses and professionals. Under the CE
Act, the CFTC is empowered, among other things, to (i) hear and adjudicate
complaints of any person (e.g., a Limited Owner) against all individuals
and firms registered or subject to registration under the CE Act
(reparations), (ii) seek injunctions and restraining orders, (iii) issue
orders to cease and desist, (iv) initiate disciplinary proceedings,
(v) revoke, suspend or not renew registrations and (vi) levy substantial
fines. The CE Act also provides for certain other private rights of
action and the possibility of imprisonment for violations.
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The CFTC has adopted extensive regulations affecting commodity pool
operators (such as the Managing Owner) and commodity trading advisors
(such as the Trading Manager) and their associated persons which, among
other things, require the giving of disclosure documents to new customers
and the retention of current trading and other records, prohibit pool
operators from commingling pool assets with those of the operators or
their other customers and require pool operators to provide their
customers with periodic account statements and an annual report. Upon
request by the CFTC, the Managing Owner also will furnish the CFTC with
the names and addresses of the Limited Owners, along with copies of all
transactions with, and reports and other communications to, the Limited
Owners. The CFTC has recently amended its regulations relating to the
disclosure, recordkeeping and reporting obligations affecting commodity
pool operators. These regulations, as adopted, among other things,
streamline the disclosure documents and increase from six to nine months
the time period after which such documents must be updated.
(c) United States Commodity Exchanges. United States commodity
exchanges are given certain latitude in promulgating rules and regulations
to control and regulate their members and clearing houses, as well as the
trading conducted on their floors. Examples of current regulations by an
exchange include establishment of initial and maintenance margin levels,
size of trading units, daily price fluctuation limits and other contract
specifications. Except for those rules relating to margins, all exchange
rules and regulations relating to terms and conditions of contracts of
sale or to other trading requirements currently must be reviewed and
approved by the CFTC.
(d) Daily Price Fluctuation Limits. Generally, exchanges in the
United States (but generally not foreign exchanges, or banks or
broker-dealer firms in the case of forward contracts) limit the amount of
fluctuation in commodity futures contract prices during a single trading
day by regulations. These regulations specify what are referred to as
"daily price fluctuation limits", which establish the maximum amount the
price of a futures contract may vary from the previous day's settlement
price at the end of the trading session. Generally, once the daily limit
has been reached in a particular commodity, no trades may be made at a
price beyond the limit. Positions in the commodity could then be taken or
liquidated only if traders are willing to effect trades at or within the
limit during the period for trading on such day. Because the daily limit
rule only governs price movement for a particular trading day, it does not
limit, and in fact may increase, losses because it may prevent the prompt
liquidation of unfavorable positions. At the same time, when situations
develop that exert genuine pressure on price limits, exchanges may put
special formulas into effect that expand the limits so as to keep pace
with the world's cash and forward markets in the affected commodity.
(e) Speculative Position Limits. In order to prevent excessive
speculation (and hence undue influence on prices) and attempted market
corners, the various exchanges in the United States (subject to CFTC
approval) and in certain cases, the CFTC, have imposed speculative
position limits on futures transactions in all commodities. Speculative
position limits establish the maximum net long or net short positions that
any person (other than a hedger) may hold or control in affected commodity
futures contracts. Certain exchanges or their clearinghouses also set
limits on the total net positions that may be held by a clearing broker,
such as Prudential Securities. See "Risk Factors--Commodity trading may
be Illiquid" at page 20. The CFTC's rules allow an exemption from
aggregation for the purpose of speculative position limits for positions
which have a common owner but are independently controlled. Foreign
exchanges do not generally impose position limits, with such limits being
set by many of the member firms of such exchanges based on credit
considerations.
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(f) National Futures Association. Substantially all commodity pool
operators, commodity trading advisors, futures commission merchants,
introducing brokers and their associated persons are members or associated
members of the NFA. The NFA's principal regulatory operations include
(i) auditing the financial condition of futures commission merchants,
introducing brokers, commodity pool operators and commodity trading
advisors; (ii) arbitrating commodity futures disputes between customers
and NFA members; (iii) conducting disciplinary proceedings; and
(iv) registering futures commission merchants, commodity pool operators,
commodity trading advisors, introducing brokers and their respective
associated persons, and floor brokers.
(g) Non-U.S. Transactions. Although the CFTC is prohibited by
statute from regulating trading on foreign commodity markets, the CFTC has
adopted rules with respect to the regulation of persons outside the U.S.
engaging in foreign futures transactions (i.e., transactions in futures on
non-U.S. exchanges) with persons in the United States and has also
published a statement concerning its jurisdiction in the foreign currency
forward market.
* * *
The regulation of commodities transactions in the United States is a
rapidly changing area of law and the various regulatory procedures described
herein are subject to modification by United States Congressional action,
changes in CFTC rules and amendments to exchange regulations and NFA
regulations.
Regulation Outside of the United States
The CFTC does not regulate futures trading on exchanges outside of the
United States (see "Commodity Futures Trading Commission Risk Disclosure State-
ment"), forward contracts with banks or transactions in physical commodities
generally. No regulatory scheme currently exists in relation to the foreign
currency forward market, except for regulation of general banking activities and
exchange controls in the various jurisdictions where trading occurs or in which
the currency originates. Moreover, neither foreign commodity exchanges nor
foreign banks currently are subject to regulation by the CFTC or any other
United States Governmental agency, and may not be subject to any regulation.
Some foreign exchanges also have no position limits, with each dealer
establishing the size of the positions it will permit traders to hold. To the
extent that the Trust will engage in transactions on foreign exchanges, it will
be subject to the risk of fluctuations in the exchange rate between the native
currencies of any foreign exchange on which it trades and the United States
dollar (which risks may be hedged) and the possibility that exchange controls
could be imposed in the future. There is no limitation on daily price moves on
forward contracts in foreign currencies traded through banks, brokers or
dealers. While margin calls are not required by foreign exchanges, Prudential
Securities may be subject to daily margin calls in foreign markets.
SUMMARY OF ADVISORY AGREEMENT
General
Pursuant to an Advisory Agreement to be entered into among the Trust, the
Managing Owner and the Trading Manager, the Managing Owner will delegate to the
Trading Manager sole discretion and responsibility to engage in commodity
transactions for the Trust pursuant to its agreed upon trading approach (the
"Trading Approach") (as described under the heading "Description of the Trading
Manager" at page 29) subject to the Trust's trading limitations and policies
(described under the heading "Trust's Trading Limitations and Policies" at page
27). The Trading Manager initially will be allocated 100% of the proceeds from
the Initial Offering and the Continuous Offering of Interests (the "Allocated
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Assets"). At any time after an allocation of Trust assets to the Trading Man-
ager, the Managing Owner may reallocate the Allocated Assets at its discretion
to one or more trading advisors who are unaffiliated with Prudential Securities.
There is no current intention to utilize other trading advisors, but any such
advisors which may be selected will be chosen based on factors similar to those
used to select the Trading Manager (see "Business of the Trust" at page 26), and
will not be paid compensation in excess of that permitted by the NASAA
Guidelines.
The Managing Owner may override the trading instructions of the Trading
Manager in the event it determines in good faith following appropriate
consultation with the Trading Manager that any trading instruction issued by the
Trading Manager violates the Trust's trading policies or limitations. In
addition, the Managing Owner may impose limitations on trading activities if the
Managing Owner determines that such limitations are necessary or in the best
interests of the Trust.
In the event the Trading Manager wishes to use, or the Managing Owner
requests the Trading Manager to use, a trading method or strategy other than or
in addition to the Trading Approach in connection with trading for the Trust
(including, without limitation, the deletion of an agreed upon trading method or
strategy or the addition of a trading method or strategy to the agreed upon
Trading Approach), either in whole or in part, the Trading Manager may not do so
and/or shall not be required to do so, as appropriate, unless both the Managing
Owner and the Trading Manager consent thereto. The Trading Manager will give the
Trust prior written notice of any proposed material change in its Trading
Approach, and agrees not to make any material change in such Trading Approach
(as applied to the Trust) over the objection of the Managing Owner. However, the
Trading Manager shall be free to institute non-material changes in its Trading
Approach (as applied to the Trust) without prior notification to the Trust,
including the deletion of traded commodities, or the addition of traded
commodities on organized domestic exchanges or foreign exchanges which the CFTC
believes provide equivalent customer protections or in the interbank foreign
currency market. The addition of any other commodities or the utilization of
other forward markets would be deemed a material change and would require the
Managing Owner's consent.
Term and Termination
The initial term of the Advisory Agreement will continue in effect until
the later of (i) the last day of the month ending twelve full months following
the commencement of the Trust's trading activities or (ii) December 31, 1996,
provided, however, that the Advisory Agreement with the Trading Manager auto-
matically will be renewed for additional successive one-year terms unless the
Advisory Agreement otherwise is terminated prior to the termination date of the
one-year term of the Advisory Agreement then in effect.
The Advisory Agreement will terminate automatically (i) in the event that
the Trust is terminated; or (ii) if the Net Asset Value of the Allocated Assets
declines by 33 % from the Net Asset Value of the Allocated Assets (a) as of the
first day of the Advisory Agreement or (b) as of the first day of any calendar
year, in each case after appropriate adjustment for distributions, redemptions,
reallocations and additional allocations.
The Advisory Agreement also may be terminated at the discretion of the
Managing Owner at any time upon 30 days' prior written notice to the Trading
Manager, or for cause on less than 30 days' prior written notice, in the event
that: (i) the Managing Owner determines in good faith following appropriate
consultation with the Trading Manager that the Trading Manager is unable to use
its agreed upon Trading Approach to any material extent, as such Trading Ap-
proach may be refined or modified in the future in accordance with the Advisory
Agreement for the benefit of the Trust; (ii) the Trading Manager's registration
as a commodity trading advisor under the CE Act or membership as a commodity
trading advisor with the NFA is revoked, suspended, terminated or not renewed;
(iii) the Managing Owner determines in good faith following appropriate con-
sultation with the Trading Manager that the Trading Manager has failed to
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conform, and after receipt of written notice, continues to fail to conform in
any material respect, to (A) the Trust's Trading Policies and Limitations, or
(B) the Trading Manager's Trading Approach; (iv) there is an unauthorized
assignment of the Advisory Agreement by the Trading Manager; (v) the Trading
Manager dissolves, merges or consolidates with another entity or sells a
substantial portion of its assets, any portion of its Trading
Approach utilized by the Trust or its business goodwill, in each
instance without the consent of the Managing Owner; (vi) Philip Yang
is not in control of the Trading Manager's trading activities for the Trust;
(vii) the Trading Manager becomes bankrupt or insolvent; or (viii) for any other
reason if the Managing Owner determines in good faith that the termination is
essential for the protection of the Trust, including, without limitation, a good
faith determination by the Managing Owner that such Trading Manager has breached
a material obligation to the Trust under the Advisory Agreement relating to the
trading of the Allocated Assets.
The Trading Manager also will have the right to terminate the Advisory
Agreement in its discretion at any time for cause on appropriate notice in the
event (i) of the receipt by the Trading Manager of an opinion of independent
counsel satisfactory to the Trading Manager and the Trust that by reason of the
Trading Manager's activities with respect to the Trust, the Trading Manager is
required to register as an investment adviser under the 1940 Act and it is not
so registered; (ii) the registration of the Managing Owner as a commodity pool
operator under the CE Act or membership as a commodity pool operator with the
NFA is revoked, suspended, terminated or not renewed; (iii) the Managing Owner
imposes additional trading limitation(s) which the Trading Manager does not
agree to follow in its management of the Allocated Assets; or the Managing Owner
overrides a trading instruction; (iv) if the Trust assets allocated to the
Trading Manager decreases, for any reason, to less than $5 million; (v) the
Managing Owner elects to have the Trading Manager use a different Trading
Approach and the Trading Manager objects; (vi) there is an unauthorized
assignment of the Advisory Agreement by the Trust or the Managing Owner; or
(vii) other good cause is shown and the written consent of the Managing Owner
is obtained (which shall not unreasonably be withheld).
Other Business of the Trading Manager
The Trading Manager's business is managing commodity trading accounts. See
"Past Performance Information--The Trading Manager" at page 113. The Trading
Manager is permitted to manage and trade accounts for other investors (including
other public and private commodity pools) during the same period as it is
managing the trading of the Trust's assets and to use the same or other
information and Trading Approach utilized on behalf of the Trust for any such
other account so long as the Trading Manager's ability to carry out its
obligations and duties to the Trust pursuant to the Advisory Agreement is not
materially impaired thereby.
The Trading Manager will not accept additional capital for commodities
management if doing so would have a reasonable likelihood of resulting in the
Trading Manager having to modify materially its agreed upon Trading Approach
being used for the Trust in a manner which might reasonably be expected to have
a material adverse effect on the Trust, provided that the foregoing will not
prohibit the acceptance of additional funds which acceptance requires only
routine adjustments to trading patterns in order to comply with speculative
position limits or daily trading limits.
The Trading Manager and its shareholders, directors, officers, employees
and agents also will be permitted to trade for their own accounts as long as
such trading does not materially impair the Trading Manager's ability to carry
out its obligations and duties to the Trust. Limited Owners will not be
permitted to inspect records of the Trading Manager or the individuals
associated with the Trading Manager due to the confidential nature
of such records. The Trading Manager will, upon reasonable request,
permit the Managing Owner to review at the Trading Manager's offices
such trading records as the Managing Owner may reasonably
request for the purpose of confirming that the Trust has been treated
equitably with respect to advice rendered by the Trading Manager for other
accounts managed by the Trading Manager.
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Liability and Indemnification
Neither the Trading Manager, nor any employee, director, officer or
shareholder of the Trading Manager, or any person who controls the Trading
Manager, will be liable to the Managing Owner, its officers, directors,
shareholders or employees, or any person who controls the Managing Owner or the
Trust or its owners, or any of their respective successors or assigns under the
Advisory Agreement, except by reason of acts or omissions in material breach
thereof or due to their misconduct or negligence or by reason of not having
acted in good faith in the reasonable belief that such actions or omissions were
in the best interests of the Trust; it being understood that all purchases and
sales of Commodities shall be for the account and risk of the Trust, that the
Trading Manager makes no guarantee of profit and provides no protection
against loss, and that the Trading Manager shall incur no liability
for trading profits or losses resulting therefrom except as set
forth above. The Trading Manager, and each officer, director,
shareholder and employee of the Trading Manager, and each person
who controls the Trading Manager, will be indemnified by the Trust and the
Managing Owner against any losses, judgments, liabilities, expenses (including,
without limitation, reasonable attorneys' fees) and amounts paid in settlement
of any claims (collectively, "Losses"), sustained by the Trading Manager in
connection with any acts or omissions of the Trading Manager relating to its
management of the Trust's assets or as a result of any material breach of the
Advisory Agreement by the Trust or the Managing Owner, provided, that (i) such
Losses were not the result of negligence, misconduct or a material breach of the
Advisory Agreement on the part of the Trading Manager; (ii) the Trading Manager,
and its officers, directors, shareholders and employees, and each person
controlling the Trading Manager, acted or omitted to act in good faith and in a
manner reasonably believed by it and them to be in, or not opposed to, the best
interests of the Trust; and (iii) any such indemnification will only be
recoverable from the assets of the Trust and the Managing Owner and provided
further, however, that no indemnification shall be permitted for amounts paid in
settlement if either (A) the Trading Manager fails to notify the Trust of the
terms of any proposed settlement at least 15 days before any amounts are paid
and (B) the Trust does not approve the amount of the settlement within 15 days.
Any indemnification by the Trust, unless ordered by a court, shall only be made
as authorized in the specific case and only upon a determination by independent
legal counsel in a written opinion that indemnification is proper in the
circumstances because the indemnitee has met the applicable standard of conduct.
Expenses incurred in defending a threatened or pending civil, administrative or
criminal action, suit or proceeding against the foregoing indemnitees shall be
paid by the Trust in advance of the final disposition of such action, suit or
proceeding if (i) the legal action, suit or proceeding, if sustained, would
entitle the indemnitee to indemnification under the terms of the Advisory
Agreement, and (ii) the Trading Manager undertakes to repay the advanced funds
to the Trust in cases in which the foregoing indemnities are not entitled to
indemnification under the terms of the Advisory Agreement and (iii) in the case
of advancement of expenses by the Trust, the indemnitee receives a written
opinion of independent legal counsel that advancing such expenses is proper in
the circumstances. Notwithstanding the foregoing, the Trust shall, at all times,
have the right to offer to settle any matter with the approval of the Trading
Manager (which approval shall not be unreasonably withheld).
Name of Trust
In the event that the Trading Manager is replaced as a trading manager to
the Trust, or an additional trading manager is added in addition to the Trading
Manager, the Trust will be obligated upon request of the Trading Manager to
change its name to remove "Willowbridge" from the title.
SUMMARY OF BROKERAGE AGREEMENT
Prudential Securities and the Trust will enter into a brokerage agreement
(the "Brokerage Agreement") pursuant to which in the event at least the
Subscription Minimum is sold, Prudential Securities will (i) act as the Trust's
clearing broker, (ii) act as custodian of the Trust's assets, (iii) assist the
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Managing Owner in the performance of its administrative functions for the Trust,
and (iv) perform such other services for the Trust as the Managing Owner may
from time to time request.
Commodity Brokerage
As executing and clearing broker for the Trust, Prudential Securities will
receive the Trading Manager's orders for trades. Confirmations of all executed
trades will be given to the Trust by Prudential Securities. The Brokerage Agree-
ment will incorporate Prudential Securities' standard Customer Agreement and
related documents, which include provisions which are standard in the industry,
namely, that (i) all funds, commodities and open or cash positions carried for
the Trust will be held as security for the Trust's obligations to Prudential
Securities; (ii) the margins required to initiate or maintain open positions
will be as from time to time established by Prudential Securities and may exceed
exchange minimum levels; and (iii) Prudential Securities may close out
positions, purchase commodities or cancel orders at any time it deems necessary
for its protection, without the consent of the Trust.
Foreign Currency Transactions
PBFI, affiliates of Prudential Securities, will also attempt to earn a
spread on foreign currency forward transactions between the Trust and Prudential
Securities on the one hand and Prudential Securities and PBFI on the other. The
Managing Owner will not receive any portion of such spreads. Generally, when the
Trading Manager gives an instruction to either sell or buy a particular foreign
currency forward contract, the Trust will engage in back-to-back principal
trades with Prudential Securities and its affiliates, PBFI, in order to carry
out the Trading Manager's instructions. In back-to-back currency transactions,
Prudential Securities, as principal, will arrange bank lines of credit and
contract with PBFI to make or to take future delivery of specified amounts of
the currency at the negotiated price. Prudential Securities, again as principal,
will in turn contract with the Trust to make or take future delivery of the same
specified amounts of currency at the same price. In these transactions,
Prudential Securities will act in the best interests of the Trust. See "Fees,
Compensation and Expenses" at page 50.
Custodial Functions
As custodian of the Trust's assets, Prudential Securities will be
responsible, among other things, for providing periodic accountings of all
dealings and actions taken by it during the reporting period, together with an
accounting of all securities, cash or other indebtedness or obligations held by
it or its nominees for or on behalf of the Trust.
Administrative Functions
Administrative functions to be provided by Prudential Securities for the
Trust include, but are not limited to, preparing and transmitting daily
confirmations of transactions and monthly statements of account, calculating
equity balances and margin requirements, assisting the Managing Owner in
providing continuing information services to the Limited Owners holding
Interests, keeping Limited Owners apprised of developments affecting the Trust,
communicating valuations of Interests, providing information with respect to
procedures for redemptions, transfers and distributions, if any, interpreting
monthly and annual reports, providing tax information to Limited Owners,
explaining developments in the commodity markets in the United States and abroad
and furnishing all of the information from time to time in its possession which
the Managing Owner is required to furnish to Limited Owners. Many of these
services will be performed on behalf of Prudential Securities by the Financial
Advisors who are registered under the CE Act, and satisfy all applicable
proficiency requirements (i.e., have passed the Series 3 or Series 31
examinations or are exempt therefrom), in addition to having all of the
appropriate federal and state securities registrations. See Note (1) to the
cover page for a description of the continuing compensation to be paid to such
Financial Advisors for such services.
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Flat Fee
As long as the Brokerage Agreement is in effect, Prudential Securities will
not charge the Trust a fee for any of the services it has agreed to perform,
except for the agreed upon brokerage fee. Prudential Securities will receive a
flat brokerage fee, payable as of the first day of each month, equal on an
annualized basis to 7.75% of the Trust's Net Asset Value. From this fee,
Prudential Securities will pay, among other things, all execution costs related
to the Trust's commodity interest trading (including, without limitation, floor
brokerage and give-up charges, as well as NFA, exchange and clearing fees).
Prudential Securities will not, however, charge the Trust a lower monthly fee
even though certain other customers may pay less in brokerage charges than the
Trust pays for Prudential Securities's services. However, the Managing Owner is
obligated to renegotiate the brokerage fee if it determines that the Trust is
not receiving a competitive rate for the brokerage services provided. See
"Actual and Potential Conflicts of Interest" at page 54. In reviewing the
competitiveness of the flat fee, the Managing Owner will give separate
consideration to the portions of the flat fee related to brokerage and related
services and the balance of the fee, and will not rely solely on the brokerage
fees paid by other major commodity pools. The Managing Owner believes that the
flat monthly fee to be paid to Prudential Securities is reasonable and fair.
Moreover, this fee may not be increased without the approval of at least a
majority in interest of the Limited Owners (excluding the Managing Owner).
Term
The Brokerage Agreement is not exclusive, will be for successive one year
terms and will automatically be renewed each year unless terminated. The
Brokerage Agreement will be terminable by the Trust (including by a vote of a
majority-in-interest of the Interestholders) or Prudential Securities without
penalty upon 60 days' prior written notice.
Liability
Prudential Securities and its stockholder, directors, officers and
employees will not be liable to the Trust or to the Limited Owners for errors in
judgment or other acts or omissions except by reason of acts of, or omissions
due to bad faith, misconduct or negligence or for not having acted in good faith
in the reasonable belief that its actions were in, or not opposed to, the best
interests of the Trust, or by reason of any material breach of the Brokerage
Agreement.
SUMMARY OF TRUST AGREEMENT
The rights and duties of the Trustee, the Managing Owner and the Limited
Owners are governed by provisions of the Delaware Business Trust Act and by the
Trust Agreement (the "Agreement" or the "Trust Agreement") which is attached
hereto as Exhibit A. The key features of the Agreement which are not discussed
elsewhere in the Prospectus are outlined below, but reference is made to the
Agreement for complete details of all of its terms and conditions.
Trustee
Wilmington Trust Company is the Trustee of the Trust and will serve as the
Trust's sole trustee in the State of Delaware. The Trustee will accept service
of legal process on the Trust in the State of Delaware and will make certain
filings under the Business Trust Statute. The Trustee will not owe any other
duties to the Trust, the Managing Owner or the Limited Owners. The Trustee is
permitted to resign upon sixty days' notice to the Trust, provided, that any
such resignation will not be effective until a successor Trustee is appointed
by the Managing Owner. The Trust Agreement provides that the Trustee will be
compensated by the Managing Owner or its affiliates, and will be indemnified by
the Managing Owner against any expenses (as defined in the Trust Agreement) it
incurs relating to or arising out of the formation, operation or termination of
the Trust or the performance of its duties pursuant to the Trust Agreement,
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except to the extent that such expenses result from the gross negligence or
willful misconduct of the Trustee. The Managing Owner has the discretion to
retain the Trustee or replace the Trustee with a new trustee.
Only the Managing Owner has signed the Registration Statement of which this
Prospectus is a part, and only the assets of the Trust and the Managing Owner
are subject to issuer liability under the federal securities laws
for the information contained in this Prospectus and under federal
and state law with respect to the issuance and sale of the Interests.
Under such laws, neither the Trustee, either in its capacity as Trustee
or in its individual capacity, nor any director, officer or controlling
person of the Trustee is, or has any liability as, the
issuer or a director, officer or controlling person of the issuer of the
Interests. The Trustee's liability in connection with the issuance and sale of
the Interests, and with respect to the Trust's obligations under the Interests,
is limited solely to the express obligations of the Trustee set forth in the
Trust Agreement.
Management Responsibilities of the Managing Owner
Under the Agreement, the Trustee of the Trust has delegated to the Managing
Owner the exclusive management and control of all aspects of the business of the
Trust. The Trustee has no duty or liability to supervise or monitor the
performance of the Managing Owner, nor shall the Trustee have any liability for
the acts or omissions of the Managing Owner. In addition, the Managing Owner has
been designated as the "tax matters partner" for purposes of the Code. The
Limited Owners will have no voice in the operations of the Trust, other than
certain limited voting rights which are set forth in the Agreement. See
"Termination" at page 68, "Election or Removal of Managing Owner" at page 73,
"Exercise of Rights by Limited Owners" at page 73 and "Amendments and Meetings"
at page 74 under this heading. In the course of its management, the Managing
Owner may, in its sole and absolute discretion, appoint an Affiliate or
Affiliates of the Managing Owner as additional managing owners (except where the
Managing Owner has been notified by the Limited Owners that it is to be replaced
as the managing owner) and retain such persons, including Affiliates of the
Managing Owner, as it deems necessary for the efficient operation of the Trust.
Transfer of Interests
Subject to compliance with suitability standards imposed by the Trust and
applicable federal securities and state "Blue Sky" laws (see "Investment
Requirements/Who May Invest"), and the rules of other governmental authorities,
the Interests may be assigned at the election of a Limited Owner, upon notice to
the Managing Owner on a form acceptable to the Managing Owner. The Managing
Owner shall only refuse to recognize an assignment (i) if necessary, in its
judgment, to maintain the classification of the Trust as a partnership for
federal income tax purposes or to preserve the characterization or treatment of
Trust income or loss and upon receipt of an opinion of counsel supporting its
conclusion; (ii) if, as a result of such assignment, the Trust would be unable
to satisfy at least one of the safe harbors for avoiding treatment as a
"publicly traded partnership" provided in Treas. Reg. S 1.7704-1(e) (or under
other safe harbors established by the IRS that protect against treatment as
a publicly traded partnership); or (iii) if such assignment is effectuated
through an established securities market or a secondary market (or the
substantial equivalent thereof). See "Income Tax Consequences--Classification
as a Partnership" at page 76. The Managing Owner will exercise such right by
taking any actions as it deems necessary or appropriate in its reasonable
discretion so that such transfers or assignments of rights are not in fact
recognized and the assignor or transferor continues to be recognized by
the Trust as a beneficial owner for all purposes, including the payment
of any cash distribution. Notwithstanding the foregoing and
except for certain situations set forth in the Agreement, no
assignment may be made if such assignment would result in (a) Limited
Owners and their permitted assignees owning 5% or more of the stock
of the Managing Owner or any related person, (b) a contravention of the NASAA
Guidelines as adopted in any state where the proposed assignor and assignee
reside, including the current restriction which generally prohibits transfers or
assignments of Interests valued at less than $5,000 (or $2,000 in the case of
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IRAs) except if such proposed transfer relates to a Limited Owner's entire
interest in the Trust, or (c) the aggregate total of Interests transferred in a
twelve-month period equaling forty-nine percent (49%) or more of the outstanding
Interests (taking into account applicable attribution rules and excluding
transfers by gift, bequest, or inheritance). The Agreement provides that the
Managing Owner will incur no liability to any investor or prospective investor
for any action or inaction by it in connection with the foregoing, provided it
acted in good faith.
Assignments to (i) the ancestors or descendants of a Limited Owner,
(ii) the personal representative or heir of a deceased Limited Owner, (iii) the
trustee of a trust whose beneficiary is the Limited Owner or another person to
whom a transfer could otherwise be made, or (iv) the shareholders, partners or
beneficiaries of a corporation, partnership or trust upon its termination or
liquidation, shall be effective as of the first day of the calendar month
following the month in which the Managing Owner receives the written instrument
of assignment. Assignments or transfers of Interests to any other person also
shall be effective on the first day of the next succeeding calendar month,
provided the Managing Owner shall have been in receipt of the written instrument
of assignment for at least thirty (30) days.
An assignee may become a substituted Limited Owner only with the written
consent of the Managing Owner, which consent may be withheld in the Managing
Owner's sole and absolute discretion in order to maintain the Trust's tax
classification as a partnership, to avoid having the Trust classified as a
publicly traded partnership or to avoid adverse legal consequences to the Trust,
upon receipt by the Managing Owner of (i) a duly executed and acknowledged,
written instrument of assignment, (ii) upon the Managing Owner's request, an
opinion of the Trust's independent counsel that such assignment will not
jeopardize the Trust's tax classification as a partnership or cause the Trust to
be deemed a publicly traded partnership and that the assignment will not violate
the Trust Agreement or the Business Trust Statute and (iii) such other documents
as the Managing Owner deems necessary or desirable to effect such substitution.
A permitted assignee who does not become a substituted Limited Owner shall be
entitled to receive the share of the profits or the return of capital to which
his assignor would otherwise be entitled, but shall not be entitled to vote, to
receive any information on or account of the Trust's transactions or to inspect
the books of the Trust. Under the Agreement an assigning Limited Owner is not
released from his liability to the Trust for any amounts for which he may be
liable under the Agreement (see "Redemption of Interests" and "Liabilities"
under this heading), whether or not the assignee to whom he has assigned
Interests becomes a substituted Limited Owner. All Limited Owners will be
responsible for all costs relating to the assignment or transfer or their
own Interests.
Redemption of Interests
Redemption of any Interest or portion thereof held by the Limited Owners
(or any assignee thereof) will be made at 100% of the Net Asset Value per
Interest on the applicable Redemption Date. A Redemption Date shall be
immediately after the close of business on the last day of any month in which
the Managing Owner shall have been in receipt of the required written notice of
redemption for at least ten (10) days. Accordingly, Limited Owners bear the risk
of any decline in Net Asset Value from the date notice of intent to redeem is
given until the Redemption Date. The first Redemption Date will be the end of
the first full month of Trust trading activity. Interests redeemed on or prior
to the end of the first and second successive six-month periods after their sale
will be subject to a redemption charge of 4% and 3%, respectively, of the Net
Asset Value at which they are redeemed. These redemption charges will be paid
to the Managing Owner.
In the event that the estimated Net Asset Value per Interest, after
adjustment for distributions, as of the close of business of any business day is
less than 50% of the Net Asset Value per Interest as of the last day of the
immediately preceding month, Limited Owners will be given notice of such event
(see "Reports and Accounting") and an opportunity to redeem their Interests as
of a Special Redemption Date, which shall be the twentieth (20th) business day
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following the notification by the Managing Owner to the Limited Owners of such
decline in Net Asset Value. The Managing Owner will notify the Limited Owners
of such estimated decline in Net Asset Value within seven (7) business days of
such occurrence. In order for redemptions as of the Special Redemption Date to
be effective, the Managing Owner must be in receipt of written notice of intent
to redeem for at least five (5) business days. During this special redemption
period, all commodities trading activities will cease.
The Net Asset Value per Interest upon redemption on any date also will
reflect all accrued expenses for which the Trust is responsible, including in-
centive fees, if any (including incentive fees which may be due and owing other
than at the end of a quarter), and will be reduced by such Interest's pro rata
portion of any expenses or losses incurred by the Trust resulting from such
redeeming Limited Owner (and his assignee, if any) unrelated to the Trust's
business, as well as the Limited Owner's liabilities for certain Trust taxes, if
any, or for liabilities resulting from violations of the transfer provisions in
the Trust Agreement. Limited Owners shall be notified in writing within ten (10)
days following the Redemption Date whether or not their Interests shall be
redeemed, unless payment for the redeemed Interests is made within that ten day
period, in which case notice shall not be required. Except as otherwise provided
in the Agreement, in the case of extraordinary circumstances, payment generally
shall be made within ten business days following the Redemption Date. A Limited
Owner may revoke his intention to redeem before the Redemption Date by written
instruction to the Managing Owner.
All timely requests for redemption in proper form will be honored and the
Trust's commodity positions will be liquidated to the extent necessary to effect
such redemptions. The right to obtain redemption is contingent upon the Trust
having property sufficient to discharge its liabilities on the date of
redemption. It is also contingent upon timely receipt by the Managing Owner of
a request for redemption in the form annexed hereto as Exhibit B (or any other
form approved by the Managing Owner). Redemption requests may be mailed or
otherwise delivered to the Managing Owner. See "Additional Limited Owners"
below.
The Agreement provides that the Managing Owner also has the right
mandatorily to redeem, upon ten days' prior notice, Interests of any Limited
Owner if (a) the Managing Owner determines that the continued participation of
such Limited Owner in the Trust might cause the Trust or any Interestholder to
be deemed to be managing Plan assets under ERISA; (b) there is an unauthorized
assignment or transfer pursuant to the Agreement; or (c) in the event that any
transaction would or might violate any law or constitute a prohibited
transaction under ERISA or the Code and a statutory, class or
individual exemption from the prohibited transaction provisions
of ERISA for such transaction or transactions does not apply or
cannot be obtained from the DOL (or the Managing Owner
determines not to seek such an exemption).
Termination
Unless earlier dissolved, the term of the Trust shall expire on
December 31, 2015. The Trust shall also be dissolved upon the occurrence of any
of the following events:
(a) The filing of a certificate of dissolution or the revocation of
the charter (and the expiration of 90 days after the date of notice to the
Managing Owner of revocation without a reinstatement of its charter) of
the Managing Owner, or the withdrawal, removal, adjudication of bankruptcy
or insolvency of the Managing Owner (each of the foregoing, an "Event of
Withdrawal"), unless (i) at the time there is at least one remaining
Managing Owner and that remaining Managing Owner carries on the business
of the Trust or (ii) within 90 days of an Event of Withdrawal all the
remaining Interestholders agree in writing to continue the business of the
Trust and to select, as of the date of such Event of Withdrawal, one or
more successor Managing Owners. Within 120 days of any Event of With-
drawal, if action is not taken pursuant to (i) or (ii) and the Trust is
dissolved, Limited Owners holding a majority interest (over 50%) of the
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outstanding Interests (without regard for Interests held by the Managing
Owner or its Affiliates) may elect to continue the business of the Trust
by forming a new business trust (the "Reconstituted Trust") on the same
terms and provisions set forth in this Agreement. Any such election must
also provide for the election of a Managing Owner to the Reconstituted
Trust. If such election is made, all Limited Owners will be bound thereby
and continue as Limited Owners of the Reconstituted Trust;
(b) The occurrence of any event which makes the continued existence
of the Trust unlawful;
(c) The suspension, revocation or termination of the Managing
Owner's registration as a commodity pool operator under the CE Act, as
amended, or membership as a commodity pool operator with the NFA, unless
at the time there is at least one remaining Managing Owner whose
registration or membership has not been suspended, revoked or terminated;
(d) The insolvency or bankruptcy of the Trust;
(e) The vote of Limited Owners holding more than 50% of the
outstanding Interests (excluding Interests held by the Managing Owner or
an Affiliate) to dissolve the Trust with 90 days' prior written notice to
the Managing Owner;
(f) Subscriptions for at least 100,000 Limited Interests are not
sold during the Initial Offering Period; or
(g) The decline of the Net Asset Value of the Trust by 50% from the
Net Asset Value of the Trust (i) as of the commencement of the Trust's
trading activities; or (ii) on the first day of a fiscal year, in each
case after appropriate adjustment for distributions, redemptions,
reallocations and additional contributions to capital.
The Trust also may dissolve, in the discretion of the Managing Owner, upon
the determination of the Managing Owner that the Trust's aggregate Net Asset
Value in relation to the operating expenses of the Trust makes it unreasonable
or imprudent to continue the business of the Trust. The Managing Owner is not
required to, and should not be expected to, obtain an opinion of legal counsel
or any other third party prior to determining to dissolve the Trust.
Upon dissolution of the Trust, its affairs shall be wound up, its
liabilities discharged and its remaining assets distributed pro rata to the
Interestholders. To the extent the Trust has open positions at such time, it
will use its best efforts to close such positions, although no assurance can be
given that market conditions might not delay such liquidation and that amounts
received thereon will not be less than if market conditions permitted an
immediate liquidation.
The Agreement provides that the death, legal disability, bankruptcy or
withdrawal of a Limited Owner will not terminate or dissolve the Trust (unless
such Limited Owner is the sole Limited Owner of the Trust) and that the legal
representatives of such Limited Owner have no right to withdraw or value his,
her or its Interest except by redemption of Interests pursuant to the Agreement.
Reports and Accounting
The Trust will keep its books on the accrual basis. The financial
statements of the Trust shall be audited at least annually in accordance with
Generally Accepted Accounting Principles by independent certified public
accountants to be designated by the Managing Owner, in its sole discretion. Each
Limited Owner shall be furnished with unaudited monthly and certified annual
reports containing such information as the CFTC and NFA require. Once trading
commences, current monthly and annual reports will accompany this Prospectus to
all new subscribers. The CFTC requires that such annual report be provided not
later than one hundred and twenty (120) days after the end of each fiscal year
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or the permanent cessation of trading as defined in the CE Act, whichever is
earlier and set forth, among other matters:
(1) the Net Asset Value of the Trust and the Net Asset Value per
Interest or the total value of a Limited Owner's interest in the Trust, in
either case, as of the end of the year in question and the preceding year;
(2) a Statement of Financial Condition as of the close of the fiscal
year and, if applicable, the preceding fiscal year;
(3) Statements of Income (Loss) and Changes in Limited Owners'
Capital during the fiscal year and, to the extent applicable, the previous
two fiscal years; and
(4) appropriate footnote disclosure and such further material
information as may be necessary to make the required statements not
misleading.
The CFTC also requires that an unaudited monthly report be distributed to
each Limited Owner within thirty (30) days of the end of each month containing
information presented in the form of a Statement of Income (Loss) and a
Statement of Changes in Net Asset Value.
The Statement of Income (Loss) must set forth, among other matters:
(1) the total amount of realized net gain or loss on commodity
interest positions liquidated during the month;
(2) the change in unrealized net gain or loss on commodity interest
positions during the month;
(3) the total amount of net gain or loss from all other transactions
in which the Trust is engaged; and
(4) the total amounts of management fees, advisory fees, brokerage
fees and other fees for commodity and other investment transactions, and
all other expenses incurred or accrued by the Trust during the month.
The Statement of Changes in Net Asset Value must itemize the following:
(1) the Net Asset Value of the Trust as of the beginning and end of
the month;
(2) the total amount representing redemptions of Interests during
the month;
(3) the total net income or loss of the Trust during the month; and
(4) the Net Asset Value per Interest or the total value of a Limited
Owner's interest in the Trust as of the end of the month.
The monthly report also is required to describe any other material business
dealings between the Trust, the Managing Owner, the Trading Manager, Prudential
Securities or any affiliate of any of the foregoing.
Limited Owners also will be furnished with such additional information as
the Managing Owner, in its discretion, deems appropriate, as well as any other
information required to be provided by any governmental authority having
jurisdiction over the Trust.
Net Asset Value will be calculated on each business day. Upon request, the
Managing Owner will make available to any Limited Owner the Net Asset Value per
Interest. Each Limited Owner will be notified of any decline in the Net Asset
Value per Interest or to less than fifty percent (50%) of the Net Asset Value
per Interest as of the last day of the preceding quarter. Such notice must be
given within seven (7) business days of the occurrence of such decline. Included
in such notification will be a description of the Limited Owners' voting and
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redemption rights. See "Summary of Trust Agreement--Redemption of Interests" at
page 67.
In addition, the Managing Owner will furnish each Limited Owner with tax
information in a form which may be utilized in the preparation of Federal income
tax returns as soon as possible after the end of each year, but generally no
later than March 15.
The books and records maintained by the Trust will be kept for eight years
at its principal office. The Limited Owners have the right to obtain information
about all matters affecting the Trust, provided that such is for a purpose
reasonably related to the Limited Owner's interest in the Trust, and to have
access at all times during normal business hours to the Trust's books and
records in person or by their authorized attorney or agent and
to examine such books and records in compliance with CFTC rules
and regulations. The Managing Owner will maintain (at the
Managing Owner's principal office) a current list, in alphabetical
order, of the names and last known addresses and, if available,
business telephone numbers of, and number of Interests owned by, all
Interestholders, a copy of the Trust Certificate and all certificates of
amendment thereto, together with executed copies of any powers of attorney
pursuant to which any certificate has been executed, copies of the Trust's
federal, state and local income tax returns and reports, if any, for the eight
most recent years and copies of any effective written trust agreements,
subscription agreements and any financial statements of the Trust for the six
most recent years. Such information will be made available at reasonable times
for inspection and copying by any Limited Owner or his representative for any
purpose reasonably related to the Limited Owner's interest as a beneficial owner
of the Trust during ordinary business hours. Such list shall be printed on white
paper in clearly legible print and shall be updated quarterly. The Managing
Owner will furnish a copy of the list of Limited Owners to a Limited Owner or
his representative within ten days of a request therefor for any purpose
reasonably related to the Limited Owner's interest as a Limited Owner in the
Trust (including, without limitation, matters relating to a Limited Owner's
voting rights under the Agreement or the exercise of a Limited Owner's rights
under federal proxy laws) upon request and upon payment of the reasonable cost
of reproduction and mailing; provided, however, that the Limited Owner
requesting such list must give written assurances that it will not be
used for commercial purposes. Subject to applicable law, a Limited
Owner must give the Managing Owner at least ten (10) business days' prior
written notice for such inspection or copying by a Limited Owner
or his authorized attorney or agent. Each Limited Owner will be notified
of any material change in the Advisory Agreement or in the
compensation of any party within seven business days thereof and will be
provided with a description of any material effect on the Interests
such changes may have.
Distributions
Other than as limited by the Agreement, the Managing Owner has sole
discretion in determining the amount and frequency of distributions. However,
a Limited Owner has the right to redeem a portion or all of his Interests in
accordance with the redemption procedures contained in the Agreement. See
"Summary of Trust Agreement--Redemption of Interests" at page 67. In the event
any type of distribution is declared, each Interestholder will receive an amount
of such distribution in proportion to the interest in the Trust held by him, as
of the record date of distribution. Any distribution shall become a liability
of the Trust for purposes of calculating Net Asset Value as of the date of its
declaration until it is paid. See "Income Tax Consequences--Other Tax Factors:
Treatment of cash distributions; redemptions; sales" at page 80, for the income
tax effect of such distributions.
Sharing of Profits and Losses
Each Interest will have a tax capital account and a book capital account.
The initial balance of each will be the amount paid for the Interest. At the end
of each calendar month, the amount of any increase or decrease in the Net Asset
Value per Interest from the preceding month will be credited or charged against
the book capital account of each Interest.
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At the end of each fiscal year of the Trust, all items of ordinary income
and deduction will be allocated pro rata among the Interests outstanding on the
last day of each calendar month. After such allocation is made, the Trust's net
capital gain, if any (including capital gain required to be recognized under
certain mark-to-market rules provided in the Internal Revenue Code) realized
during each calendar month shall be allocated to each Interest whose book
capital account balance exceeds its tax capital account, until
such excess is eliminated. Any remaining net capital gain realized
during a month will be allocated among all Interestholders who
were Interestholders during such month in proportion to
their respective book capital account balances for such month. The Trust's net
capital loss, if any (including capital loss required to be recognized under
certain mark-to-market rules provided in the Code), realized during each
calendar month will be allocated to each Interest whose tax capital account
balance exceeds the book capital account balance of
such Interests until such excess has been eliminated. Any
remaining net capital loss realized during a month will be
allocated among all Interestholders who were Interestholders during such month
in proportion to their respective book capital account balances for such month.
Notwithstanding the foregoing, loss will not be allocated to an Interest (and
instead will be allocated to the Managing Owner) to the extent that allocating
such loss to such Interest would cause the book capital account balance of such
Interest to be reduced below zero.
Liabilities
A Limited Owner's capital contribution is subject to the risks of the
Trust's business. The Delaware Business Trust Statute provides that, except to
the extent otherwise provided in the Trust Agreement, a Limited Owner shall be
entitled to the same limitation of personal liability extended to shareholders
of private Delaware corporations for profit. No similar statutory or other
authority limiting business trust beneficial owner liability exists
in many other states. As a result, to the extent that the Trust
or a Limited Owner is subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law, and may
thereby subject Limited Owners to liability. To guard against this risk,
the Trust Agreement (i) requires that every written obligation of the Trust
contain a statement that such obligation may only be enforced against the assets
of the Trust, provided that the omission of such disclaimer is not intended to
create personal liability for any Interestholder; and (ii) provides for
indemnification to the extent of the Trust's assets of any Limited Owner against
claims of liability asserted against such Limited Owner solely because he or it
is a beneficial owner of the Trust. Thus, subject to the exceptions set forth
in the Trust Agreement and described below, the risk of a Limited Owner
incurring financial loss beyond his investment because of liability as a
beneficial owner is limited to circumstances in which
(i) a court refuses to apply Delaware law; (ii) no contractual
limitation on liability was in effect; and (iii) the Trust
itself would be unable to meet its obligations. Moreover, and perhaps more
importantly, the Managing Owner has agreed in the Trust Agreement for the
benefit of the Limited Owners and any third parties that
it will be liable for all obligations of the Trust in excess
of the Trust's assets as if it were the general partner of a limited
partnership.
In addition, while, as stated above, a Limited Owner in the Trust generally
cannot lose more than his or its investment and his or its share of the Trust's
profits, the Trust Agreement provides that Limited Owners may incur liability
(i) in the event the Trust is required to make payments to any Federal, state or
local or any foreign taxing authority in respect of any Interestholder's
allocable share of Trust income, in which case such Interestholder shall be
liable for the repayment of such amounts; (ii) to indemnify the Trust if the
Trust incurs losses (including expenses) as a result of any claim or legal
action to which the Trust is subject which arises out of such Limited Owner's
obligations or liabilities unrelated to the Trust's business, (iii) to indemnify
the Trust and each Interestholder against any losses or damages (including tax
liabilities or loss of tax benefits) arising as a result of any transfer or
purported transfer of a Limited Owner's Interest in violation of the Trust
Agreement, and (iv) if the Limited Owner's Subscription Agreement delivered in
connection with his or its purchase of Interests contains misstatements.
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Moreover, the Trust Agreement provides that, subject to the exceptions
referred to above, the Trust will not make a claim against a Limited Owner with
respect to amounts distributed to such Limited Owner or amounts received by such
Limited Owner upon redemption (see "Additional Limited Owners" below) of
Interests unless under Delaware law the Limited Owner is liable to repay such
amounts. Except as set forth above, assessments of any kind shall not be made
of the Limited Owners. Except as provided under Delaware law and by the
Agreement, each Interest, when issued, will be fully paid and non-assessable.
Except as indicated above, losses in excess of the Trust's assets will be the
obligation of the Managing Owner.
Election or Removal of Managing Owner
The Managing Owner may be removed on reasonable prior written notice by
Limited Owners holding at least a majority in interest (over 50%) of the
outstanding Interests. The Agreement provides that the Managing Owner may
voluntarily withdraw as managing owner of the Trust provided that it gives the
Limited Owners one hundred twenty (120) days' prior written notice and its
withdrawal as Managing Owner is approved by Limited Owners holding at least a
majority in interest (over 50%) of the outstanding Interests (not including
Interests held by the Managing Owner). The Agreement provides that if the
Managing Owner elects to withdraw as Managing Owner to the Trust and it is the
sole Managing Owner, Limited Owners holding at least a majority interest (over
50%) of the outstanding Interests (not including Interests held by the Managing
Owner) may vote to elect, prior to such withdrawal, a successor Managing Owner
to carry on the business of the Trust. If the Managing Owner withdraws as
Managing Owner and the Limited Owners or remaining Managing Owners elect to
continue the Trust, the withdrawing Managing Owner shall pay all expenses
incurred as a result of its withdrawal. The Agreement further provides that in
the event of the withdrawal of the Managing Owner, the Managing Owner shall be
entitled to redeem its General Interests in the Trust at their Net Asset Value
as of the next permissible Redemption Date. See "Summary of Trust Agreement--
Management Responsibilities of the Managing Owner" at page 66.
Alternatively, the Agreement provides that if the Trust is dissolved as a
result of an Event of Withdrawal (as defined in Article XIII of the Agreement)
of a Managing Owner, then within one hundred and twenty (120) days of such Event
of Withdrawal, Limited Owners holding a majority interest (over 50%) in the
outstanding Interests may elect to form a new business trust on the same terms
as set forth in the Agreement and continue the business of the Trust and elect
a new Managing Owner.
Exercise of Rights by Limited Owners
Limited Owners holding in excess of fifty percent (50%) of the outstanding
Interests (excluding Interests held by the Managing Owner and its Affiliates)
must approve any material change in the Trust's trading policies which change
will not be effective without such approval. See "Trust's Trading Limitations
and Policies" at page 27. In addition, Limited Owners holding in excess of fifty
percent (50%) of the outstanding Interests (excluding Interests held by the
Managing Owner and its Affiliates) may vote to adopt amendments to the Agreement
proposed by the Managing Owner or by Limited Owners holding at least ten percent
(10%) of the outstanding Interests. See "Summary of Trust Agreement--Amendments
and Meetings" below. Additionally, Limited Owners holding at least a majority
in interest (over 50%) of the outstanding Interests (excluding Interests held by
the Managing Owner and its Affiliates) may vote to (i) terminate and dissolve
the Trust upon ninety (90) days' prior notice to the Managing Owner, (ii)
remove the Managing Owner on reasonable prior written notice
to the Managing Owner, (iii) elect one or more additional
Managing Owners, (iv) approve the voluntary withdrawal of the
Managing Owner and elect a successor Managing Owner in the event
the Managing Owner is the sole Managing Owner of the Trust, and (v) approve
the termination of any agreement between the Trust and the Managing Owner or its
Affiliates for any reason, without penalty, in the case of (iii) and (v) on
sixty (60) days' prior written notice.
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Indemnification
The Agreement provides that with respect to any action in which the
Managing Owner or any of its affiliates (including Prudential Securities only
when performing services on behalf of the Managing Owner and acting within the
scope of the Managing Owner's authority) is a party because of its relationship
to the Trust, the Trust shall indemnify and hold harmless to the full extent
permitted by law such person against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims sustained by such person
in connection with the Trust, provided that (1) the Managing Owner was acting on
behalf of or performing services for the Trust and has determined,in good faith,
that such course of conduct was in the best interests of the Trust and such li-
ability or loss was not the result of negligence, misconduct or a breach of the
Agreement on the part of the Managing Owner or its affiliates and (2) any such
indemnification will only be recoverable from the assets of the Trust. All
rights to indemnification permitted by the Agreement and payment of associated
expenses will not be affected by the dissolution or other cessation to exist of
the Managing Owner, or the withdrawal, adjudication of bankruptcy or insolvency
of the Managing Owner. The Agreement further provides that any such
indemnification, unless ordered by a court, shall be made by the Trust only as
authorized in the specific case and only upon a determination by independent
legal counsel in a written opinion that indemnification of the Managing Owner is
proper in the circumstances because it has met the applicable standard of con-
duct set forth in the Agreement. Expenses incurred in defending a threatened or
pending action or proceeding against the Managing Owner may be paid by the Trust
in advance of the final disposition of such action if (i) the legal action
relates to the performance of duties or services by the Managing Owner or an
Affiliate on behalf of the Trust; (ii) the legal action is initiated by a third
party who is not a Limited Owner or the legal action is initiated by a Limited
Owner and a court of competent jurisdiction specifically approves such
advancement; and (iii) the Managing Owner undertakes to repay the advanced funds
to the Trust with interest in the event indemnification is subsequently held not
to be permitted. No indemnification of the Managing Owner or its Affiliates is
permitted for liabilities arising under federal or state securities laws unless
(i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and
the court approves the indemnification; (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnitee and the court approves the
indemnification; or (iii) a court of competent jurisdiction approves
a settlement of claims against a particular indemnitee and finds
that indemnification of the settlement and related costs
should be made. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be permitted to
the Managing Owner or its Affiliates, the Managing Owner has
been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable.
In any claim for indemnification in actions involving alleged federal or
state securities laws violations, the party seeking indemnification must place
before the court the position of the SEC, the position of the Pennsylvania
Securities Commission, the Massachusetts Securities Division and the Tennessee
Securities Division and any other applicable state securities division which
requires disclosure with respect to the issue of indemnification for securities
law violations. The Agreement also provides that with respect to any action
taken by the Managing Owner as "tax matters partner", including consenting to an
audit, the Trust shall indemnify and hold harmless the Managing Owner.
Amendments and Meetings
The Agreement may be amended in certain respects by a vote of the holders
of at least a majority of the outstanding Interests (which excludes the In-
terests of the Managing Owner), either pursuant to a written vote or at a duly
called meeting of the Limited Owners. An amendment may be proposed by the
Managing Owner or by Limited Owners holding at least ten percent (10%) of
the outstanding Interests. Interestholders will be supplied with
a verbatim copy of any proposed amendment which potentially could
affect them and statements concerning the
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legality thereof. It is not anticipated that the Managing Owner will call any
annual meetings of the Limited Owners.
The Managing Owner may, without the consent of the Limited Owners, make
amendments to the Agreement which are necessary to (i) add to the represen-
tations, duties or obligations of the Managing Owner or to surrender any right
or power of the Managing Owner, for the benefit of the Limited Owners, (ii) cure
any ambiguity, (iii) correct or supplement any provision of the Agreement which
may be inconsistent with any other provision of the Agreement or this
Prospectus, or (iv) make any other provisions with respect to
matters or questions arising under the Agreement or this Prospectus
that are not inconsistent with other provisions of the Agreement or
this Prospectus. The Managing Owner may also make such amendments as
it deems advisable, provided, however, that no such amendment
shall be adopted unless the amendment is not adverse to the interests of the
Limited Owners, does not affect the allocation of profits and losses to them or
among them, and does not adversely affect the limited liability status of the
Limited Owners or the status of the Trust as a partnership for Federal income
tax purposes). The Managing Owner further may, without the consent of the
Limited Owners, amend the provisions of the Agreement relating to the
allocations among Limited Owners of profits, losses and distributions if
it is advised by its accountants or counsel that any such allocations
are unlikely to be upheld for federal income tax purposes.
Meetings of the Trust may be called by the Managing Owner. In addition,
meetings will be called upon receipt by the Managing Owner of a written request
signed by Limited Owners owning at least ten percent (10%) of the outstanding
Interests. Thereafter, the Managing Owner shall give written notice to all
Limited Owners, in person or by certified mail within fifteen (15) days after
such receipt, of such meeting and its purpose. Such meeting must be held at
least thirty (30) but not more than sixty (60) days after the receipt of such
notice. Any action permitted to be taken at a meeting may be taken without a
meeting on written approval of the holders of the percentage of outstanding
Interests required to approve any such action if a meeting were held.
Fiscal Year
The Trust shall begin on January 1 on each year and end on December 31 of
each year, except that (i) the first fiscal year of the Trust commenced on
October 16, 1995 the date the Certificate of Trust was filed, and (ii) the
fiscal year in which the Trust terminates shall end on the date of termination
of the Trust.
INCOME TAX CONSEQUENCES
The following sets forth the material United States income tax consequences
which may be relevant to a prospective Limited Owner. It is impractical to set
forth in this Prospectus all aspects of federal, state and local tax law which
may bear upon a Limited Owner's investment in the Trust. The tax considerations
discussed below are necessarily general and may vary depending upon a Limited
Owner's particular circumstances. Therefore, each prospective Limited Owner
should consult his own tax advisor to satisfy himself as to the tax consequences
to him of this investment. The discussion of federal income tax consequences
below is based on the Internal Revenue Code of 1986, as amended (the "Code"),
including existing law, judicial decisions and administrative regulations,
rulings and practice, all of which are subject to change. (See paragraph (16)
under the subheading "Other Tax Factors", below.) Any such change could be
retroactive so as to apply to the Trust and/or an investment in Interests. The
Trust has not applied, and does not intend to apply, for a ruling from the
Internal Revenue Service (the "IRS") with respect to any of the tax matters
discussed herein. This investment is not intended to generate tax losses or
credits, and will not be registered as a "tax shelter" under the applicable
provisions of the Code or the regulations promulgated thereunder.
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Opinion of Counsel
The Trust has obtained an opinion from Rosenman & Colin LLP ("Tax Counsel")
concerning the Trust's classification as a partnership for federal income tax
purposes and the federal income tax effect on the Limited Owners. See
"Classification as a Partnership" below. The opinion also states that the
discussion of federal income tax consequences set forth in this Prospectus under
the heading "Income Tax Consequences" has been reviewed by Tax Counsel and that,
subject to any qualifications set forth in such discussion, Tax Counsel is of
the opinion that the federal income tax treatment of the Trust and the Limited
Owners is as discussed under this heading in all material respects.
The opinion of Tax Counsel is based on the facts described in this
Prospectus and on the facts as they have been represented by the Managing Owner
to Tax Counsel or determined by Tax Counsel as of the date of the opinion. Any
alteration of the facts may adversely affect the opinion rendered. The opinion
of Tax Counsel also is based on existing law and applicable current and proposed
Treasury Regulations, current published administrative positions of the IRS
contained in Revenue Rulings and Revenue Procedures, and judicial decisions, all
of which are subject to change either prospectively or retroactively.
The opinion described herein represents only Tax Counsel's best legal
judgment and has no binding effect or official status of any kind before the IRS
or the courts. In the absence of an IRS ruling, the IRS is not precluded from
challenging the conclusions reached by Tax Counsel and set forth below under
this heading.
Classification as a Partnership
The Trust has not applied, and does not intend to apply, for a ruling from
the IRS that it will be classified as a partnership and not as an association
taxable as a corporation. As indicated, the Trust has received an opinion of Tax
Counsel that, under current federal income tax laws, case law and administrative
regulations, rulings and practice, the Trust will be classified as a partnership
and not as an association taxable as a corporation and, accordingly, the Limited
Owners in the Trust will subject to federal income tax treatment applicable to
limited partners in a partnership. However, unlike a tax ruling, an opinion of
counsel has no binding effect or official status of any kind, and no assurance
can be given that the conclusions reached in such opinion would be sustained by
a court if contested by the IRS.
Present U.S. Treasury Regulations provide that a business or commercial
trust, such as the Trust, is classified as either a partnership
or an association taxable as a corporation by applying the
classification factors set forth in Treas. Reg. S301.7701-2. See
Treas. Reg. S301.7701-4(b), and Rev. Rul. 88-79, 1988-2 C.B. 361,
applying the classification factors of Treas. Reg. S301.7701-2
to classify a Missouri business trust substantially similar to the Trust as a
partnership for federal income tax purposes. Treasury Regulation S301.7701-2
provides that, in the absence of other relevant factors, a partnership will not
be treated as a corporation (and thus will be treated as a partnership) for
federal income tax purposes unless it has at least three of the following
corporate characteristics: (1) continuity of life; (2) free transferability of
interests; (3) limited liability; and (4) centralized management. In Tax
Counsel's opinion, the Trust will lack at least two of the foregoing factors,
namely, continuity of life (because the Trust will automatically dissolve upon
the dissolution or bankruptcy of the Managing Owner unless continued by a
majority in interest of the Limited Owners), and limited liability (by reason of
the Managing Owner's unlimited liability).
The opinion of Tax Counsel concerning the Trust's tax status as a
partnership is based, in part, on the opinion of Delaware counsel to the Trust
to the effect that, under Delaware law, the Trust is duly organized and validly
existing as a business trust, and the Trust Agreement will be enforceable in
accordance with its terms. Tax Counsel's opinion also is based on certain
representations by the Managing Owner, including that: (1) the operation of the
Trust will be in accordance with the Trust Agreement and Delaware law; (2) the
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Limited Owners will not, at any time, directly or indirectly, either indivi-
dually or collectively, own five percent (5%) or more of the capital stock of
the Managing Owner or a related person, as defined in sections 267(b) and
707(b)(1) of the Code; (3) under the Trust Agreement, the Managing
Owner's interest in each material item of Trust income, gain,
loss and deduction will be equal to at least 1% of each such item
at all times during the existence of the Trust; (4) provided that the
$10 million Subscription Minimum has been satisfied, upon the admission of
the Limited Owners, the Managing Owner shall contribute in cash to the capital
of the Trust an amount equal to at least 1.01% of the Limited Owners' aggregate
contributions and thereafter shall maintain a minimum positive capital account
balance equal to not less than 1% of the total positive capital account balances
for the Trust; (5) the net worth of the Managing Owner is, and is expected to
remain throughout the existence of the Trust, at least five percent (5%) of the
total capital contributions to the Trust; such net worth will be determined by
excluding the Managing Owner's interests in and receivables from the Trust; and
such net worth will be in addition to the amount of any minimum net worth being
maintained by the Managing Owner with respect to all other entities in which the
Managing Owner is a managing owner or a general partner, which minimum net
worth, calculated with respect to each such other entity
in the same manner as for the Trust, shall not be less than 5%
of the total capital contributions made to such entity; and (6) a
principal activity of the Trust consists of buying and selling
commodities not held as inventory, or futures, forwards and options with respect
to such commodities, and at least 90% of the annual gross income of the Trust
will consist of interest income and income and gains from such commodities
trading activity.
Under Code section 7704, certain publicly traded partnerships are treated
as corporations for federal income tax purposes even though they satisfy the
partnership classification criteria. Publicly traded partnerships (as defined
in section 7704(b) of the Code) are partnerships (or entities classified as
partnerships for tax purposes) the interests in which are traded on an
established securities market or are readily tradeable on a secondary market (or
the substantial equivalent thereof). The existence of a secondary market (or its
equivalent) may be indicated where, by reason of a regular plan of redemptions
or otherwise, a partner has a "readily available, regular and ongoing
opportunity" to sell or exchange his partnership interest in a manner comparable
to trading on an established securities market.
Under the Trust Agreement, Interests will not be traded on an established
securities market. Interests can be redeemed as of the last day of any calendar
month, provided that the Limited Owner submits a written request at least 10
business days prior to the applicable monthly Redemption Date. (Redemptions also
will be permitted in certain limited circumstances involving a cessation of
commodities trading activity.)
Treasury Regulation S 1.7704-1(e)(viii) provides that transfers of limited
partnership interests pursuant to a closed-end redemption plan will be
disregarded for purposes of determining whether interests in the partnership are
publicly traded. A redemption plan qualifies as closed-end for these purposes
if (i) the partnership does not issue any partnership interests after the
initial offering, and (ii) neither a partner nor any person related to any
partner (within the meaning of section 267(b) or section 707(b)(1)
of the Code) provides contemporaneous opportunities to acquire interests
in similar or related partnerships which represent substantially
identical investments.
The Managing Owner has represented to Tax Counsel that requirement
(ii) above will at all times be satisfied. With respect to requirement (i), the
Trust Agreement provides that no Interests may be issued or reissued following
the expiration of the Continuous Offering, and redeemed Interests are
extinguished. Accordingly, Tax Counsel is of the opinion that the Trust should
not be treated as a publicly traded partnership following the conclusion of the
Continuous Offering.
With regard to any redemptions of Interests that might occur during the
Continuous Offering, it may be that such redemptions do not provide Limited
Owners with a readily available, regular and ongoing opportunity to dispose of
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their Interests in a manner that is substantially equivalent to a secondary
market, because the Continuous Offering (if made) will be made pursuant to Rule
415 of the Securities Act of 1933 for only a limited period, as provided in the
Trust Agreement. (See Ltr. Ruls. 9342042 (July 26, 1993), 9109036 (Nov. 30,
1990), and 9111023 (December 14, 1990), wherein the IRS ruled that certain
proposed plans for redeeming partnership interests during a limited continuous
offering period pursuant to Rule 415 would not cause the partnerships described
therein to be treated as publicly traded partnerships. (Letter rulings issued
to others may not be used or cited as precedent, but generally reflect the IRS's
position on the issues presented.) However, due to various factual differences
between the letter rulings and the instant facts, it is unclear whether the IRS
would so conclude with respect to redemptions during the Continuous Offering.
Treasury Regulation S 1.7704-1(e) also provides that assignments of
partnership interests that are made in certain limited circumstances, such as
the death of a partner, transfers between family members, and distributions from
qualified retirement plans or IRAs, will not cause a partnership to become
publicly traded, but that assignments of partnership interests under other
circumstances, if not restricted, might cause a partnership to become publicly
traded. Accordingly, the Trust Agreement provides that the Managing Owner shall
refuse to recognize assignments of Interests (or rights therein) under
circumstances other than as specifically permitted under safe harbors that
protect against treatment as a publicly traded partnership. See "Summary of the
Trust Agreement--Transfer of Interests" at page 66. Under these safe harbors,
interests in a partnership generally will not be considered to be publicly
traded in any year in which the aggregate percentage interests in partnership
capital or profits that are sold or otherwise disposed of, disregarding any
transfers that meet certain other safe harbors (for example, the safe harbor
relating to redemptions by closed-end partnerships), do not exceed 2%.
Even if a partnership is considered to be publicly traded, section 7704(c)
of the Code provides that such partnership will not be treated as a corporation
for federal income tax purposes if, as to each taxable year of its existence,
(i) with certain exceptions to be prescribed by forthcoming Treasury
Regulations, the partnership is not required to register under the
1940 Act, and (ii) at least 90% of its gross income
is "qualifying income." Qualifying income includes interest income,
and, in the case of a partnership that has as a principal activity
the buying and selling of commodities (including foreign currencies) and
commodity instruments (i.e., options, futures and forward contracts on
commodities), also includes income and gains from such commodities transactions.
Based on the facts set forth in this Prospectus and the Managing Owner's
representations set forth earlier, the Trust does not expect to be taxed as a
corporation under the provisions of section 7704 of the Code even if it were to
be viewed as publicly traded. In this regard, the Managing Owner has been
advised by Tax Counsel, based on its review of the trading portfolios to be
utilized for the Trust (see "Description of the Trading Manager's Trading
Approach" at page 31 and "Summary of Advisory Agreement" at page 60), that
substantially all the income and gain from transactions in the commodity
instruments proposed to be traded by the Trading Manager should constitute
"qualifying income" as defined above. See Rev. Rul. 73-158, 1973-1 C.B. 337, and
Ltr. Ruls. 8540033 (July 3, 1985), 8850041 (Sept. 19, 1988) and 8807004 (Nov.
10, 1987), concerning whether various instruments are "commodities" for
purposes of section 864(b)(2) of the Code.
Should the aforementioned facts, assumptions and representations not
continue to be accurate for any reason, the IRS may take the position that the
Trust should be taxed as a corporation. The continued treatment of the Trust as
a partnership also is dependent upon existing provisions of the Code, the
regulations promulgated thereunder and administrative interpretations thereof,
all of which are subject to change. Therefore, no assurances can be given that
the Trust's classification for federal income tax purposes may not be changed
during the term of its existence.
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If the Trust were to be treated for federal income tax purposes as a
corporation, income, deductions, gains and losses of the Trust would be
reflected only on its tax return rather than being passed through to the
Limited Owners. In such event, the Trust itself would be
required to pay income tax at corporate tax rates on its
net ordinary income and capital gains, thereby substantially reducing
the amount of cash available to be distributed to the Limited Owners.
Furthermore, all or a portion of any such distributions made to Limited Owners,
other than in redemption of Interests, could be treated as ordinary dividend
income regardless of the source from which they were generated. Limited Owners,
however, generally would not be subject to tax on any undistributed income of
the Trust. See "Other Tax Factors", paragraph (1) below.
THE DISCUSSION BELOW ASSUMES THAT THE TRUST WILL BE TREATED AS A PARTNERSHIP FOR
FEDERAL INCOME TAX PURPOSES.
Other Tax Factors
(1) Owners, not Trust, Subject to Tax. The Trust will report its
operations for tax purposes on the accrual method for each year and will file a
partnership information income tax return, but will not itself be subject to
federal income tax. Each Limited Owner will be responsible for reporting on his
personal income tax return each year his distributive share of the Trust income,
gain, loss, deduction and items of tax preference.
Each Limited Owner will be required to report and determine his tax
liability with respect to his share of the Trust's taxable income, if any,
whether or not he has received or will receive any cash distributions from the
Trust. A Limited Owner's ability to deduct his share of Trust losses and
expenses will be subject to various limitations. See paragraphs (5) and (7)
below. Further, the Trust's primary investment objective is capital appreciation
rather than the current distribution of profits, and the Trust does not intend
to make distributions. Consequently, a Limited Owner's tax liability with
respect to his share of the taxable income of the Trust will likely exceed the
amount of cash, if any, distributed to such Limited Owner in a given year.
(2) Tax Audits. The income tax returns of the Trust may be audited, and
such audit may result in an audit of the returns of the Limited Owners. Such
audits could result in tax deficiencies with respect to matters unrelated to the
Trust. Audit changes made to the Trust's returns would result in corresponding
changes to the Limited Owners' returns. Such changes, under the tax rules
providing for administrative and judicial tax proceedings at the partnership
level, would be binding on the Limited Owners under most circumstances. Further,
interest paid on tax deficiencies generally is nondeductible.
(3) Calculation of "Adjusted Basis"; "At Risk" Limitation. A Limited
Owner may deduct his share of any losses of the Trust (whether ordinary or
capital) only up to the amount of his adjusted basis in his Interests. Losses
in excess of a Limited Owner's adjusted basis in his Interests in any year may
be carried forward and deducted in succeeding years subject to this limitation.
Each Limited Owner's adjusted basis in his Interests will be equal to his
purchase price, increased by the amount of his share of items of taxable income
and gain of the Trust and reduced, but not below zero, by (a) the amount of his
share of losses of the Trust, (b) expenditures which are neither properly
deductible nor properly chargeable to his capital account and (c) the amount of
any distributions received by such Limited Owner. If a Limited Owner invests
additional funds subsequent to his initial investment in the Trust (including by
reinvesting proceeds otherwise distributable to him), such additional investment
will be added to his tax basis for all of his Interests. Such aggregate basis
also will determine his tax consequences on a sale or redemption of his
Interests or on a cash distribution. See paragraph (4) below.
A Limited Owner (other than a Limited Owner that is a subchapter C
corporation, unless more than 50% of the corporation's shares are owned directly
or indirectly by not more than five individuals) may not deduct Trust losses for
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any year in excess of such Limited Owner's amount "at risk" in the Trust's
activities as of the end of such year. Losses in excess of a Limited Owner's
amount "at risk" in the Trust may be carried forward and deducted in succeeding
years subject to this limitation. Recapture of previously allowed losses is
required if a Limited Owner's amount "at risk" at the end of the year is reduced
below zero (e.g., by cash distributions from the Trust). A Limited Owner's
amount "at risk" will be increased by his share of Trust income and gains, and
reduced by his share of Trust losses, deductions and distributions, but will not
include any Trust borrowings for which he is not personally liable. See section
465(b)(4) of the Code.
(4) Treatment of Cash Distributions; Redemptions; Sales. Cash
distributions (including distributions on partial redemptions) made to a Limited
Owner will generally represent a return of capital up to the amount of such
Limited Owner's aggregate adjusted basis in his Interests. A return of capital
does not result in any recognition of gain or loss for federal income tax
purposes but will reduce a Limited Owner's adjusted basis in his Interests.
Distributions in excess of a Limited Owner's adjusted basis in his Interests
immediately prior thereto will result in the recognition of gain. Upon a
liquidation or termination of the Trust, gain will be recognized by a Limited
Owner to the extent that cash is distributed in excess of such Limited Owner's
adjusted basis in his Interests immediately before the distribution.
A Limited Owner who redeems a portion of his Interests at an economic
profit will recognize gain for tax purposes only if the redemption price exceeds
his total adjusted basis in all of his Interests, including Interests he
continues to hold. A Limited Owner who sustains an economic loss on the
redemption of a portion (but not all) of his Interests will be required to add
his unrecovered tax basis in the redeemed Interests to his tax basis in the
Interests he continues to own and, therefore, will not recognize a loss for tax
purposes unless and until he disposes of his remaining Interests for less than
his adjusted basis in such Interests. Upon the sale or redemption of a portion
of his Interests, a Limited Owner would be required to allocate his aggregate
adjusted basis pro rata between his Interests sold or redeemed and his Interests
retained. Thus, a Limited Owner owning Interests that were purchased at
different prices cannot control the timing of his recognition of the inherent
gain or loss in particular Interests by selecting such Interests for sale or
redemption, and the tax consequences to a Limited Owner of a partial redemption
therefore may be more or less favorable to him than the economic consequences to
him of such redemption.
Provided the Limited Owner is not deemed to be a "dealer" in Interests,
gain or loss recognized by a Limited Owner upon a sale or other disposition of
his Interests and gain recognized in connection with a complete redemption or
liquidation of his Interests generally will be treated as capital gain or loss,
except for (i) the portion of any gain which is attributable to such Limited
Owner's distributive share of income of the Trust, which income will be taxed as
otherwise described below, and (ii) certain items of accrued interest and market
discount income. Such gain or loss will be treated as long-term capital gain or
loss if the Interests so disposed of have been held for more than one year, or
as short-term capital gain or loss if the Interests so disposed of have been
held for one year or less. See paragraph (5) below.
(5) Gains and Losses From Commodity Trades.
(a) In general. The Trust's transactions in commodity futures and forward
contracts are anticipated to result primarily in capital gains or losses (both
short-term and long-term).
The top tax rate currently applicable to net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) of non-corporate
taxpayers is 28% whereas the top tax rate on ordinary income and net short-term
capital gain of such taxpayers is 39.6%. The excess of Trust capital losses over
capital gains is deductible by a non-corporate Limited Owner only against his
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capital gain income each year (and up to $3,000 per year against his ordinary
income). Thus, a Limited Owner's capital losses, if any, from the Trust
generally would not reduce his tax liability with respect to his allocable share
of the Trust's interest income and other ordinary income. Unused capital losses
may be carried forward indefinitely, but except as described below, may not be
carried back. AS A RESULT OF THESE LIMITATIONS, AMONG OTHER LIMITATIONS
DESCRIBED HEREIN, AN INDIVIDUAL LIMITED OWNER SHOULD ANTICIPATE THAT HIS SHARE
OF THE TRUST'S CAPITAL LOSSES, IF ANY, WILL NOT MATERIALLY REDUCE HIS FEDERAL
INCOME TAX ARISING FROM HIS ORDINARY INCOME FROM THIS AND OTHER SOURCES.
In the case of a corporate Limited Owner, all capital gains are fully
includable in income. Capital losses of corporations may be offset only against
capital gains, but unused capital losses may be carried back three years or
forward five years. The amount that can be carried back is limited to an amount
which does cause or increase a net operating loss in a carryback year.
Pending legislative proposals would reduce the federal income tax rates
applicable to long-term capital gains, but also would further limit the
deductibility of long-term capital losses and treat a portion of long-term
capital gain as an item of tax preference for alternative minimum tax purposes.
See also paragraphs (11) and (16) below.
(b) Section 1256 contracts. In the case of "section 1256 contracts", the
Code requires a "mark to market" system of taxing unrealized gains and losses on
such contracts and otherwise provides for special rules of taxation.
A section 1256 contract includes (1) a futures contract which is traded on
or subject to the rules of a domestic board of trade designated as a contract
market by the CFTC or of any board of trade or exchange designated by the
Secretary of the Treasury, and which is "marked to market" to determine the
amount of margin which must be deposited or may be withdrawn, (2) a foreign
currency forward contract traded in the interbank market ("interbank forward
contract") if such contract requires delivery of, or the settlement of which
depends on the value of, a foreign currency which is also traded in the
interbank market and is entered into at arm's length at a price
determined by reference to the price in that market, and (3) certain
commodity options.
Under these rules, all section 1256 contracts held by the Trust at the end
of each taxable year will be treated for federal income tax purposes as if they
were sold by the Trust for their fair market value on the last business day of
such taxable year. The net gain or loss, if any, resulting from such deemed
sales (known as "marking to market") must be taken into account by the Trust in
computing its taxable income for such year, a pro rata portion of which income
will be taxable to each Limited Owner under the general principles
of partnership taxation (see paragraph (1) above) whether or not
such income is distributed. If a section 1256 contract held by
the Trust at the end of a taxable year is sold in the following year,
the amount of any gain or loss realized on such sale will
be adjusted to reflect the gain or loss previously taken into account in the
prior year under the "mark to market" rules.
The Code also provides special rules concerning the tax treatment of gains
and losses from section 1256 contracts. Under these rules, and subject to the
mixed straddle rules described in subparagraph (f) below, each Limited Owner's
distributive share of the Trust's gain or loss with respect to each section 1256
contract (including gain or loss resulting from actual sales and under the "mark
to market" rules described above), other than interbank forward contracts (which
are subject to special rules discussed in subparagraph (c) below), will be
treated (without regard to the period held) as short-term gain or loss to the
extent of 40% thereof and as long-term gain or loss to the extent of 60%
thereof. Such gains and losses will be taxed under the general
rules described above.
Non-corporate Limited Owners ordinarily cannot carry back the unused
portion of their net capital losses, but, as a result of certain special rules,
individuals (but not estates or trusts) may elect to carry back the unused
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portion of their net capital losses from section 1256 contracts (limited,
however, to the amount of their total net capital loss for the year after taking
into account their capital gains and losses from all sources) to each of the
three years preceding the loss year. If the election is made, the losses carried
back under this special provision may be used only to offset gains from section
1256 contracts in the carryback years.
In addition to positions that qualify as section 1256 contracts, the Trust
anticipates taking positions in futures contracts on foreign exchanges, and
possibly, forward contracts on foreign currencies not traded in the interbank
market and options on such foreign currencies. Such positions will not qualify
as section 1256 contracts, and generally will give rise to short-term capital
gain (or loss) or ordinary income (or loss) under the rules described in
subparagraph (c) below.
(c) Certain foreign currency transactions. The Trust intends to engage
in transactions involving interbank forward contracts, as well as foreign
currency options or futures contracts that are traded on foreign exchanges.
Whether or not such contracts would qualify as section 1256 contracts, they will
give rise to ordinary income or loss under section 988 of the Code unless the
Trust makes a special election, which, once made, will be irrevocable. The Trust
currently intends to make such election, under which all of its foreign currency
forward contracts (and certain options on foreign currency) will be required to
be marked to market under the rules applicable to section 1256 contracts and
will give rise to capital gain or loss. Such gain or loss
will be characterized under the 60/40 rules discussed in subparagraph
(a) above, in the case of interbank forward contracts, or entirely
as short-term capital gain or loss, in the case of all other
foreign currency contracts that are not section 1256 contracts.
Certain instruments in which the Trust may trade from time to time, although
denominated in a foreign currency, are not eligible for this election and, as
such, may give rise to ordinary income or loss rather than capital gain or loss.
To make and maintain the foregoing election, the Trust must be a "qualified
fund." As defined in section 988(c)(1)(E) of the Code, this term includes most
commodity pools. As such, the Trust anticipates that it will qualify as and
remain a "qualified fund" except possibly in a year, if any, in which an event
of trading termination occurs. (The Trust also would cease to be a qualified
fund if more than a de minimis amount of its gross income in any year were to be
derived from buying and selling commodities, as opposed to futures and forward
contracts on commodities; the Trust does not anticipate that this will occur.)
If the Trust ceases to be a qualified fund after having made the election, its
net gains, if any, from any non-section 1256 contracts on foreign currency
generally would be treated as ordinary income (commencing with the year of
disqualification), but its net losses, if any, from such contracts would be
treated as capital losses.
(d) Cash commodity transactions. Any gains or losses realized by the
Trust from its transactions, if any, in physicals generally should not be
recognized until the physical commodity is sold, and should be treated as
long-term capital gains and losses if held for more than one year, or as
short-term capital gains and losses if held for one year or less.
(e) "Anti-straddle" rules. The Trust anticipates that it will engage in
spread trading involving assets other than solely section 1256 contracts. The
Trust's ability to deduct losses, if any, realized on such transactions will be
subject to the limitations imposed by special loss disallowance rules.
Under these rules, which are applicable to "offsetting" (i.e., balanced)
positions in actively traded personal property (other than certain stock options
and stock interests), the Trust will be unable to recognize losses from
transactions involving "offsetting" positions except to the extent that such
losses exceed the Trust's unrecognized gains from such positions as of the close
of the relevant taxable year. In addition, the Trust's commodity straddle
transactions involving assets other than solely section 1256 contracts also will
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be subject to rules that are similar to the present law wash sale and short sale
rules. Under these regulations, if the Trust disposes of less than all of the
positions of a commodity straddle, any loss sustained by the Trust with respect
to the disposition of such straddle position generally will not be allowable
except to the extent that such loss exceeds the amount of unrecognized gain, as
of the close of the relevant taxable year, in a successor position to the loss
position disposed of (and/or an "offsetting position" to a successor position)
that is acquired by the Trust during the period commencing 30 days prior to, and
ending 30 days after, the disposition of the loss position. Any losses
disallowed under the foregoing loss disallowance and wash sale rules may be
carried forward and deducted in the following taxable year, subject to the same
limitations. In addition, the Code contains certain interest capitalization
rules which require that otherwise deductible interest expense be capitalized,
rather than deducted currently, to the extent that such interest expense relates
to indebtedness incurred to purchase or carry assets held as part of
"offsetting" positions.
The foregoing limitations are not applicable to "offsetting" positions
consisting solely of section 1256 contracts and hence, should not affect the
Trust's ability to deduct losses actually or constructively (by reason of the
"mark to market" rules discussed above) realized by the Trust from spread trad-
ing entirely in section 1256 contracts. To the extent that the Trust engages in
spread trading in assets other than solely section 1256 contracts, however, such
limitations could be expected to have a significant adverse impact on the extent
to which losses, if any, incurred by the Trust from such transactions would be
allowed as current deductions. In addition, it is currently unclear to what
extent the foregoing limitations would apply to offsetting positions consisting
of transactions entered into by the Trust and those entered into by a Limited
Owner in his capacity as an individual investor; each prospective Limited Owner
should consult his tax advisor concerning the application of the foregoing rules
to his own particular circumstances.
(f) Mixed straddle rules. The Trust anticipates that it will engage in
straddle transactions involving a section 1256 contract and an offsetting
position that does not qualify as a section 1256 contract (a "mixed straddle").
Any gain or loss with respect to the non-section 1256 contract position of any
such mixed straddle will be recognized, for tax purposes, only when actually
realized. Moreover, any recognized loss on a non-section 1256 position in a
mixed straddle will be subject to the general anti-straddle rules discussed in
subparagraph (e) above. Any gain or loss recognized on the section 1256 contract
position of a mixed straddle will be taxed under the "mark to market" and
capital gain characterization rules discussed in subparagraphs (a)
and (b) above, unless the Trust makes an election to have such
straddle identified as a mixed straddle. If such an election is
made, gains and losses on the section 1256 contract will
be taxed under the rules described below.
Two alternative mixed straddle elections are available to the Trust. The
Trust currently intends to elect to establish mixed straddle accounts for
different classes of commodity activities, in which groups of mixed straddles
are pooled to determine net gain or net loss on a daily basis. Such election
generally will result in the Trust's mixed straddle account being taxed either
under the rules applicable to section 1256 contracts or non-section 1256
contracts depending upon whether the net gain or loss is attributable to section
1256 contracts or non-section 1256 contracts, except that no more than 50% of
the total annual account net gain, if capital, may be treated as
long-term, and no more than 40% of the total annual account net loss,
if capital, may be treated as short-term.
(g) Anti-conversion rules. Under section 1258 of the Code, gain
recognized by the Trust on a "conversion transaction" would be treated as
ordinary income, rather than as capital gain, in an amount not to exceed a
hypothetical yield on the Trust's equity investment in the transaction equal to
120% of the "applicable federal rate" (which varies depending on prevailing
interest rates and the term of the relevant security). A conversion transaction
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is a transaction which satisfies the following two requirements: (1)
substantially all of the return from the transaction is attributable to the time
value of money; and (2) the transaction is or involves a straddle, a
substantially simultaneous purchase and sale of (or agreement to sell) property,
or other transactions to be described in forthcoming Treasury Regulations.
Although it is not expected that these rules would apply to the Trust's
transactions for the most part, it must be recognized that, pending the issuance
of the IRS rulings or Treasury Regulations interpreting the provisions of Code
section 1258, the issue of whether any of the Trust's transactions will be
treated as conversion transactions for purposes of these rules is not free from
doubt.
(6) Interest Income. Interest income earned by the Trust will be taxable
as ordinary income to the Limited Owners. Such income generally cannot be offset
by capital losses. See paragraph (5) above.
If the Trust acquires taxable obligations issued at a discount and such
obligations have maturities of more than one year, the Trust, subject to certain
exceptions, will be required to treat a portion of the original issue discount
attributable to such obligations as ordinary interest income during each year it
holds the obligations. In addition, the Trust may be required in certain in-
stances to accrue interest income on discount obligations which have a maturity
of not more than one year. Further, any gain recognized by the Trust on the dis-
position of an obligation acquired for less than its adjusted issue price will
be treated as ordinary interest income up to the amount of the accrued market
discount, unless an election is made to include the market discount in income
for the year to which it is attributable. Also, interest incurred to purchase or
carry market discount obligations cannot be deducted to the extent that the
amount thereof exceeds the interest which is currently includable in the
purchaser's income; interest which is so disallowed will be deductible in the
year of the obligation's disposition.
Any interest earned by an investor on any subscription amounts that may be
held in escrow will be taxable as ordinary income to such investor in the year
earned. See "Plan of Distribution" at page 38 and "Subscription Procedure and
Escrow of Funds" at page 39.
(7) Deductibility of Investment Expenses. If the Trust is considered to
be engaged in merely an investment activity, and not in the trade or business of
commodities trading, then an individual Limited Owner will be unable to deduct
his allocable share of certain Trust expenses (including investment advisory
fees, but excluding interest expense) for regular income tax purposes except to
the extent that the Limited Owner's investment and miscellaneous itemized
expenses for the particular year exceed 2% of his adjusted gross income. The
deductible portion of such expenses is further reduced by an amount equal to the
lesser of (i) 3% of an individual's adjusted gross income in excess of $100,000
(indexed for inflation) and (ii) 80% of the individual's miscellaneous itemized
deductions otherwise allowable for such taxable year. Such expenses are not
deductible at all for alternative minimum tax purposes; see paragraph (11)
below. If, on the other hand, the Trust is considered to be in a trade or
business, then the Trust's expenses should not be subject to these limitations.
The Managing Owner currently intends to take the position on the Trust's
information return that the Trust is engaged in a trade or business. A Supreme
Court decision, Commissioner v. Groetzinger, 480 U.S. 23 (1987), indicates, in
dicta, that active securities or commodities trading could constitute a trade or
business (as opposed to an investment activity). (See also King v. Commissioner,
89 T.C. 445, acq., 1988-1 C.B. 1.) The application of the aforementioned case
to the Trust and its contemplated activities, however, is not free from doubt at
the present time, and the Trust might be required, as a result of subsequent
developments in this area of the tax law, to take a different position on future
tax returns. Also, whether the Trust's activities constitute a trade or business
for these purposes is largely a factual issue as to which Tax Counsel cannot
opine. The resolution of this issue therefore will depend on the extent and
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nature of the Trust's trading activities in the particular year, and may vary
(as a result of changes in the Trust's activities) from year to year.
(8) Passive Activity Loss Limitation. Under section 469 of the Code,
non-corporate taxpayers and personal service corporations deriving net losses
from "passive activities" are permitted to deduct such losses only to the extent
of their income from passive and rental activities (which does not include
salaries and other compensation, or "portfolio income", such as interest income,
dividends and net capital gains not incurred in the ordinary conduct of a trade
or business), and closely-held corporations may not offset passive losses
against portfolio income. Passive activities are defined generally as any trade
or business activity in which the taxpayer does not materially participate (for
example, a trade or business activity conducted by a partnership in which the
taxpayer is a limited partner). Any losses that are not currently deductible
under this provision may be carried forward and deducted in subsequent years to
the extent of the taxpayer's passive activity income in such years.
The Trust is anticipated to generate taxable income, rather than tax
losses. The Treasury Department has been given broad regulatory authority to
reclassify income from a purported passive activity as non-passive income (which
could not be offset by passive losses) rather than as passive income. Temporary
Treasury Regulation S1.469-IT(e)(6) provides that, whether or not such activity
is a trade or business for other purposes, trading in commodities, stocks,
securities, options and other similar instruments (other than as a market-maker
or dealer) is not to be treated as a passive activity for purposes of the
passive activity loss limitation.
Based on temporary Treasury Regulation S1.469- IT(e)(6), in the opinion of
Tax Counsel, any taxable income of the Trust that is allocated to the Limited
Owners will not be treated as passive activity income for purposes of the
passive activity loss limitation. Accordingly, for Limited Owners who are
subject to the passive activity loss limitation, the temporary
Treasury Regulations would not permit taxable income generated
by the Trust's transactions to be offset by losses from passive
activities, and would not subject any tax losses generated
by the Trust's transactions to the passive activity loss limitations.
(9) Allocations. The Code and Treasury Regulations permit allocations of
income and loss to be made among partners in accordance with the partnership
agreement, provided that such allocations have "substantial economic effect;"
that is, the allocations can affect the partner's right ultimately to receive
cash or property (independent of tax consequences). Treasury Regulations
promulgated under Code section 704(b) set forth requirements for
the maintenance of capital accounts and rules for determining whether
an allocation satisfies the substantial economic effect test or
is otherwise in accordance with the partners' economic interests
in the partnership. Under these Regulations, all contributions,
distributions and allocations of tax items are to be reflected by an
appropriate adjustment in a partner's capital account.
Under the Trust Agreement, realized and unrealized profits and losses of
the Trust are allocated among the Owners both for tax purposes and for purposes
of determining the price payable on redemption of a Limited Owner's Interests.
Since gain or loss for tax purposes generally is not recognized until there is
an actual sale or disposition of the underlying asset (unless marked to market
under the rules discussed in paragraph (5) above), discrepancies may result
between a Limited Owner's economic gain or loss and his share of the gain or
loss reported by the Trust for tax purposes. The tax allocation provisions of
the Trust Agreement attempt to allocate the net capital gain or the net capital
loss of the Trust for each year so as to eliminate, to the extent possible, any
disparity between a Limited's Owner's book account (reflecting the economic
results of the Trust's operations) and his tax account (reflecting the tax
consequences of the Trust's operations). If the Trust's use of calendar monthly
segments for allocation purposes or the overall method of allocating Trust
income and losses is not respected for tax purposes, a Limited Owner's
share of taxable income and loss of the Trust might be other than as
provided in the Trust
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Agreement. See "Summary of Trust Agreement--Sharing of Profits and Losses" at
page 71.
(10) Tax Elections. The Code provides for optional adjustments to the
basis of partnership property upon distributions of partnership property to a
partner (section 734) and transfers of a partnership interest, including by
reason of death (section 743), provided that a partnership election has been
made pursuant to section 754. The general effect of such an election is that
transferees of partnership interests are treated, for purposes of computing
gain, as though they had acquired a direct interest in the
partnership assets and the partnership is treated for such purposes,
upon certain distributions to the partners, as though it had newly
acquired an interest in the partnership assets and therefore acquired
a new cost basis for such assets. Any such election, once
made, is irrevocable without the consent of the IRS. As a result of the
complexities and added expense of the tax accounting required to implement such
an election, the Managing Owner does not presently intend to make such an
election. It is possible that the allocation provisions of the Trust Agreement,
by attempting to allocate taxable gain only to Partners who have realized
economic gains, may produce similar effects under certain circumstances in the
absence of such an election.
(11) Alternative Minimum Tax. The Code provides for an alternative
minimum tax (at rates of, currently, 26% and 28% for non-corporate taxpayers and
20% for corporations) applicable to taxpayers only if and to the extent it
exceeds a taxpayer's regular federal income tax liability. The alternative
minimum tax will not be imposed on the Trust as such, but each Limited Owner
must include, in the computation of his or its own alternative minimum tax
liability, if any, his or its allocable share of certain
Trust items. Limited Owners should note that their ability to
deduct their share of certain Trust expenses for purposes of
determining their alternative minimum tax liability, if any, may be
limited (see paragraph (7) above). The effect of the alternative minimum tax
provisions upon an investor in the Trust will depend upon the investor's overall
individual tax situation. Each investor should consult his own professional tax
advisers concerning the applicability of the alternative minimum tax, including
as it may be revised by pending federal income tax proposals. See paragraphs (5)
above and (16) below.
(12) Limitation on Interest Deduction. Section 163(d) of the Code limits
the deductibility of interest on indebtedness that is properly allocable to
property held for investment by taxpayers other than corporations. Non-corporate
Limited Owners will be subject to this limitation with respect to their
investment in the Trust. The amount of investment interest which may be deducted
by a non-corporate Limited Owner may not exceed the amount of the Limited
Owner's "net investment income", which is the amount by
which the sum of his taxable interest, dividends, royalties,
short-term capital gains and rents from investment property
exceeds the expenses incurred in earning such income; long-term capital
gain is includable in net investment income only to the extent
that the Limited Owner elects to pay tax on the included portion at the same
marginal federal income tax rates as his other income.
This limitation, as applied to a non-corporate Limited Owner, may preclude
his deduction of all or part of the interest paid on money borrowed to finance
his investment in the Trust. A Limited Owner generally would be entitled to
carry such non-deductible interest forward to future taxable years where the
same limitations would apply. The application of the investment interest
limitation to a particular Limited Owner will depend on his overall
investment situation.
(13) Tax-exempt Limited Owners and Unrelated Business Taxable
income. Tax-exempt investors, such as Plans and IRAs, are generally exempt from
taxation except to the extent that their "unrelated business taxable income"
("UBTI"), determined in accordance with sections 511-514 of the Code, exceeds
$1,000 during any fiscal year. The tax is imposed at such income tax rates as
would be applicable to the organization if it were not otherwise exempt from
taxation. If an exempt organization is a Limited Owner, the organization is
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required to include in its computation of its UBTI, its pro rata share of the
portion, if any, of the Trust's taxable income that would be taxable to the
organization as UBTI if earned directly by the organization. Any UBTI generated
by an investment in the Trust may result in a tax-exempt Limited Owner's having
to file income tax returns and pay taxes.
UBTI, as defined in section 512 of the Code, generally means the taxable
income (with certain modifications) derived by a tax-exempt organization from a
trade or business, or from "debt-financed property" that is not substantially
related to such organization's performance of its exempt function. Dividends,
interest and gains resulting from the sale, exchange or other disposition of
non-dealer property currently are in no event taxable to an exempt organization
as UBTI except to the extent that such income is derived from or attributable to
"debt-financed property," as defined in section 514(b) of the Code, and except
under the circumstances described below.
Capital gains realized by the Trust with respect to its commodity trading
activities would be taxed as UBTI to the extent that the commodity positions
acquired by the Trust are considered to be "debt-financed property". In this
connection, the United States Tax Court, in Elliot Knitwear Profit Sharing Plan
v. Commissioner, 71 T.C. 765 (1979), aff'd, 614 F.2d 347 (3rd Cir. 1980), held
that securities purchased on margin by a qualified profit sharing plan for the
exclusive benefit of plan participants and their beneficiaries are "debt-
financed property" within the meaning of section 514(b) of the Code.
(The IRS previously had taken a similar position in Rev. Rul. 74-197,
1974-1 C.B. 163.) However, in several private letter rulings
issued subsequent to the Elliot Knitwear decision, the IRS stated
that margin deposits made by a tax-exempt entity in connection
with purchases and sales of commodity futures contracts (as distinguished from
purchases of equity securities on margin) were in the nature of "security
deposits" to assure the performance of such contracts and did not represent
"indebtedness" for purposes of section 514 of the Code. The IRS ruled that the
commodity futures contracts acquired by the tax-exempt entity using margin
deposits were not "debt-financed property". See Ltr. Ruls. 8338138, 8110163 and
8107115. Although private letter rulings cannot be relied upon by taxpayers
other than those to whom the rulings were directed, based in large part on the
rationale expressed in the foregoing letter rulings, the Trust's commodity
investments are not expected to be treated as "debt-financed property" (except
if the Trust acquires physicals using borrowed funds) under current law.
In any case, all or any portion of a tax-exempt Limited Owner's share of
taxable income of the Trust, as well as any gain realized by the Limited Owner
on the redemption of its Interests, would be taxable to such Limited Owner as
UBTI if the Limited Owner incurs indebtedness in connection with, or relating
to, its purchase of Interests. Each prospective tax-exempt
Limited Owner is urged to consult with its own professional tax
advisers to determine whether, under the circumstances of its own
particular situation, its interest in the Trust would constitute
"debt-financed property" to such Limited Owner and, if so, how such
Limited Owner would be affected by the application of the UBTI rules.
A tax-exempt Limited Owner may deduct only that portion of its share of
expenses and losses of the Trust that corresponds with the portion, if any, of
its share of income of the Trust that is includable in the computation of such
Limited Owner's UBTI for the taxable year. Except to the extent that the Trust's
investments give rise to UBTI, tax-exempt Limited Owners will not be entitled to
claim a deduction or other federal income tax benefit with respect to their
share of expenses and losses of the Trust, even though such items
will reduce the Net Asset Value of their Interests and the cash available
for distribution by the Trust.
(14) Offering Expenses. Prudential Securities will compensate the
Financial Advisors who sold the Interests and will pay the expenses of offering
Trust Interests. The Trust will not report any income or claim any deductions
on account of such expenses, which are non-deductible as to the Trust. There is
a risk that the Trust may be required for tax purposes to recharacterize a
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portion of the brokerage fees paid to Prudential Securities as non-deductible
offering expenses, or to include in income all or a portion of Prudential
Securities' payment of such expenses.
(15) United States Tax on Foreign Investors. The Code and the Treasury
Regulations generally provide an exemption from federal income taxation for
non-resident alien individuals, foreign trusts, foreign partnerships and foreign
corporations not otherwise engaged in a trade or business in the United States
on gains derived from trading in certain types of commodities for their own
account if such foreign persons, or their investment vehicles, are not dealers
in commodities. In addition, the Treasury Regulations provide that foreign
persons that invest in such commodities through a domestic partnership, the
principal business of which is trading in commodities (but not securities) for
its own account, are entitled to this exemption provided the partnership only
trades in commodities of a kind customarily dealt in on an organized commodity
exchange in transactions of a kind customarily consummated on an exchange.
Although not free from doubt, it is currently anticipated that most, if not all,
of the Trust's commodity trading activities will qualify under the foregoing
exemption. Accordingly, foreign persons (who or which are not dealers in
commodities) investing in the Trust generally should not be required to pay any
federal income tax on Trust income derived from commodity trading. If future
Trust transactions do not come within the foregoing exemption, a foreign Limited
Owner's entire allocable share of Trust income could become reportable for U.S.
income tax purposes and subject to U.S. income tax and, if the Limited Owner is
a corporation, an additional 30% U.S. branch profits tax. Also, in that event,
the Trust could be required to withhold income taxes from income or gain
allocable to a foreign Limited Owner (see Code section 1446).
With respect to commodity trading gains and any gains realized on the sale,
transfer or other disposition of Interests, current tax law provides that,
notwithstanding the foregoing exemption, a non-resident alien individual will be
subject to federal income tax (at a 30% rate) on such gains if he is present
within the United States for an aggregate of 183 days or more during the taxable
year when such gains are realized. Also, foreign investors who are individuals
may be subject to U.S. estate tax on Interests held by them at death.
Interest earned by the Trust as original issue discount on obligations with
maturities of 183 days or less and interest earned on bank deposits will not be
taxable to foreign investors. A foreign investor generally will not be subject
to federal or withholding income tax with respect to other interest income
earned by the Trust where there is either (1) an exemption under
an appropriate tax treaty and the Trust has received a properly completed
IRS Form 1001, or (2) the interest is paid with respect to "portfolio
interest" obligations issued after July 18, 1984 and the Trust
has received a properly signed and completed IRS Form W-8 in respect
of such foreign investor. Interest income earned by the Trust on
its trading accounts generally should qualify as portfolio interest for these
purposes. If neither (1) nor (2) apply, foreign investors will be subject to a
30% withholding tax on their allocable share of such interest.
Foreign investors are advised to consult with their own tax advisors as to
the United States federal, state and local income tax consequences to them of
this investment.
(16) Future Legislation. Legislation may be enacted in the future, and
Treasury Regulations may be issued, that could be retroactive with respect to
transactions entered into prior to the effective date thereof or that could
affect the Trust or an investment in Interests generally. Pending legislative
proposals would change the federal income tax treatment of long-term capital
gains and losses. Moreover, Congress is again considering legislative proposals
to change the tax treatment of large partnerships. Accordingly, there can be no
assurance that legislation or Treasury Regulations will not be implemented in
the future that could affect, perhaps adversely, the tax treatment of the gains,
losses and expenses arising from an investment in the Trust.
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(17) State and Local Taxes; Foreign Taxes. In addition to the federal
income tax consequences described above, the Trust and the Limited Owners may be
subject to various state and local taxes. For example, the State of Delaware,
under whose laws the Trust was formed, does not impose an income tax
on the Trust with respect to its income (so long as it is treated
as a partnership for federal income tax purposes), but does impose
an income tax upon (i) each Limited Owner who is a resident of
Delaware and (ii) each Limited Owner who is not a resident of
Delaware based upon such Limited Owner's share of any income derived from the
Trust's activities having sources within Delaware. Any state and local taxes
payable by the Trust would reduce the Net Asset Value of the Trust.
The Trust should not be subject to entity-level tax in New York so long as
the Trust is classified as a partnership for federal income tax purposes (see
"Classification as a Partnership" above). It is possible that corporate Limited
Owners not otherwise subject to tax in New York may become so by reason of their
investment in the Trust. Under applicable tax regulations, a corporation that
is not otherwise doing business in New York may be considered to be so doing, in
limited circumstances, solely by virtue of its ownership of a limited
partnership interest in a partnership that transacts business in New York.
State and local tax laws may not reflect changes made to the federal income
tax laws or may be inconsistent in other respects with the federal income tax
treatment of income, gains, losses and expenses arising from the Trust's
transactions. Accordingly, prospective Limited Owners should consult with their
own tax advisors concerning the applicability of state and local taxes to an
investment in the Trust.
The Trust's transactions on foreign exchanges may cause the Trust and the
Limited Owners to become subject to foreign taxes. Such taxes, if any, may be
creditable against a Limited Owner's U.S. income tax liability, if any.
* * *
The foregoing analysis is not intended as a substitute for careful tax
planning. In addition, the foregoing does not discuss estate tax, gift tax or
other estate planning aspects of this investment. Accordingly, prospective
Limited Owners are urged to consult their own tax advisors with respect to the
effects of this investment on their own tax situation.
LEGAL MATTERS
Legal matters in connection with this offering have been passed upon for
the Trust, the Managing Owner and Prudential Securities by Messrs. Rosenman &
Colin LLP, 575 Madison Avenue, New York, New York 10022. Certain legal matters
relating to Delaware law have been passed upon for the Trust and the Managing
Owner by Richards, Layton & Finger, Wilmington, Delaware. Rosenman & Colin LLP
acts as counsel generally for the Managing Owner and advises the Managing Owner
with respect to its responsibilities as Managing Owner of, and with respect to
matters relating to, the Trust. Such counsel also represents Prudential
Securities and certain of its affiliates from time to time in various matters,
and it is expected they will continue to represent such entities in the future.
ADDITIONAL INFORMATION
The Trust has filed with the Securities and Exchange Commission in
Washington, D.C. a registration statement on Form S-1, as amended (the
"Registration Statement"), with respect to the securities offered hereby. This
Prospectus doe not contain all of the information set forth in such Registration
Statement, certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, including, without
limitation, certain exhibits thereto (e.g., the Selling Agreement, the Escrow
Agreement, and the Brokerage Agreement). A copy of the Registration Statement
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has also been provided to the Commodity Futures Trading
Commission in Washington, D.C. The descriptions contained herein
of agreements included as exhibits in the Registration Statement are
necessarily summaries. Reference is made to the Registration Statement,
including the exhibits thereto, for further information with
respect to the Trust and such securities. Such information may be examined
without charge at the public reference facilities of the Securities and Exchange
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies may be obtained therefrom upon payment of the fees prescribed by the
Securities and Exchange Commission.
EXPERTS
The statements referred to under "Income Tax Consequences" have been
reviewed by Messrs. Rosenman & Colin LLP and are included in reliance upon their
authority as experts in tax law in the United States.
The Statements of Financial Condition of Prudential Securities Futures
Management Inc., as of December 31, 1994 and December 31, 1995, and the
Statement of Financial Condition of Willowbridge Strategic Trust
as of October 17, 1995 included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and have been so included in reliance
upon the reports of such firm and given upon their authority
as experts in accounting and auditing.
GLOSSARY OF TERMS
The following glossary may assist prospective investors in understanding
the terms used in this Prospectus:
Affiliate of the Managing Owner. Means: (i) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of the Managing Owner; (ii) any Person 10% or more
of whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote, by the Managing Owner; (iii) any Person,
directly or indirectly, controlling, controlled by, or under common control of
the Managing Owner; (iv) any officer, director or partner of the Managing Owner;
or (v) if such Person is an officer, director or partner of the Managing Owner,
any Person for which such Person acts in any such capacity.
Commodity. Goods, wares, merchandise, produce and in general everything
that is bought and sold in commerce. Out of this large class, certain
commodities, because of their wide distribution, universal acceptance and
marketability in commercial channels, have become the subject of trading on
various national and international exchanges located in principal marketing and
commercial areas. Traded commodities are sold in predetermined lots and
quantities.
Clearing Broker. Any person who engages in the business of effecting
transactions in commodities contracts for the account of the Trust. Prudential
Securities will act in this capacity for the Trust.
Commodity Futures Trading Commission. An independent regulatory commission
of the United States Government empowered to regulate commodity futures
transactions and other commodity transactions under the CE Act, as amended.
Continuous Offering. The period following the conclusion of the Initial
Offering Period and ending on the date when the number of Interests permitted to
be sold pursuant to Section 3.2(f) of the Trust Agreement are sold, but in no
event later than two years from the date of the final Prospectus.
Contract Month. The month in which a futures contract may be satisfied by
making or accepting delivery of the underlying commodity.
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Contract round-turn. The initial purchase of a long or short contract and
the subsequent purchase of an offsetting contract.
Counter-trend liquidations. Closing out a position after significant price
move on the assumption that the market is due for a correction.
Daily price fluctuation limit. The maximum permitted fluctuation imposed
by commodity exchanges in the price of a commodity futures contract for a given
commodity that can occur on a commodity exchange on a given day in relation to
the previous day's settlement price, which maximum permitted fluctuation is
subject to change from time to time by the exchange. In the United States these
limits, including changes thereto, are subject to CFTC approval. These limits
generally are not imposed on option contracts or outside the United States.
Delivery. The process of satisfying a commodity futures contract, an
option on a physical commodity, or forward contract by transferring ownership of
a specified quantity and grade of a cash commodity to the purchaser thereof.
Forward contract. A cash market transaction in which the buyer and seller
agree to the purchase and sale of a specific quantity of a commodity for
delivery at some future time under such terms and conditions as the two may
agree upon.
Futures contract. A contract providing for the delivery or receipt at a
future date of a specified amount and grade of a traded commodity at a specified
price and delivery point, or for cash settlement. Such contracts are uniform for
each commodity on each exchange and vary only with respect to price and delivery
time. A commodity futures contract should be distinguished from the actual
physical commodity, which is termed a "cash commodity". It is important to note
that trading in commodity futures contracts involves trading in contracts for
future delivery of commodities and not the buying and selling of particular lots
of commodities. A contract to buy or sell may be satisfied either by making or
taking delivery of the commodity and payment or acceptance of the entire
purchase price therefor, or by offsetting the contractual obligation with
a countervailing contract on the same on a linked exchange prior to delivery.
Initial Offering Period. The period commencing with the date of this
Prospectus and terminating up to one hundred twenty (120) days from that date at
any time after subscriptions for at least $10,000,000 have been received and
accepted by the Managing Owner.
Interests. Means the beneficial interest of each Interestholder in the
profits, losses, distributions, capital and assets of the Trust. The Managing
Owner's Capital Contributions shall be represented by "General" Interests and a
Limited Owner's Capital Contributions shall be represented by "Limited"
Interests. Interests will not be represented by certificates.
Limited Owner. A Limited Owner is any person or entity acting in his, her
or its capacity as a Limited Owner of the Trust, and may include the Managing
Owner with respect to Interests purchased by it.
Limit order. A trading order which sets a limit on either price or time
of execution or both. Limit orders (as contrasted with stop orders) do not
become market orders.
Long contract. A contract to accept delivery of (buy) a specified amount
of a commodity at a future date at a specified price.
Market order. A trading order to execute a trade at the most favorable
price as soon as possible.
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Margin. A good faith deposit with a broker to assure fulfillment of a
purchase or sale of a commodity futures, or, in certain cases, forward or option
contract. Commodity margins do not usually involve the payment of interest.
Managing Owner. Means Prudential Securities Futures Management Inc. or any
substitute therefor as provided in the Trust Agreement.
Margin call. A demand for additional funds after the initial good faith
deposit required to maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a commodity broker.
Net Asset Value. See Section 1.1 of the Trust Agreement attached as
Exhibit A on page A-3.
New High Net Trading Profits. See "Fees, Compensation and Expenses -
Charges to be paid by the Trust - Management and Incentive Fees to the Trading
Manager" at page 51.
Net Worth. See Section 4.3(i) on page A-19 of the Trust Agreement for the
definition of "Net Worth". Insofar as Net Worth relates to investor suitability,
see the heading entitled "State Suitability Requirements" in the Subscription
Agreement (Exhibit C).
Open Position. A contractual commitment arising under a long contract or
a short contract that has not been extinguished by an offsetting trade or by
delivery.
Organization and offering expenses. Those expenses incurred in connection
with the formation, qualification and initial registration of the Trust and the
Interests and in initially offering, distributing and processing the Interests
under applicable federal and state law, and any other expenses actually incurred
and directly or indirectly related to the organization of the Trust or the
initial offering of the Interests. See Section 4.7(a) of the Trust Agreement
attached as Exhibit A for a more particular enumeration of such expenses, all of
which will be paid by Prudential Securities or an affiliate.
Parameters. A value which can be freely assigned in a trading system in
order to vary the timing of signals.
Pattern recognition. The ability to identify patterns that appeared to act
as precursors of price advances or declines in the past.
Position Limit. The maximum number of speculative futures or option
contracts in any one commodity (on one contract market), imposed by the CFTC or
a United States commodity exchange, that can be held or controlled at one time
by one person or a group of persons acting together. These limits generally are
not imposed for trading on markets or exchanges outside the United States.
Redemption Date. Means the date upon which Interests held by the
Interestholders may be redeemed in accordance with the provisions of the Trust
Agreement.
Secular trend. Intermediate upswings and downswings in price that over a
long period of time constitutes a big move.
Short contract. A contract to make delivery of (sell) a specified amount
of a commodity at a future date at a specified price.
Spot contract. A cash market transaction in which buyer and seller agree
to the purchase and sale of a specific commodity for immediate delivery.
Spreads or straddles. A transaction involving the simultaneous holding of
futures and/or option contracts dealing with the same commodity but involving
different delivery dates or different markets, and in which the trader expects
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to earn profits from a widening or narrowing movement of the prices of the
different contracts.
Stop-loss order. An order to buy or sell at the market when a definite
price is reached, either above or below the price of the instrument that
prevailed when the order was given.
Stop order. An order given to a broker to execute a trade when the market
price for the contract reaches the specified stop order price. Stop orders are
utilized to protect gains or limit losses on open positions. Stop orders become
market orders when the stop order price is reached.
Subscription Minimum. The $10,000,000 of Limited Interests which must be
sold by the conclusion of the Initial Offering Period in order for the Trust to
commence trading activities.
Support/resistance levels.
Support: A previous low. A price level under the market where buying
interest is sufficiently strong to overcome selling pressure.
Resistance: A previous high. A price level over the market where selling
pressure overcomes buying pressure and a price advance is turned back.
Systematic technical charting systems. A system which is technical in
nature and based on chart patterns as opposed to pure mathematical calculations.
Trading Approach. See "Description of the Trading Manager--Description of
the Trading Manager's Trading Approach" at page 31.
Trading Manager. Means any entity or entities acting in its capacity as
a commodity trading advisor to the Trust and any substitute(s) therefor as
provided herein. Initially, Willowbridge Associates Inc. will act in this
capacity.
Trustee. Wilmington Trust Company or any substitute therefor as provided
in the Trust Agreement.
Unrealized profit or loss. The profit or loss which would be realized on
an open position in a futures, forward or option contract if it were closed at
the current market value price for such contract.
Valuation Date. The date as of which the Net Asset Value of the Trust is
determined.
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<PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
Liquidity and Capital Resources
Because the capital anticipated to be raised by the Trust through this
public offering of Interests has not yet become available, the
Trust currently has limited funds. The Trust plans to raise funds
from investors by means of this offering of Interests, and then to use
such funds for the speculative trading of a portfolio consisting
primarily of commodity futures and forwards.
The Trust's Net Asset Value is to be held in an account or accounts at
Prudential Securities.
Futures contracts are subject to periods of illiquidity. Commodity exchanges
limit fluctuations in commodity futures contract prices during a single day by
regulations referred to as "daily limits". During a single day, no trades may
be executed at prices beyond the daily limit. Once the price of a futures
contract for a particular commodity has increased or decreased by an amount
equal to the daily limit, positions in the commodity can neither be taken nor
liquidated unless traders are willing to effect trades at or within the limit.
Commodity futures prices have occasionally moved the daily limit for several
consecutive days with little or no trading. Such market conditions could prevent
the Trust from promptly liquidating its commodity futures positions. The Trust
does not have, nor does it expect to have, any capital assets. Future
redemptions can impact the amount of funds for investments in futures and
forward contracts in subsequent periods.
Commodities contracts are subject to both market and credit risk. The
Managing Owner will attempt to minimize these risks by requiring the Trust's
trading manager to abide by various trading limitations and policies. The
Managing Owner will monitor compliance with these trading limitations and
policies which include, but are not limited to, executing and clearing all
trades with creditworthy counterparties (currently, it is
intended that Prudential Securities will be the sole counterparty
or broker); limiting the amount of margin or premium required for any
one commodity and all commodities combined; and generally limiting
investing to contracts which are traded in sufficient volume to
permit taking and liquidating positions. The Managing Owner may impose
additional restrictions (through modifications of such limitations and policies)
upon the trading activities of the trading manager as it, in good faith, deems
to be in the best interests of the Trust.
Operations
To date, the Trust has had no operations.
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Deloitte &
Touche LLP
- ------------- --------------------------------------------------------
(LOGO) Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Interestholders of
Willowbridge Strategic Trust
We have audited the accompanying statement of financial condition
of Willowbridge Strategic Trust as of October 17, 1995. The statement
of financial condition is the responsibility of the Trust's
management. Our responsibility is to express an opinion on the
statement of financial condition based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statement
of financial condition is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the statement of financial condition.
An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to
above presents fairly, in all material respects, the financial
position of Willowbridge Strategic Trust as of October 17, 1995
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- ----------------------------
October 17, 1995
- ---------------
Deloitte Touche
Tohmatsu
International
- ---------------
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WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
OCTOBER 17, 1995
ASSET
Cash............................................................... $1,000
-------
-------
TRUST EQUITY
General Interests--10 Interests outstanding......... .............. $1,000
-------
-------
The accompanying notes are an integral part of this statement.
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WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
OCTOBER 17, 1995
A. General
Willowbridge Strategic Trust (the ``Trust'') was organized under the Delaware
Business Trust Statute in October 16, 1995 but has not yet commenced operations.
The Trust will terminate on December 31, 2015 unless terminated sooner as
provided in the Trust Agreement. The Trust was formed to engage in the
speculative trading of commodity futures, options, and forward contracts and may
effect other transactions from time to time. 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 principal underwriter
and selling agent for the Trust's interests (the ``Interests'') as well as the
commodity broker (``Commodity Broker'') of the Trust.
The Trust Agreement provides that at least 100,000 Interests at $100 per
Interest must be subscribed for and accepted during the Initial Offering Period
(as defined in the Trust Agreement) before Trust operations may commence.
Otherwise, all subscription proceeds, together with any interest earned thereon,
will be returned to the subscribers. The Trust is offering a maximum of
$100,000,000 of Limited Interests. Following the close of the Initial Offering
Period, additional Interests will be offered monthly at the then current Net
Asset Value (as defined in the Trust Agreement) per Interest until no later than
two years from the date of the prospectus but in no event after $100,000,000 in
Limited Interests are sold. A minimum initial contribution of $5,000 ($2,000 for
an IRA account) is required for each new Limited Owner unless the Managing
Owner, in its sole discretion, approves a contribution of a lesser amount.
Existing Limited Owners will be permitted to make additional contributions in
increments of not less than $100 during the Continuous Offering (as defined in
the Trust Agreement).
Redemptions may occur monthly, on at least 10 days' prior written notice,
commencing with the end of the first full quarter of Trust trading activity.
Redemptions will be at Net Asset Value per Interest, however, Interests redeemed
on or prior to the end of the first and second successive six-month periods
after their purchase will be subject to a redemption charge of 4% and 3%,
respectively, of the Net Asset Value at which they are redeemed. These
redemption charges will be paid to the Managing Owner. Partial redemptions will
be permitted.
To date, $1,000 has been contributed to the Trust by the Managing Owner. The
Managing Owner will purchase additional Interests for an amount between $100,000
and $1,009,000 depending upon the total number of Interests sold. In return, the
Managing Owner will receive a proportionate number of General Interests and will
have at least a 1% interest in the profits and losses of the Trust. The Managing
Owner will be required to maintain at least a 1% interest so long as it is
acting as the Managing Owner.
The Trust will enter into an Advisory Agreement with Willowbridge Associates
Inc., an independant commodity trading manager (the ``Trading Manager''). The
Managing Owner expects to make 100% of the Trust's assets available for trading
by the Trading Manager, however, the Managing Owner retains the authority to
override trading instructions that violate the Trust's trading policies. In its
trading on behalf of the Trust, the Trading Manager will initially allocate the
Trust's assets to one or more of the following five trading strategies: XLIM,
Argo, Titan, Vulcan, and Siren. It is currently intended that the initial
allocation will be XLIM-50%, Argo-20%, and Titan, Vulcan, and Siren-10% each.
This initial allocation may be altered if the Managing Owner, after consultation
with the Trading Manager, determines it is in the Trust's best interests to do
so. The Advisory Agreement will be for an initial term of approximately one year
and may be renewed thereafter for additional successive one-year terms. The
Managing Owner retains the right to retain additional or substitute commodity
trading managers.
B. Summary of Significant Accounting Policies
Basis of Accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
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<PAGE>
Income Taxes
The Trust is not required to provide for, or pay, any federal or state income
taxes. Income tax attributes that arise from its operations will be passed
directly to the individual Limited Owners and Managing Owner. The Trust may be
subject to other state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
The Trust intends to allocate profits and losses for both financial and tax
reporting purposes to the Limited Owners and Managing Owner monthly on a
pro-rata basis based on each Owner's Interests outstanding during the month.
Distributions will be made at the sole discretion of the Managing Owner on a
pro-rata basis in accordance with the respective equity balances of the Managing
Owner and Limited Owners.
C. Fees
Organizational, Offering, General and Administrative Costs
PSI or its affiliates will pay the costs of organizing the Trust and offering
its Interests as well as administrative costs incurred by the Managing Owner or
its affiliates for services it performs for the Trust. These costs include, but
are not limited to, those discussed in Note D below. Routine legal, audit,
postage, and other third party costs also will be paid by PSI or its affiliates.
Management and Incentive fees
The Trust will pay the Trading Manager a monthly management fee of 1/4 of 1%
(3% per annum) of the Trust's Net Asset Value allocated to its management as of
the last day of each month and a quarterly incentive fee of 20% of such Trading
Manager's ``New High Net Trading Profits'' (as defined in the Advisory
Agreement).
Commissions
The Managing Owner, on behalf of the Trust, will enter into an agreement (the
``Brokerage Agreement'') with PSI to act as Commodity Broker whereby the Trust
will pay a fixed monthly fee for brokerage services rendered. The monthly fee
will equal .64583 of 1% (7.75% per annum) of the Trust's Net Asset Value as of
the first day of each month. From this fee, PSI will pay all of the Trust's
execution (i.e., floor brokerage expenses, give-up charges and NFA, clearing and
exchange fees) and account maintenance costs, as well as compensation to
employees who sell Interests in the Trust.
D. Related Parties
The Managing Owner or its affiliates will perform services for the Trust
which will include but are not limited to: brokerage services, accounting and
financial management, registrar, transfer and assignment functions, investor
communications, printing and other administrative services.
One hundred percent of the proceeds of this offering will be received in the
Trust's name and deposited in cash in a segregated trading account or accounts
at PSI for as long as the Trust's Brokerage Agreement with PSI remains in
effect. Interest will be earned on such deposits at a rate which currently
approximates the Federal Funds rate but may change from time to time. PSI will
credit the Trust monthly with the interest earned on 80% of such deposits. PSI
will retain the interest earned on the remaining 20% of such deposits.
When the Trust engages in forward foreign currency transactions, it will
trade with PSI who will simultaneously engage in back-to-back transactions with
an affiliate who, pursuant to the Trust's prospectus, is obligated to charge a
competitive price.
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Deloitte &
Touche LLP
- ------------- --------------------------------------------------------
(LOGO) Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Prudential Securities Futures Management Inc.:
We have audited the accompanying statements of financial condition of
Prudential Securities Futures Management Inc. (a wholly-owned subsidiary of
Prudential Securities Incorporated) as of December 31, 1995 and 1994.
These financial statements are the responsibility ofthe Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of
financial condition is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the statement of financial condition. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prudential Securities
Futures Management Inc. as of December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- --------------------------
January 24, 1996
- --------------------
Deloitte Touche
Tohmatsu
International
- --------------------
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PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
STATEMENTS OF FlNANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash $ 4,251 $ 84,899
Investment in partnerships 2,798,716 1,769,592
Receivable from partnerships 121,039 102,275
Other receivables 2,000 2,000
Total assets $2,926,006 $1,958,766
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Due to Parent and affiliate, net $2,778,828 $2,008,408
Accrued expenses 14,328 13,750
Total liabilities 2,793,156 2,022,158
Commitments and Contingencies
Stockholder's Equity (Deficit)
Common stock (no par value,
2,000 shares authorized,
100 shares issued and outstanding) 100 100
Additional paid-in capital 9,200,000 12,121,200
Retained earnings(accumulated deficit) 132,750 (63,492)
9,332,850 12,057,808
Less: Noninterest-bearing demand notes due
from Prudential Securities Group Inc. (9,200,000) (12,121,200)
Total stockholder's equity (deficit) 132,850 (63,392)
Total liabilities and stockholder's equity $2,926,006 $1,958,766
</TABLE>
The accompanying notes are an integral part of these statements.
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PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
December 31, 1995 and 1994
A. General
Prudential Securities Futures Management Inc. (the "Company") is a
wholly-owned subsidiary of Prudential Securities Incorporated ("PSI"
or the "Parent"), which is a wholly-owned subsidiary of Prudential
Securities Group Inc. ("PSGI"). The Company is a general partner or
managing owner of limited partnerships and Delaware business trusts
(collectively, "the Partnerships") formed to engage in the
speculative trading of commodity futures, forward and option
contracts pursuant to trading systems developed by independent
commodity trading advisors. As such, the Company is registered with
the Commodity Futures Trading Commission ("CFTC") as a commodity
pool operator. The Company is also registered with the CFTC as a
Commodity Trading Advisor and provides commodity trading management
services to clients of PSI.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Company are maintained on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
Income taxes
The Company is a member of a group of affiliated companies which
join in filing a consolidated federal income tax return. Pursuant
to a tax allocation agreement, tax expense is determined for
individual profitable companies on a separate return basis. Profit
members pay this amount to an affiliated company which in turn
apportions the payment among the loss members in proportion to their
losses or, where appropriate, to the member company providing
identifiable tax deductions.
The Company utilizes the asset and liability method for calculating
income taxes (SFAS 109). At December 31, 1995, the Company's federal
and state income tax receivables (Due from affiliate) were $67,289
and $21,647, respectively ($33,879 and $10,756 at December 31,
1994).
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C. Investments In Partnerships
The Company's investments in partnerships are carried at its share of
the underlying equity in the Partnerships' net assets. The Company's
investments in partnerships and its percentage ownership in those
partnerships are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Prudential-Bache Capital $ 1,976,675 6.2% $1,553,260 5.1%
Return Futures Fund 2, L.P.
Diversified Futures Trust I 576,089 1.2% 1,000 100.0%
Prudential Securities Aggressive
Growth Fund L.P. 195,066 1.6% 150,635 1.2%
Prudential Securities Foreign
Financial Futures Fund, L.P. 47,935 1.7% 37,109 1.2%
Prudential Securities Financial
Futures Fund, L.P. 0 0% 25,511 1.4%
Others 2,951 100.0% 2,077 100.0%
$ 2,798,716 $1,769,592
</TABLE>
The following represents combined condensed financial information for
the Partnerships in which the Company has an investment:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Assets $98,654,169 $56,289,735
Liabilities $ 5,538,729 $ 8,614,470
Partners' Capital 93,115,440 47,675,265
Total $98,654,169 $56,289,735
D. Related Parties
The Company has an interest-bearing loan payable to PSGI in the amount
of $2,603,923 at December 31, 1995 ($1,706,320 at December 31, 1994)
which bears interest at PSGI's effective borrowing rate and is payable
on demand. The loan was used to fund the purchase of investments in the
Partnerships.
The Company occupies space provided by PSI and is charged for this
space. PSI also provides all administrative, legal, financial and other
services to the Company and the Partnerships. The Company is billed for
such services performed for both itself and the Partnerships (the
balance of which is $263,413 and $346,723 at December 31, 1995 and 1994,
respectively, and is included in Due to Parent and affiliate). The
amount due from the Partnerships related to these services is $121,039
at December 31, 1995 ($102,275 at December 31, 1994) and is included in
Receivable from partnerships.
The Company's officers and directors are also officers of PSI.
102
<PAGE>
E. Stockholder's Equity (Deficit)
The Company maintains a net worth at least equal to the minimum IRS
requirements. Such obligations are no less than the most restrictive
terms contained in the limited partnership and trust agreements of the
Partnerships.
The Company has noninterest-bearing demand notes receivable from PSGI
in the amount of $9,200,000 at December 31, 1995 ($12,121,200 at
December 31, 1994). These notes receivable are classified as a reduction
of Stockholder's Equity as they represent capital subscribed but not
funded. The demand notes are partially collateralized by U.S. Government
security reverse repurchase agreements which contract amounts plus
accrued interest approximate $5,800,000 at December 31, 1995 ($2,500,000
at December 31, 1994).
F. Commitments and Contingencies
As a general partner, the Company may be contingently liable for costs
and liabilities incurred by the Partnerships.
103
<PAGE>
Deloitte &
Touche LLP
- ------------- --------------------------------------------------------
(LOGO) Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Partners of
Prudential-Bache Capital Return Futures Fund 2, L.P.
We have audited the accompanying statement of financial condition
of Prudential-Bache Capital Return Futures Fund 2, L.P. as of
December 31, 1994. The statement of financial condition is the
responsibility of the Partnership's management. Our responsibility
is to express an opinion on the statement of financial condition
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the statement of financial condition is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of
financial condition. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to above
presents fairly, in all material respects, the financial position
of Prudential-Bache Capital Return Futures Fund 2, L.P. as of
December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
- ---------------------------
January 27, 1995
- --------------------
Deloitte Touche
Tohmatsu
International
- --------------------
104
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited) (Audited)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 8,281,658 $ 3,437,969
U.S. Treasury bills, at amortized cost 25,320,745 17,142,432
Net unrealized gain (loss) on open commodity positions (492,500) 1,836,621
------------- ------------
Net equity 33,109,903 22,417,022
Reserve assets, at amortized cost -- 14,899,380
------------- ------------
Total assets $33,109,903 $37,316,402
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 968,983 $ 6,876,566
Management fees payable 97,777 74,101
Due to affiliates 81,730 28,489
Accrued expenses 43,847 50,188
------------- ------------
Total liabilities 1,192,337 7,029,344
------------- ------------
Commitments
Partners' capital
Limited partners (157,561 and 186,840 units outstanding) 29,994,833 28,733,798
General partner (10,100 units outstanding) 1,922,733 1,553,260
------------- ------------
Total partners' capital 31,917,566 30,287,058
------------- ------------
Total liabilities and partners' capital $33,109,903 $37,316,402
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit
(``Units'') $ 190.37 $ 153.79
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
104A
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
(Unaudited with respect to September 30, 1995)
A. General
Prudential-Bache Capital Return Futures Fund 2, L.P. (the ``Partnership'') is
a Delaware limited partnership formed on June 8, 1989 which will terminate on
December 31, 2009 unless terminated sooner under the provisions of its Amended
and Restated Agreement of Limited Partnership (the ``Partnership Agreement'').
On October 6, 1989, the Partnership completed its offering having raised
$101,010,000 from the sale of 1,000,000 units of limited partnership interest
and 10,100 units of general partnership interest and commenced operations. The
Partnership was formed to engage in the speculative trading of commodity
futures, forward and options contracts. Physical commodities may also be traded
from time to time. The general partner of the Partnership is Prudential
Securities Futures Management Inc. (the ``General Partner''), a wholly-owned
subsidiary of Prudential Securities Group Inc. (``PSGI''). Prudential Securities
Incorporated (``PSI''), a wholly-owned subsidiary of PSGI, was the principal
underwriter of the Units and is the commodity broker. The General Partner is
required to maintain at least a 1% interest in the Partnership as long as it is
acting as the Partnership's general partner.
Initially, sixty percent (60%) of the net proceeds of the offering (referred
to as the Partnership's ``Adjusted Net Asset Value'') was deposited in the
Partnership's trading accounts for commodity trading purposes. The General
Partner generally maintains not less than seventy-five percent (75%) of the
Adjusted Net Asset Value in interest-bearing U.S. Government obligations
(primarily U.S. Treasury bills), a significant portion of which is utilized for
margin purposes for the Partnership's commodity trading activities. The
remaining twenty-five percent (25%) of Adjusted Net Asset Value is held in cash
in the Partnership's commodity trading accounts. As a protective device, a
portion of the Partnership's assets (40% of the Partnership's net assets
initially) was invested in U.S. Treasury strips and a guaranteed investment
contract (``Reserve Assets'') and through December 31, 1994 was not committed to
commodities trading (although such assets were available to cover all
obligations of the Partnership, if necessary). At close of business on December
31, 1994 (the ``Capital Return Date''), the letter of credit expired at which
time these Reserve Assets were allocated to TSA Capital Management for trading.
All trading decisions for the Partnership are currently being made by Welton
Investment Services Corporation, TSA Capital Management and John W. Henry & Co.,
Inc., independent commodity trading managers. (The independent commodity trading
managers are each a ``Trading Manager''). The General Partner retains the
authority to override trading instructions that violate the Partnership's
trading policies.
An irrevocable letter of credit (``Letter of Credit'') was issued in favor of
the Partnership by Barclays Bank PLC (the ``Bank'') on October 6, 1989 (the
``Closing Date''). The initial amount of the Letter of Credit was equal to the
aggregate capital contributions to the Partnership and was adjusted on a
quarterly basis to reflect redemptions occurring prior to the Capital Return
Date. The Letter of Credit was intended to provide protection to the limited
partners against loss of their initial investment through the Capital Return
Date when the limited partners had the option to redeem their Units and receive
the greater of the then current net asset value per Unit or 100% of their
initial investment. As described above, the Letter of Credit expired on December
31, 1994 and does not provide protection thereafter.
Through December 31, 1995, no material events adversely affected the
Statement of Financial Condition as of September 30, 1995 (the latest date such
financial statements are available).
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting 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.
105
<PAGE>
To the extent practicable, the Partnership invests a significant portion of
its Adjusted Net Asset Value in U.S. Treasury bills to fulfill original margin
requirements. Reserve Assets were invested in U.S. Treasury strips and a
guaranteed investment contract (``GIC''). U.S. Treasury bills are carried at
amortized cost, which approximates fair value, while the U.S. Treasury strips
and the GIC were carried at their fair values. Interest on these obligations
accrued for the benefit of the Partnership.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from the Partnership's operations
are passed directly to the individual partners. The Partnership may be subject
to other state and local taxes in jurisdictions in which it operates.
Profit and loss allocations, distributions and redemptions
Net realized profits or losses for tax purposes are allocated first to
partners who redeem Units to the extent the amounts received on redemption are
greater than or are less than the amounts paid for the redeemed Units by the
limited partners. Net income or loss for financial reporting purposes is
allocated quarterly to all partners on a pro rata basis based on each partner's
number of Units outstanding during the quarter.
Distributions (other than on redemptions of Units) are made at the sole
discretion of the General Partner on a pro rata basis in accordance with the
respective capital accounts of the partners. No distributions have been made
since inception.
The Partnership Agreement provides that a limited partner may redeem its
Units as of the last business day of any full calendar quarter (beginning with
the end of the first full calendar quarter of the Partnership's operations) at
the then current net asset value per Unit.
Commissions and Letter of Credit fees
The General Partner, on behalf of the Partnership, entered into an agreement
with PSI to act as commodity broker for the Partnership. The Partnership paid
PSI fees comprised of brokerage and letter of credit fees at an initial rate of
5/6 of 1% per month (a 10% annual rate) of the Partnership's Adjusted Net Asset
Value as of the first day of each month. A decrease to the rate of 2/3 of 1% per
month (an 8% annual rate) was implemented on January 1, 1995.
Through December 31, 1994, the portion of the monthly fee paid to PSI
representing Letter of Credit fees was calculated as follows: (i) .000625 (a
.75% annual rate) of the outstanding Letter of Credit amount as of the first day
of each month was due to the Bank for issuing and maintaining the Letter of
Credit and (ii) .0002083 (a .25% annual rate) of the outstanding Letter of
Credit amount as of the first day of each month was due to PSGI for being
obligated to make payment of a portion of the General Partner's repayment
obligation in the event the General Partner was unable to do so. Effective
January 1, 1995, the Partnership was no longer obligated to pay these fees due
to the expiration of the Letter of Credit (see Note A).
Management and incentive fees
The Partnership pays each Trading Manager monthly management fees ranging
from 1/6 of 1% (a 2% annual rate) to 1/3 of 1% (a 4% annual rate) of the portion
of the Partnership's Adjusted Net Asset Value allocated to that Trading Manager
as of the end of each month.
In addition, the Partnership also pays each Trading Manager a quarterly
incentive fee equal to 15% of the ``New High Net Trading Profits'' generated by
each Trading Manager (as defined in the Advisory Agreement between the
Partnership, the General Partner and each Trading Manager).
General and administrative expenses
In addition to the costs, fees and expenses previously discussed, the
Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses payable by, or allocable to, the Partnership. The
amount of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. The Partnership also pays amounts directly to unrelated
parties for certain operating expenses.
106
<PAGE>
C. Related Parties
The General Partner and its affiliates perform services for the Partnership
which include, but are not limited to: brokerage services, accounting and
financial management, registrar, transfer and assignment functions, investor
communications, printing and other administrative services.
The Partnership maintains its trading and cash accounts at PSI.
Approximately 75% of the Adjusted Net Asset Value is invested in
interest-bearing U.S. Government obligations (primarily U.S. Treasury bills), a
significant portion of which is utilized for margin purposes for the
Partnership's commodity trading activities.
When the Partnership engages in forward foreign currency transactions it
trades with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Partnership's prospectus, is obligated to charge
a competitive price.
Additionally, the Partnership maintained an 8.60% GIC which matured on
December 31, 1994, with The Prudential Asset Management Company, Inc., an
affiliate of the General Partner. At December 31, 1994 and 1993, the cost of the
GIC plus accreted interest was $14,899,380 and $21,975,603, respectively.
D. Off-Balance Sheet Financial Instruments
The Partnership trades in a variety of financial instruments in connection
with its normal trading activities. Each of these financial instruments contains
varying degrees of off-balance sheet risk whereby changes in the market values
of the underlying open positions may be in excess of the amounts recognized in
the Statements of Financial Condition.
Futures and forward contracts represent commitments to either purchase or
sell commodities, including securities or foreign currencies, at a future date
and at a specified price. The Partnership is subject to the market risk
associated with changes in the value of the underlying financial instruments as
well as the credit risk that another party will fail to perform under the terms
of the contract. The credit risk associated with counterparty nonperformance is
the net unrealized gain, if any, on open commodity positions included in the
Statements of Financial Condition. The Partnership also has credit risk because
the counterparty in each of its foreign currency forward transactions is the
same party (its broker, PSI). The gross contract amounts significantly exceed
the future cash requirements as the Partnership intends to close out open
positions prior to settlement and thus is subject only to the risk of loss
arising from the change in the value of the instruments.
The following table identifies the underlying contract amounts of open
financial futures and forward contracts as of September 30, 1995 and December
31, 1994, respectively:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Foreign Currency Contracts:
Commitments to purchase $ 43,103,152 $27,719,802
Commitments to sell $ 54,913,707 $61,698,653
Financial Contracts:
Commitments to purchase $213,365,299 $173,757,913
Commitments to sell $ 14,476,521 $148,250,524
</TABLE>
A portion of the currency amounts disclosed above include offsetting
commitments to purchase and to sell the same currency on the same date in the
future. These commitments are economically offsetting but are not, as a
technical matter, offset in the forward market until the settlement date.
107
PAST PERFORMANCE INFORMATION
Introduction
The information set forth herein is in capsule form as required by the
Commodity Futures Trading Commission under its Rule 4.25. The information
presented in the following capsules has been calculated on the accrual basis of
accounting in accordance with generally accepted accounting standards.
Additional information in tabular form is available and will be provided upon
written request to the Managing Owner at no additional cost.
In reviewing the capsule summaries which follow, subscribers should bear
in mind that the performance of each commodity pool described under Section B
and the Trading Manager's performance shown in Section C varies from period to
period, and that there are deviations, some of which are material, in the
periodic rates of return achieved by each.
The trading strategies utilized by the Trading Manager have evolved over
the years based on accumulated experience and further testing of data. The Trust
will not necessarily experience the same results as those set forth in the
capsule summaries due to differences in such variables as the selection of the
trading programs used and the allocation of assets among them, the proportion of
funds utilized as margin in the markets, time of market entry, starting date of
the account, brokerage commissions (which may be higher or lower than other
accounts under the Trading Manager's management), management and incentive
compensation, leverage employed, and changes in the Trading Manager's trading
strategies or approach, including the size and the degree of diversification in
terms of the number of and differences in commodities traded at a particular
time. In addition, performance is affected by the timing and execution of orders
to open and close positions and the amount of interest earned, which fluctuates
based upon interest rates available and the portion of an account utilizing
interest-bearing instruments.
The Trust's experience also is not likely to be similar to that of the
other commodity pools sponsored by the Managing Owner or its affiliate, Seaport,
as the trading in certain of those commodity pools was directed primarily by
different trading managers (utilizing their own proprietary systems) than those
to be utilized by the Trust (see Section C. below for a description of the
commodity pools which the Trading Manager currently is managing). In addition,
the specific attributes of each of the other commodity pools sponsored by the
Managing Owner or its affiliate further distinguishes it from the Trust. For
instance, in contrast to the Trust, some of those commodity pools are advised by
several advisors, are privately offered, or are principal-protected. Moreover,
the fee structure of each commodity pool is distinguishable from the fee
structure for the Trust.
THE TRUST'S PERFORMANCE SHOULD NOT BE EXPECTED TO BE SIMILAR TO ANY OF THE
PERFORMANCE RESULTS IN THE FOLLOWING CAPSULES.
A. The Trust
THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE
HISTORY.
B. Other Pools Sponsored by the Managing Owner and its Affiliate
Set forth below (in Capsule A) is the performance record of trading from
January 1991 through December 31, 1995, for the three publicly formed commodity
pools (Prudential-Bache Capital Return Futures Fund 2, L.P., Prudential
Securities Aggressive Growth Fund, L.P. and Diversified Futures Trust I) and two
108
<PAGE>
non-public commodity pools (Prudential Securities Financial Futures Fund, L.P.
and Prudential Securities Foreign Financials Fund, L.P.), for which the Managing
Owner acts as the managing owner or general partner and commodity pool operator,
and each of the five public commodity pools for which its affiliate, Seaport
Futures Management Inc. ("Seaport") acts as either the general partner and
commodity pool operator, as well as a public commodity fund for which Seaport
acted as general partner and commodity pool operator until January 31, 1995. One
additional private fund, Signet Partners II, L.P., for which the Managing Owner
acts as general partner and commodity pool operator, has not yet commenced
trading activities.
The Trading Manager currently acts as the trading advisor to four of these
pools, as indicated on the following capsule. In each instance, the Trading
Manager replaced another trading advisor in July 1995. The Trading Manager does
not use the same five trading strategies for any of these pools as it will use
in trading the Trust's assets. The Trading Manager does, however, use at least
one of the trading strategies that it will use for the Trust in managing the
assets of each of these four pools (XLIM is used in two pools, Argo is used in
one pool, and the CFM Program, which allows the Trading Manager to select from
among seven trading strategies, including the five strategies to be used for the
Trust, is used in one pool). In addition, the advisory management and incentive
fees which the Trading Manager receives from these four pools is the same as it
will receive from the Trust.
THE INFORMATION IN CAPSULE A HAS NOT BEEN AUDITED. HOWEVER, THE MANAGING
OWNER REPRESENTS AND WARRANTS THAT THE CAPSULE IS COMPLETE AND ACCURATE IN ALL
MATERIAL RESPECTS.
C. Trading Manager
In its trading on behalf of the Trust, Willowbridge initially will allocate
the Trust's assets to one or more of the following five trading strategies:
XLIM, Argo, Titan, Vulcan and Siren. It is currently intended that the initial
allocation will be XLIM - 50%, Argo - 20%, and Titan, Vulcan and Siren - 10%
each. This initial allocation may be altered if the Managing Owner determines
it is in the Trust's best interests to do so. The performance of these trading
strategies through December 31, 1995 is reflected in capsule summaries B
through G.
Capsules H and I represent the customer accounts traded by the Trading
Manager pursuant to different trading strategies from those to be utilized by
the Trust.
The proprietary performance of the XLIM trading strategy is separately set
forth in Capsule J.
The foregoing capsule summaries were supplied by the Trading Manager. The
Managing Owner is relying on the Trading Manager for the accuracy of the
information supplied in these capsules.
THE INFORMATION IN CAPSULES B THROUGH J HAS NOT BEEN AUDITED. HOWEVER, THE
TRADING MANAGER REPRESENTS AND WARRANTS THAT THESE CAPSULES ARE COMPLETE AND
ACCURATE IN ALL MATERIAL RESPECTS.
Also set forth in Capsule K is hypothetical combined pro forma information
which was prepared by the Managing Owner and which attempts to show the relative
weighting of the five trading strategies to be used by the Trading Manager for
the Trust on a pro forma basis from January, 1991, the earliest date when all
five trading strategies were being used at the same time through December 31,
1995. Although this capsule was derived from the Trading Manager's actual
109
<PAGE>
trading results depicted in Capsules B through G, as well as Capsule J, this
capsule reflects the performance of a hypothetical portfolio whose assets are
allocated in the same proportions as the Trust's initial assets will be
allocated. Thereafter, no attempt was made to maintain the initial allocations
among the five strategies in the same relative percentages by adjusting for
subsequent profits, losses, additions or withdrawals. While the Managing Owner
believes that such theoretical results as presented in this capsule may be of
some relevance to prospective investors in determining whether or not to
subscribe for Interests in the Trust, the performance information presented in
this capsule should by no means be taken as an indication of how the Trust as a
whole or how Limited Owners' individual investments will perform or would have
performed, over the same time period. Prospective investors should be aware in
reviewing this capsule that the CFTC and NFA regulations require the following
cautionary legend to accompany all hypothetical performance information:
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH
ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR
IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE
ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND
THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE
GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL
TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN
COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR
EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING
PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY
AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE
MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM
WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING
RESULTS.
* * * * *
SEE THE NOTES TO THE FOREGOING CAPSULES FOR A MORE DETAILED EXPLANATION OF
THE INFORMATION PRESENTED IN EACH CAPSULE. THESE NOTES ARE AN INTEGRAL PART OF
EACH SUCH CAPSULE.
110
<PAGE>
Capsule A
CAPSULE PERFORMANCE OF OTHER POOLS OPERATED BY PRUDENTIAL
SECURITIES FUTURES MANAGEMENT INC. AND AFFILIATE*
(SEE ACCOMPANYING NOTES)
<TABLE>
<CAPTION>
WORST WORST
MONTHLY PEAK
AGGREGATE CURRENT PERCENT TO VALLEY
TYPE INCEPTION SUBSCRIPTIONS TOTAL NAV DRAW- DRAW-
NAME OF POOL OF POOL TRADING ($ x 1,000) ($ x 1,000) DOWN** DOWN***
<S> <C> <C> <C> <C> <C> <C>
PRUDENTIAL-BACHE
DIVERSIFIED FUTURES
FUND L.P. (PBDFF) 3, 5, 6, 8, 10 10/88 29,747 18,921 -18.37% -36.63%
1/92 1/92 - 5/92
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND L.P.
(PBCRFF) 1a, 3, 5, 7, 8, 10 5/89 137,705 19,617 -5.26% -24.43%
11/94 9/93 - 1/95
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND 2 L.P.
(PBCRFF2) 1a, 3, 5, 7, 8, 9 10/89 100,000 31,669 -11.36% -24.24%
1/92 1/92 - 5/92
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND 3 L.P.
(PBCRFF3) 1a, 3, 5, 7, 8, 10, 11 5/90 64,863 21,124 -10.94% -17.84%
1/91 9/90 - 6/91
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P. - A (PBOFF) 1, 3, 5, 7, 10, 11 2/91 63,356 16,684 -6.00% -10.72%
1/92 8/93 - 2/95
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P. - B (PBOFF) 3, 5, 7, 8, 10, 11 2/91 6,247 2,025 -9.90% -20.26%
1/92 8/93 - 2/95
PRUDENTIAL SECURITIES
OPTIMAX FUND 2
L.P. - A (PBOFF2) 1, 3, 5, 7, 9, 11 1/92 15,197 8,570 -5.82% -13.53%
9/93 9/93 - 1/95
PRUDENTIAL SECURITIES
OPTIMAX FUND 2
L.P. - B (PBOFF2) 3, 5, 7, 8, 9, 11 1/92 2,214 870 -9.49% -20.78%
9/93 9/93 - 1/95
PRUDENTIAL SECURITIES
AGGRESSIVE GROWTH
FUND L.P. (PSAGF) 3, 5a, 7, 8, 9 8/93 20,335 11,899 -9.70% -32.67%
9/93 8/93 - 1/95
DIVERSIFIED FUTURES
TRUST I (DFT) 3, 4, 6, 8, 9 1/95 38,186 46,695 -3.71% -6.28%
1/95 5/95 - 9/95
PRUDENTIAL SECURITIES
FINANCIAL FUTURES
FUND L.P. *****
(PSFNF) 2, 4, 6, 8, 9, 11a 1/93 3,521 --- -8.39% -40.23%
11/94 8/93 - 1/95
PRUDENTIAL SECURITIES
FOREIGN FINANCIALS
FUND L.P. (PSFFF) 2, 4, 6, 8, 9 1/93 3,319 2,847 -17.69% -25.96%
9/93 9/93 - 1/94
PRUDENTIAL-BACHE
FUTURES GROWTH
FUND, L.P.****
(PBFG) 3, 5, 6, 8, 10 3/88 24,961 --- -14.38% -24.48%
<CAPTION>
ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF POOL 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
PRUDENTIAL-BACHE
DIVERSIFIED FUTURES
FUND L.P. (PBDFF) 68.79% 38.29% -9.80% 31.49% -10.05% 33.95%
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND L.P.
(PBCRFF) 7.94% 6.97% -0.04% 12.33% -18.93% 23.97%
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND 2 L.P.
(PBCRFF2) 11.57% 26.33% 0.49% 21.32% -8.07% 27.26%
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND 3 L.P.
(PBCRFF3) 2.77% -1.40% 10.28% 8.85% 10.41% 16.63%
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P. - A (PBOFF) --- 7.52% 7.15% 10.88% -6.42% 7.18%
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P. - B (PBOFF) --- 10.03% 5.74% 15.34% -10.66% 7.59%
PRUDENTIAL SECURITIES
OPTIMAX FUND 2
L.P. - A (PBOFF2) --- --- 1.04% 4.43% -5.51% 13.93%
PRUDENTIAL SECURITIES
OPTIMAX FUND 2
L.P. - B (PBOFF2) --- --- 2.41% 4.36% -6.57% 18.44%
PRUDENTIAL SECURITIES
AGGRESSIVE GROWTH
FUND L.P. (PSAGF) --- --- --- -19.67% -13.51% 29.51%
DIVERSIFIED FUTURES
TRUST I (DFT) --- --- --- --- --- 42.65%
PRUDENTIAL SECURITIES
FINANCIAL FUTURES
FUND L.P. *****
(PSFNF) --- --- --- 0.81% -24.46% -3.13%
PRUDENTIAL SECURITIES
FOREIGN FINANCIALS
FUND L.P. (PSFFF) --- --- --- 1.14% 16.00% 20.38%
PRUDENTIAL-BACHE
FUTURES GROWTH
FUND, L.P.****
(PBFG) 12.41% -1.93% -6.37% 19.73% 1.57% -9.54%
</TABLE>
Key to type of pool
1 - Principal-protected pool currently
1a - Principal-protected pool initially, but not currently
2 - Privately offered pool
3 - Publicly offered pool
4 - Open ended pool
5 - Closed ended pool
5a - Initially open ended, currently closed ended
6 - Single advisor pool
7 - More than one advisor
8 - Non principal protected pool
9 - CPO is Prudential Securities Futures Management Inc.
10 - CPO is Seaport Futures Management, Inc.
11 - Willowbridge Associates Inc. is one of the CTAs
11a - Willowbridge Associates Inc. is the only CTA
* All performance presented is as of December 31, 1995
** "Worst monthly percent draw-down" means greatest percentage decline
in net asset value due to losses sustained by a pool, account or
other trading program from the beginning to the end of a calendar month
*** "Worst peak to valley draw-down" means greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a
pool, account or other trading program during a period in which the
initial month-end net asset value is not equaled or exceeded by a
subsequent month-end net asset value
**** Liquidated February 1995
***** Liquidated December 1995
"Draw-down" means losses experienced by the pool over a specified period
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
111
<PAGE>
NOTES TO CAPSULE A:
(1) Brokerage Fees - PBDFF is (and PBFG was) charged a flat 9% annual
brokerage fee on such Partnership's Net Asset Value, PBCRFF is charged a
flat 8% annual brokerage fee on such Partnership's Net Asset Value,
PBCRFF2 is charged a flat 8-1/2% annual fee on such Partnership's Net
Asset Value and PBCRFF3 is charged a flat annual fee equal to 7-1/2% of such
Partnership's Net Asset Value (plus transaction charges). PBOFF and
PSOFF2 are each charged a flat 8% annual brokerage fee on the
Partnership's Traded Assets. PSAGF is charged a flat 8% annual brokerage
fee on such Partnership's Net Asset Value. Traded Assets in the case of
PBOFF and PSOFF2 was initially 60% of the initial Net Asset Value in
respect of Class A Units and 100% of the initial Net Asset Value in
respect of Class B Units. Until April 1, 1994, PSFFF and PSFNF were each
charged on a per transaction basis at the rate of $35 per round-turn.
Thereafter, PSFFF has been charged a flat annual 8% brokerage fee on its
Net Asset Value. DFT pays the same annual brokerage fee as the Trust will
pay.
(2) Advisory Management (MF) and Incentive (IF) Fees -
PBDFF - 4% MF 15% IF
PBCRFF - 4% MF 15-20 IF
PBCRFF2 - 2-4% MF 15% IF
PBCRFF3 - 2-3% MF 15-20% IF
PBOFF - 2.5-3% MF 17-20% IF
PSOFF2 - 2-3% MF 15-20% IF
PSAGF - 2% MF 15% IF
DFT - 4% MF 15% IF
PSFNF - 1.9%-3% MF 20% IF
PSFFF - 1.9% MF 20% IF
PBFG - 2% MF 18% IF
(3) Rate of Return - is calculated each month by dividing net performance by
beginning equity. The monthly returns are then compounded to arrive at
the annual rate of return.
112
<PAGE>
Capsule B
CAPSULE PERFORMANCE OF WILLOWBRIDGE ASSOCIATES INC., ARGO TRADING SYSTEM
(Pursuant to the Fully-Funded Subset Method)
<TABLE>
Percentage Rate of Return
(Computed on a compounded monthly basis)
<CAPTION>
Month 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
January -4.49% -9.14% -9.01% -7.71% -15.57% 2.94%
February 11.13% -6.86% 18.66% -2.15% -4.12% 1.40%
March 18.39% 6.58% 0.37% -4.85% 23.92% 2.30%
April 8.94% -2.31% 3.99% -0.31% -1.78% 6.09%
May 5.00% 16.12% 1.34% -0.40% 3.01% -6.92%
June -2.47% 11.47% 5.04% 5.69% 13.52% 6.45%
July -0.72% 3.23% 3.15% 20.04% -12.75% 8.35%
August 1.58% -2.83% -6.83% 13.84% 1.66% 9.79%
September -2.05% 2.20% -8.42% -6.24% 8.17% 8.21%
October 4.36% 1.42% -3.75% -2.55% -0.79% 1.74%
November 2.16% * 1.74% 4.99% 6.53% 4.64% -2.69%
December 7.85% * -0.32% 9.77% 1.79% 18.76% -0.10%
Year 59.23% * 20.28% 17.10% 22.09% 36.30% 42.89%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Argo Trading System
Date CTA Began Trading Client Accounts: January 29. 1988
Date CTA Began Using Argo Trading System for Client accounts: January 29,1988
Number of Accounts Using Argo Trading System: 61
Number of Accounts Using Argo Trading System Closed with Profits: 14
Number of Accounts Using Argo Trading System Closed with Losses: 5
CTA's Total Assets Under Management Excluding Notional: $ 302.4 million
CTA's Total Assets Under Management Including Notional: $ 336.8 million
CTA's Assets Under Management Using Argo Trading
System Excluding Notional: $ 95.4 million
CTA's Assets Under Management Using Argo Trading System
Including Notional: $ 106.0 million
"Draw-down" means losses experienced by the Argo
Trading System over a specified period.
Worst Monthly Percentage Draw-down: -15.57% 1/91
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses
sustained by the Argo Trading System from the
beginning to the end of a calendar month.
Worst Peak-to-Valley Draw-down: -21.30% 11/90 - 2/91
"Worst Peak-to-Valley Draw-down" means greatest cumulative
percentage decline in month-end net asset value
of the Argo Trading System due to losses sustained
during a period in which the initial month-end net asset
value of the Argo Trading System is not equaled
or exceeded by a subsequent month-end net asset value
of the Argo Trading System.
"Rate of Return" is calculated each month by dividing net
performance by beginning equity adjusted by the value of
additions and withdrawals pursuant to the time-weighted
method. The monthly returns are then compounded to
arrive at the annual rate of return.
* Estimated Rates of Return
All performance mentioned is as of December 31,1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
113
<PAGE>
Capsule C
CAPSULE PERFORMANCE OF WILLOWBRIDGE ASSOCIATES INC., SIREN TRADING SYSTEM
(Pursuant-to the Fully-Fund Subset method)
<TABLE>
Percentage Rate of Return
(Computed on a compounded monthly basis)
<CAPTION>
Month 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
January -1.16% -3.28% 1.78% -8.55% -14.94%
February 7.03% -1.23% 8.10% -7.52% 5.63%
March 10.63% 6.69% 2.34% 2.58% 15.96%
April 2.30% -2.72% 2.47% 3.60% -3.22%
May 0.58% 10.98% -0.04% 8.43% 0.04%
June -0.22% 10.47% 6.18% 5.74% 0.05%
July -0.33% 5.77% -1.51% 2.68% 3.44%
August 0.54% -8.27% -10.11% 12.18% 0.50%
September -0.44% 5.63% -5.37% -8.67% 7.09%
October 1.08% -0.57% -1.56% 0.30% -3.71%
November 0.16% * 4.58% 6.31% -5.24% -5.73%
December 3.16% * 6.43% 1.93% -4.31% 14.16%
Year 25.20% * 37.88% 9.45% -1.39% 16.43%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Siren Trading System (Composite)
Date CTA Began Trading Client Accounts: January 29, 1988
Date CTA Began Using Siren Trading System for Client accounts: January 1, 1991
Number of Accounts Using Siren Trading System: 10
Number of Accounts Using Siren Trading System Closed with Profits: 3
Number of Accounts Using Siren Trading System Closed with Losses: O
CTA's Total Assets Under Management Excluding Notional: $ 302.4 million
CTA's Total Assets Under Management Including Notional: $ 336.8 million
CTA's Assets Under Management Using Siren Trading
System Excluding Notional: $ 12.6 million
CTA's Assets Under Management Using Siren Trading
System Including Notional: $ 14.5 million
"Draw-down" means losses experienced by the Siren Trading
System over a specified period.
Worst Monthly Percentage Draw-down: -14.94% 1/91
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses
sustained by the Siren Trading System from the
beginning to the end of a calendar month.
Worst Peak-to-Valley Draw-down: -17.53% 7/93 - 10/93
"Worst Peak-to-Valley Draw-down" means greatest cumulative
percentage decline in month-end net asset value
of the Siren Trading System due to losses sustained
during a period in which the initial month-end net asset
value of the Siren Trading System is not equaled or
exceeded by a subsequent month end net asset value
of the Siren Trading System.
"Rate of Return" is calculated each month by dividing net
performance by beginning equity lusted by the value of
additions and withdrawals pursuant to the time-weighted
method. The monthly returns are then compounded to
arrive at the annual rate of return.
* Estimated Rates of Return
All performance mentioned is as of December 31,1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
114
<PAGE>
Capsule D
CAPSULE PERFORMANCE OF WILLOWBRIDGE ASSOCIATES INC., TITAN TRADING SYSTEM
(Pursuant to the Fully-Funded Subset Method)
<TABLE>
Percentage Rate of Return
(Computed on a compounded monthly basis)
<CAPTION>
Month 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
January -5.91% 7.42% -4.60% -7.93% -20.66% 3.68%
February 16.10% -13.65% 19.05% -7.72% -5.45% -0.15%
March 22.75% 10.22% -2.56% 2.27% 9.26% 0.08%
April 10.77% 2.68% 4.02% -3.82% -8.32% 8.42%
May 1.98% 15.64% 4.90% 1.82% -3.09% -11.24%
June -1.36% 8.31% 5.48% 13.71% 26.99% 1.88%
July -0.43% -2.24% 4.34% 21.04% -25.07% 16.21%
August 1.85% -12.34% -9.38% 6.91% -6.45% 13.56%
September -2.40% 7.73% -2.52% -5.55% 20.71% 5.21%
October 4.83% 9.85% -2.08% 3.96% -4.53% -3.77%
November 2.04% * -1.43% -2.42% 6.21% 2.37% -1.18%
December 6.37% * -2.84% 9.92% 1.20% 62.31% -2.48%
Year 68.27% * 10.06% 23.28% 32.16% 24.11% 30.80%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Titan Trading System
Date CTA Began Trading Client Accounts: January 29,1988
Date CTA Began Using Titan Trading System for Client accounts: January 29, 1988
Number of Accounts Using Titan Trading System: 6
Number of Accounts Using Titan Trading System Closed with Profits: 2
Number of Accounts Using titan Trading System Closed with Losses: 0
CTA's Total Assets Under Management Excluding Notional: $ 302.4 million
CTA's Total Assets Under Management Including Notional: $ 336.8 million
CTA's Assets Under Management Using Titan Trading
System Excluding Notional: $ 11.6 million
CTA's Assets Under Management Using titan Trading
System Including Notional: $ 12.0 million
"Draw-down" means losses experienced by the Titan Trading
System over a specified period.
Worst Monthly Percentage Draw-down: -25.07% 7/91
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses
sustained by the Titan Trading System from
the beginning to the end of a calendar month.
Worst Peak-to-Valley Draw-down: -39.89% 10/90 - 8/91
"Worst Peak-to-Valley Draw-down" means greatest cumulative
percentage decline in month-end net asset value
of the Titan Trading System due to losses sustained
during a -period in which the initial month-end net asset
value of the Titan Trading System is not equaled or
exceeded by a subsequent month-end net asset value
of the Titan Trading System.
"Rate of Return" is calculated each month by dividing net
performance by beginning equity adjusted by the value of
additions and withdrawals pursuant to the time-weighted
method. The monthly returns are then compounded to
arrive at the annual rate of return.
* Estimated Rates of Return
All performance mentioned is as of December 31, 1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
115
<PAGE>
Capsule E
CAPSULE PERFORMANCE IANCE OF WILLOWBRIDGE ASSOCIATES INC, VULCAN TRADING SYSTEM
(Prusuant to the fully-funded subset method)
<TABLE>
Percentage Rate of Return
(Computed on a compounded monthly basis)
<CAPTION>
Month 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
January -0.01% -6.63% -7.54% -5.85% -20.16% 5.48%
February 6.98% -4.11% 10.15% -6.37% -2.52% 0.74%
March 11.67% 6.21% 3.57% -3.85% 16.30% 7.38%
April 13.56% -4.99% 2.98% -5.33% -9.80% 2.90%
May -0.38% 15.43% -4.77% -1.32% -10.09% -7.19%
June -1.05% 10.41% 9.65% 10.96% 22.89% 1.57%
July -1.66% -1.81% 7.52% 21.33% -3.46% 15.98%
August 3.52% -10.18% -6.20% 6.35% -0.52% 11.23%
September 3.56% 0.36% -0.30% -7.65% 11.65% 2.00%
October 3.81% -1.51% 1.20% 8.75% -4.64% 0.65%
November 2.18% * 5.53% 7.60% 7.83% 2.93% -2.01%
December 5.51% * 8.26% 7.88% -2.85% 26.17% -2.95%
Year 57.77% * 14.67% 33.97% 19.30% 19.78% 39.42%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Vulcan Trading System
Date CTA Began Trading Client Accounts: January 29, 1988
Date CTA Began Using Vulcan Trading System for Client accounts: January 29, 1988
Number of Accounts Using Vulcan Trading System: 13
Number of Accounts Using Vulcan Trading System Closed with Profits: 4
Number of Accounts Using Vulcan Trading System Closed with Losses: 2
CTA's Total Assets Under Management Excluding Notional: $ 302.4 million
CTA's Total Assets Under Management Including Notional: $ 336.8 million
CTA's Assets Under Management Using Vulcan Trading
System Excluding Notional: $ 16.0 million
CTA's Assets Under Management Using Vulcan Trading
System Including Notional: $ 17.1 million
"Draw-down" means losses experienced by the Vulcan Trading
System over a specified period.
Worst Monthly Percentage Draw-down: -20.16% 1/91
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses
sustained by the Vulcan Trading System from the
beginning to the end of a calendar month.
Worst Peak-to-Valley Draw-down: -30.19% 11/90 - 5/91
"Worst Peak-to-Valley Draw down" means greatest cumulative percentage
decline in month-end net asset value of the Vulcan
Trading System due to losses sustained during a period
in which the initial month-end net asset value of the
Vulcan Trading System is not equaled or exceeded by a
subsequent month-end net asset value of the Vulcan Trading System.
"Rate of Return" is calculated each month by dividing net performance
by beginning equity adjusted by the value of
additions and withdrawals pursuant to the time-weighted
method. The monthly returns are then compounded to
arrive at the annual rate of return.
* Estimated Rates of Return
All performance mentioned is as of December 31, 1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
116
<PAGE>
Capsule F
CAPSULE PERFORMANCE OF WILLOWBRIDGE A8ASSOCIATES INC., XLIM
(Notional Excluded,Customer Only)
<TABLE>
Percentage Rate of Return
(Computed on a compounded monthly basis)
<CAPTION>
Year to
Month Date 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
January -4.89% -11.93% 1.04% -- -11.07% -9.50%
February 0.95% -12.67% 22.24% -- 5.72% -8.03%
March 33.93% 0.04% -5.40% -- 32.01% 19.74%
April 4.73% --- -2.97% -- -2.86% 9.47%
May 0.27% --- -1.04% -- -4.64% -17.48%
June -8.12% --- 4.00% -- 7.81% -14.01%
July -4.16% --- 12.93% -- -3.05% 25.07%
August -1.30% --- -8.79% -- -13.74% 14.74%
September 2.56% --- -7.02% -- 0.00% 10.75%
October 1.93% --- 5.07% 2.65% 0.00% -5.22%
November 2.78%* 3.23% 1.55% -2.63% 0.00% -5.56%
December 5.24%* 1.13% 2.56% 8.41% 0.00% -3.13%
Year 32.71%* -19.68% 22.30% 8.36% 3.65% 6.70%
</TABLE>
Name of CTA: Wlllowbridge Associates Inc.
Name of Trading Program: XLIM (Notional Excluded Customer Only)
Date CTA Began Trading Client Accounts: January 29, 1988
Date CTA Began Using XLIM Trading System for Client accounts: August 1, 1988
Number of Accounts Using XLIM Trading System: 17
Number of Accounts Using XLIM Trading System Closed with Profits: 0
Number of Accounts Using XLIM Trading System Closed with Losses: 2
CTA's Total Assets Under Management Excluding Notional: $ 302.4 million
CTA's Total Assets Under Management Including Notional: $ 336.8 million
CTA's Assets Under Management Using XLIM Trading
System Excluding Notional: $ 98.0 million
CTA's Assets Under Management Using XLIM Trading System
Including Notional: $ 111.3 million
"Draw-down" means losses experienced by the XLIM Trading System
over a specified period.
Worst Monthly Percentage Draw-down: -17.48% 5/90
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses
sustained by the XLIM Trading System from the
beginning to the end of a calendar month.
Worst Peak-to-Valley Draw-down: -29.10% 8/93 - 1/95
"Worst Peak-to-Valley Draw-down" means greatest cumulative percentage
decline in month-end net asset value
of the XLIM Trading System due to losses sustained
during a period in which the initial month-end net asset
value of the XLIM Trading System is not equaled or
exceeded by a subsequent month-end net asset value
of the XLIM Trading System.
"Rate of Return" is calculated each month by dividing net
performance by beginning equity adjusted by the value of
additions and withdrawals pursuant to the time-weighted
method. The monthly returns are then compounded to
arrive at the annual rate of return.
* Estimated Rates of Return
All performancee mentioned is as of December 31,1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
117
<PAGE>
Capsule G
CAPSULE PERFORMANCE OF WILLOWBRIDGE ASSOCIATES INC., XLIM
(Notional Included, Customer Only)
<TABLE>
Percentage Rate of Return
(Computed on a compounded monthly basis)
<CAPTION>
Year to
Month Date 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
January -4.89% -11.93% 1.04% -- -11.07% -9.50%
February 0.87% -12.67% 22.24% -- 5.72% -8.03%
March 31.21% 0.04% -5.40% -- 32.01% 19.74%
April 4.41% -- -2.97% -- -2.86% 9.47%
May 0.25% -- -1.04% -- 4.64% -17.48%
June -7.52% -- 4.00% -- 7.81% -14.01%
July -3.91% -- 12.93% -- -3.05% 25.07%
August -1.28% -- -8.79% -- -13.74% 14.74%
September 2.55% -- -7.02% -- 0.00% 10.75%
October 1.93% -- 5.07% 2.65% 0.00% -5.22%
November 2.78%* 3.23% 1.55% -2.63% 0.00% -5.56%
December 5.24%* 1.13% 2.56% 8.41% 0.00% -3.13%
Year 30.69%* -19.68% 22.30% 8.36% 3.65% 6.70%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: XLIM (Notional Included, Customer Only)
Date CTA Began Trading Client Accounts: January 29, 1988
Date CTA Began Using XLIM Trading System for Client accounts: August 1, 1988
Number of Accounts Using XLIM Trading System: 17
Number of Accounts Using XLIM Trading System Closed with Profits: O
Number of Accounts Using XLIM Trading System Closed with Losses: 2
CTA's Total Assets Under Management Excluding Notional: $ 302.4 million
CTA's Total Assets Under Management Including Notional: $ 336.8 million
CTA's Assets Under Management Using XLIM Trading
System Excluding Notional: $ 98.0 million
CTA's Assets Under Management Using XLIM Trading
System Including Notional: $ 111.3 million
"Draw-down" means losses experienced by the
XLIM Trading System over a specified period.
Worst Monthly Percentage Draw-down: -17.48% 5/90
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses
sustained by the XLIM Trading System from the
beginning to the end of a calendar month.
Worst Peak-to-Valley Draw-down: -29.10% 8/93- 1/95
"Worst Peak-to-Valley Draw-down" means greatest cumulative percentage
decline in month-end net asset value
of the XLIM Trading System due to losses
sustained during a period in which the
initial month-end net asset value of the XLIM
Trading System is not equaled or exceeded by a
subsequent month-end net asset value of the )ILIM Trading System.
"Rate of Return" is calculated each month by dividing net performance
by beginning equity adjusted by the value of
additions and withdrawals pursuant to the time-weighted method.
The monthly returns are then compounded to arrive at the
annual rate of return.
* Estimated Rates of Return
All performance mentioned is as of December 31, 1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
118
<PAGE>
Capsule H
CAPSULE PERFORMANCE OF OTHER WILLOWBRIDGE TRADING PROGRAMS
(Pursuant to the Fully-Funded Subset Method)
Annual Rates of Return
Currency
Currency Financial and Primary
Metals
1990 -- -- --
1991 12.61% -- --
1992 16.96% -- --
1993 -8.59% 29.49% 16.79
1994 -10.26% -10.51% 22.70%
YTD Est. 12/31/95 28.34% 24.53% 56.78%
Began Trading Client May-91 Jan-93 Jan-93
Accounts
Worst Monthly Percentage
Draw-down -7.19% -16.92% -7.52%
Date Aug-93 Feb-94 Mar-94
Worst Peak-to-Valley Draw-
down -25.32% -29.04% -21.83%
Peak Jul-93 Aug-93 Jan-94
Valley Aug-94 Sep-94 Apr-94
# Open Accounts 5 8 7
# Closed Profitable 6 12 1
# Unclosed Profitable 22 24 0
Estimated 12/13 Excluding
Notional Assets $7.0 mm $32.5 mm $20.0 mm
Estimated 12/31 Including
Notional Assets $12.0 mm $33.5 mm $21.0 mm
"Draw-down" means losses experienced by the trading program over a
specified period.
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses sustained by the trading
program from the beginning to the end of a calendar month.
"Worst Peak-to-Valley Draw-down" means greatest cumulative
percentage decline in month-end net asset value of the
trading program due to losses sustained during a period in which
the initial month-end net asset value of the trading
program is not equaled or exceeded by a subsequent month-end
net asset value of the trading program.
Annual Rates of Return are calculated by compounding the monthly
Adjusted Rates of Return over the number of periods in a
given year. For example, each month's Adjusted Rate of Return in
hundredths is added to one (1) and the result multiplied by the
previous month's compounded Adjusted Rate of Return similarly
expressed. One (1) is then subtracted from the product.
All performance mentioned is as of December 31, 1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
119
<PAGE>
Capsule I
CAPSULE PERFORMANCE OF OTHER WlLLOWBRIDGE TRADING PROGRAMS
Annual Rate of Return
MTech Rex Life II Atlas
1990 -- 45.54% 7.07% 11.06%
1991 19.96% -37.94% -- -5.92%
1992 25.13% -18.54% -- 18.29%
1993 32.48% -10.37% -- --
1994 21.68% -12.49% -- --
YTD Est. 12/31/95 53.25% -13.60% -- --
Began Trading Client
Accounts Jan-91 Aug-88 Jun-88 Nov-89
Worst Monthly
Percentage Draw- -13.62% -16.65% -5.64% 16.58%
Date Jan-94 Oct-91 Aug-90 Jan-91
Worst Peak-to-Valley
Draw-down -21.37% -66.45% -43.43% -46.67%
Peak Aug-93 Sep-90 Aug-88 Oct-90
Valley Feb-94 Feb-95 Oct-90 May-92
# Open Accounts 1 1 0 0
# Closed Profitable 1 0 0 1
# Closed Unprofitable 0 2 1 1
Estimated 12/31
Excluding Notional n/a n/a n/a n/a
Including Notional
Assets $8.5 mm $0.8 mm n/a n/a
"Draw-down" means losses experienced by the trading program
over a specified period.
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses sustained by the trading
program from the beginning to the end of a calendar month.
"Worst Peak-to-Valley Draw-down" means greatest cumulative
percentage decline in month-end net asset value of the
trading program due to losses sustained during a period
in which the initial month-end net asset value of the trading
program is not equaled or exceeded by a subsequent month-end
net asset value of the trading program.
Annual Rates of Return are calculated by compoundings the monthly
Adjusted Rates of Return over the number of periods in a
given year. For example, each month's Adjusted Rate of Return
in hundredths is added to one (1) and the result is multiplied
by the previous month's compounded Adjusted Rate of Return
similarly expressed. One (1) is then subtracted from the product
All performance mentioned is as of December 31, 1995
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
120
<PAGE>
Capsule J
Supplemental
CAPSULE PERFORMANCE OF WILLOWBRIDGE ASSOCIATES INC., (Proprietary Trading)
<TABLE>
Percentage Rate of Return
(Computed on a compounded monthly basis)
<CAPTION>
Month 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
January -5.71% -12.54% 1.48% -9.11% -11.12% -9.54%
February 1.06% -18.21% 18.53% -2.12% 5.90% -7.77%
March 29.39% 10.86% -4.43% -0.52% 30.11% 20.56%
April 3.68% -6.65% -3.10% -6.99% -3.09% 10.46%
May -0.53% 28.49% -1.27% 33.77% -4.42% -17.58%
June -6.83% 39.23% 4.35% 6.23% 8.52% -14.00%
July -2.74% 2.81% 10.81% 1.86% -3.07% 24.05%
August -1.27% 3.36% -7.18% 5.51% -14.00% 14.77%
September 3.01% -1.38% -7.35% -5.97% 13.64% 9.04%
October 2.48% 5.83% 5.48% 2.34% -7.56% -5.08%
November 3.33%* 4.20% 1.60% -1.73% 6.96% -5.36%
December 6.17%* 2.21% 2.10% 5.76% 6.86% -2.76%
Year 31.75%* 56.39% 19.67% 25.73% 23.19% 6.80%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: XLIM (Proprietary Trading)
Date CTA Began Trading Client Accounts: January 29,1988
Date CTA Began Using XLIM Proprietary Trading for
Client accounts: February 1, 1988
Number of Accounts Using XLIM Proprietary Trading: 1
Number of Accounts Using XLIM Proprietary Trading Closed with Profits: 2
Number of Accounts Using XLIM Proprietary Trading Closed with Losses: O
CTA's Total Assets Under Management Excluding Notional: $ 302.4 million
CTA's Total Assets Under Management Including Notional: $ 336.8 million
CTA's Assets Under Management Using XLIM Proprietary
Trading Excluding Notional: $ 7.9 million
CTA's Assets Under Management Using XLIM Proprietary
Trading Including Notional: $ 7.9 million
"Draw-down" means losses experienced by the XLIM Proprietary
Trading over a specified period.
Worst Monthly Percentage Draw-down: -18.24% 2/94
"Worst Monthly Percentage Draw-down" means greatest percentage
decline in net asset value due to losses
sustained by the XLIM Proprietary Trading from the
beginning to the end of a calendar month.
Worst Peak-to-Valley Draw40down: -32.81% 8/93 - 234
"Worst Peak-to-Valley Draw-down" means greatest cumulative percentage
decline in month-end net asset value of the XLIM Proprietary
Trading due to losses sustained during a period in which the
initial month-end net asset value of The XLIM Proprietary
Trading is not equaled or exceeded by a subsequent month-end
net asset value of the XLIM Proprietary Trading.
"Rate of Return" is calculated each month by dividing net
performance by beginning equity adjusted by the value of
additions and withdrawals pursuant to the time-weighted
method. The monthly returns are then compounded to
arrive at the annual rate of return.
Since accounts whose trading is reflected above were not
charged Management or incentive fees, the "pro forma"
capsule trading performance has been adjusted to show
the fee structure Willowbridge would generally charge a client of a
monthly management fee of 0.25% (3% annually) of the beginning of the
month net asset of the account and a quarterly incentive fee of 25%
of any cumulative new trading profits, exclusive of interest income.
Because of these adjustments, the CFTC requires the following legend:
"HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT
LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS
DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE
NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER
COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS,
SUCH AS LACK OF LIQUIDITY, SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO
SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO
ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN."
* Estimated Rates of Return
All performance mentioned is as of December 31, 1995
PAST PERFORMANCES NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
121
<PAGE>
Capsule K
Supplemental
WILLOWBRIDGE ASSOCIATES INC.
HYPOTHETICAL PRO FORMA WEIGHTED BLEND TABLE
The following table reflects, on a pro forma basis, the combined
actual historical composite track record of Willowbridge Argo, Siren,
Titan, Vulcan and XLIM Trading Systems in the proportions in which
each of such trading programs will be initially used by the Trust.
<TABLE>
<CAPTION>
20% 10% 10% 10% 50%
Argo Siren Titan Vulcan XLIM Value of a
Trading Trading Trading Trading Trading Combined Hypothetical
System System System System System Performance $100 Unit
<S> <C> <C> <C> <C> <C> <C> <C>
1991 January -15.70% -14.53% -20.42% -20.58% -11.35% -14.37% $86
February -4.39% 5.55% -5.57% -3.10% 5.58% 1.77% 87
March 24.32% 16.25% 9.12% 16.54% 27.98% 23.45% 108
April -2.90% -5.15% -8.41% -10.41% -3.23% -4.35% 103
May 2.89% -0.34% -3.22% -10.65% -4.89% -3.31% 100
June 11.99% -0.23% 26.80% 22.54% 8.09% 10.45% 110
July -14.50% 3.44% -25.20% -4.07% -3.20% -6.82% 102
August 1.47% 0.22% -6.44% -1.22% -14.14% -8.20% 94
September 8.59% 6.84% 20.36% 11.21% 13.13% 11.83% 105
October -1.29% -4.48% -4.60% -5.24% -7.90% -5.74% 99
November 4.69% -6.78% 2.22% 2.24% 6.44% 3.99% 103
December 17.27% 14.86% 58.94% 28.72% 6.19% 15.20% 119
Annual Return 27.99% 12.04% 20.33% 15.62% 16.63% 18.71%
1992 January -8.33% -8.93% -8.52% -6.65% -9.47% -8.81% 108
February -2.73% -7.80% -8.12% -6.98% -2.20% -3.92% 104
March -5.48% 2.16% 1.76% -4.27% -0.64% -1.57% 102
April -0.73% 3.14% -4.22% -5.93% -6.98% -4.34% 98
May -0.79% 7.96% 1.64% -1.90% 34.76% 17.56% 115
June 5.26% 4.75% 13.41% 10.57% 6.59% 7.08% 123
July 20.04% 2.01% 20.22% 20.69% 1.88% 8.37% 134
August 12.42% 10.46% 5.75% 5.21% 5.33% 7.23% 143
September -6.03% -8.16% -5.36% -7.78% -6.91% -6.75% 134
October -3.24% -0.17% 3.11% 7.89% 2.31% 1.48% 136
November 6.16% -6.33% 5.14% 5.92% -2.50% 0.49% 136
December 1.21% -5.42% 0.59% -2.44% 5.93% 2.63% 140
Annual Return 15.19% -8.41% 23.88% 10.71% 24.07% 17.77%
1993 January -9.41% 1.21% -4.99% -8.22% 1.32% -2.50% 136
February 18.50% 6.81% 17.43% 9.70% 19.35% 15.38% 157
March -0.22% 1.66% -2.75% 2.61% -5.08% -2.54% 153
April 3.31% 1.80% 3.22% 1.92% -3.69% -0.72% 152
May 1.02% -0.44% 3.95% -5.10% -1.77% -0.82% 151
June 5.25% 5.13% 4.63% 8.43% 3.80% 4.69% 158
July 3.27% -2.16% 3.55% 5.64% 11.33% 7.26% 169
August -7.71% -11.68% -10.10% -5.78% -8.26% -8.35% 155
September -10.32% -6.46% -3.37% -0.86% -8.31% -7.48% 144
October -4.66% -2.30% -2.79% 0.54% 4.82% 1.22% 145
November 5.40% 6.39% -3.02% 6.04% 1.02% 2.31% 149
December 10.68% 1.59% 10.48% 6.58% 2.12% 4.99% 156
Annual Return 11.82% -0.05% 14.12% 21.49% 14.14% 11.77%
</TABLE>
HYPOTHETICAL PERFORMANCE RESULTS HAVE ANY INHERENT LIMITATIONS, SOME OF
WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR I LOSSES
SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES
BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL
RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE
GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL
TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING
RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL
TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A
PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL
POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS.
THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL
OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT
BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE
RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
122
<PAGE>
Capsule K
Supplemental
WILLOWBRlDGE ASSOCIATES INC
HYPOTHETICAL PRO FORMA WEIGHTED BLEND TABLE
The following table reflects, on a pro forma basis, the combined
actual historical composite track record of Willowbridge's Argo,
Siren, Titan, Vulcan and XLIM Trading Systems in the proportions
in which each of such trading programs will be initially used by
the Trust.
<TABLE>
<CAPTION>
20% 10% 10% 10% 50%
Argo Siren Titan Vulcan XLIM Value of a
Trading Trading Trading Trading Trading Combined Hypothetical
System System System System System Performance $100 Unit
<S> <C> <C> <C> <C> <C> <C> <C>
1994 January -7.95% -4.08% -8.45% -7.14% -12.93% -10.29% 140
February -7.49% -1 84% -14.05% -4.78% -18.58% -13.14% 122
March 6.78% 6.32% 9.76% 5.73% 10.45% 8.68% 132
April -2.87% -3.41% 2.30% -5.62% -6.98% -4.72% 126
May 16.29% 11.55% 15.82% 14.94% 28.00% 21.31% 153
June 11.96% 10.75% 8.13% 8.43% 41.90% 26.20% 193
July 3.23% 4.77% -2.92% -2.71% 2.63% 1.94% 197
August -3.64% -8.68% -13.83% -11.14% 3.16% -1.56% 194
September 1.29% 5.63% 7.74% -0.19% -1.97% -0.05% 194
October 1.24% -1.03% 10.60% -2.26% 5.82% 4.23% 202
November 1.07% 4.09% -1.93% 5.06% 4.16% 3.13% 208
December -0.83% 5.54% -3.65% 8.20% 1.86% 1.62% 211
Annual Return 17.58% 31.24% 4.20% 5.43% 54.15% 35.32%
<CAPTION>
1995 January -5.46% -1.60% -6.65% -0.99% -6.21% -5.41% 200
February 11.59% 6.42% 16.65% 5.85% 0.95% 4.80% 210
March 17.70% 8.88% 20.15% 10.00% 30.19% 23.85% 260
April 8.23% 1.75% 9.40% 10.73% 3.48% 5.25% 273
May 4.57% 0.25% 1.50% -0.67% -0.96% 0.39% 274
June -2.04% -0.40% -1.55% 0.06% -7.64% -5.03% 261
July -1.42% -0.58% -1.28% -2.57% -3.35% -2.55% 254
August 1.53% 0.25% 1.87% 3.70% -1.93% -0.31% 253
September -2.82% -0.89% -3.19% 2.87% 2.48% 0.69% 255
October 4.69% 0.79% 5.10% 3.31% 1.81% 2.74% 262
November 2.61% -0.27% 1.66% 1.96% 2.68% 2.34% 268
December 6.88% 3.38% 6.22% 5.60% 6.74% 6.43% 285
Annual Return 53.77% 18.89% 58.01% 46.67% 26.48% 34.88%
*Total Return 185.21%
</TABLE>
*Estimated monthly rates of return for all trading programs and
Combined Performance
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS,
SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE
THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES
SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES
BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL
RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS
THAT THEY ARE GENERALLY PREPARED MONTH THE BENEFIT OF HINDSIGHT.
IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK,
AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE
IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO
WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE
OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT
ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO
THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC
TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR
IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN
ADVERSELY AFFECT ACTUAL TRADING RESULTS.
123
<PAGE>
<PAGE>
GENERAL NOTES TO COMPOSITE CAPSULES:
(1) Brokerage commissions charged to accounts in the capsules may vary
substantially.
(2) Interest income includes accrued interest on cash balances and discounted
debt instruments (held for margin and investment purposes) included in the
equity of the accounts. However, not all accounts in the composite earn
Interest Income.
(3) Management and Incentive Fees represents monthly or quarterly Management
Fees and quarterly or annual Incentive Fees which are charged to the accounts in
the capsules and vary substantially. For certain accounts included in the
capsules, at the time an Incentive Fee is accrued or an accrual is reversed, a
corresponding offset is generally made to additions or withdrawals to reflect
the actual equity traded on which rate of return is based. Some of the accounts
included in the capsules are not charged a Management Fee.
(4) For the period when the Trading Manager commenced trading the programs for
Client Accounts through June 30, 1995, Rates of Return in Capsules B through H,
may be understated to the extent that certain accounts in the capsules paid
specified fees unrelated to the Trading Manager's trading (such as selling
commissions, distribution expenses, general partner fees or manager-of-manager
fees) that were treated as expenses rather than as withdrawals of assets under
the Trading Manager's management. Beginning July 1, 1995, such expenses are
reflected in the capsules as withdrawals.
(5) Rate of Return is calculated as dividing Net Performance by Beginning
Equity adjusted by the value of Additions and Withdrawals pursuant to the
time-weighted method. Monthly Rates of Return are compounded to arrive at
Annual Rates of Return.
NOTIONAL FUNDS
"Notional" funds reflect the amount by which the "Nominal Account Size" exceeds
the amount of actual funds on deposit in, or legally committed to, client
accounts.
NOTES TO FULLY FUNDED SUBSET CAPSULES B, C, D, E, and H
In the accompanying composite Capsule B for the periods beginning January 1992,
Capsule C for periods beginning April 1995, Capsule D for periods beginning July
1995, Capsule E for periods beginning July 1994, and Capsule H for periods
beginning January 1992 (Currency Program), January 1993 (CFM Program) and August
1995 (Primary Program), the Trading Manager has adopted the Fully Funded Subset
Method of computing rate-of-return and presenting performance disclosure,
pursuant to an Advisory published by the Commodity Futures Trading Commission.
To qualify for use of the Fully Funded Subset Method, the Advisory requires that
certain computations be made in order to arrive at the Fully Funded Subset and
that the accounts for which performance is so reported meet two tests which are
designed to provide assurance that the Fully Funded Subset and the resultant
Rates of Return (RORs) are representative of the trading program. With respect
to these capsules, "notional" funds were not used prior to the dates noted
above. The chart on the following page attempts to illustrate the impact on
partially funding an account on Rate of Return.
"The Fully Funded Subset" represents the aggregate of Fully Funded Accounts used
to compute Monthly Rate of Return pursuant to Advisory 93-13. These accounts may
be adjusted to include or exclude certain accounts. A "Fully Funded Account" is
one which at its inception contains an amount of Actual Funds equal to its
Nominal Account Size. In such instances, the Fully Funded Subset is adjusted to
exclude accounts with significant additions or withdrawals which would
materially change the Rate of Return pursuant to the Fully Funded Subset method.
124
<PAGE>
The monthly Rates of Return for accounts excluded from the Fully Funded Subset
will often be different from the Rate of Return for the Fully Funded Subset.
Accounts not included in the Fully Funded Subset for any particular period may
include: accounts open or closed during the period; accounts which have
material additions or withdrawals during the period; and the accounts which are
being phased in to the program and, consequently, do not have a complete set of
positions that the other accounts in the program have. The Rates of Return for
these excluded accounts may be significantly higher or lower than the Rate of
Return for the Fully Funded Subset.
ACTUAL
RATE OF
RETURN(1) RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS(3)
20.00% 20.00% 26.67% 30.00% 40.00% 50.00% 60.00% 100.00%
15.00% 15.00% 20.00% 22.50% 30.00% 37.50% 45.00% 75.00%
10.00% 10.00% 13.33% 15.00% 20.00% 25.00% 30.00% 50.00%
5.00% 5.00% 6.67% 7.50% 10.00% 12.50% 15.00% 25.00%
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-5.00% -5.00% -6.67% -7.50% -10.00% -12.50% -15.00% -25.00%
-10.00% -10.00% -13.33% -15.00% -20.00% -25.00% -30.00% -50.00%
-15.00% -15.00% -20.00% -22.50% -30.00% -37.50% -45.00% -75.00%
-20.00% -20.00% -26.67% -30.00% -40.00% -50.00% -60.00% -100.00%
-25.00% -25.00% -33.33% -37.50% -50.00% -62.50% -75.00% -125.00%
-30.00% -30.00% -40.00% -45.00% -60.00% -75.00% -90.00% -150.00%
-35.00% -35.00% -46.67% -52.50% -70.00% -87.50% -105.00% -175.00%
-40.00% -40.00% -53.33% -60.00% -80.00% -100.00% -120.00% -200.00%
100.00% 75.00% 66.67% 50.00% 40.00% 33.33% 20.00%
LEVEL OF FUNDING(2)
Footnotes to Matrix:
(1) This column represents the range of actual Rates of Return for fully
funded accounts reflected in the accompanying performance table.
(2) This represents actual funds divided by the fully funded trading level
expressed as a percentage Funding levels displayed in the matrix include
the most common funding percentages utilized by the accounts and the
lowest level of the funding allowed by the Trading Manager.
(3) These columns represent the Rate of Return experienced by an account at
various levels of funding traded by the Trading Manager. The Rates of
Return for accounts that are not fully funded are inversely proportional
to the actual Rates of Return based on the percentage of level of
funding.
125
<PAGE>
<PAGE>
NOTES TO COMPOSITE CAPSULES F AND G
Commencing in February 1995 for Capsule G, certain accounts in this
capsule include sums clients have instructed the Trading Manager to trade but
that are not deposited in, or otherwise legally committed to, those clients'
accounts. These excess sums are deemed to be "notional" funds for which
performance results are reported in accordance with the requirements of an
Advisory published by the CFTC. The computations in Capsule F reflect the
actual funds deposited in or withdrawn from clients' brokerage and other
accounts rather than the amount of "notional" funds clients instructed the
Trading Manager to trade. The Trading Manager has included in these
"notional" amounts in Capsule G because they more accurately reflect the
amount of capital clients have instructed the Trading Manager to trade.
Substantial differences may exist between beginning equity for an account
which includes "notional" funds (and which is reflected in the Trading
Manager's Capsule G) and an account which contains only "actual" funds (and
which is reflected in the Trading Manager's Capsule F. Excluding "notional"
funds from the calculations of Rates of Return accentuates (i.e., increases
the absolute value of) both positive and negative Rates of Return.
NOTES TO PROPRIETARY CAPSULE J
Set forth in Capsule J is the composite pro forma performance record
through December 31, 1995 of the two proprietary trading accounts (one of
which has been closed) of Mr. Yang traded pursuant to the XLIM trading
strategy. The actual trading results have been adjusted to reflect the
Trading Manager's standard fee structure by imposing a monthly management fee
charged at an annual rate of 3%, and an annual incentive fee at a rate of 25%
of new high profit accrued on a monthly basis.<PAGE>
126
<PAGE>
EXHIBIT A
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WILLOWBRIDGE STRATEGIC TRUST
Dated as of January 31, 1996
By and Among
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.,
WILMINGTON TRUST COMPANY
and
THE INTERESTHOLDERS
from time to time hereunder
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; THE TRUST . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Name . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 1.3 Delaware Trustee; Business Offices . . . . . . . . 7
SECTION 1.4 Declaration of Trust . . . . . . . . . . . . . . . 7
SECTION 1.5 Purposes and Powers. . . . . . . . . . . . . . . . 8
SECTION 1.6 Tax Treatment. . . . . . . . . . . . . . . . . . . 8
SECTION 1.7 General Liability of the Managing Owner. . . . . . 9
SECTION 1.8 Legal Title. . . . . . . . . . . . . . . . . . . . 9
ARTICLE II
THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.1 Term; Resignation. . . . . . . . . . . . . . . . . 9
SECTION 2.2 Powers . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.3 Compensation and Expenses of the Trustee . . . . . 10
SECTION 2.4 Indemnification. . . . . . . . . . . . . . . . . . 10
SECTION 2.5 Successor Trustee. . . . . . . . . . . . . . . . . 11
SECTION 2.6 Liability of Trustee . . . . . . . . . . . . . . . 11
SECTION 2.7 Reliance; Advice of Counsel. . . . . . . . . . . . 12
SECTION 2.8 Not Part of Trust Estate . . . . . . . . . . . . . 13
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . 13
SECTION 3.1 General. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.2 Limited Interests. . . . . . . . . . . . . . . . . 14
ARTICLE IV
THE MANAGING OWNER . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.1 Management of the Trust. . . . . . . . . . . . . . 17
SECTION 4.2 Authority of Managing Owner. . . . . . . . . . . . 17
SECTION 4.3 Obligations of the Managing Owner. . . . . . . . . 20
SECTION 4.4 General Prohibitions . . . . . . . . . . . . . . . 22
SECTION 4.5 Liability of Covered Persons . . . . . . . . . . . 23
SECTION 4.6 Indemnification of the Managing Owner. . . . . . . 23
SECTION 4.7 Expenses . . . . . . . . . . . . . . . . . . . . . 25
(i)
<PAGE>
SECTION 4.8 Compensation to the Managing Owner . . . . . . . . 26
SECTION 4.9 Other Business of Interestholders. . . . . . . . . 26
SECTION 4.10 Voluntary Withdrawal of the Managing Owner. . . . 26
SECTION 4.11 Authorization of Registration Statement . . . . . 26
SECTION 4.12 Litigation. . . . . . . . . . . . . . . . . . . . 27
ARTICLE V
TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.1 General Prohibition. . . . . . . . . . . . . . . . 27
SECTION 5.2 Transfer of Managing Owner's General Interests . . 27
SECTION 5.3 Transfer of Limited Interests. . . . . . . . . . . 28
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS . . . . . . . . . . . . . . . . . . . 32
SECTION 6.1 Capital Accounts . . . . . . . . . . . . . . . . . 32
SECTION 6.2 Monthly Allocations. . . . . . . . . . . . . . . . 32
SECTION 6.3 Allocation of Profit and Loss for United States Federal
Income Tax Purposes. . . . . . . . . . . . . . 32
SECTION 6.4 Allocation of Distributions. . . . . . . . . . . . 34
SECTION 6.5 Admissions of Interestholders; Transfers . . . . . 34
SECTION 6.6 Liability for State and Local and Other Taxes. . . 34
ARTICLE VII
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.1 Redemption of Interests. . . . . . . . . . . . . . 35
SECTION 7.2 Redemption By the Managing Owner . . . . . . . . . 37
ARTICLE VIII
THE LIMITED OWNERS . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.1 No Management or Control; Limited Liability. . . . 37
SECTION 8.2 Rights and Duties. . . . . . . . . . . . . . . . . 38
SECTION 8.3 Limitation on Liability. . . . . . . . . . . . . . 39
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS . . . . . . . . . . . . . . . . . . . 40
SECTION 9.1 Books of Account . . . . . . . . . . . . . . . . . 40
SECTION 9.2 Annual Reports and Monthly Statements. . . . . . . 40
SECTION 9.3 Tax Information. . . . . . . . . . . . . . . . . . 40
SECTION 9.4 Calculation of Net Asset Value . . . . . . . . . . 40
SECTION 9.5 Other Reports. . . . . . . . . . . . . . . . . . . 41
(ii)
<PAGE>
SECTION 9.6 Maintenance of Records . . . . . . . . . . . . . . 41
SECTION 9.7 Certificate of Trust . . . . . . . . . . . . . . . 41
SECTION 9.8 Registration of Interests. . . . . . . . . . . . . 41
ARTICLE X
FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 10.1 Fiscal Year . . . . . . . . . . . . . . . . . . . 42
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS . . . . . . . . . . . . . . 42
SECTION 11.1 Amendments to the Trust Agreement . . . . . . . . 42
SECTION 11.2 Meetings of the Trust . . . . . . . . . . . . . . 43
SECTION 11.3 Action Without a Meeting. . . . . . . . . . . . . 44
ARTICLE XII
TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 12.1 Term. . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XIII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 13.1 Events Requiring Dissolution. . . . . . . . . . . 44
SECTION 13.2 Distributions on Dissolution. . . . . . . . . . . 46
SECTION 13.3 Termination; Certificate of Cancellation. . . . . 46
ARTICLE XIV
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 14.1 Power of Attorney Executed Concurrently . . . . . 47
SECTION 14.2 Effect of Power of Attorney . . . . . . . . . . . 47
SECTION 14.3 Limitation on Power of Attorney . . . . . . . . . 48
SECTION 15.1 Governing Law . . . . . . . . . . . . . . . . . . 48
SECTION 15.2 Provisions In Conflict with Law or Regulations. . 49
SECTION 15.3 Construction. . . . . . . . . . . . . . . . . . . 49
SECTION 15.4 Notices . . . . . . . . . . . . . . . . . . . . . 49
SECTION 15.5 Counterparts. . . . . . . . . . . . . . . . . . . 50
SECTION 15.6 Binding Nature of Trust Agreement . . . . . . . . 50
SECTION 15.7 No Legal Title to Trust Estate. . . . . . . . . . 50
SECTION 15.8 Creditors . . . . . . . . . . . . . . . . . . . . 50
SECTION 15.9 Integration . . . . . . . . . . . . . . . . . . . 50
(iii)
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
WILLOWBRIDGE STRATEGIC TRUST . . . . . . . . . . . . . . . . . . . 52
(iv)
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This SECOND AMENDED AND RESTATED DECLARATION OF TRUST AND
TRUST AGREEMENT of Willowbridge Strategic Trust ("Trust Agreement") is made
and entered into as of the 31st day of January, 1996 by and among Prudential
Securities Futures Management Inc., a Delaware corporation (the "Managing
Owner"), Wilmington Trust Company, a Delaware banking company, as trustee (the
"Trustee"), and the Interestholders from time to time hereunder.
WHEREAS, the Managing Owner and the Trustee have heretofore formed
the Trust by filing a Certificate of Trust with the office of the Secretary of
State of the State of Delaware on October 16, 1995 and entered into a
Declaration of Trust and Trust Agreement of the Trust, dated as of October 16,
1995 (the "Original Agreement"), as amended and restated on December 14, 1995;
and
WHEREAS, the parties hereto desire to continue the Trust as a business
trust under the Business Trust Statute and this Trust Agreement; and
WHEREAS, the parties hereto desire to provide for the governance of
the Trust and to set forth in detail their respective rights and duties relating
to the Trust and to amend and restate the Original Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS; THE TRUST
SECTION 1.1 Definitions. These definitions contain certain provisions
required by the NASAA Guidelines and are included verbatim from such Guidelines,
and, accordingly, may not, in all cases, be relevant. As used in this Trust
Agreement, the following terms shall have the following meanings unless the
context otherwise requires:
"Affiliate of the Managing Owner" means: (i) any officer, director, or
partner of the Managing Owner, (ii) any corporation, partnership, trust or other
entity controlling, controlled by or under common control with the Managing
Owner or any Person described in (i) above, (iii) any officer, director,
trustee, or general partner of any Person who is a member, other than as limited
partner, with any Person described in (i) and (ii) above, in a relationship of
joint venture, general partnership or similar form of unincorporated
<PAGE>
business association. For purposes of this definition the term "control" shall
also mean the control or ownership of ten percent (10%) or more of the
beneficial interest in the Person referred to.
"Business Day" means a day other than Saturday, Sunday or other day when
banks and/or securities exchanges in the City of New York or the City of
Wilmington are authorized or obligated by law or executive order to close.
"Business Trust Statute" means Chapter 38 of Title 12 of the Delaware Code,
12 Del.C. S 3801 et seq., as the same may be amended from time to time.
"Capital Contribution" means the amount contributed and agreed to be
contributed to the Trust by any subscriber or by the Managing Owner, as
applicable, in accordance with Article III hereof.
"CE Act" means the Commodity Exchange Act, as amended.
"Certificate of Trust" means the Certificate of Trust of the Trust in the
form attached hereto as Exhibit A, filed with the Secretary of State of the
State of Delaware pursuant to Section 3810 of the Business Trust Statute.
"CFTC" means the Commodity Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodities" means positions in commodity futures contracts, commodity
forward contracts, options on commodity futures contracts and physical
commodities, as well as cash commodities resulting from any of the foregoing
positions.
"Commodity Broker" means any person who engages in the business of
effecting transactions in Commodity Contracts for the account of others or for
his or her own account.
"Commodity Contract" means any contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a traded
commodity at a specified price and delivery point.
"Continuous Offering Period" means the period following the conclusion of
the Initial Offering Period and ending on the date when the number of Interests
permitted to be sold pursuant to Section 3.2(f) are sold, but in no event later
than two years from the initial effective date of the Registration Statement.
"Corporate Trust Office" means the principal office at which at any
particular time the corporate trust business of the Trustee is administered,
which office at the date hereof is located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
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"Disposition Gain" means, for each Fiscal Year of the Trust, the Trust's
aggregate recognized gain (including the portion thereof, if any, treated as
ordinary income) resulting from each disposition of Trust assets during such
Fiscal Year with respect to which gain or loss is recognized for federal income
tax purposes, including, without limitation, any gain or loss required to be
recognized by the Trust for federal income tax purposes pursuant to Section
988 or 1256 (or any successor provisions) of the Code.
"Disposition Loss" means, for each Fiscal Year of the Trust, the Trust's
aggregate recognized loss (including the portion thereof, if any, treated as
ordinary loss) resulting from each disposition of Trust assets during such
Fiscal Year with respect to which gain or loss is recognized for federal income
tax purposes, including, without limitation, any gain or loss required to be
recognized by the Trust for federal income tax purposes pursuant to Sections
988 or 1256 (or any successor provisions) of the Code.
"DOL" means the United States Department of Labor.
"Employee Benefit Plan Investors" means Employee Benefit Plans subject to
Title I of ERISA, government plans, church plans, Individual Retirement
Accounts, Keogh Plans covering only self-employed persons and new employees,
and Employee Benefit Plans covering only the sole owner of a business and/or
his spouse.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiscal Quarter" shall mean each period ending on the last day of each
March, June, September and December of each Fiscal Year.
"Fiscal Year" shall have the meaning set forth in Article X hereof.
"Initial Offering Period" means the period commencing with the initial
effective date of the Prospectus and terminating no later than the one hundred
and twentieth (120th) day following such date.
"Interestholders" means the Managing Owner and all Limited Owners, as
holders of Interests, where no distinction is required by the context in which
the term is used.
"Interests" means the beneficial interest of each Interestholder in the
profits, losses, distributions, capital and assets of the Trust. The Managing
Owner's Capital Contributions shall be represented by "General" Interests and a
Limited Owner's Capital Contributions shall be represented by "Limited"
Interests. Interests need not be represented by certificates.
"Limited Owner" means any person or entity who becomes a holder of Limited
Interests (as defined in Article III) and who is listed as such on the books and
records of the Trust, and may include the Managing Owner with respect to the
Limited Interests
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<PAGE>
purchased by it.
"Losses" means, for each Fiscal Year of the Trust, losses of the Trust as
determined for federal income tax purposes, and each item of income, gain, loss
or deduction entering into the computation thereof, except that any gain or loss
taken into account in determining the Disposition Gain or the Disposition Loss
of the Trust for such Fiscal Year shall not enter into such computations.
"Managing Owner" means Prudential Securities Futures Management Inc. or any
substitute therefor as provided herein.
"Margin Call" means a demand for additional funds after the initial good
faith deposit required to maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a commodity broker.
"NASAA Guidelines" means the North American Securities Administrators
Association, Inc. Guidelines for the Registration of Commodity Pool Programs
as last amended and restated.
"Net Asset Value" means the total assets in the Trust Estate including, but
not limited to, all cash and cash equivalents (valued at cost plus accrued
interest and amortization of original issue discount) less total liabilities
of the Trust, each determined on the basis of generally accepted accounting
principles in the United States, consistently applied under the accrual method
of accounting ("GAAP"), including, but not limited to, the extent specifically
set forth below:
(a) Net Asset Value shall include any unrealized profit or loss on
open Commodities positions, and any other credit or debit accruing to the
Trust but unpaid or not received by the Trust.
(b) All open commodity futures contracts and options traded on a
United States exchange are calculated at their then current market value,
which shall be based upon the settlement price for that particular
commodity futures contract and option traded on the applicable United
States exchange on the date with respect to which Net Asset Value is
being determined; provided, that if a commodity futures contract or
option traded on a United States exchange could not be liquidated on
such day, due to the operation of daily limits or other rules of the
exchange upon which that position is traded or otherwise, the settlement
price on the first subsequent day on which the position could be
liquidated shall be the basis for determining the market value of such
position for such day. The current market value of all open commodity
futures contracts and options traded on a non-United
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<PAGE>
States exchange shall be based upon the liquidating value for that
particular commodity futures contract and option traded on the applicable
non-United States exchange on the date with respect to which Net Asset
Value is being determined; provided, that if a commodity futures contract
or option traded on a non-United States exchange could not be liquidated
on such day, due to the operation of rules of the exchange upon which
that position is traded or otherwise, the liquidating value on the first
subsequent day on which the position could be liquidated shall be the
basis for determining the market value of such position for such day. The
current market value of all open forward contracts entered into by the
Trust shall be the mean between the last bid and last asked prices quoted
by the bank or financial institution which is a party to the contract on
the date with respect to which Net Asset Value is being determined;
provided, that if such quotations are not available on such date, the
mean between the last bid and asked prices on the first subsequent day
on which such quotations are available shall be the basis for determining
the market value of such forward contract for such day. The Managing
Owner may in its discretion value any of the Trust Estate pursuant to
such other principles as it may deem fair and equitable so long as such
principles are consistent with normal industry standards.
(c) Interest earned on the Trust's commodity brokerage account shall
be accrued at least monthly.
(d) The amount of any distribution made pursuant to Article VI hereof
shall be a liability of the Trust from the day when the distribution is
declared until it is paid.
"Net Asset Value per Interest" means the Net Asset Value divided by the
number of Interests outstanding on the date of calculation.
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
"NFA" means the National Futures Association.
"Organization and Offering Expenses" shall have the meaning set forth in
Section 4.7 of this Trust Agreement.
"Person" means any natural person, partnership, limited liability company,
business trust, corporation, association or other legal entity.
"Profits" means, for each Fiscal Year of the Trust, as determined for
Federal income tax purposes, with each item of income, gain, loss or deduction
entering into the computation thereof, except that any gain or loss taken into
account in determining the Disposition Gain or the Disposition Loss of the Trust
for such Fiscal Year shall not enter into such computations.
"Prospectus" means the final prospectus and disclosure document of the
Trust, constituting a part of the Registration Statement, as filed with the
Securities and Exchange
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<PAGE>
Commission and declared effective thereby, as the same may at any time and from
time to time be amended or supplemented after the effective date of the
Registration Statement.
"PSI" means Prudential Securities Incorporated, the Trust's Commodity
Broker, selling agent and the parent of the Managing Owner.
"Pyramiding" means the use of unrealized profits on existing Commodities
positions to provide margins for additional Commodities positions of the same
or a related commodity.
"Redemption Date" means the Valuation Date upon which Interests held by the
Interestholders may be redeemed in accordance with the provisions of Article VII
hereof.
"Registration Statement" means the registration statement on Form S-1, as
amended, filed by the Trust with the Securities and Exchange Commission pursuant
to which the Trust registered the Limited Interests, as the same may at any time
and from time to time be further amended or supplemented.
"Sponsor" means any person directly or indirectly instrumental in
organizing the Trust or any person who will manage or participate in the
management of the Trust, including a Commodity Broker who pays any portion of
the Organizational Expenses of the Trust and any other person who regularly
performs or selects the persons who perform services for the Trust. Sponsor
does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for professional
services rendered in connection with the offering of the units. The term
"Sponsor" shall be deemed to include its Affiliates.
"Subscription Agreement" means the agreement included as an exhibit to the
Prospectus pursuant to which subscribers may subscribe for the purchase of the
Limited Interests.
"Trading Manager" means initially Willowbridge Associates Inc. and any
other entity or entities, acting in its capacity as a commodity trading advisor
(i.e., any person who for any consideration engages in the business of advising
others, either directly or indirectly, as to the value, purchase, or sale of
Commodity Contracts or commodity options) to the Trust, and any substitute(s)
therefor as provided herein.
"Trust" means the Willowbridge Strategic Trust heretofore formed and
continued pursuant to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Declaration of Trust and
Trust Agreement as the same may at any time or from time to time be amended.
"Trustee" means Wilmington Trust Company or any substitute therefor as
provided herein, acting not in its individual capacity but solely as trustee
of the Trust.
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<PAGE>
"Trust Estate" means any cash, commodity futures, forward and option
contracts, all funds on deposit in the Trust's accounts, and any other property
held by the Trust, and all proceeds therefrom, including any rights of the Trust
pursuant to any Subscription Agreement and any other agreements to which the
Trust is a party.
"Valuation Date" means the date as of which the Net Asset Value of the
Trust is determined.
"Valuation Period" means a regular period of time between Valuation Dates.
SECTION 1.2 Name.
(a) The name of the Trust is "Willowbridge Strategic Trust" in which
name the Trustee and the Managing Owner may engage in the business of the
Trust, make and execute contracts and other instruments on behalf of the Trust
and sue and be sued on behalf of the Trust; provided, however, that in the event
that Willowbridge Associates Inc. ceases to act as the sole Trading Manager to
the Trust, the Managing Owner shall as soon as practicable thereafter change the
name of the Trust to such other name as it in its sole discretion shall
determine without being required to obtain the consent of the Limited Owners.
SECTION 1.3 Delaware Trustee; Business Offices.
(a) The Trustee of the Trust in the State of Delaware is Wilmington
Trust Company, which is located at the Corporate Trust Office or at such other
address in the State of Delaware as the Trustee may designate in writing to the
Interestholders. The Trustee shall receive service of process on the Trust in
the State of Delaware at the foregoing address. In the event Wilmington Trust
Company resigns or is removed as the Trustee, the Trustee of the Trust in the
State of Delaware shall be the successor Trustee.
(b) The principal office of the Trust, and such additional offices as
the Managing Owner may establish, shall be located at such place or places
inside or outside the State of Delaware as the Managing Owner may designate from
time to time in writing to the Trustee and the Interestholders. Initially, the
principal office of the Trust shall be at One New York Plaza, 13th floor, New
York, New York 10292.
SECTION 1.4 Declaration of Trust. The Trustee hereby acknowledges that
the Trust has received the sum of $1,000 in a bank account in the Trust's name
controlled by the Managing Owner from the Managing Owner as grantor of the
Trust, and hereby declares that it shall hold such sum in trust, upon and
subject to the conditions set forth herein for the use and benefit of the
Interestholders. It is the intention of the parties hereto that the Trust shall
be a business trust under the Business Trust Statute and that this Trust
Agreement shall constitute the governing instrument of the Trust. It is not the
intention of the parties hereto to create a general partnership, limited
partnership, joint stock association, corporation, bailment or any form of
legal relationship other than a Delaware business trust except to the extent
such Trust is deemed to constitute a partnership under the Code and
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<PAGE>
applicable state and local tax laws. Nothing in this Trust Agreement shall
be construed to make the Interestholders partners or members of a joint stock
association except to the extent such Interestholders are deemed to be partners
under the Code and applicable state and local tax laws. Notwithstanding the
foregoing, it is the intention of the parties thereto to create a partnership
among the Interestholders for purposes of taxation under the Code and
applicable state and local tax laws. Effective as of the date hereof, the
Trustee shall have all of the rights, powers and duties set forth herein and in
the Business Trust Statute with respect to accomplishing the purposes of the
Trust. The Trustee has filed the certificate of trust required by Section 3810
of the Business Trust Statute in connection with the formation of the Trust
under the Business Trust Statute.
SECTION 1.5 Purposes and Powers. The purposes of the Trust shall be (a)
to trade, buy, sell, spread or otherwise acquire, hold or dispose of commodity
futures, forward and option contracts; (b) to enter into any lawful transaction
and engage in any lawful activities in furtherance of or incidental to the
foregoing purposes; and (c) as determined from time to time by the Managing
Owner, to engage in any other lawful business or activity for which a business
trust may be organized under the Business Trust Statute. The Trust shall have
all of the powers specified in Section 15.1 hereof, including, without
limitation, all of the powers which may be exercised by a Managing Owner on
behalf of the Trust under this Trust Agreement.
SECTION 1.6 Tax Treatment.
(a) Each of the parties hereto, by entering into this Trust
Agreement, (i) expresses its intention that the Interests will qualify under
applicable tax law as interests in a partnership which holds the Trust Estate
for their benefit, (ii) agrees that it will file its own federal, state and
local income, franchise and other tax returns in a manner that is consistent
with the treatment of the Trust as a partnership in which each of the
Interestholders is a partner and (iii) agrees to use reasonable efforts to
notify the Managing Owner promptly upon a receipt of any notice from any taxing
authority having jurisdiction over such holders of Interests with respect to the
treatment of the Interests as anything other than interests in a partnership.
(b) The Tax Matters Partner (as defined in Section 6231 of the Code
and any corresponding state and local tax law) shall initially be the Managing
Owner. The Tax Matters Partner, at the expense of the Trust, (i) shall prepare
or cause to be prepared and filed the Trust's tax returns as a partnership for
federal, state and local tax purposes and (ii) shall be authorized to perform
all duties imposed by S 6221 et seq. of the Code, including, without limitation,
(A) the power to conduct all audits and other administrative proceedings with
respect to the Trust's tax items; (B) the power to extend the statute of
limitations for all Interestholders with respect to the Trust's tax items;
(C) the power to file a petition with an appropriate federal court for review
of a final Trust administrative adjustment; and (D) the power to enter into a
settlement with the IRS on behalf of, and binding upon, those Limited Owners
having less than one percent (1%) interest in the Trust, unless a Limited Owner
shall have notified the IRS and the Managing Owner that the Managing Owner shall
not act on such Limited Owner's behalf. The designation made
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<PAGE>
in this Section 1.6(b) is hereby approved by each Interestholder as an express
condition to becoming an Interestholder. Each Interestholder agrees to take any
further action as may be required by regulation or otherwise to effectuate such
designation. Subject to Section 4.6, the Trust hereby indemnifies, to the full
extent permitted by law, the Managing Owner from and against any damages or
losses (including attorneys' fees) arising out of or incurred in connection with
any action taken or omitted to be taken by it in carrying out its
responsibilities as Tax Matters Partner, provided such action taken or omitted
to be taken does not constitute fraud, negligence or misconduct.
(c) Each Interestholder shall furnish the Managing Owner and the
Trustee with information necessary to enable the Managing Owner to comply with
United States federal income tax information reporting requirements in respect
of such Interestholder's Interests.
SECTION 1.7 General Liability of the Managing Owner.
(a) The Managing Owner shall be liable for the acts, omissions,
obligations and expenses of the Trust, to the extent not paid out of the
assets of the Trust, to the same extent the Managing Owner would be so liable if
the Trust were a partnership under the Delaware Revised Uniform Limited
Partnership Act and the Managing Owner were a general partner of such
partnership. The obligations of the Managing Owner under this Section 1.7 shall
be evidenced by its ownership of the General Interests.
(b) Subject to Sections 8.1 and 8.3 hereof, no Interestholder, other
than the Managing Owner, to the extent set forth above, shall have any personal
liability for any liability or obligation of the Trust.
SECTION 1.8 Legal Title. Legal title to all the Trust Estate shall be
vested in the Trust as a separate legal entity; except where applicable law in
any jurisdiction requires any part of the Trust Estate to be vested otherwise,
the Managing Owner may cause legal title to the Trust Estate or any portion
thereof to be held by or in the name of the Managing Owner or any other Person
as nominee.
ARTICLE II
THE TRUSTEE
SECTION 2.1 Term; Resignation.
(a) Wilmington Trust Company has been appointed and hereby agrees
to continue to serve as the Trustee of the Trust. The Trust shall have only
one trustee unless otherwise determined by the Managing Owner. The Trustee
shall serve until such time as the Managing Owner removes the Trustee or the
Trustee resigns and a successor Trustee is appointed by the Managing Owner in
accordance with the terms of Section 2.5
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<PAGE>
hereof.
(b) The Trustee may resign at any time upon the giving of at least
sixty (60) days advance written notice to the Trust; provided, that such
resignation shall not become effective unless and until a successor Trustee
shall have been appointed by the Managing Owner in accordance with Section 2.5
hereof. If the Managing Owner does not act within such sixty (60) day period,
the Trustee may apply to the Court of Chancery of the State of Delaware for the
appointment of a successor Trustee.
SECTION 2.2 Powers. Except to the extent expressly set forth in Section
1.3 and this Article II, the duty and authority of the Trustee to manage the
business and affairs of the Trust is hereby delegated to the Managing Owner,
which duty and authority the Managing Owner may further delegate as provided
herein, all pursuant to Section 3806(b)(7) of the Business Trust Statute. The
Trustee shall have only the rights, obligations and liabilities specifically
provided for herein and in the Business Trust Statute and shall have no implied
rights, obligations and liabilities with respect to the business and affairs of
the Trust. The Trustee shall have the power and authority to execute, deliver,
acknowledge and file all necessary documents and to maintain all necessary
records of the Trust as required by the Business Trust Statute. The Trustee
shall provide prompt notice to the Managing Owner of its performance of any of
the foregoing. The Managing Owner shall reasonably keep the Trustee informed of
any actions taken by the Managing Owner with respect to the Trust that affect
the rights, obligations or liabilities of the Trustee hereunder or under the
Business Trust Statute.
SECTION 2.3 Compensation and Expenses of the Trustee. The Trustee shall
be entitled to receive from the Managing Owner or an Affiliate of the Managing
Owner reasonable compensation for its services hereunder as set forth in a
separate fee agreement and shall be entitled to be reimbursed by the Managing
Owner or an Affiliate of the Managing Owner for reasonable out-of-pocket
expenses incurred by it in the performance of its duties hereunder, including
without limitation, the reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the Trustee may employ in
connection with the exercise and performance of its rights and duties hereunder.
SECTION 2.4 Indemnification. The Managing Owner agrees, whether or not
any of the transactions contemplated hereby shall be consummated, to assume
liability for, and does hereby indemnify, protect, save and keep harmless the
Trustee and its successors, assigns, legal representatives, officers, directors,
agents and servants (the "Indemnified Parties") from and against any and all
liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes
payable by the Trustee on or measured by any compensation received by the
Trustee for its services hereunder or any indemnity payments received by the
Trustee pursuant to this Section 2.4), claims, actions, suits, costs, expenses
or disbursements (including legal fees and expenses) of any kind and nature
whatsoever (collectively, "Expenses"), which may be imposed on, incurred by or
asserted against the Indemnified Parties in any way relating to or arising out
of the formation, operation or termination of the Trust, the execution, delivery
and performance of any other agreements
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to which the Trust is a party or the action or inaction of the Trustee hereunder
or thereunder, except for Expenses resulting from the gross negligence or
willful misconduct of the Indemnified Parties. The indemnities contained in
this Section 2.4 shall survive the termination of this Trust Agreement or the
removal or resignation of the Trustee. In addition, the Indemnified Parties
shall be entitled to indemnification from the Trust Estate to the extent set
forth above and to secure the same, the Trustee shall have a lien against the
Trust Estate which shall be prior to the rights of the Managing Owner and the
Interestholders to receive distributions from the Trust Estate.
SECTION 2.5 Successor Trustee. Upon the resignation or removal of the
Trustee, the Managing Owner shall appoint a successor Trustee by delivering a
written instrument to the outgoing Trustee. Any successor Trustee must satisfy
the requirements of Section 3807 of the Business Trust Statute. Any
resignation or removal of the Trustee and appointment of a successor Trustee
shall not become effective until a written acceptance of appointment is
delivered by the successor Trustee to the outgoing Trustee and the Managing
Owner and any fees and expenses due to the outgoing Trustee are paid. Following
compliance with the preceding sentence, the successor Trustee shall become fully
vested with all of the rights, powers, duties and obligations of the outgoing
Trustee under this Trust Agreement, with like effect as if originally named as
Trustee, and the outgoing Trustee shall be discharged of its duties and
obligations under this Trust Agreement.
SECTION 2.6 Liability of Trustee. Except as otherwise provided in this
Article II, in accepting the trust created hereby, Wilmington Trust Company acts
solely as Trustee hereunder and not in its individual capacity, and all Persons
having any claim against the Trustee by reason of the transactions contemplated
by this Trust Agreement and any other agreement to which the Trust is a party
shall look only to the Trust Estate for payment or satisfaction thereof;
provided, however, that in no event is the foregoing intended to affect or
limit the liability of the Managing Owner as set forth in Section 1.7 hereof.
The Trustee shall not be liable or accountable hereunder or under any other
agreement to which the Trust is a party, except for its own gross negligence or
willful misconduct. In particular, but not by way of limitation:
(a) The Trustee shall have no liability or responsibility for the
validity or sufficiency of this Trust Agreement or for the form, character,
genuineness, sufficiency, value or validity of the Trust Estate;
(b) The Trustee shall not be liable for any actions taken or omitted
to be taken by it in accordance with the instructions of the Managing Owner;
(c) The Trustee shall not have any liability for the acts or
omissions of the Managing Owner;
(d) The Trustee shall not be liable for its failure to supervise the
performance of any obligations of the Managing Owner, any commodity broker,
selling agent or any Trading Manager(s);
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(e) No provision of this Trust Agreement shall require the Trustee to
expend or risk funds or otherwise incur any financial liability in the
performance of any of its rights or powers hereunder if the Trustee shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or provided
to it;
(f) Under no circumstances shall the Trustee be liable for
indebtedness evidenced by or other obligations of the Trust arising under this
Trust Agreement or any other agreements to which the Trust is a party;
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust Agreement, or to institute, conduct
or defend any litigation under this Trust Agreement or any other agreements to
which the Trust is a party, at the request, order or direction of the Managing
Owner or any Interestholders unless the Managing Owner or such Interestholders
have offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities that may be incurred by the Trustee (including,
without limitation, the reasonable fees and expenses of its counsel) therein or
thereby; and
(h) Notwithstanding anything contained herein to the contrary, the
Trustee shall not be required to take any action in any jurisdiction other
than in the State of Delaware if the taking of such action will (i) require the
consent or approval or authorization or order of or the giving of notice to, or
the registration with or taking of any action in respect of, any state or other
governmental authority or agency of any jurisdiction other than the State of
Delaware, (ii) result in any fee, tax or other governmental charge under the
laws of any jurisdiction or any political subdivision thereof in existence as of
the date hereof other than the State of Delaware becoming payable by the Trustee
or (iii) subject the Trustee to personal jurisdiction, other than in the State
of Delaware, for causes of action arising from personal acts unrelated to the
consummation of the transactions by the Trustee, as the case may be,
contemplated hereby.
SECTION 2.7 Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may conclusively rely
upon certificates or opinions furnished to the Trustee and conforming to the
requirements of this Trust Agreement in determining the truth of the statements
and the correctness of the opinions contained therein, and shall incur no
liability to anyone in acting on any signature, instrument, notice, resolutions,
request, consent, order, certificate, report, opinion, bond or other document or
paper believed by it to be genuine and believed by it to be signed by the proper
party or parties and need not investigate any fact or matter pertaining to or in
any such document; provided, however, that the Trustee shall have examined any
certificates or opinions so as to determine compliance of the same with the
requirements of this Trust Agreement. The Trustee may accept a certified copy
of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force
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and effect. As to any fact or matter the method of the determination of which
is not specifically prescribed herein, the Trustee may for all purposes hereof
rely on a certificate, signed by the president or any vice president or by the
treasurer or other authorized officers of the relevant party, as to such fact or
matter, and such certificate shall constitute full protection to the Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trust hereunder and in
the performance of its duties and obligations under this Trust Agreement, the
Trustee, at the expense of the Trust (i) may act directly or through its agents,
attorneys, custodians or nominees pursuant to agreements entered into with any
of them, and the Trustee shall not be liable for the conduct or misconduct of
such agents, attorneys, custodians or nominees if such agents, attorneys,
custodians or nominees shall have been selected by the Trustee with reasonable
care and (ii) may consult with counsel, accountants and other skilled
professionals to be selected with reasonable care by it. The Trustee shall not
be liable for anything done, suffered or omitted in good faith by it in
accordance with the opinion or advice of any such counsel, accountant or other
such Persons.
SECTION 2.8 Not Part of Trust Estate. Amounts paid to the Trustee from
the Trust Estate, if any, pursuant to this Article II shall not be deemed to be
part of the Trust Estate immediately after such payment.
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS
SECTION 3.1 General.
(a) The beneficial interests in the Trust shall consist of a limited
number of Interests as set forth in this Article III. The Interests shall be
divided into two classes: General Interests and Limited Interests.
(b) Upon the initial contribution by the Managing Owner to the Trust,
the Managing Owner has become the holder of ten General Interests. Upon the
termination of the Initial Offering Period pursuant to Section 3.2(b), the
Managing Owner shall receive additional General Interests (or fractions thereof)
in consideration for the required contributions made to such time by the
Managing Owner pursuant to Section 3.2(e) in an amount equal to such
contributions divided by 100. During the Continuous Offering Period, if any,
the Managing Owner shall receive, from time to time, additional General
Interests (or fractions thereof) in consideration for the required contributions
made by the Managing Owner pursuant to Section 3.2(e) in any calendar month
during the Continuous Offering Period in an amount equal to such contributions
divided by the Net Asset Value per Interest calculated as of the close of
business on the last day of the calendar month in which such contributions
were made.
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(c) No certificates or other evidence of beneficial ownership of the
Interests will be issued.
(d) Every Interestholder, by virtue of having purchased or otherwise
acquired an Interest, shall be deemed to have expressly consented and agreed
to be bound by the terms of this Trust Agreement.
SECTION 3.2 Limited Interests.
(a) Offer of Limited Interests. During the Initial Offering Period,
the Trust shall offer pursuant to Securities and Exchange Commission Rule 415,
at an offering price of $100 per Limited Interest, a maximum of 1,000,000
Limited Interests ($100,000,000). No fractional Limited Interests shall be
issued during the Initial Offering Period. Each newly admitted Limited Owner
shall make a Capital Contribution to the Trust of at least $5,000, except for
Individual Retirement Account ("IRA") subscribers, who shall be required to make
a Capital Contribution of not less than $2,000. The offering shall be made
pursuant to and on the terms and conditions set forth in the Prospectus. The
Managing Owner shall make such arrangements for the sale of the Limited
Interests as it deems appropriate.
(b) Effect of the Sale of at least 100,000 Interests. In the event
that at least 100,000 Interests are sold during the Initial Offering Period
(including both Limited Interests offered pursuant to the Prospectus and General
Interests purchased by the Managing Owner up to $500,000), the Managing Owner
will admit all accepted subscribers pursuant to the Prospectus into the Trust as
Limited Owners, by causing such Limited Owners to execute this Trust Agreement,
pursuant to the Power of Attorney set forth in the Subscription Agreement, and
by making an entry on the books and records of the Trust reflecting that such
subscribers have been admitted as Limited Owners, as soon as practicable after
the termination of the Initial Offering Period. Such accepted subscribers
will be deemed Limited Owners at such time as such admission is reflected on
the books and records of the Trust.
(c) Paid-In Capital if at least 100,000 Interests Are Sold. In the
event that at least 100,000 Interests are sold during the Initial Offering
Period, the Trust shall have paid-in capital of not less than $10,101,000
(including the Managing Owner's contribution for the General Interests as
provided in Section 3.1(b) and in Section 3.2(e) hereof).
(d) Effect of the Sale of Less than 100,000 Interests. In the event
that at least 100,000 Interests are not sold during the Initial Offering Period,
all proceeds of the sale of Limited Interests, together with any interest earned
thereon, will be returned to the subscribers on a pro rata basis (taking into
account the amount and time of deposit), no later than ten (10) Business Days
after the conclusion of the Initial Offering Period (or as soon thereafter as
practicable if payment cannot be made in such time period), and the Trust shall
be terminated, and the Managing Owner shall cause the certificate of
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cancellation required by Section 3810 of the Business Trust Statute to be filed.
(e) Managing Owner's Required Contribution. In the event that
100,000 or more of the Limited Interests offered pursuant to the Prospectus are
sold during the Initial Offering Period, the Managing Owner shall be required to
contribute in cash to the capital of the Trust an amount, which, when added to
the total contributions to the Trust by all Interestholders, will be not less
than one percent (1%) of such total contributions, and in no event shall such
contribution be less than $101,000 (including the Managing Owner's Capital
Contribution pursuant to Section 3.1(b)). Thereafter, the Managing Owner shall
contribute in cash to the capital of the Trust an amount not less than 1.01% of
any additional Capital Contributions received by the Trust from the Limited
Owners. The Managing Owner may, but is not obligated to, make additional
Capital Contributions at any time during the Initial or Continuous Offering
Periods. The Managing Owner will receive General Interests as provided in
Section 3.1(b). The Managing Owner shall, with respect to any Interests owned
by it, enjoy all of the rights and privileges and be subject to all of the
obligations and duties of a Limited Owner, in addition to its rights and
privileges as Managing Owner, except as otherwise provided herein.
Notwithstanding anything to the contrary in this Trust Agreement, the interest
of the Managing Owner (without regard to any Limited Interests of the Managing
Owner in the Trust) in each material item of Trust income, gain, loss and
deduction shall be equal, in the aggregate, to at least one percent (1%) of
each such item at all times during the term of this Trust Agreement.
(f) Offer of Limited Interests After Initial Offering Period. In the
event that 100,000 or more of the Interests are sold during the Initial Offering
Period, the Trust, pursuant to Securities and Exchange Commission Rule 415, may
continue to offer Limited Interests and admit additional Limited Owners pursuant
to the Prospectus following the Initial Offering Period for a period (the
"Continuous Offering Period") expiring not later than the earlier to occur of
(i) the sale of $100,000,000 of Limited Interests, or (ii) the date ending two
years from the initial effective date of the Registration Statement. Following
the conclusion of the Continuous Offering Period, the Trust shall be prohibited
from issuing or re-issuing any Interests, and shall be permanently closed.
Each newly admitted Limited Owner shall make a Capital Contribution to
the Trust in an amount equal to at least $5,000, except for IRA subscribers,
which amount for such subscribers shall not be less than $2,000.
Notwithstanding the foregoing, existing Limited Owners will be permitted to make
an additional Capital Contribution to the Trust in an amount equal to at least
$100. Each additional Capital Contribution during the Continuous Offering
Period must be in a denomination which is an even multiple of $100. During the
Continuous Offering Period, each newly admitted Limited Owner, and each
existing Limited Owner that makes an additional Capital Contribution, shall
receive Limited Interests in an amount equal to such Capital Contribution or
additional Capital Contribution, as the case may be, divided by the Net Asset
Value per Interest calculated as of the close of business on the last day of the
calendar month in which such contributions were made.
Subscribers whose subscriptions are received and accepted by the Trust
after the
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termination of the Initial Offering Period shall be admitted to the Trust and
deemed a Limited Owner on the first day of the month next succeeding the month
during which such subscriber's subscription was accepted. Existing Limited
Owners who contribute additional sums are considered to have made the
contribution and received the related Limited Interests as of the first day of
next succeeding month.
(g) Subscription Agreement. Each Limited Owner who purchases any
Limited Interests offered pursuant to the Prospectus shall contribute to the
capital of the Trust such amount as he shall state in the Subscription
Agreement which he shall execute (as required therein), acknowledge and,
together with the Power of Attorney set forth therein, deliver to the Managing
Owner as a counterpart of this Trust Agreement. All subscription amounts shall
be paid in such form as may be acceptable to the Managing Owner at the time of
the execution and delivery of such Subscription Agreement by United States
subscribers, and in accordance with local practice and procedure by non-United
States subscribers. To the extent that the Managing Owner determines to
accept a subscription check, it shall be subject to prompt collection. All
subscriptions are subject to acceptance by the Managing Owner.
(h) Escrow Agreement. All proceeds from the sale of Limited
Interests offered pursuant to the Prospectus shall be deposited in an interest
bearing escrow account at The Bank of New York, in New York, N.Y. until the
conclusion of the Initial Offering Period. In the event subscriptions for at
least 100,000 of the Interests are received and accepted during the Initial
Offering Period, all interest earned on the proceeds of the subscriptions from
subscribers for Limited Interests during the Initial Offering Period will be
distributed to the purchasers of Limited Interests on a pro rata basis (taking
into account time and amount of deposit) not later than ten (10) Business Days
after the conclusion of the Initial Offering Period, or as soon thereafter as
practicable if payment cannot be made in such time period.
(i) Optional Purchase of Limited Interests by Managing Owner and
Trading Manager. Subject to approval by the Managing Owner, any commodity
broker (including, but not limited to, PSI), any Trading Manager, any
principals, stockholders, directors, officers, employees and affiliates of the
Managing Owner, any commodity broker, and any Trading Manager, may purchase any
number of Limited Interests and will be treated as Limited Owners with respect
to such Interests. In addition to the Interests required to be purchased by
the Managing Owner under Section 3.2(e), the Managing Owner may also purchase
any number of Limited Interests as it determines in its discretion.
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ARTICLE IV
THE MANAGING OWNER
SECTION 4.1 Management of the Trust. Pursuant to Section 3806 of the
Business Trust Statute, the Trust shall be managed by the Managing Owner and the
conduct of the Trust's business shall be controlled and conducted solely by the
Managing Owner in accordance with this Trust Agreement.
SECTION 4.2 Authority of Managing Owner. In addition to and not in
limitation of any rights and powers conferred by law or other provisions of this
Trust Agreement, and except as limited, restricted or prohibited by the express
provisions of this Trust Agreement or the Business Trust Statute, the Managing
Owner shall have and may exercise on behalf of the Trust, all powers and rights
necessary, proper, convenient or advisable to effectuate and carry out the
purposes, business and objectives of the Trust, which shall include, without
limitation, the following:
(a) To enter into, execute, deliver and maintain contracts,
agreements and any or all other documents and instruments, and to do and perform
all such things, as may be in furtherance of Trust purposes or necessary or
appropriate for the offer and sale of the Interests and the conduct of Trust
activities, including, but not limited to, contracts with third parties for:
(i) commodity brokerage services, as well as administrative
services necessary to the prudent operation of the Trust, provided,
however, that in no event shall the fees payable by the Trust for
such services exceed any limitations imposed by the NASAA Guidelines
as in effect on the date hereof, except to the extent that such
limitations are amended to become more restrictive, in which event
such fees will not exceed such more restrictive limitations, and
provided, further, that such services may be performed by an
Affiliate or Affiliates of the Managing Owner so long as the
Managing Owner has made a good faith determination that: (A) the
Affiliate which it proposes to engage to perform such services is
qualified to do so (considering the prior experience of the
Affiliate or the individuals employed thereby); (B) the terms and
conditions of the agreement pursuant to which such Affiliate is to
perform services for the Trust are no less favorable to the Trust
than could be obtained from equally-qualified unaffiliated third
parties; and (C) the maximum period covered by the agreement
pursuant to which such affiliate is to perform services for the
Trust shall not exceed one year, and such agreement shall be
terminable without penalty upon sixty (60) days' prior written
notice by the Trust; and
(ii) commodity trading advisory services relating to the
purchase and sale of all Commodities positions on behalf of the
Trust, which services may not be performed by the Managing Owner or
an Affiliate(s) of the Managing
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Owner, provided, however, that in no event shall the fees payable by
the Trust for such services exceed any limitations imposed by the
NASAA Guidelines as in effect on the date hereof, except to the
extent that such limitations are amended to become more restrictive,
in which event such fees will not exceed such more restrictive
limitations. All advisory services shall be performed by persons
with at least three years experience and who are also appropriately
registered under federal and/or state law (i.e., all commodities
advice with respect to commodities transactions shall be given by
persons who are registered with the CFTC as a commodity trading
advisor and are members of the NFA as a commodity trading advisor),
but shall not be performed by any person affiliated with the Trust's
Commodities broker.
(b) To establish, maintain, deposit into, sign checks and/or
otherwise draw upon accounts on behalf of the Trust with appropriate banking
and savings institutions, and execute and/or accept any instrument or agreement
incidental to the Trust's business and in furtherance of its purposes, any such
instrument or agreement so executed or accepted by the Managing Owner in the
Managing Owner's name shall be deemed executed and accepted on behalf of the
Trust by the Managing Owner;
(c) To deposit, withdraw, pay, retain and distribute the Trust Estate
or any portion thereof in any manner consistent with the provisions of this
Trust Agreement;
(d) To supervise the preparation and filing of the Registration
Statement and supplements and amendments thereto, and the Prospectus;
(e) To pay or authorize the payment of distributions to the
Interestholders and expenses of the Trust;
(f) To invest or direct the investment of funds of the Trust not then
delegated to a Trading Manager(s) and prohibit any transactions contemplated
hereunder which may constitute prohibited transactions under ERISA or the Code;
(g) To make any elections on behalf of the Trust under the Code, or
any other applicable federal or state tax law as the Managing Owner shall
determine to be in the best interests of the Trust;
(h) To redeem mandatorily any Limited Interests upon at least ten
(10) days' prior written notice, if (i) the Managing Owner determines that the
continued participation of such Limited Owner in the Trust might cause the
Trust or any Interestholder to be deemed to be managing Plan Assets under ERISA,
(ii) there is an unauthorized assignment pursuant to the provisions of Article
V, or (iii) in the event that any transaction would or might violate any law or
constitute a prohibited transaction under ERISA or the Code and a statutory,
class or individual exemption from the prohibited transaction provisions of
ERISA for such transaction or transactions does not apply or
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cannot be obtained from the DOL (or the Managing Owner determines not to seek
such an exemption). In the case of mandatory redemptions, the Redemption Date
shall be the close of business on the date written notice of intent to redeem
is sent by the Managing Owner to a Limited Owner. A notice may be revoked prior
to the payment date by written notice from the Managing Owner to a Limited
Owner;
(i) In the sole discretion of the Managing Owner, to admit an
Affiliate or Affiliates of the Managing Owner as additional Managing Owners.
Notwithstanding the foregoing, the Managing Owner may not admit Affiliate(s) of
the Managing Owner as an additional Managing Owner if it has received notice of
its removal as a Managing Owner, pursuant to Section 8.2(d) hereof, or if the
concurrence of at least a majority in interest (over 50%) of the outstanding
Interest (not including Interests owned by the Managing Owner) is not obtained;
(j) Override any trading instructions: (i) that the Managing Owner,
in its sole discretion, determines in good faith to be in violation of any
trading policy or limitation of the Trust, including as set forth in Section
4.2(k) below; (ii) as and to the extent necessary, upon the failure of any
Trading Manager to comply with a request to make the necessary amount of funds
available to the Trust within five (5) days of such request, to fund
distributions, redemptions (including special redemptions), or reapportionments
among Trading Managers or to pay the expenses of the Trust; and provided
further, that the Managing Owner may make Commodities trading decisions at any
time at which any Trading Manager shall become incapacitated or some other
emergency shall arise as a result of which such Trading Manager shall be unable
or unwilling to act and a successor Trading Manager has not yet been retained;
(k) Monitor the trading activities of the Trading Manager so that:
(i) The Trust does not establish new Commodities positions for
any one contract month or option if such additional Commodities
positions would result in a net long or short position for that
Commodities position requiring as margin or premium more than
fifteen percent (15%) of the Trust Estate.
(ii) The Trust does not acquire additional Commodities positions
in any commodities interest contract or option if such additional
Commodities positions would result in the aggregate net long or
short Commodities positions requiring as margin or premium for all
outstanding Commodities positions more than sixty-six and two-thirds
percent (66 2/3%) of the Trust Estate. Under certain market
conditions, such as an abrupt increase in margins required by a
commodity exchange or its clearinghouse or an inability to liquidate
open Commodities positions because of daily price fluctuation limits
or both, the Trust may be required to commit as margin in excess of
the foregoing limit. In such event the Managing Owner will cause
each Trading Manager to reduce its open positions to comply with the
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foregoing limit before initiating new Commodities positions.
SECTION 4.3 Obligations of the Managing Owner. In addition to the
obligations expressly provided by the Business Trust Statute or this Trust
Agreement, the Managing Owner shall:
(a) Devote such of its time to the business and affairs of the Trust
as it shall, in its discretion exercised in good faith, determine to be
necessary to conduct the business and affairs of the Trust for the benefit of
the Trust and the Limited Owners;
(b) Execute, file, record and/or publish all certificates,
statements and other documents and do any and all other things as may be
appropriate for the formation, qualification and operation of the Trust and
for the conduct of its business in all appropriate jurisdictions;
(c) Retain independent public accountants to audit the accounts of
the Trust;
(d) Employ attorneys to represent the Trust;
(e) Use its best efforts to maintain the status of the Trust as a
"business trust" for state law purposes, and as a "partnership" for federal
income tax purposes;
(f) Monitor the trading policies and limitations of the Trust, as
set forth in the Prospectus, and the activities of the Trust's Trading
Manager(s) in carrying out those policies in compliance with the Prospectus;
(g) Monitor the brokerage fees charged to the Trust, and the
services rendered by futures commission merchants to the Trust, to determine
whether the fees paid by, and the services rendered to, the Trust for futures
brokerage are at competitive rates and are the best price and services available
under the circumstances, and if necessary, renegotiate the brokerage fee
structure to obtain such rates and services for the Trust. In making this
determination the Managing Owner shall not rely solely on the brokerage rates
paid by other major commodity pools. No material change related to brokerage
fees shall be made except upon twenty (20) Business Days' prior notice to the
Limited Owners, which notice shall include a description of the Limited Owners'
voting rights as set forth in Section 8.2 hereof and redemption rights as set
forth in Section 7.1 hereof, and no increase in such fees shall take effect
except at the beginning of a Fiscal Quarter following the consent of at least
a majority in interest of the Limited Owners (excluding the Managing Owner);
(h) Have fiduciary responsibility for the safekeeping and use of the
Trust Estate, whether or not in the Managing Owner's immediate possession or
control, and the Managing Owner will not employ or permit others to employ such
funds or assets of the Trust (including any interest earned thereon) in any
manner except as and to the extent permitted by the NASAA Guidelines for the
benefit of the Trust, including, among other
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things, the utilization of any portion of the Trust Estate as compensating
balances for the exclusive benefit of the Managing Owner. The Managing Owner
shall at all times act with integrity and good faith and exercise due diligence
in all activities relating to the conduct of the business of the Trust and in
resolving conflicts of interest. The Trust shall not permit any Limited Owner
to contract away the fiduciary duty owed to the Limited Owners by the Managing
Owner under this Agreement or the Delaware Business Trust Act. To the extent
that, at law or in equity, the Managing Owner or any officer, director,
employee or agent thereof or any Affiliate of the Managing Owner (collectively,
the "Covered Persons"), has duties (including fiduciary duties) and liabilities
relating thereto to the Trust, any other Interestholder or Covered Person or
the Trustee, such Covered Person acting under the Trust Agreement shall not be
liable to the Trust, any other Interestholder or Covered Person or the Trustee
for such Covered Person's good faith reliance on the provisions of the Trust
Agreement; and the duties and liabilities of such Covered Person may be
expanded or restricted by the provisions of this Trust Agreement.
(i) Agree that, at all times from and after the sale of at least
100,000 Interests, for so long as it remains a Managing Owner of the Trust, it
shall have a minimum "net worth" (as defined below) and not take any affirmative
action to reduce its "net worth" below an amount equal to five percent (5%) of
the total contributions to the Trust. For this purpose, "net worth" shall be
calculated in accordance with GAAP, provided that the Managing Owner's interests
in and receivables due from the Trust will be excluded and any minimum net
worth being maintained with respect to all other entities in which the Managing
Owner is a managing owner or a general partner (which minimum net worth,
calculated with respect to each such other entity in the same manner as for
the Trust, shall not be less than 5% of the total contributions made to such
entity) will be subtracted, but any notes receivable from an Affiliate of the
Managing Owner may be included. The requirements of this Section 4.3(i) may be
modified if the Managing Owner is advised by tax counsel to the Trust that the
proposed modification will not adversely affect the classification of the Trust
as a partnership for federal income tax purposes; provided, however, that in no
event will the Managing Owner's net worth be less than the net worth
requirements imposed by the NASAA Guidelines as in effect on the date hereof,
except to the extent that such requirements are amended to mandate a higher net
worth, in which event the Managing Owner's net worth will in no event be less
than such higher net worth;
(j) Admit substituted Limited Owners in accordance with this Trust
Agreement;
(k) Refuse to recognize any attempted transfer or assignment of an
Interest that is not made in accordance with the provisions of Article V; and
(l) Maintain a current list in alphabetical order, of the names and
last known addresses and, if available, business telephone numbers of, and
number of Interests owned by, each Interestholder (as provided in Section 3.2
hereof) and the other Trust documents described in Section 9.6 at the Trust's
principal place of business, which documents shall be made available thereat at
reasonable times during ordinary business hours for inspection
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by any Limited Owner or his representative for any purpose reasonably related
to the Limited Owner's interest as a beneficial owner of the Trust. Such list
shall be printed on white paper in clearly legible print and shall be updated
quarterly. Upon request, for any purpose reasonably related to the Limited
Owner's interest as a beneficial owner of the Trust, including without
limitation, matters relating to an Interestholder's voting rights hereunder or
the exercise of a Limited Owner's rights under federal proxy law, either in
person or by mail, the Managing Owner will furnish a copy of such list to a
Limited Owner or his representative within ten (10) days of a request therefor,
upon payment of the cost of reproduction and mailing; provided, however, that
the Limited Owner requesting such list shall give written assurance that the
list will not, in any event, be used for commercial purposes. Subject to
applicable law, a Limited Owner shall give the Managing Owner at least ten (10)
Business Days' prior written notice for any inspection and copying permitted
pursuant to this Section 4.3(l) by the Limited Owner or his authorized
attorney or agent.
SECTION 4.4 General Prohibitions. The Trust shall not:
(a) Borrow money from or loan money to any Interestholder or other
Person, except that the foregoing is not intended to prohibit (i) the deposit
on margin with respect to the initiation and maintenance of the Trust's
Commodities positions or (ii) obtaining lines of credit for the trading of
forward contracts; provided, however, that the Trust is prohibited from
incurring any indebtedness on a non-recourse basis;
(b) Create, incur, assume or suffer to exist any lien, mortgage,
pledge conditional sales or other title retention agreement, charge, security
interest or encumbrance, except (i) the right and/or obligation of a commodity
broker to close out sufficient Commodities positions of the Trust so as to
restore the Trust's account to proper margin status in the event that the Trust
fails to meet a Margin Call, (ii) liens for taxes not delinquent or being
contested in good faith and by appropriate proceedings and for which
appropriate reserves have been established, (iii) deposits or pledges to
secure obligations under workmen's compensation, social security or similar
laws or under unemployment insurance, (iv) deposits or pledges to secure
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of business, or (v) mechanic's, warehousemen's,
carrier's, workmen's, materialmen's or other like liens arising in the ordinary
course of business with respect to obligations which are not due or which are
being contested in good faith, and for which appropriate reserves have been
established if required by generally accepted accounting principles, and liens
arising under ERISA;
(c) Commingle its assets with those of any other Person, except to
the extent permitted under the CE Act, and the regulations promulgated
thereunder;
(d) Directly or indirectly pay or award any finder's fees, commissions
or other compensation to any Persons engaged by a potential Limited Owner for
investment advice as an inducement to such advisor to advise the potential
Limited Owner to purchase Limited Interests in the Trust;
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(e) Engage in Pyramiding of its Commodities positions; provided,
however, that a Trading Manager(s) may take into account the Trust's open trade
equity on existing positions in determining generally whether to acquire
additional Commodities positions on behalf of the Trust;
(f) Permit rebates to be received by the Managing Owner or any
aAffiliate of the Managing Owner, or permit the Managing Owner or any Affiliate
of the Managing Owner to engage in any reciprocal business arrangements which
would circumvent the foregoing prohibition;
(g) Permit the Trading Manager(s) to share in any portion of brokerage
fees related to commodity brokerage services paid by the Trust with respect to
its commodity trading activities;
(h) Enter into any contract with the Managing Owner or an Affiliate
of the Managing Owner (except for selling agreements for the sale of Interests)
(i) which has a term of more than one year and which does not provide that it
may be canceled by the Trust without penalty on sixty (60) days prior written
notice or (ii) for the provision of goods and services, except at rates and
terms at least as favorable as those which may be obtained from third parties
in arms-length negotiations;
(i) permit churning of its Commodity trading account(s) for the
purpose of generating excess brokerage commissions; and
(j) Enter into any exclusive brokerage contract.
SECTION 4.5 Liability of Covered Persons. A Covered Person shall have no
liability to the Trust or to any Interestholder or other Covered Person for
any loss suffered by the Trust which arises out of any action or inaction of
such Covered Person if such Covered Person, in good faith, determined that
such course of conduct was in the best interest of the Trust and such course
of conduct did not constitute negligence or misconduct of such Covered
Person. Subject to the foregoing, neither the Managing Owner nor any other
Covered Person shall be personally liable for the return or repayment of all
or any portion of the capital or profits of any Limited Owner or assignee
thereof, it being expressly agreed that any such return of capital or profits
made pursuant to this Trust Agreement shall be made solely from the assets of
the Trust without any rights of contribution from the Managing Owner or any
other Covered Person.
SECTION 4.6 Indemnification of the Managing Owner.
(a) The Managing Owner shall be indemnified by the Trust against any
losses, judgments, liabilities, expenses and amounts paid in settlement of
any claims sustained by it in connection with the Trust, provided that (i)
the Managing Owner was acting on behalf of or performing services for the
Trust and has determined, in good faith, that such course of conduct was in
the best interests of the Trust and such liability or loss
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was not the result of negligence, misconduct, or a breach of this Trust
Agreement on the part of the Managing Owner and (ii) any such
indemnification will only be recoverable from the Trust Estate.
All rights to indemnification permitted herein and payment of
associated expenses shall not be affected by the dissolution or
other cessation to exist of the Managing Owner, or the withdrawal,
adjudication of bankruptcy or insolvency of the Managing Owner.
Any indemnification under this Section 4.6(a), unless ordered by a
court, shall be made by the Trust only as authorized in the
specific case and only upon a determination by independent legal
counsel in a written opinion that indemnification of the Managing
Owner is proper in the circumstances because it has met the
applicable standard of conduct set forth hereunder.
(b) Notwithstanding the provisions of Section 4.6(a)
above, the Managing Owner and any Person acting as broker-dealer
for the Trust shall not be indemnified for any losses, liabilities
or expenses arising from or out of an alleged violation of federal
or state securities laws unless (i) there has been a successful
adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the
court approves the indemnification of such expenses (including,
without limitation, litigation costs), (ii) such claims have been
dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court approves
the indemnification of such expenses (including, without
limitation, litigation costs) or (iii) a court of competent
jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
(c) In any claim for indemnification for federal or
state securities law violations, the party seeking indemnification
shall place before the court the position of the Securities and
Exchange Commission, the position of the Massachusetts Securities
Division, the Pennsylvania Securities Commission, the Tennessee
Securities Division and the position of any other applicable state
securities division which requires disclosure with respect to the
issue of indemnification for securities law violations.
(d) The Trust shall not incur the cost of that portion
of any insurance which insures any party against any liability the
indemnification of which is herein prohibited.
(e) Expenses incurred in defending a threatened or
pending civil, administrative or criminal action suit or proceeding
against the Managing Owner shall be paid by the Trust in advance of
the final disposition of such action, suit or proceeding, if (i)
the legal action relates to the performance of duties or services
by the Managing Owner on behalf of the Trust; (ii) the legal action
is initiated by a third party who is not a Limited Owner or the
legal action is initiated by a Limited Owner and a court of
competent jurisdiction specifically approves such advancement; and
(iii) the Managing Owner undertakes to repay the advanced funds
with interest to the Trust in cases in which it is not entitled to
indemnification under this Section 4.6.
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(f) The term "Managing Owner" as used only in this
Section 4.6 shall include, in addition to the Managing Owner, any
other Covered Person performing services on behalf of the Trust and
acting within the scope of the Managing Owner's authority as set
forth in this Trust Agreement.
(g) In the event the Trust is made a party to any claim,
dispute, demand or litigation or otherwise incurs any loss,
liability, damage, cost or expense as a result of or in connection
with any Limited Owner's (or assignee's) obligations or liabilities
unrelated to the Trust business, such Limited Owner (or assignees
cumulatively) shall indemnify, defend, hold harmless, and reimburse
the Trust for all such loss, liability, damage, cost and expense
incurred, including attorneys' and accountants' fees.
SECTION 4.7 Expenses.
(a) The Managing Owner or an Affiliate of the Managing
Owner shall be responsible for the payment of all Organization and
Offering Expenses incurred in the creation of the Trust and sale of
Interests. Organization and Offering Expenses shall mean those
expenses incurred in connection with the formation, qualification
and registration of the Trust and the Interests and in offering,
distributing and processing the Interests under applicable federal
and state law, and any other expenses actually incurred and,
directly or indirectly, related to the organization of the Trust or
the initial and continuous offering of the Interests, including,
but not limited to, expenses such as: (i) initial and ongoing
registration fees, filing fees, escrow fees and taxes, (ii) costs
of preparing, printing (including typesetting), amending,
supplementing, mailing and distributing the Registration Statement,
the Exhibits thereto and the Prospectus during the Initial and
Continuous Offering Periods, (iii) the costs of qualifying,
printing, (including typesetting), amending, supplementing, mailing
and distributing sales materials used in connection with the
offering and issuance of the Interests during the Initial and
Continuous Offering Periods, (iv) travel, telegraph, telephone and
other expenses in connection with the offering and issuance of the
Interests during the Initial and Continuous Offering Periods, (v)
accounting, auditing and legal fees (including disbursements
related thereto) incurred in connection therewith, and (vi) any
extraordinary expenses (including, but not limited to, legal claims
and liabilities and litigation costs and any permitted
indemnification associated therewith) related thereto.
(b) All ongoing charges, costs and expenses of the
Trust's operation, including, but not limited to, the routine
expenses associated with (i) preparation of monthly, annual and
other reports required by applicable federal and state regulatory
authorities, (ii) Trust meetings and preparing, printing and
mailing of proxy statements and reports to Interestholders, (iii)
the payment of any distributions related to redemption of
Interests, (iv) services of accountants employed by Affiliates of
the Managing Owner, (v) postage, insurance and filing fees, (vi)
client relations and services, (vii) computer equipment and system
development, (viii) the fees to be paid to the Trust's Commodities
broker, (ix) required payments to the Trust's Trading Manager and
other unaffiliated third party service providers, such as the
Trustee, independent legal counsel and independent certified public
accounts, and (x) extraordinary expenses (including, but not
limited to, legal
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claims and liabilities and litigation costs and
any indemnification related thereto), shall be billed to and paid
by the Managing Owner or an affiliate of the Managing Owner.
(c) The Managing Owner or any Affiliate of the
Managing Owner may only be reimbursed for the actual cost to the
Managing Owner or such Affiliate of any expenses which it advances
on behalf of the Trust for which payment the Trust is responsible.
In addition, payment to the Managing Owner or such Affiliate for
indirect expenses incurred in performing services for the Trust,
such as salaries and fringe benefits of officers and directors,
rent or depreciation, utilities and other administrative items
generally falling within the category of the Managing Owner's
"overhead," is prohibited.
SECTION 4.8 Compensation to the Managing Owner. Except as
provided in Section 7.1(c) with respect to the payment of
redemption charges, the Managing Owner shall not, in its capacity
as Managing Owner, receive any salary, fees, profits or
distributions. The Managing Owner shall, in its capacity as an
Interestholder, be entitled to receive allocations and
distributions pursuant to the provisions of this Trust Agreement.
SECTION 4.9 Other Business of Interestholders. Except as
otherwise specifically provided herein, any of the Interestholders
and any shareholder, officer, director, employee or other person
holding a legal or beneficial interest in an entity which is an
Interestholder, may engage in or possess an interest in other
business ventures of every nature and description, independently or
with others, and the pursuit of such ventures, even if competitive
with the business of the Trust, shall not be deemed wrongful or
improper. The Managing Owner and Affiliates of the Managing Owner
shall not engage in a venture competitive with the Trust except
where such venture will not have an adverse economic effect on the
business of the Trust.
SECTION 4.10 Voluntary Withdrawal of the Managing Owner. The
Managing Owner may withdraw voluntarily as the Managing Owner of
the Trust only upon one hundred and twenty (120) days' prior
written notice to all Limited Owners and the Trustee and the prior
approval of Limited Owners holding at least a majority in interest
(over 50%) of the outstanding Interests (excluding Interests of the
Managing Owner). If the withdrawing Managing Owner is the last
remaining Managing Owner, Limited Owners holding at least a
majority in interest (over 50%) of the outstanding Interests (not
including Interests held by the Managing Owner) may vote to elect
and appoint, effective as of a date on or prior to the withdrawal,
a successor Managing Owner who shall carry on the business of the
Trust. If the Managing Owner withdraws as Managing Owner and the
Limited Owners or remaining Managing Owner elect to continue the
Trust, the withdrawing Managing Owner shall pay all expenses
incurred as a result of its withdrawal. In the event of its
removal or withdrawal, the Managing Owner shall be entitled to a
redemption of its Interest at the Net Asset Value thereof on the
next Redemption Date following the date of removal or withdrawal.
SECTION 4.11 Authorization of Registration Statement. Each
Limited Owner (or any permitted assignee thereof) hereby agrees
that the Managing Owner is authorized to
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execute, deliver and perform the agreements, acts, transactions and matters
contemplated hereby or described in or contemplated by the Registration
Statement on behalf of the Trust without any further act, approval
or vote of the Limited Owners of the Trust, notwithstanding any
other provision of this Trust Agreement, the Business Trust Statute
or any applicable law, rule or regulation.
SECTION 4.12 Litigation. The Managing Owner is hereby
authorized to prosecute, defend, settle or compromise actions or
claims at law or in equity at the Trust's expense as may be
necessary or proper to enforce or protect the Trust's interests.
The Managing Owner shall satisfy any judgment, decree or decision
of any court, board or authority having jurisdiction or any
settlement of any suit or claim prior to judgment or final decision
thereon, first, out of any insurance proceeds available therefor,
next, out of the Trust's assets, and thereafter out of the assets
of the Managing Owner.
ARTICLE V
TRANSFERS OF INTERESTS
SECTION 5.1 General Prohibition. A Limited Owner may not
sell, assign, transfer or otherwise dispose of, or pledge,
hypothecate or in any manner encumber any or all of his Interests
or any part of his right, title and interest in the capital or
profits of the Trust except as permitted in this Article V and any
act in violation of this Article V shall not be binding upon or
recognized by the Trust (regardless of whether the Managing Owner
shall have knowledge thereof), unless approved in writing by the
Managing Owner.
SECTION 5.2 Transfer of Managing Owner's General Interests.
(a) Upon an Event of Withdrawal (as defined in Section
13.1), the Managing Owner's General Interests shall be purchased by
the Trust for a purchase price in cash equal to the Net Asset Value
thereof. The Managing Owner will not cease to be a Managing Owner
of the Trust merely upon the occurrence of its making an assignment
for the benefit of creditors, filing a voluntary petition in
bankruptcy, filing a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statue, law or
regulation, filing an answer or other pleading admitting or failing
to contest material allegations of a petition filed against it in
any proceeding of this nature or seeking, consenting to or
acquiescing in the appointment of a trustee, receiver of liquidator
for itself or of all or any substantial part of its properties.
(b) To the full extent permitted by law, nothing in this
Trust Agreement shall be deemed to prevent the merger of the
Managing Owner with another corporation, the reorganization of the
Managing Owner into or with any other corporation, the transfer of
all the capital stock of the Managing Owner or the assumption of
the Interests, rights, duties and liabilities of the Managing Owner
by, in the case of a merger, reorganization or consolidation, the
surviving corporation by operation of law.
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(c) Upon assignment of all of its Interests, the
Managing Owner shall not cease to be a Managing Owner of the Trust,
or to have the power to exercise any rights or powers as a Managing
Owner, or to have liability for the obligations of the Trust under
Section 1.7 hereof, until an additional Managing Owner, who shall
carry on the business of the Trust, has been admitted to the Trust.
SECTION 5.3 Transfer of Limited Interests.
(a) Permitted assignees of the Limited Owners shall be
admitted as substitute Limited Owners, pursuant to this Article V,
only upon the consent of the Managing Owner, which may be withheld
in the Managing Owner's sole and absolute discretion. The parties
hereto hereby agree that such restrictions are necessary and
desirable in order to maintain the Trust's tax classification as a
partnership, to avoid having the Trust classified as a publicly
traded partnership or to avoid adverse legal consequences to the
Trust.
(i) A substituted Limited Owner is a permitted
assignee that has been admitted to the Trust as a Limited
Owner with all the rights and powers of a Limited Owner
hereunder. If all of the conditions provided in Section
5.3(b) below are satisfied, the Managing Owner shall
admit permitted assignees into the Trust as Limited
Owners by making an entry on the books and records of the
Trust reflecting that such permitted assignees have been
admitted as Limited Owners, and such permitted assignees
will be deemed Limited Owners at such time as such
admission is reflected on the books and records of the
Trust.
(ii) A permitted assignee is a Person to whom a
Limited Owner has assigned his Limited Interests with the
consent of the Managing Owner, as provided below in
Section 5.3(d), but who has not become a substituted
Limited Owner. A permitted assignee shall have no right
to vote, to obtain any information on or account of the
Trust's transactions or to inspect the Trust's books, but
shall only be entitled to receive the share of the
profits, or the return of the Capital Contribution, to
which his assignor would otherwise be entitled as set
forth in Section 5.3(d) below to the extent of the
Limited Interests assigned. Each Limited Owner agrees
that any permitted assignee may become a substituted
Limited Owner without the further act or consent of any
Limited Owner, regardless of whether his permitted
assignee becomes a substituted Limited Owner.
(iii) A Limited Owner shall bear all costs
(including attorneys' and accountants' fees) related to
any transfer, assignment, pledge or encumbrance of his
Limited Interests.
(b) No permitted assignee of the whole or any portion of
a Limited Owner's Limited Interests shall have the right to become
a substituted Limited Owner in
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place of his assignor unless all of the following conditions are satisfied:
(i) The written consent of the Managing Owner to
such substitution shall be obtained, the granting or
denial of which shall be within the sole and absolute
discretion of the Managing Owner.
(ii) A duly executed and acknowledged written
instrument of assignment has been filed with the Trust
setting forth the intention of the assignor that the
permitted assignee become a substituted Limited Owner in
his place;
(iii) The assignor and permitted assignee
execute and acknowledge and/or deliver such other
instruments as the Managing Owner may deem necessary or
desirable to effect such admission, including his
execution, acknowledgement and delivery to the Managing
Owner, as a counterpart to this Trust Agreement, of a
Power of Attorney in the form set forth in the
Subscription Agreement; and
(iv) Upon the request of the Managing Owner, an
opinion of the Trust's independent legal counsel is
obtained to the effect that (i) the assignment will not
jeopardize the Trust's tax classification as a
partnership or cause the Trust to be deemed a publicly
traded partnership, and (ii) the assignment does not
violate this Trust Agreement or the Business Trust
Statute.
(c) Any Person admitted to the Trust as an
Interestholder shall be subject to all of the provisions of this
Trust Agreement as if an original signatory hereto.
(d)(i) Subject to the provisions of Section 5.3(e)
below, compliance with the suitability standards imposed by the
Trust for the purchase of new Interests, applicable federal
securities and state "Blue Sky" laws and the rules of any other
applicable governmental authority, a Limited Owner shall have the
right to assign all or any of his Limited Interests to any assignee
by a written assignment (on a form acceptable to the Managing
Owner) the terms of which are not in contravention of any of the
provisions of this Trust Agreement, which assignment has been
executed by the assignor and received by the Trust and recorded on
the books thereof. An assignee of a Limited Interest (or any
interest therein) will not be recognized as a permitted assignee
without the consent of the Managing Owner, which consent the
Managing Owner shall withhold only under the following
circumstances: (A) if necessary, in the judgment of the Managing
Owner (and upon receipt of an opinion of counsel to this effect),
to preserve the classification of the Trust as a partnership for
federal income tax purposes or to preserve the characterization or
treatment of Trust income or loss; or (B) if, as a result of such
assignment, the Trust would be unable to satisfy at least one of
the safe harbors for avoiding treatment as a publicly traded
partnership provided in Treas. Reg. S 1.7704-1(e) (or under other
safe harbors established by the IRS that protect against treatment
as a publicly traded
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partnership); or (C) if such assignment is effectuated through an established
securities market or a secondary market (or the substantial equivalent
thereof). The Managing Owner shall withhold its consent to assignments made
under the foregoing circumstances, and shall exercise such right by taking any
actions as it seems necessary or appropriate in its reasonable discretion
so that such transfers or assignments of rights are not in fact
recognized, and the assignor or transferor continues to be
recognized by the Trust as an Interestholder for all purposes
hereunder, including the payment of any cash distribution. The
Managing Owner shall incur no liability to any investor or
prospective investor for any action or inaction by it in connection
with the foregoing, provided it acted in good faith.
(ii) Except as specifically provided in this Trust
Agreement, a permitted assignee of an Interest shall be
entitled to receive distributions from the Trust
attributable to the Interest acquired by reason of such
assignment from and after the effective date of the
assignment of such Interest to him. The "effective date"
of an assignment of a Limited Interest as used in this
clause shall be the first day of the next succeeding
calendar month, provided the Managing Owner shall have
been in receipt of the written instrument of assignment
for at least thirty (30) days prior thereto. If the
assignee is (A) an ancestor or descendant of the Limited
Owner, (B) the personal representative or heir of a
deceased Limited Owner, (C) the trustee of a trust whose
beneficiary is the Limited Owner or another person to
whom a transfer could otherwise be made or (D) the
shareholders, partners, or beneficiaries of a
corporation, partnership or trust upon its termination or
liquidation, then the "effective date" of an assignment
of an Interest in the Trust shall be the first day of the
calendar month immediately following the month in which
the written instrument of assignment is received by the
Managing Owner.
(iii) Anything herein to the contrary
notwithstanding, the Trust and the Managing Owner shall
be entitled to treat the permitted assignor of such
Interest as the absolute owner thereof in all respects,
and shall incur no liability for distributions made in
good faith to him, until such time as the written
assignment has been received by, and recorded on the
books of, the Trust.
(e)(i) No assignment or transfer of an Interest may be
made which would result in the Limited Owners and permitted
assignees of the Limited Owners owning, directly or indirectly,
individually or in the aggregate, five percent (5%) or more of the
stock of the Managing Owner or any related person as defined in
Sections 267(b) and 707(b)(1) of the Code. If any such assignment
or transfer would otherwise be made by bequest, inheritance of
operation of law, the Interest transferred shall be deemed sold by
the transferor to the Trust immediately prior to such transfer in
the same manner as provided in Section 5.3(e)(iii).
(ii) No assignment or transfer of an interest in the
Trust may be
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made which would contravene the NASAA
Guidelines, as adopted in any state in which the proposed
transferor and transferee reside including, without
limitation, the restriction set forth in Paragraph F(2)
of Article V thereof, which precludes any assignment
(except for assignments by gift, inheritance, intrafamily
assignment, family dissolutions and transfers to
affiliates), which would result in either the assignee or
the assignor holding Interests valued at less than $5,000
(or $2,000 in the case if IRAs), provided, however, that
this limitation shall not apply in respect of a Limited
Owner wishing to assign its or his entire interest in the
Trust.
(iii) Anything else to the contrary contained
herein notwithstanding: (A) In any particular twelve
(12) consecutive month period no assignment or transfer
of an Interest may be made which would result in
increasing the aggregate total of Interests previously
assigned and/or transferred in said period to forty-nine
percent (49%) or more of the outstanding Interests. This
limitation is hereinafter referred to as the "forty-nine
percent (49%) limitation"; (B) Clause (ii)(A) hereof
shall not apply to a transfer by gift, bequest or
inheritance, or a transfer to the Trust, and, for
purposes of the forty-nine percent (49%) limitation, any
such transfer shall not be treated as such; (C) If,
after the forty-nine percent (49%) limitation is reached
in any consecutive twelve (12) month period, a transfer
of an Interest would otherwise take place by operation of
law (but not including any transfer referred to in clause
(iii)(B) hereof) and would cause a violation of the
forty-nine percent (49%) limitation, then said
Interest(s) shall be deemed to have been sold by the
transferor to the Trust in liquidation of said
Interest(s) immediately prior to such transfer for a
liquidation price equal to the Net Asset Value of said
Interest(s) on such date of transfer. The liquidation
price shall be paid within ninety (90) days after the
date of the transfer.
(f) The Managing Owner, in its sole discretion, may
cause the Trust to make, refrain from making, or once having made,
to revoke, the election referred to in Section 754 of the Code, and
any similar election provided by state or local law, or any similar
provision enacted in lieu thereof.
(g) The Managing Owner, in its sole discretion, may
cause the Trust to make, refrain from making, or once having made,
to revoke the election by a qualified fund under Section
988(c)(1)(E)(V), and any similar election provided by state or
local law, or any similar provision enacted in lieu thereof.
(h) Each Limited Owner hereby agrees to indemnify and
hold harmless the Trust and each Interestholder against any and all
losses, damages, liabilities or expense (including, without
limitation, tax liabilities or loss of tax benefits) arising,
directly or indirectly, as a result of any transfer or purported
transfer by such Limited Owner in violation of any provision
contained in this Section 5.3.
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ARTICLE VI
DISTRIBUTION AND ALLOCATIONS
SECTION 6.1 Capital Accounts. A capital account shall be
established for each Interestholder on the books of the Trust (such
account sometimes hereinafter referred to as a "book capital
account"). The initial balance of each Interestholder's book
capital account shall be the amount of his initial Capital
Contribution to the Trust.
SECTION 6.2 Monthly Allocations. As of the close of business
(as determined by the Managing Owner) on the last Business Day of
each calendar month during each Fiscal Year of the Trust, the
following determinations and allocations shall be made:
(a) First, any increase or decrease in the Trust's Net
Asset Value as of such date as compared to the next previous
determination of Net Asset Value shall be credited or charged to
the book capital accounts of the Interestholders in the ratio that
the balance of each Interestholder's book capital account bears to
the balance of all Interestholders' book capital accounts; and
(b) Next, the amount of any distribution to be made to
an Interestholder and any amount to be paid to an Interestholder
upon redemption of his Interests shall be charged to that
Interestholder's book capital account as of the applicable record
date and Redemption Date, respectively.
SECTION 6.3 Allocation of Profit and Loss for United States
Federal Income Tax Purposes. As of the end of each Fiscal Year of
the Trust, the Trust's recognized profit and loss shall be
allocated among the Interestholders pursuant to the following
subparagraphs for federal income tax purposes. Except as otherwise
provided herein, such allocations of profit and loss shall be pro
rata from Disposition Gain (or Disposition Loss) and Profits (or
Losses).
(a) First, the Profits or Losses of the Trust shall be
allocated pro rata among the Interestholders based on their
respective book capital accounts as of the last of each calendar
month in which such Profits or Losses accrued.
(b) Next, Disposition Gain or Disposition Loss from the
Trust's trading activities for each Fiscal Year of the Trust shall
be allocated among the Interestholders as follows:
(i) There shall be established a tax capital
account with respect to each outstanding Interest. The
initial balance of each tax capital account shall be the
amount paid by the Interestholder to the Trust for the
Interest. Tax capital accounts shall be adjusted as of
the end of each Fiscal Year as follows: (A) Each tax
capital account shall be increased by the amount of
income (Profits or Disposition Gain) which shall have
been allocated to the
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Interestholder who shall hold the
Interest pursuant to Section 6.3(a) above and Sections
6.3(b)(ii) and 6.3(b)(iii) below; (B) Each tax capital
account shall be decreased by the amount of expense or
loss (Losses or Disposition Losses) which shall have been
allocated to the Interestholder who shall hold the
Interest pursuant to Section 6.3(a) above and Sections
6.3(b)(iv) and 6.3(b)(v) below and by the amount of any
distribution which shall have been received by the
Interestholder with respect to the Interest (other than
on redemption of Interests); and (C) If an Interest is
redeemed, the tax capital account with respect to such
Interest shall be eliminated on the Redemption Date.
(ii) Disposition Gain realized during any calendar
month shall be allocated first among all Interestholders
whose book capital accounts shall be in excess of their
Interests' tax capital accounts (after making the
adjustments, other than adjustments resulting from the
allocations to be made pursuant to this Section
6.3(b)(ii) for the current calendar month, described in
Section 6.3(b)(i) above) in the ratio that each such
Interestholder's excess shall bear to all such
Interestholder's excesses.
(iii) Disposition Gain realized during any
calendar month that remains after the allocation pursuant
to Section 6.3(b)(ii) above shall be allocated to those
Interestholders who were Interestholders during such
month in the ratio that each such Interestholder's book
capital account bears to all such Interestholders' book
capital accounts for such month.
(iv) Disposition Loss realized during any calendar
month shall be allocated first among all Interestholders
whose Interests' tax capital accounts shall be in excess
of their book capital accounts (after making the
adjustments, other than adjustments resulting from the
allocations to be made pursuant to this Section
6.3(b)(iv) for the current calendar month, described in
Section 6.3(b)(i) above) in the ratio that each such
Interestholder's excess shall bear to all such
Interestholders' excesses.
(v) Disposition Loss realized during any calendar
month that remains after the allocation pursuant to
Section 6.3(b)(iv) above shall be allocated to those
Interestholders who were Interestholders during such
calendar month in the ratio that each such
Interestholder's book capital account bears to all such
Interestholders' book capital accounts for such calendar
month.
(c) The tax allocations prescribed by this Section 6.3
shall be made to each holder of an Interest whether or not the
holder is a substituted Limited Owner. For purposes of this
Section 6.3, tax allocations shall be made to the Managing Owner's
Interests on an Interest-equivalent basis.
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(d) The allocation of income and loss (and items
thereof) for federal income tax purposes set forth in this Section
6.3 is intended to allocate taxable income and loss among
Interestholders generally in the ratio and to the extent that net
profit and net loss shall be allocated to such Interestholders
under Section 6.2 so as to eliminate, to the extent possible, any
disparity between an Interestholder's book capital account and his
tax capital account, consistent with the principles set forth in
Sections 704(b) and (c)(2) of the Code.
(e) Notwithstanding this Section 6.3, if after taking
into account any distributions to be made with respect to such
Interest for the relevant period pursuant to Section 6.4 herein,
any allocation would produce a deficit in the book capital account
of an Interest, the portion of such allocation that would create
such a deficit shall instead be allocated pro rata to the book
capital accounts of the other Interests held by the same
Interestholder (subject to the same limitation) and, as to any
balance, shall be allocated pro rata to the book capital accounts
of all the remaining Interestholders (subject to the same
limitation).
SECTION 6.4 Allocation of Distributions. Initially,
distributions shall be made by the Managing Owner, and the Managing
Owner shall have sole discretion in determining the amount and
frequency of distributions, other than redemptions, which the Trust
shall make with respect to the Interests; provided, however, that
the Trust shall not make any distribution that violates the
Business Trust Statute. The aggregate distributions made in a
Fiscal Year (other than distributions on termination, which shall
be allocated in the manner described in Article VIII) shall be
allocated among the holders of record of Interests in the ratio in
which the number of Interests held of record by each of them bears
to the number of Interests held of record by all of the
Interestholders as of the record date of such distribution;
provided, further, however, that any distribution made in respect
of an Interest shall not exceed the book capital account for such
Interest.
SECTION 6.5 Admissions of Interestholders; Transfers. For
purposes of this Article VI, Interestholders shall be deemed
admitted, and a tax and book capital account shall be established
in respect of the Interests acquired by such Interestholder or in
respect of additional Interests acquired by an existing
Interestholder, as of the first day of the calendar month following
the calendar month in which such Interestholder's subscription or
additional Capital Contribution, as the case may be, is accepted,
or the transfer of Interests to such Interestholder is recognized,
except that persons accepted as subscribers to the Trust pursuant
to Section 3.2(b) shall be deemed admitted on the date determined
pursuant to such Section. Any Interestholder to whom an Interest
had been transferred shall succeed to the tax and book capital
accounts attributable to the Interest transferred.
SECTION 6.6 Liability for State and Local and Other Taxes.
In the event that the Trust shall be separately subject to taxation
by any state or local or by any foreign taxing authority, the Trust
shall be obligated to pay such taxes to such jurisdiction. In the
event that the Trust shall be required to make payments to any
Federal, state or local or any foreign taxing authority in respect
of any Interestholder's allocable share of Trust income,
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the amount of such taxes shall be considered a loan by the Trust to such
Interestholder, and such Interestholder shall be liable for, and
shall pay to the Trust, any taxes so required to be withheld and
paid over by the Trust within ten (10) days after the Managing
Owner's request therefor. Such Interestholder shall also be liable
for (and the Managing Owner shall be entitled to redeem additional
Interests of the foreign Interestholder as necessary to satisfy)
interest on the amount of taxes paid over by the Trust to the IRS
or other taxing authority, from the date of the Managing Owner's
request for payment to the date of payment or the redemption, as
the case may be, at the rate of two percent (2%) over the prime
rate charged from time to time by Citibank, N.A. The amount, if
any, payable by the Trust to the Interestholder in respect of its
Interests so redeemed, or in respect of any other actual
distribution by the Trust to such Interestholder, shall be reduced
by any obligations owed to the Trust by the Interestholder,
including, without limitation, the amount of any taxes required to
be paid over by the Trust to the IRS or other taxing authority and
interest thereon as aforesaid. Amounts, if any, deducted by the
Trust from any actual distribution or redemption payment to such
Interestholder shall be treated as an actual distribution to such
Interestholder for all purposes of this Trust Agreement.
ARTICLE VII
REDEMPTIONS
SECTION 7.1 Redemption of Interests. The Interestholders
recognize that the profitability of the Trust depends upon
long-term and uninterrupted investment of capital. It is agreed,
therefore, that Trust profits and gains may be automatically
reinvested, and that distributions, if any, of profits and gains to
the Interestholders will be on a limited basis. Nevertheless, the
Interestholders contemplate the possibility that one or more of the
Limited Owners may elect to realize and withdraw profits, or
withdraw capital through the redemption of Interests prior to the
dissolution of the Trust. In that regard and subject to the
provisions of Section 4.2(h):
(a) Subject to the conditions set forth in this Article
VII, each Limited Owner (or any permitted assignee thereof) shall
have the right to redeem any Limited Interest or portion thereof
that he owns immediately following the close of business on the
last day of a month following the date the Managing Owner is in
receipt of written notice of redemption for at least ten (10) days
(a "Redemption Date"), commencing with the end of the first full
calendar month of Trust trading activity. Interests will be
redeemed on a "first in, first out" basis based on time of receipt
of redemption requests. If an Interestholder (or permitted
assignee thereof) is permitted to redeem any or all of his
Interests as of a date other than a Redemption Date, such
adjustments in the determination and allocation among the
Interestholders of Disposition Gain, Disposition Loss, Profits,
Losses and items of income or deduction for tax accounting purposes
shall be made as are necessary or appropriate to reflect and give
effect to the redemption.
(b) Subject to the provisions of Section 13.1(h), in the
event that the Net
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Asset Value per Interest as of the close of any Business Day shall decrease
to less than fifty percent (50%) of the Net Asset Value per Interest as of the
last day of the preceding month, Limited Owners shall be given notice of such
event, as provided in Section 9.4 hereof. In such event, (i) the Managing
Owner will cease its commodity trading activities for twenty (20)
Business Days and (ii) Limited Owners shall be permitted to redeem
one or more whole or fractional Interests that they own by
notifying the Managing Owner of their intent to redeem. Such
special redemptions will be effective as of the twentieth (20th)
Business Day following the mailing date of the notice described in
Section 9.4 hereof (the "Special Redemption Date"), provided the
Managing Owner is in receipt of such notice from the Limited Owner
for a least five (5) Business Days. Interests will be valued as of
the close of business on the Special Redemption Date.
(c) The value of an Interest for purposes of redemption
shall be the book capital account balance of such Interest at the
close of business on the Redemption Date, less any amount owing by
such Limited Owner (and his permitted assignee, if any) to the
Trust pursuant to Sections 4.6(g), 5.3(h) or 6.6 of this Trust
Agreement; provided, however, that Interests which are redeemed on
or prior to the end of the first and second six-month periods after
such Interests are sold will be assessed redemption charges of 4%
and 3%, respectively, which redemption charges will be paid to the
Managing Owner, provided, however, that no such redemption charges
will be imposed with respect to any Interests in the event that the
Limited Owner thereof certifies to the Trust that the Interests are
being redeemed as a result of an increase in fees and expenses
imposed on the Trust above those disclosed in the Prospectus. If
redemption of an Interest shall be requested by a permitted
assignee, all amounts which shall be owed to the Trust under
Sections 4.6(g), 5.3(h) or 6.6 hereof by the Interestholder of
record, as well as all amounts which shall be owed by all permitted
assignees of such Interests, shall be deducted from the Net Asset
Value of such Interests upon redemption.
(d) The effective date of redemption shall be the
Redemption Date and payment of the value of the redeemed Interests
generally shall be made within ten (10) Business Days following the
Redemption Date; provided, that all liabilities, contingent or
otherwise, of the Trust, except any liability to Interestholders on
account of their Capital Contributions, have been paid or there
remains property of the Trust sufficient to pay them; and provided
further, that under extraordinary circumstances as may be
determined by the Managing Owner in its sole discretion, including,
but not limited to, the inability to liquidate Commodity positions
as of such Redemption Date, or default or delay in payments due the
Trust from commodity brokers, banks or other Persons, or
significant administrative hardship, the Trust may in turn delay
payment to Limited Owners requesting redemption of Interests of the
proportionate part of the value of redeemed Interests represented
by the sums which are the subject of such default or delay, in
which event payment for redemption of such Interests will be made
to Limited Owners as soon thereafter as is practicable. A Limited
Owner may revoke his notice of intent to redeem on or prior to the
Redemption Date by written instructions to the Managing Owner. If
a Limited Owner revokes his notice of intent to redeem and
thereafter wishes to redeem, such Limited Owner will be required to
submit written notice thereof in accordance with Section 7.1(e) and
will be
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redeemed on the first Redemption Date to occur after the
Managing Owner shall have been in receipt of such written notice
for at least ten (10) Business Days.
(e) A Limited Owner (or any permitted assignee thereof)
wishing to redeem Interests must provide the Managing Owner with
written notice of his intent to redeem, which notice shall specify
the name and address of the redeeming Limited Owner and the amount
of Limited Interests sought to be redeemed. The notice of
redemption shall be in the form annexed to the Prospectus or in any
other form acceptable to the Managing Owner and shall be mailed or
delivered to the principal place of business of the Managing Owner.
Such notice must include representations and warranties that the
redeeming Limited Owner (or any permitted assignee thereof) is the
lawful and beneficial owner of the Interests to be redeemed and
that such Interests are not subject to any pledge or otherwise
encumbered in any fashion. In certain circumstances, the Trust may
require additional documents, such as, but not limited to, trust
instruments, death certificates, appointments as executor or
administrator or certificates of corporate authority. Limited
Owners requesting redemption shall be notified in writing within
ten (10) Business Days following the Redemption Date whether or not
their Interests will be redeemed, unless payment for the redeeming
Interests is made within that ten (10) Business Day period, in
which case the notice of acceptance of the redemption shall not be
required.
(f) The Managing Owner may suspend temporarily any
redemption if the effect of such redemption, either alone or in
conjunction with other redemptions, would be to impair the Trust's
ability to operate in pursuit of its objectives. In addition, the
Managing Owner may mandatorily redeem Interests pursuant to Section
4.2(h).
(g) Interests that are redeemed shall be extinguished
and shall not be retained or reissued by the Trust.
(h) Except as discussed above, all requests for
redemption in proper form will be honored, and the Trust's
positions will be liquidated to the extent necessary to discharge
its liabilities on the Redemption Date.
SECTION 7.2 Redemption By the Managing Owner.
Notwithstanding any provision in this Trust Agreement to the
contrary, for so long as it shall act as the Trust's Managing
Owner, the Managing Owner shall not transfer or redeem any of its
General Interests to the extent that any such transfer or
redemption would result in its having less than a one percent (1%)
interest in the Trust.
ARTICLE VIII
THE LIMITED OWNERS
SECTION 8.1 No Management or Control; Limited Liability. The
Limited Owners shall not participate in the management or control
of the Trust's business nor shall they
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transact any business for the Trust or have the power to sign for or bind the
Trust, said power being vested solely and exclusively in the Managing Owner.
Except as provided in Section 8.3 hereof, no Limited Owner shall be
bound by, or be personally liable for, the expenses, liabilities or
obligations of the Trust in excess of his Capital Contribution plus
his share of the Trust Estate and profits remaining in the Trust,
if any. Except as provided herein, each Limited Interest owned by
a Limited Owner shall be fully paid and no assessment shall be made
against any Limited Owner. No salary shall be paid to any Limited
Owner in his capacity as a Limited Owner, nor shall any Limited
Owner have a drawing account or earn interest on his contribution.
SECTION 8.2 Rights and Duties. The Limited Owners shall have
the following rights, powers, privileges, duties and liabilities:
(a) The Limited Owners shall have the right to obtain
information of all things affecting the Trust, provided that such
is for a purpose reasonably related to the Limited Owner's interest
as a beneficial owner of the Trust, including, without limitation,
such reports as are set forth in Article IX and such information as
is set forth in Section 4.3(l) hereof. In the event that the
Managing Owner neglects or refuses to produce or mail to a Limited
Owner a copy of the information set forth in Section 4.3(l) hereof,
the Managing Owner shall be liable to such Limited Owner for the
costs, including reasonable attorney's fees, incurred by such
Limited Owner to compel the production of such information, and for
any actual damages suffered by such Limited Owner as a result of
such refusal or neglect; provided, however, it shall be a defense
of the Managing Owner that the actual purpose of the Limited
Owner's request for such information was not reasonably related to
the Limited Owner's interest as a beneficial owner in the Trust
(e.g., to secure such information in order to sell it, or to use
the same for a commercial purpose unrelated to the participation of
such Limited Owner in the Trust). The foregoing rights are in
addition to, and do not limit, other remedies available to Limited
Owners under federal or state law.
(b) The Limited Owners shall receive from the Trust the
share of the distributions provided for in this Trust Agreement in
the manner and at the times provided for in this Trust Agreement.
(c) Except for the Limited Owners' redemption rights set
forth in Article VII hereof or upon a mandatory redemption effected
by the Managing Owner pursuant to Section 4.2(h) hereof, Limited
Owners shall have the right to demand the return of their capital
account only upon the dissolution and winding up of the Trust and
only to the extent of funds available therefor. In no event shall
a Limited Owner be entitled to demand or receive property other
than cash. No Limited Owner shall have priority over any other
Limited Owner either as to the return of capital or as to profits,
losses or distributions. No Limited Owner shall have the right to
bring an action for partition against the Trust.
(d) Limited Owners holding at least a majority in
interest (over 50%) of the outstanding Interests (not including
Interests held by the Managing Owner and its
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Affiliates, including the commodity broker) may vote to (i) continue the
Trust as provided in Section 13.1(b), (ii) approve the voluntary withdrawal
of the Managing Owner and elect a successor Managing Owner as
provided in Section 4.10, (iii) remove the Managing Owner on
reasonable prior written notice to the Managing Owner, (iv) elect
and appoint one or more additional Managing Owners, (v) approve a
material change in the trading policies of the Trust, or the
brokerage fees paid by the Trust, as set forth in the Prospectus,
which change shall not be effective without the prior written
approval of such majority, (vi) approve the termination of any
agreement entered into between the Trust and the Managing Owner or
any Affiliate of the Managing Owner for any reason, without
penalty, (vii) approve amendments to this Trust Agreement as set
forth in Section 11.1 hereof, and (viii) terminate the Trust as
provided in Section 13.1(g), and in the case of (iv), (v) and (vi)
in each instance on sixty (60) days' prior written notice.
Except as set forth above, the Limited Owners shall have no
voting or other rights with respect to the Trust. Prior to the
exercise by the Limited Owners of the rights set forth in Section
8.2(d), the Trust will, if practicable, provide the Limited Owners
with an opinion of independent legal counsel in each state where
the Trust may be deemed to be conducting its business with respect
to whether or not such exercise would constitute such participation
in the control of the Trust business as would adversely affect the
Limited Owners limited liability under the laws of such state.
SECTION 8.3 Limitation on Liability.
(a) Except as provided in Sections 4.6(g), 5.3(h) and
6.6 hereof, and as otherwise provided under Delaware law, the
Limited Owners shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for
profit organized under the general corporation law of Delaware and
no Limited Owner shall be liable for claims against, or debts of
the Trust in excess of his Capital Contribution and his share of
the Trust Estate and undistributed profits, except in the event
that the liability is founded upon misstatements or omissions
contained in such Limited Owner's Subscription Agreement delivered
in connection with his purchase of Interests. In addition, and
subject to the exceptions set forth in the immediately preceding
sentence, the Trust shall not make a claim against a Limited Owner
with respect to amounts distributed to such Limited Owner or
amounts received by such Limited Owner upon redemption unless,
under Delaware law, such Limited Owner is liable to repay such
amount.
(b) The Trust shall indemnify, to the full extent
permitted by law, to the extent of the Trust Estate, each Limited
Owner (excluding the Managing Owner to the extent of its ownership
of any Limited Interests) against any claims of liability asserted
against such Limited Owner solely because he is a beneficial owner
of the Trust (other than for taxes for which such Limited Owner is
liable under Section 6.6 hereof).
(c) Every written note, bond, contract, instrument,
certificate or undertaking made or issued by the Managing Owner
shall give notice to the effect that the same was executed or made
by or on behalf of the Trust and that the obligations of such
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instrument are not binding upon the Limited Owners individually but
are binding only upon the assets and property of the Trust, and no
resort shall be had to the Limited Owners' personal property for
satisfaction of any obligation or claim thereunder, and appropriate
references may be made to this Trust Agreement and may contain any
further recital which the Managing Owner deems appropriate, but the
omission thereof shall not operate to bind the Limited Owners
individually or otherwise invalidate any such note, bond, contract,
instrument, certificate or undertaking.
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
SECTION 9.1 Books of Account. Proper books of account shall
be kept and shall be audited annually by an independent certified
public accounting firm selected by the Managing Owner in its sole
discretion, and there shall be entered therein all transactions,
matters and things relating to the Trust's business as are required
by the CE Act and regulations promulgated thereunder, and all other
applicable rules and regulations, and as are usually entered into
books of account kept by Persons engaged in a business of like
character. The books of account shall be kept at the principal
office of the Trust and each Limited Owner (or any duly constituted
designee of a Limited Owner) shall have, at all times during normal
business hours, free access to and the right to inspect and copy
the same for any purpose reasonably related to the Limited Owner's
interest as a beneficial owner of the Trust, including such access
as is required under CFTC rules and regulations. Such books of
account shall be kept, and the Trust shall report its Profits and
Losses on, the accrual method of accounting for financial
accounting purposes on a Fiscal Year basis as described in Article
X.
SECTION 9.2 Annual Reports and Monthly Statements. Each
Limited Owner shall be furnished as of the end of each month and as
of the end of each Fiscal Year with (a) such reports (in such
detail) as are required to be given to Limited Owners by the CFTC
and the NFA, (b) any other reports (in such detail) required by any
other governmental authority which has jurisdiction over the
activities of the Trust and (c) any other reports or information
which the Managing Owner, in its discretion, determines to be
necessary or appropriate.
SECTION 9.3 Tax Information. Appropriate tax information
(adequate to enable each Limited Owner to complete and file his
federal tax return) shall be delivered to each Limited Owner as
soon as practicable following the end of each Fiscal Year but
generally no later than March 15.
SECTION 9.4 Calculation of Net Asset Value. Net Asset Value
will be estimated on each Business Day. Upon request, on any
Business Day, the Managing Owner shall make available to any
Limited Owner the estimated Net Asset Value per Interest. Each
Limited Owner shall be notified of any decline in the estimated Net
Asset Value per
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Interest to less than 50% of the Net Asset Value per Interest as of the last
day of the preceding month within seven (7) Business Days of such occurrence.
Included in such notification shall be a description of the Limited Owners'
voting rights as set forth in Section 8.2 hereof and redemption rights as
set forth in Section 7.1 hereof.
SECTION 9.5 Other Reports. The Managing Owner shall send
such other reports and information, if any, to the Limited Owners
as it may deem necessary or appropriate. Each Limited Owner shall
be notified of (a) any material change in the terms of the Advisory
Agreement, including any change in the Trading Manager or any
modification in connection with the method of calculating the
incentive fee; (b) any change of Trustee; (c) any other material
change affecting the compensation of any party within seven (7)
Business Days of such occurrence; and (d) a description of any
material effect on the Interests such changes may have. Included
in such notification shall be a description of the Limited Owners'
voting rights as set forth in Section 8.2 hereof and redemption
rights as set forth in Section 7.1 hereof. In addition, the
Managing Owner shall submit to the Securities Administrator of any
State having jurisdiction over the Trust any information required
to be filed with such Administrator, including, but not limited to,
reports and statements required to be distributed to the Limited
Owners.
SECTION 9.6 Maintenance of Records. The Managing Owner shall
maintain (a) for a period of at least eight (8) Fiscal Years all
books of account required by Section 9.1 hereof; a list of the
names and last known address of, and number of Interests owned by,
all Interestholders, a copy of the Certificate of Trust and all
certificates of amendment thereto, together with executed copies of
any powers of attorney pursuant to which any certificate has been
executed; copies of the Trust's federal, state and local income tax
returns and reports, if any; and a record of the information
obtained to indicate that a Limited Owner meets the investor
suitability standards set forth in the Prospectus, and (b) for a
period of at least six (6) Fiscal Years copies of any effective
written trust agreements, subscription agreements and any financial
statements of the Trust.
SECTION 9.7 Certificate of Trust. Except as otherwise
provided in the Business Trust Statute or this Trust Agreement, the
Managing Owner shall not be required to mail a copy of any
Certificate of Trust filed with the Secretary of State of the State
of Delaware to each Limited Owner; however, such certificates shall
be maintained at the principal office of the Trust and shall be
available for inspection and copying by the Limited Owners in
accordance with this Trust Agreement.
SECTION 9.8 Registration of Interests. Subject to Section
4.3(l) hereof, the Managing Owner shall keep, at the Trust's
principal place of business, an Interest Register in which, subject
to such reasonable regulations as it may provide, it shall provide
for the registration of Interests and of transfers of Interests.
Subject to the provisions of Article V, the Managing Owner may
treat the Person in whose name any Interest shall be registered in
the Interest Register as the Interestholder of such Interest for
the purpose of receiving distributions pursuant to Article VI and
for all other purposes whatsoever.
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ARTICLE X
FISCAL YEAR
SECTION 10.1 Fiscal Year. The Fiscal Year shall begin on the
1st day of January and end on the 31st day of December of each
year. The first Fiscal Year of the Partnership shall commence on
the date of filing of the Certificate of Trust and end on the 31st
day of December 1995. The Fiscal Year in which the Trust shall
terminate shall end on the date of termination of the Trust.
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS
SECTION 11.1 Amendments to the Trust Agreement.
(a) Amendments to this Trust Agreement may be proposed
by the Managing Owner or by Limited Owners holding at least ten
percent (10%) of the then outstanding Interests. Following such
proposal, the Managing Owner shall submit to the Limited Owners a
verbatim statement of any proposed amendment, and statements
concerning the legality of such amendment and the effect of such
amendment on the limited liability of the Limited Owners. The
Managing Owner shall include in any such submission its
recommendations as to the proposed amendment. The amendment shall
become effective only upon the written approval or affirmative vote
of Limited Owners holding at least a majority in interest (over
50%) of the then outstanding Interests (excluding Interests held by
the Managing Owner and its Affiliates), or such higher percentage
as may be required by applicable law, and upon receipt of an
opinion of independent legal counsel as set forth in Section 8.2
hereof and to the effect that the amendment is legal, valid and
binding and will not adversely affect the limitations on liability
of the Limited Owners as described in Section 8.3 of this Trust
Agreement. Notwithstanding the foregoing, where any action taken
or authorized pursuant to any provision of this Trust Agreement
requires the approval or affirmative vote of Limited Owners holding
a greater interest in Limited Interests than is required to amend
this Trust Agreement under this Section 11.1, and/or the approval
or affirmative vote of the Managing Owners, an amendment to such
provision(s) shall be effective only upon the written approval or
affirmative vote of the minimum number of Interestholders which
would be required to take or authorize such action, or as may
otherwise be required by applicable law, and upon receipt of an
opinion of independent legal counsel as set forth above in this
Section 11.1. In addition, except as otherwise provided below,
reduction of the capital account of any assignee or modification of
the percentage of Profits, Losses or distributions to which an
assignee is entitled hereunder shall not be affected by amendment
to this Trust Agreement without such assignee's approval.
(b) Notwithstanding any provision to the contrary
contained in Section
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11.1(a) hereof, the Managing Owner may, without the approval of the Limited
Owners, make such amendments to this Trust Agreement which (i) are necessary
to add to the representations, duties or obligations of the Managing Owner or
surrender any right or power granted to the Managing Owner herein,
for the benefit of the Limited Owners, (ii) are necessary to cure
any ambiguity, to correct or supplement any provision herein which
may be inconsistent with any other provision herein or in the
Prospectus, or to make any other provisions with respect to matters
or questions arising under this Trust Agreement or the Prospectus
which will not be inconsistent with the provisions of the Trust
Agreement or the Prospectus, or (iii) the Managing Owner deems
advisable, provided, however, that no amendment shall be adopted
pursuant to this clause (iii) unless the adoption thereof (A) is
not adverse to the interests of the Limited Owners; (B) is
consistent with Section 4.1 hereof; (C) except as otherwise
provided in Section 11.1(c) below, does not affect the allocation
of Profits and Losses among the Limited Owners or between the
Limited Owners and the Managing Owner; and (D) does not adversely
affect the limitations on liability of the Limited Owners, as
described in Article VIII hereof or the status of the Trust as a
partnership for federal income tax purposes.
(c) Notwithstanding any provision to the contrary
contained in Sections 11.1(a) and (b) hereof, the Managing Owner
may, without the approval of the Limited Owners, amend the
provisions of Article VI of this Trust Agreement relating to the
allocations of Profits, Losses, Disposition Gain, Disposition Loss
and distributions among the Interestholders if the Trust is advised
at any time by the Trust's accountants or legal counsel that the
allocations provided in Article VI of this Trust Agreement are
unlikely to be respected for federal income tax purposes, either
because of the promulgation of new or revised Treasury Regulations
under Section 704 of the Code or other developments in the law.
The Managing Owner is empowered to amend such provisions to the
minimum extent necessary in accordance with the advice of the
accountants and counsel to effect the allocations and distributions
provided in this Trust Agreement. New allocations made by the
Managing Owner in reliance upon the advice of the accountants or
counsel described above shall be deemed to be made pursuant to the
obligation of the Managing Owner to the Trust and the Limited
Owners, and no such new allocation shall give rise to any claim or
cause of action by any Limited Owner.
(d) Upon amendment of this Trust Agreement, the
Certificate of Trust shall also be amended, if required by the
Business Trust Statute, to reflect such change.
(e) No amendment shall be made to this Trust Agreement
without the consent of the Trustee if such amendment adversely
affects any of the rights, duties or liabilities of the Trustee;
provided, however, that the Trustee may not withhold its consent
for any action which the Limited Owners are permitted to take under
Section 8.2(d) above. The Trustee shall execute and file any
amendment to the Certificate of Trust if so directed by the
Managing Owner or if such amendment is required in the opinion of
the Trustee.
SECTION 11.2 Meetings of the Trust. Meetings of the Trust
may be called by the Managing Owner and will be called by it upon
the written request of Limited Owners
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holding at least ten percent (10%) of the outstanding Interests. Such call for
a meeting shall be deemed to have been made upon the receipt by the Managing
Owner of a written request from the requisite percentage of Limited
Owners. The Managing Owner shall deposit in the United States
mails, within fifteen (15) days after receipt of said request,
written notice to all Interestholders of the meeting and the
purpose of the meeting, which shall be held on a date, not less
than thirty (30) nor more than sixty (60) days after the date of
mailing of said notice, at a reasonable time and place. Any notice
of meeting shall be accompanied by a description of the action to
be taken at the meeting and an opinion of independent counsel as to
the effect of such proposed action on the liability of Limited
Owners for the debts of the Trust. Interestholders may vote in
person or by proxy at any such meeting.
SECTION 11.3 Action Without a Meeting. Any action required
or permitted to be taken by Interestholders by vote may be taken
without a meeting on written consent setting forth the actions so
taken, signed by the holders of the Interests having not less than
the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which holders of all Interests
entitled to vote thereon were present and voted.
ARTICLE XII
TERM
SECTION 12.1 Term. The term for which the Trust is to exist
shall commence on the date of the filing of the Certificate of
Trust, and shall expire on December 31, 2015, unless sooner
terminated pursuant to the provisions of Article XIII hereof or as
otherwise provided by law.
ARTICLE XIII
TERMINATION
SECTION 13.1 Events Requiring Dissolution. The Trust shall
dissolve at any time upon the happening of any of the following
events:
(a) The expiration of its term as provided in Article
XII hereof.
(b) The filing of a certificate of dissolution or
revocation of the charter (and the expiration of 90 days after the
date of notice to the Managing Owner of revocation without a
reinstatement of its charter) of the Managing Owner, or upon the
withdrawal, removal, adjudication of bankruptcy or insolvency of
the Managing Owner (each of the foregoing events an "Event of
Withdrawal") unless (i) at the time there is at least one remaining
Managing Owner and that remaining Managing Owner carries on the
business of the Trust or (ii) within ninety (90) days of such Event
of Withdrawal all the remaining
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Interestholders agree in writing to continue the business of the Trust
and to select, effective as of the date of such event, one or more successor
Managing Owners. If the Trust is terminated as the result of an Event of
Withdrawal of a Managing Owner and a failure of the Interestholders to
continue the business of the Trust and appoint a successor Managing Owner as
provided in clause (b)(ii) above, within one hundred and twenty
(120) days of such Event of Withdrawal, Limited Owners holding a
majority in interest (over 50%) of the outstanding Interests (not
including Interests held by the Managing Owner and its Affiliates)
may elect to continue the business of the Trust by forming a new
business trust (the "Reconstituted Trust") on the same terms and
provisions as set forth in this Trust Agreement (whereupon the
parties hereto shall execute and deliver any documents or
instruments as may be necessary to reform the Trust). Any such
election must also provide for the election of a Managing Owner to
the Reconstituted Trust. If such an election is made, all Limited
Owners of the Trust shall be bound thereby and continue as Limited
Owners of the Reconstituted Trust.
(c) The occurrence of any event which would make
unlawful the continued existence of the Trust.
(d) In the event that subscriptions for at least 100,000
Interests are not sold during the Initial Offering Period.
(e) In the event of the suspension, revocation or
termination of the Managing Owner's registration as a commodity
pool operator under the CE Act, or membership as a commodity pool
operator with the NFA unless at the time there is at least one
remaining Managing Owner whose registration or membership has not
been suspended, revoked or terminated.
(f) The Trust becomes insolvent or bankrupt.
(g) The vote of Limited Owners holding more than fifty
percent (50%) of the outstanding Interests (which excludes the
Interests of the Managing Owner) to terminate the Trust, notice of
which is sent to the Managing Owner not less than ninety (90)
Business Days prior to the effective date of such termination.
(h) The decline of the Net Asset Value of the Trust
Estate by fifty percent (50%) from the Net Asset Value of the Trust
Estate (i) at the commencement of the Trust's trading activities or
(ii) on the first day of a fiscal year, in each case after
appropriate adjustment for distributions, additional capital
contributions and redemptions.
(i) The determination of the Managing Owner that the
Trust's aggregate net assets in relation to the operating expenses
of the Trust make it unreasonable or imprudent to continue the
business of the Trust.
The death, legal disability, bankruptcy, insolvency,
dissolution, or withdrawal of any Limited Owner (as long as such
Limited Owner is not the sole Limited Owner of the Trust)
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<PAGE>
shall not result in the termination of the Trust, and such Limited Owner,
his estate, custodian or personal representative shall have no right to
withdraw or value such Limited Owner's Interests except as provided
in Section 7.1 hereof. Each Limited Owner (and any assignee
thereof) expressly agrees that in the event of his death, he waives
on behalf of himself and his estate, and he directs the legal
representative of his estate and any person interested therein to
waive the furnishing of any inventory, accounting or appraisal of
the assets of the Trust and any right to an audit or examination of
the books of the Trust, except for such rights as are set forth in
Article IX hereof relating to the Books of Account and reports of
the Trust.
SECTION 13.2 Distributions on Dissolution. Upon the
dissolution of the Trust, the Managing Owner (or in the event there
is no Managing Owner, such person (the "Liquidating Trustee") as
the majority in interest of the Limited Owners may propose and
approve) shall take full charge of the Trust assets and
liabilities. Any Liquidating Trustee so appointed shall have and
may exercise, without further authorization or approval of any of
the parties hereto, all of the powers conferred upon the Managing
Owner under the terms of this Trust Agreement, subject to all of
the applicable limitations, contractual and otherwise, upon the
exercise of such powers, and provided that the Liquidating Trustee
shall not have general liability for the acts, omissions,
obligations and expenses of the Trust. Thereafter, the business
and affairs of the Trust shall be wound up and all assets shall be
liquidated as promptly as is consistent with obtaining the fair
value thereof, and the proceeds therefrom shall be applied and
distributed in the following order of priority: (a) to the expenses
of liquidation and termination and to creditors, including
Interestholders who are creditors, to the extent otherwise
permitted by law, in satisfaction of liabilities of the Trust
(whether by payment or the making of reasonable provision for
payment thereof) other than liabilities for distributions to
Interestholders, and (b) to the Managing Owner and each Limited
Owner pro rata in accordance with his positive book capital account
balance, less any amount owing by such Interestholder to the Trust,
after giving effect to all adjustments made pursuant to Article VI
and all distributions theretofore made to the Interestholders
pursuant to Article VI. After the distribution of all remaining
assets of the Trust, the Managing Owner will contribute to the
Trust an amount equal to the lesser of (i) the deficit balance, if
any, in its book capital account, and (ii) the excess of 1.01% of
the total Capital Contributions of the Limited Owners over the
capital previously contributed by the Managing Owner. Any Capital
Contributions made by the Managing Owner pursuant to this Section
shall be applied first to satisfy any amounts then owed by the
Trust to its creditors, and the balance, if any, shall be
distributed to those Interestholders in the Trust whose book
capital account balances (immediately following the distribution of
any liquidation proceeds) were positive, in proportion to their
respective positive book capital account balances.
SECTION 13.3 Termination; Certificate of Cancellation.
Following the dissolution and distribution of the assets of the
Trust, the Trust shall terminate and Managing Owner or Liquidating
Trustee, as the case may be, shall execute and cause such
certificate of cancellation of the Certificate of Trust to be filed
in accordance with the Business Trust Statute. Notwithstanding
anything to the contrary contained in this Trust Agreement, the
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existence of the Trust as a separate legal entity shall continue
until the filing of such certificate of cancellation.
ARTICLE XIV
POWER OF ATTORNEY
SECTION 14.1 Power of Attorney Executed Concurrently.
Concurrently with the written acceptance and adoption of the
provisions of this Trust Agreement, each Limited Owner shall
execute and deliver to the Managing Owner a Power of Attorney as
part of the Subscription Agreement, or in such other form as may be
prescribed by the Managing Owner. Each Limited Owner, by its
execution and delivery hereof, irrevocably constitutes and appoints
the Managing Owner and its officers and directors, with full power
of substitution, as the true and lawful attorney-in-fact and agent
for such Limited Owner with full power and authority to act in his
name and on his behalf in the execution, acknowledgment, filing and
publishing of Trust documents, including, but not limited to, the
following:
(a) Any certificates and other instruments, including
but not limited to, any applications for authority to do business
and amendments thereto, which the Managing Owner deems appropriate
to qualify or continue the Trust as a business trust in the
jurisdictions in which the Trust may conduct business, so long as
such qualifications and continuations are in accordance with the
terms of this Trust Agreement or any amendment hereto, or which may
be required to be filed by the Trust or the Interestholders under
the laws of any jurisdiction;
(b) Any instrument which may be required to be filed by
the Trust under the laws of any state or by any governmental
agency, or which the Managing Owner deems advisable to file; and
(c) This Trust Agreement and any documents which may be
required to effect an amendment to this Trust Agreement approved
under the terms of the Trust Agreement, and the continuation of the
Trust, the admission of the signer of the Power of Attorney as a
Limited Owner or of others as additional or substituted Limited
Owners, or the termination of the Trust, provided such
continuation, admission or termination is in accordance with the
terms of this Trust Agreement.
SECTION 14.2 Effect of Power of Attorney. The Power of
Attorney concurrently granted by each Limited Owner to the Managing
Owner:
(a) Is a special, irrevocable Power of Attorney coupled
with an interest, and shall survive and not be affected by the
death, disability, dissolution, liquidation, termination or
incapacity of the Limited Owner;
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<PAGE>
(b) May be exercised by the Managing Owner for each
Limited Owner by a facsimile signature of one of its officers or by
a single signature of one of its officers acting as
attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment by a
Limited Owner of the whole or any portion of his Limited Interests;
except that where the assignee thereof has been approved by the
Managing Owner for admission to the Trust as a substituted Limited
Owner, the Power of Attorney of the assignor shall survive the
delivery of such assignment for the sole purpose of enabling the
Managing Owner to execute, acknowledge and file any instrument
necessary to effect such substitution.
Each Limited Owner agrees to be bound by any representations
made by the Managing Owner and by any successor thereto, determined
to be acting in good faith pursuant to such Power of Attorney and
not constituting negligence or misconduct.
SECTION 14.3 Limitation on Power of Attorney. The Power of
Attorney concurrently granted by each Limited Owner to the Managing
Owner shall not authorize the Managing Owner to act on behalf of
Limited Owners in any situation in which this Trust Agreement
requires the approval of Limited Owners unless such approval has
been obtained as required by this Trust Agreement. In the event of
any conflict between this Trust Agreement and any instruments filed
by the Managing Owner or any new Managing Owner pursuant to this
Power of Attorney, this Trust Agreement shall control.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Governing Law. The validity and construction of
this Trust Agreement and all amendments hereto shall be governed by
the laws of the State of Delaware, and the rights of all parties
hereto and the effect of every provision hereof shall be subject to
and construed according to the laws of the State of Delaware
without regard to the conflict of laws provisions thereof;
provided, however, that causes of action for violations of federal
or state securities laws shall not be governed by this Section
15.1, and provided, further, that the parties hereto intend that
the provisions hereof shall control over any contrary or limiting
statutory or common law of the State of Delaware (other than the
Business Trust Statute) and that, to the maximum extent permitted
by applicable law, there shall not be applicable to the Trust, the
Trustee, the Managing Owner, the Interestholders or this Trust
Agreement any provision of the laws (statutory or common) of the
State of Delaware (other than the Business Trust Statute)
pertaining to trusts which relate to or regulate in a manner
inconsistent with the terms hereof: (a) the filing with any court
or governmental body or agency of trustee accounts or schedules of
trustee fees and charges, (b) affirmative requirements to post
bonds for trustees, officers, agents, or employees of a trust, (c)
the necessity for obtaining court or other governmental approval
concerning the acquisition, holding or disposition of real or
personal property, (d) fees or other sums
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payable to trustees, officers, agents or employees of a trust, (e) the
allocation of receipts and expenditures to income or principal, (f)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling,
storage or other manner of holding of trust assets, or (g) the
establishment of fiduciary or other standards or responsibilities
or limitations on the acts or powers of trustees or managers that
are inconsistent with the limitations on liability or authorities
and powers of the Trustee or the Managing Owner set forth or
referenced in this Trust Agreement. Section 3540 of Title 12 of
the Delaware Code shall not apply to the Trust. The Trust shall be
of the type commonly called a "business trust," and without
limiting the provisions hereof, the Trust may exercise all powers
that are ordinarily exercised by such a trust under Delaware law.
The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to business trusts and the absence of
a specific reference herein to any such power, privilege or action
shall not imply that the Trust may not exercise such power or
privilege or take such actions.
SECTION 15.2 Provisions In Conflict with Law or Regulations.
(a) The provisions of this Trust Agreement are
severable, and if the Managing Owner shall determine, with the
advice of counsel, that any one or more of such provisions (the
"Conflicting Provisions") are in conflict with the Code, the
Business Trust Statute or other applicable federal or state laws,
the Conflicting Provisions shall be deemed never to have
constituted a part of this Trust Agreement, even without any
amendment of this Trust Agreement pursuant to this Trust Agreement;
provided, however, that such determination by the Managing Owner
shall not affect or impair any of the remaining provisions of this
Trust Agreement or render invalid or improper any action taken or
omitted prior to such determination. No Managing Owner or Trustee
shall be liable for making or failing to make such a determination.
(b) If any provision of this Trust Agreement shall be
held invalid or unenforceable in any jurisdiction, such holding
shall not in any manner affect or render invalid or unenforceable
such provision in any other jurisdiction or any other provision of
this Trust Agreement in any jurisdiction.
SECTION 15.3 Construction. In this Trust Agreement, unless
the context otherwise requires, words used in the singular or in
the plural include both the plural and singular and words denoting
any gender include all genders. The title and headings of
different parts are inserted for convenience and shall not affect
the meaning, construction or effect of this Trust Agreement.
SECTION 15.4 Notices. All notices or communications under
this Trust Agreement (other than requests for redemption of
Interests, notices of assignment, transfer, pledge or encumbrance
of Interests, and reports and notices by the Managing Owner to the
Limited Owners) shall be in writing and shall be effective upon
personal delivery, or if sent by mail, postage prepaid, or if
telegraphed, by prepaid telegram; and addressed, in each such case,
to the address set forth in the books and records of the Trust or
such other
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address as may be specified in writing, of the party to
whom such notice is to be given, upon the deposit of such notice in
the United States mail. Requests for redemption, notices of
assignment, transfer, pledge or encumbrance of Interests shall be
effective upon timely receipt by the Managing Owner in writing.
SECTION 15.5 Counterparts. This Trust Agreement may be
executed in several counterparts, and all so executed shall
constitute one agreement, binding on all of the parties hereto,
notwithstanding that all the parties are not signatory to the
original or the same counterpart.
SECTION 15.6 Binding Nature of Trust Agreement. The terms
and provisions of this Trust Agreement shall be binding upon and
inure to the benefit of the heirs, custodians, executors, estates,
administrators, personal representatives, successors and permitted
assigns of the respective Interestholders. For purposes of
determining the rights of any Interestholder or assignee hereunder,
the Trust and the Managing Owner may rely upon the Trust records as
to who are Interestholders and permitted assignees, and all
Interestholders and assignees agree that the Trust and the Managing
Owner, in determining such rights, shall rely on such records and
that Limited Owners and assignees shall be bound by such
determination.
SECTION 15.7 No Legal Title to Trust Estate. The
Interestholders shall not have legal title to any part of the Trust
Estate.
SECTION 15.8 Creditors. No creditors of any Interestholders
shall have any right to obtain possession of, or otherwise exercise
legal or equitable remedies with respect to the Trust Estate.
SECTION 15.9 Integration. This Trust Agreement constitutes
the entire agreement among the parties hereto pertaining to the
subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.<PAGE>
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed
this Declaration of Trust and Trust Agreement as of the day and
year first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By:
------------------------------------
Name:
Title:
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:
------------------------------------
Name:
Title:
All Limited Owners now and hereafter
admitted as Limited Owners of the
Trust, pursuant to powers of
attorney now and hereafter executed
in favor of, and granted and
delivered to, the Managing Owner
By:
------------------------------------
Attorney-in fact
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PAGE
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
WILLOWBRIDGE STRATEGIC TRUST
----------------------------
THIS Certificate of Trust of WILLOWBRIDGE STRATEGIC TRUST (the
"Trust"), dated October 16, 1995, is being duly executed and filed
by Wilmington Trust Company, a Delaware banking corporation, as
trustee, to form a business trust under the Delaware Business Trust
Act (12 Del.C. S 3801 et seq.).
1. Name. The name of the business trust formed hereby
is WILLOWBRIDGE STRATEGIC TRUST.
2. Delaware Trustee. The name and business address of
the trustee of the Trust in the State of Delaware is Wilmington
Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
3. Effective Date. This Certificate of Trust shall be
effective as of its filing.
IN WITNESS WHEREOF, the undersigned, being the sole
trustee of the Trust, has executed this Certificate of Trust as of
the date first above written.
WILMINGTON TRUST COMPANY,
as trustee
By:
------------------------------------
Name:
Title:
<PAGE>
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<PAGE>
EXHIBIT B
WILLOWBRIDGE STRATEGIC TRUST
REQUEST FOR REDEMPTION
, 19
(Please date)
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
c/o Prudential Securities Incorporated
P.O. Box 2016
Peck Slip Station
New York, New York 10272
Attention:
Dear Sirs:
I hereby request redemption of the number of limited liability
beneficial interests ("Interests") of Willowbridge Strategic Trust ("Trust")
specified below, subject to all of the conditions set forth in the Trust
Agreement, as described in the prospectus:
(specify number of Interests to be redeemed)
Redemption will be effective as of the close of business on the last
day of the month in which this Request for Redemption is received by the
Managing Owner on at least ten (10) days' prior written notice ("Redemption
Date"). The first permissible Redemption Date shall be the end of the first
full month of Trust trading activity. I understand that Interests redeemed on
or prior to the end of the first and second successive six month periods after
their sale will pay a redemption charge of 4% and 3% of the Net Asset Value at
which they are redeemed, respectively. I (either in my individual capacity or
as an authorized representative of an entity, if applicable) hereby represent
and warrant that I am the true, lawful, and beneficial owner of the Interest or
Interests to which this Request for Redemption relates, with full power and
authority to request Redemption of such Interests. Such Interests are not
subject to any pledge or otherwise encumbered in any fashion. My signature has
been guaranteed by a commercial bank with a correspondent in New York or by a
member of a registered national securities exchange.
United States Taxable Limited Owners Only
Under the penalties of perjury, I hereby certify that the Social Security
Number or Taxpayer ID Number indicated on this Request for Redemption is my
true, correct and complete Social Security Number or Taxpayer ID Number and
that I am not subject to backup withholding under the provisions of Section
3406(a)(1)(C) of the Internal Revenue Code.
Non-United States Limited Owners Only
Under penalties of perjury I hereby certify that (a) I am not a citizen or
resident of the United States and have not been present in the United States
for 183 days or more during any calendar year or (b) I am a non-United States
corporation, partnership, estate or trust.
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH INTERESTS OF TRUST ARE REGISTERED
INTERESTS REGISTERED IN THE NAME(S) OF:
Type or Print Name Social Security or Taxpayer ID
Street
City State Zip Code
Account # Type FA<PAGE>
B-1
<PAGE>
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
Signature(s) Guaranteed by:
Signature(s) of owner(s) or assignee(s)
Entity Owner (or assignee)
Signature(s) Guaranteed by:
By:
(Trustee, partner, or authorized officer.
If a corporation, include certified copy
of authorizing resolution.)
NOTE: If the entity owner is a trustee, custodian, or fiduciary of an
Individual Retirement Account, Keogh Plan without common law employees
or employee benefit plan under which a plan participant may exercise
control over assets in his account, the signature of the plan
participant must also be supplied.
Plan Participant
Signature(s) Guaranteed by:
Type or Print Name
(Signature)
THIS REQUEST FOR REDEMPTION MUST BE RECEIVED BY THE MANAGING OWNER AT LEAST TEN
(10) DAYS PRIOR TO THE LAST DAY OF THE QUARTER IN WHICH REDEMPTION IS TO BE
EFFECTIVE.
B-2
<PAGE>
EXHIBIT C
WILLOWBRIDGE STRATEGIC TRUST
SUBSCRIPTION AGREEMENT FOR
LIMITED LIABILITY BENEFICIAL INTERESTS
INSTRUCTIONS--please read carefully
A. Using a typewriter or printing in ink, check the appropriate box and fill
in the blanks as directed herein.
CHECK THE APPROPRIATE BOX
Boxes (i) NEW SUBSCRIBER(S)
(ii) EXISTING OWNER(S) ADDING LIMITED INTERESTS
a) INFORMATION IS THE SAME AS IN THE ORIGINAL SUBSCRIPTION AGREEMENT
AND POWER OF ATTORNEY.
b) INFORMATION HAS CHANGED FROM THE ORIGINAL SUBSCRIPTION AGREEMENT
AND POWER OF ATTORNEY; CONSEQUENTLY. FOLLOW INSTRUCTIONS FOR NEW
SUBSCRIBERS (i).
Number 1 TOTAL DOLLAR AMOUNT OF SUBSCRIPTION. MINIMUM INVESTMENT $5,000 FOR
INDIVIDUALS OR INSTITUTIONS OR ERISA PLANS (EXCEPT IRAs), $2,000 FOR
IRAs AND OTHER QUALIFIED ACCOUNTS. ONCE THE MINIMUM IS MET,
ADDITIONAL PURCHASES MAY BE MADE IN $100 INCREMENTS. EXISTING
INVESTORS (EXCEPT IN CERTAIN STATES) MAY SUBSCRIBE FOR ADDITIONAL
INTERESTS IN $100 INCREMENTS. (NEW SUBSCRIPTION AGREEMENTS ARE
REQUIRED WITH EACH ADDITIONAL PURCHASE). SEE "STATE SUITABILITY
REQUIREMENTS" ON C-7.
Number 2 SOCIAL SECURITY AND/OR TAXPAYER I.D. NUMBER.
BACK UP WITHHOLDING BOX CHECKED (IF APPLICABLE).
Number 3 PRUDENTIAL SECURITIES ACCOUNT NUMBER.
Number 3a CHECK ONE OF THE BOXES TO INDICATE WHETHER YOU ARE A PRUDENTIAL
SECURITIES EMPLOYEE.
Number 4 ACCOUNT TYPE BOX CHECKED (CHECK ONLY ONE BOX).
Number 5 CLIENT NAME, ADDRESS AND BUSINESS PHONE NUMBER. FOR IRA OR TRUST
ACCOUNT INCLUDE: "FOR THE BENEFIT OF_____________." INSERT NET WORTH
AND ANNUAL GROSS INCOME.
Number 6 ADDRESS REQUIRED IF #5 IS A P.O. BOX OR IS NOT THE INVESTOR'S
RESIDENCE ADDRESS OR THE ENTITY'S PLACE OF FORMATION.
Number 7 TO BE COMPLETED AND SIGNED BY THE FINANCIAL ADVISOR. ALL SIGNATURE
PAGES MUST BE COUNTERSIGNED BY THE BRANCH MANAGER.
Number 8 CLIENT(S) SIGNATURE(S) IF ACCOUNT TYPE IS INDIVIDUAL OR JOINT.
Number 9 CLIENT'S SIGNATURE IF ACCOUNT TYPE IS AN INDIVIDUAL RETIREMENT
ACCOUNT OR KEOGH PLAN WITHOUT ANY COMMON LAW EMPLOYEES.
Number 10 SIGNATURE OF AUTHORIZED CORPORATE OFFICER, PARTNER, TRUSTEE CUSTODIAN
OR FIDUCIARY IF ACCOUNT TYPE IS A CORPORATION, PARTNERSHIP, TRUST,
KEOGH WITH EMPLOYEES OR OTHER EMPLOYEE BENEFIT PLAN (E.G., PENSION OR
PROFIT SHARING PLAN).
Number 11 SUBSCRIBER(S) MUST INITIAL EACH APPLICABLE REPRESENTATION AND
WARRANTY IN THE SPACE PROVIDED IN THE LEFT MARGIN.
B. Subscribers must deliver to Prudential Securities or an Additional Seller
a fully completed, dated, and signed Subscription Agreement for
subscriptions no later than five days prior to the Initial Closing Date,
as such date is determined by Prudential Securities, or during the
Continuous Offering, NO LATER THAN FIVE (5) calendar days prior to the end
of a month. A subscriber may not deliver his Subscription Agreement to the
Trust's offices. If such delivery is made, the Subscription Agreement will
be returned to the subscriber to be forwarded to his Prudential Securities
branch office or to an Additional Seller.
C. U.S. subscribers must have W-9s and non-U.S. subscribers must have W-8s on
file with Prudential Securities.
C-2
PAGE
<PAGE>
SUBSCRIPTION AGREEMENT and POWER OF ATTORNEY
Willowbridge Strategic Trust
SUBSCRIBER(S) (check status) -
(i) / / New Subscriber(s) [(complete Items 1 through 6, plus Items
8, 9 or 10 (as applicable) plus Item 11,
and have FA and Branch Manager fill out
Item 7)]
(ii) / / Existing Owner(s) [(a) if information previously provided
remains accurate: complete item 1, plus
Items 8, 9 or 10 (as applicable) plus
Item 11; and have FA and Branch Manager
fill out Item 7; (b) if information has
changed, follow instructions for new
subscriber(s).]
1. Total Dollar Amount of Subscription $
2. Social Security Number 3. Prudential Securities Account Number of
Subscriber
Taxpayer I.D. Number 3a. Is the Subscriber a Prudential Securities
Employee
/ / Yes / / No
or
I have checked the following box because I (we) am (are) subject to backup
withholding under the provisions of Section 3406(a)(1)(C) of the Internal
Revenue Code:
4. Check Account Type
/ / Individual Ownership / / Corporation
/ / Joint Tenants with Right of Survivorship / / Keogh Plan (no common
(All tenants' Signatures required) law employees)
/ / Tenants in Common (All tenants' Signatures
required)
/ / Community Property (Both Signatures required) / / Other Employee Benefit
Plan (e.g., Pension,
/ / Custodian Profit Sharing, Keogh
/ / Partnership plan with employees)
/ / Trust / / Individual Retirement
Account (Non-PSI
employees)
/ / UGMA or UTMA / / INDIVIDUAL RETIREMENT ACCOUNT (PSI
employees)
5. Full Name of Account, Joint Owners, Trustee, if trust account, Custodian,
if custodian account or other Authorized Person, if Partnership,
Corporation or Institutional Trustee or Plan fiduciary (No Initials).
Mailing Address. If trust or custodian account, address of Trustee,
Custodian or Plan Fiduciary.
City /State Zip Code Country Business Telephone No. or
if none, Home No.
New Worth of Subscriber (exclusive of home, home furnishings and
automobiles): $
Annual Gross Income of Subscriber: $
6. The following information must be provided if the above address is a P.O.
Box or is not the investor's residence address or the entity's place of
formation.
Residence Address (P.O. Box alone not acceptable).
City /State Zip Code Country
7. FINANCIAL ADVISOR USE ONLY (MUST BE COMPLETED IN FULL, AND, EXCEPT FOR
SIGNATURE, MUST BE TYPED OR LEGIBLY PRINTED IN INK BY FINANCIAL ADVISOR,
ILLEGIBLE OR INCOMPLETE DOCUMENTS WILL BE REJECTED)
The undersigned FA hereby certifies that: (1) the FA has informed the
person(s) named above of all pertinent facts relating to the liquidity and
marketability of the Limited Interests as set forth in the Prospectus; and
(2) the FA has reasonable grounds to believe (on the basis of information
obtained from the person(s) named above concerning such person(s') age,
investment objectives, investment experience, income, net worth, financial
situation and needs, other investments, and any other information known by
the FA) that (a) the purchase of the Interests is a suitable and
appropriate investment for such person(s); (b) such person(s) meet(s) the
minimum income and net worth standards; (c) such person(s) can benefit from
the investment based on such person(s) overall investment objectives and
portfolio structure; (d) such person(s) can bear the economic risk of the
investment; and (e) such person(s) has (have) an understanding of the
fundamental risks of the investment, the risk that an investor may lose its
entire investment, the restriction on the liquidity of the Limited
Interests, the restrictions on the transferability of the Interests and the
background and qualifications of the FA.
Does the undersigned FA have discretionary authority for the account of the
person(s) named above? Yes No
The FA must insure that a current Prospectus, together with the most recent
Monthly Report of the Trust, has been furnished to the person(s) named
above under the caption "Subscriber(s)."<PAGE>
C-2
<PAGE>
PRINT FULL NAME OF FA FA# WIRE CODE OF BRANCH
FA'S SIGNATURE FA'S TELEPHONE NUMBER
I have received all documents required to accept this subscription and
acknowledge the suitability of the subscriber and the amount of the
subscription for the trust. If the subscriber is other than an individual
subscriber, I acknowledge that my review of the subscriber's governing
documents indicates that such documents permit investment in commodities funds
whose principal business is speculative futures trading.
( )
BRANCH MANAGER'S SIGNATURE FOR ALL ACCOUNTS BRANCH MANAGER'S TELEPHONE
NUMBER
SIGNATURE(S) -- DO NOT SIGN WITHOUT READING THE "REPRESENTATIONS AND
WARRANTIES" AND "NOTICE OF RISKS TO SUBSCRIBERS" AND
FAMILIARIZING YOURSELF WITH THE PROSPECTUS INCLUDING, (I)
THE FUNDAMENTAL RISKS AND POSSIBLE FINANCIAL HAZARDS
OF THIS INVESTMENT, INCLUDING THE RISK OF LOSING YOUR
ENTIRE INVESTMENT; (II) THE LACK OF LIQUIDITY OF THIS
INVESTMENT; (III) THAT LIMITED OWNERS MAY NOT TAKE PART IN
THE MANAGEMENT OF THE TRUST; (IV) THE EXISTENCE OF ACTUAL
AND POTENTIAL CONFLICTS OF INTEREST IN THE STRUCTURE AND
OPERATION OF THE TRUST; (V) THE TRUST'S FEE STRUCTURE; (VI)
THAT THE PERFORMANCE AND PRO FORMA TABLES INCLUDED IN THE
PROSPECTUS MUST BE READ ONLY IN CONJUNCTION WITH THE NOTES
THERETO; (VII) THE TAX CONSEQUENCES OF AN INVESTMENT IN THE
TRUST; (VIII) THE LIMITATIONS ON LIMITED LIABILITY; (IX)
THAT THERE ARE SUBSTANTIAL RESTRICTIONS ON THE
TRANSFERABILITY OF INTERESTS; AND (X) THE TRUST'S STRUCTURE
AND PROPOSED HIGHLY LEVERAGED TRADING ACTIVITIES.
Payment of the above subscription will be made by charging the subscriber's
account with Prudential Securities incorporated or any Additional Seller. In
the event that the subscriber does not have a customer account with Prudential
Securities Incorporated or any Additional Seller or does not have sufficient
funds in its existing account, the Subscriber should make appropriate
arrangements with its financial advisors, if any, and if none, should contact
its local Prudential Securities Incorporated branch office or the branch office
of any Additional Seller.
SIGN BELOW UNDER CORRESPONDING ACCOUNT TYPE
8. INDIVIDUAL OR JOINT SUBSCRIPTION
If this subscription is for a joint account, the statements,
representations, warranties, and undertakings set forth above will be
deemed to have been made by each owner of the account
X X
(Signature of Subscriber) (Signature of Joint Owner, if any) Date
(Print or Type Name of Signatory) (Print or Type Name of Signatory)
9. IRA AND KEOGH PLAN (WITHOUT COMMON LAW EMPLOYEES) SUBSCRIPTION
X
(Signature of IRA beneficiary or plan participants) Date
(Print or Type Name of Signatory)
10. ENTITY (CUSTODIAN, CORPORATION, PARTNERSHIP, TRUST, EMPLOYEE BENEFIT PLAN)
SUBSCRIPTION
The undersigned corporate officer, partner, or trustee custodian or
fiduciary hereby certifies and warrants that s/he has full power and
authority from and on behalf of the entity named below and (as applicable)
from its shareholders, partners, or beneficiaries or plan participants to
complete, execute, and deliver this Subscription Agreement on their behalf
including on behalf of the plan participants, and trust or custodial
account beneficiaries, and that investment in the Trust has been
affirmatively authorized by the governing board or body, if any, of the
entity (if a corporation or partnership) and is not prohibited by law or
the governing documents of the entity.
(Type or Print Name of Entity, Trust or Custodial Account)
X
(Signature of Authorized Corporate Officer, Partner, Trustee Custodian or
Fiduciary) Date
(Print or Type Name of Signatory)
C-3
PAGE
<PAGE>
11. REPRESENTATIONS AND WARRANTIES
I (we) hereby represent and warrant to the Managing Owner and the Trust
as follows (please initial each applicable representation and warranty):
____ (1) I (we) satisfy one of the following financial standards outlined
below for subscription in the Trust. I (we) am (are) not acting on
behalf of an Employee Benefit Plan and I (we) have either (A) a net
worth (exclusive of home, home furnishings, and automobiles) of at least
$150,000 or (B) a net worth (similarly calculated) of at least $45,000
and an annual gross income of at least $45,000 and not more than 10% of
my net worth is invested in the Trust. If I (we) am (are) acting on
behalf of an IRA or a Keogh Plan which covers no common law employees,
each Participant meets and, if I (we) am (are) a participant in a Plan,
it meets the net worth and gross income requirement in (A) or (B) above
and its investment in the Trust does not exceed 10% of the assets of the
IRA or Keogh Plan at the time of investment. If I (we) am (are) acting
on behalf of an Employee Benefit Plan (other than an IRA or a Keogh Plan
which covers no common law employees), the assets of the Plan are at
least $150,000 and its investment in the Trust does not exceed 10% of
the assets of the Plan at the time of investment. If I (we) am (are) a
resident(s) of one of those states listed under "State Suitability
Requirements", I (we) meet the more restrictive suitability requirements
imposed by the State in which I (we) reside and not more than 10% of my
net worth is invested in the Trust.
____ (2) The address set forth under the caption "Subscriber(s)" is my
(our) true and correct address and I (we) have no present intention of
becoming a resident of any other state or country. The information
provided under that caption is true, correct, and complete as of the
date of this Subscription Agreement and if there should be any material
change in such information prior to my (our) admission to the Trust as a
Limited Owner, I (we) will immediately furnish such revised or corrected
information to the Managing Owner. I (we) will furnish the Managing
Owner with such other documents as it may request to evaluate this
subscription.
____ (3) I (we) am (are) over 21 years old and am (are) legally competent
and am (are) permitted by applicable law to execute and deliver this
Subscription Agreement.
____ (4) If the subscriber is a trust under an Employee Benefit Plan,
none of the Trustee, Managing Owner, Prudential Securities, the Trading
Manager, any other Selling Agent or any of their affiliates either: (A)
has investment discretion with respect to the investment of the assets
of such trust being used to purchase Limited Interests; (B) has
authority or responsibility to give or regularly gives investment advice
with respect to such trust assets for a fee and pursuant to an agreement
or understanding that such advice will serve as a primary basis for
investment decisions with respect to such trust assets and that such
advice will be based on the particular investment needs of the trust; or
(C) is an employer maintaining or contributing to the trust.
____ (5) I (we) have received a Prospectus of the Trust which constitutes
its Commodity Futures Trading Commission ("CFTC") Disclosure Document,
as well as a copy of the most recent monthly report required by the
CFTC.
____ (6) I (we) am (are) purchasing the Limited Interests for our own
account.
By making these representations and warranties, Subscribers are not waiving
any rights of action which they may have under applicable federal or state
securities laws. Federal securities law provides that any such waiver would be
unenforceable. Subscribers should be aware, however, that the representations
and warranties set forth herein may be asserted in the defense of the Trust or
others in any subsequent litigation or other proceeding.
12. RISKS
These securities are speculative and involve a high degree of risk.
Risk Factors relating to the Interests which are more fully described in
the Prospectus include the following: (i) futures, forward and options
trading is speculative, volatile and highly leveraged; (ii) the Trust is
largely reliant on the Trading Manager for success; (iii) past
performance is not necessarily indicative of future results; (iv) a
Limited Owner's tax liability is likely to exceed his cash
distributions; (v) substantial charges will be imposed on the Trust; and
it is estimated the Trust will have to achieve net trading profits
(after taking interest income into account) of approximately 6.55% per
annum in order to offset expenses, and of approximately 9.55% to also
offset the 3% redemption charge imposed on an Interest being redeemed as
of the end of the 12th month following its sale; (vi) Limited Owners
will have limited voting rights and no control over the Trust's
business; (vii) a Limited Owner could lose a substantial portion, or
even all, of his investment; (viii) Limited Owners will have a limited
ability to liquidate their Interests because transferability is
restricted, redemption is limited and no trading market exists; (ix)
actual and potential conflict of interests exist; and (x) Prudential
Securities and its affiliates have been involved in several lawsuits,
investigations, and enforcement actions by regulatory authorities,
including various matters surrounding allegations relating to the sale
of interests in over 700 non-commodities limited partnerships. See
"Risk Factors" in the Prospectus.
C-4
<PAGE>
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND POWER
OF ATTORNEY ACCOMPANIES THIS PROSPECTUS AS A SEPARATE DOCUMENT
WILLOWBRIDGE STRATEGIC TRUST
UNITS OF BENEFICIAL INTEREST
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
Willowbridge Strategic Trust
Prudential Securities Futures
Management Inc.
One New York Plaza
New York, New York 10292
Dear Sirs:
1. Subscription for Limited Interests. I hereby subscribe for the
dollar amount of units of beneficial interest ("Limited Interests") in
Willowbridge Strategic Trust (the "Trust") set forth in the Subscription
Agreement and Power of Attorney Signature Page attached hereto (minimum $5,000;
$2,000 for trustees or custodians of employee benefit plans, except in the case
of certain states, see State Suitability Requirements attached hereto) at
a purchase price per Limited Interest of $100 during the Initial Offering
Period and Net Asset Value during the Continuous Offering Period. Incremental
subscriptions in excess of the foregoing minimums are permitted in $100
multiples. Existing Limited Owners (except in certain states) may subscribe
for additional Limited Interests in $100 increments. Fractional Limited
Interests will be issued to three decimal places. The terms of the offering of
the Limited Interests are described in the Trust's Prospectus. I have
authorized my selling agent to debit my customer securities account in the
amount of my subscription. I acknowledge that I must have my subscription
payment in such account on but not before the settlement date for my purchase
of Limited Interests. My Financial Advisor shall inform me of such settlement
date, on which date my account will be debited and the amounts so debited
will be transmitted, by Prudential Securities Inc. to "The Bank of New York, as
Escrow Agent for Willowbridge Strategic Trust, Escrow Account No. 386539",
directly to the Escrow Agent. Prudential Securities Futures Management Inc.
(the "Managing Owner") may, in its sole and absolute discretion, accept or
reject this subscription in whole or in part. THE SALE OF LIMITED INTERESTS
WILL NOT BE FINAL AND BINDING ON ANY SUBSCRIBER UNTIL AT LEAST FIVE (5)
BUSINESS DAYS AFTER SUCH SUBSCRIBER RECEIVES A FINAL PROSPECTUS. Thereafter,
all subscriptions are irrevocable.
Subscriptions generally must be submitted no later than five (5)
calendar days prior to the end of a month in order to be invested in the
Limited Interests as of the beginning of the following month.
2. Representations and Warranties of Subscriber. I have received the
Prospectus together with the most recent Monthly Report of the Trust. I
acknowledge that I satisfy the applicable requirements relating to net worth
and annual income as set forth in "State Suitability Requirements" attached
hereto. If subscriber is an employee benefit plan, the investment in the
Limited Interests by such employee benefit plan is in compliance with all
federal laws relating to such plans. If the subscriber is a trust under an
employee benefit plan, none of the Trustee, the Managing Owner, any Selling
Agent or Additional Selling Agent, any of their respective affiliates or any of
their respective agents or employees: (i) has investment discretion with
respect to the investment of the assets of such trust being used to purchase
Limited Interests; (ii) has authority or responsibility to give or regularly
gives investment advice with respect to such trust assets for a fee and
pursuant to an agreement or understanding that such advice will serve as the
primary basis for investment decisions with respect to such Plan or trust
assets and that such advice will be based on the particular investment needs of
the trust; or (iii) is an employer maintaining or contributing to the trust.
If subscriber is not an individual, the person signing the Subscription
Agreement and Power of Attorney Signature Page on behalf of the subscriber is
duly authorized to execute such Signature Page.
C-5
<PAGE>
3. Power of Attorney. In connection with my purchase of Limited
Interests, I do hereby irrevocably constitute and appoint the Managing Owner
and its successors and assigns, as my true and lawful Attorney-in-Fact, with
full power of substitution, in my name, place and stead, to (i) file,
prosecute, defend, settle or compromise litigation, claims or arbitrations on
behalf of the Trust and (ii) make, execute, sign, acknowledge, swear to,
deliver, record and file any documents or instruments which may be considered
necessary or desirable by the Managing Owner to carry out fully the provisions
of the Declaration of Trust and Trust Agreement of the Trust, including,
without limitation, the execution of the said Agreement itself, and the
execution of all amendments permitted by the terms thereof. The Power of
Attorney granted hereby shall be deemed to be coupled with an interest, shall
be irrevocable, shall survive, and shall not be affected by, my subsequent
death, incapacity, disability, insolvency or dissolution or any delivery by me
of an assignment of the whole or any portion of my Limited Interests.
4. Governing Law. Subscriber hereby acknowledges and agrees that
this Subscription Agreement and Power of Attorney shall be governed by and be
interpreted in accordance with the laws of the State of Delaware, without
regard to principles of conflicts of laws.
PLEASE COMPLETE THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE WHICH ACCOMPANIES THIS PROSPECTUS CAREFULLY.
C-6
PAGE
<PAGE>
STATE SUITABILITY REQUIREMENTS
All states except as listed below.
The general suitability requirement for subscribers to the Trust is that
subscribers have a net worth (exclusive of home, home furnishings and
automobiles) of at least $150,000 or, failing that standard, have a net worth
(similarly calculated) of at least $45,000 and an annual gross income of at
least $45,000. In addition, the minimum aggregate purchase is $5,000 or $2,000
in the case of Individual Retirement Accounts.
Higher Suitability Requirement.
The States listed below have more restrictive suitability requirements.
Please read the following list to make sure that you meet the suitability
and/or investment requirements for the State in which you reside. (As used
below, "NW" means net worth exclusive of home, home furnishings and
automobiles; "AI" means annual gross income; and "TI" means annual taxable
income for federal income tax purposes).
Alaska . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Arizona. . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
California . . . . (a) $250,000 NW, or (b) $100,000 NW and $65,000 AI,
and not more than 25% of this offering may be sold
in California.
Idaho. . . . . . . No offers or sales permitted except in compliance with
Section 30-1435 of the Idaho Securities Regulations.
Iowa . . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Minimum subscription for IRAs is $2,100.
Maine. . . . . . . (a) $225,000 NW, or (b) $100,000 NW and $100,000 AI;
Minimum subscription for all investors (including IRAs)
is $5,000. Additional increments for existing Limited
Owners must also be at least $5,000.
Massachusetts. . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Michigan . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Minnesota. . . . . (a) $225,000 NW, or (b) $100,000 NW and $100,000 AI.
Mississippi. . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Missouri . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Nebraska . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
New Hampshire. . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
North Carolina . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Oklahoma . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Oregon . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Pennsylvania . . . (a) $175,000 NW, or (b) $100,000 NW and $50,000 TI.
South Dakota . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Tennessee. . . . . (a) $250,000 NW, or (b) $60,000 NW and $60,000 TI.
Texas. . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
AN INVESTMENT IN THE TRUST MAY NOT EXCEED 10% OF NW
C-7
<PAGE>
[LOGO]
WILLOWBRIDGE STRATEGIC TRUST I
THIS PROSPECTUS CONSISTS OF THE ORIGINAL PROSPECTUS DATED FEBRUARY
7, 1996 (THE "ORIGINAL PROSPECTUS"), AND THIS SUPPLEMENT DATED
OCTOBER [ ], 1996, SUPPLEMENTING THE ORIGINAL PROSPECTUS. UNLESS
NOTED HEREIN, THE DISCLOSURE IN THE ORIGINAL PROSPECTUS REMAINS
MATERIALLY ACCURATE.
THIS SUPPLEMENT CONTAINS THE FOLLOWING:
I. Certain information which is in addition to, or which amends the
information set forth in, the Original Prospectus, including
-- Updated financial and other information on the Trust and the Managing
Owner.
-- Past performance information for the Trust since trading commenced on
May 1, 1996, through August 31, 1996.
-- Past performance information for the five trading programs being used
by the Trading Manager for the Trust, plus other trading programs
offered by the Trading Manager.
-- Past performance information relating to prior Prudential Securities
sponsored funds, including funds in which the Trading Manager is
making the trading decisions.
THE DATE OF THIS SUPPLEMENT IS OCTOBER [ ], 1996
[LOGO]
PAGE
<PAGE>
TABLE OF CONTENTS
UPDATES AND MODIFICATIONS TO THE ORIGINAL PROSPECTUS
NOTES TO COVER PAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY OF THE PROSPECTUS. . . . . . . . . . . . . . . . . . . . . . . . 3
Trading Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FEES, COMPENSATION AND EXPENSES. . . . . . . . . . . . . . . . . . . 3
PROJECTED TWELVE-MONTH "BREAK-EVEN" ANALYSIS . . . . . . . . . . . . 3
DESCRIPTION OF THE TRADING MANAGER . . . . . . . . . . . . . . . . . . . 4
The Managing Owner . . . . . . . . . . . . . . . . . . . . . . . . . 4
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PAST PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . 26
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other Pools Sponsored by the Managing Owner and its Affiliate . . . 27
Trading Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
<PAGE>
<PAGE>
UPDATES AND MODIFICATIONS TO ORIGINAL PROSPECTUS
NOTES TO COVER PAGE
Note (1) (First paragraph, page 2)
(a) The Trust commenced trading on May 1, 1996 following the initial
closing for the Initial Offering Period. Interests currently are being sold
on a monthly basis at their month-end Net Asset Value. As of October 1, 1996,
$76,814,500 of Interests remain to be sold during the continuous offering.
SUMMARY OF THE PROSPECTUS
This Supplement is intended for use beginning on October [ ], 1996, in
conjunction with the Original Prospectus.
Trading Manager (Original Prospectus, page 8)
Willowbridge's allocation of Trust assets among the five trading programs
being used for the Trust is as follows:
<TABLE>
<CAPTION>
XLIM ARGO TITAN VULCAN SIREN
Program Program Program Program Program
<S> <C> <C> <C> <C> <C>
Start of
Trading 50% 20% 10% 10% 10%
As of October
1, 1996 55.07% 16.87% 9.92% 9.56% 8.58%
</TABLE>
These proportions will continue to change as the Trust earns trading profits
and incurs trading losses.
FEES, COMPENSATION AND EXPENSES
(Original Prospectus, page 17 and 54)
Based on the Trust's trading activities through September 30, 1996, the
fixed brokerage fee being paid to Prudential Securities is equivalent to
approximately $54 per round turn transaction.
PROJECTED TWELVE-MONTH "BREAK-EVEN" ANALYSIS
(Original Prospectus, pages 18 and 54)
Based on the Trust's trading activities through September 30, 1996, the Trust
is earning interest income on its assets at a rate of 5.15%, as compared to the
estimated rate of 5.25% in the Original Prospectus. As a result, the estimated
12-month Break-Even Level Without Redemption Charges is adjusted slightly upward
to 6.63% (from 6.55%) and to 9.63% after giving effect to Redemption Charges
(from 9.55%).
3
<PAGE>
DESCRIPTION OF THE TRADING MANAGER
The Trading Manager and its Principals (Original Prospectus, pages 29-30)
The following persons have been added as principals of the Trading Manager:
James J. O'Donnell is Vice President of Willowbridge. He oversees
Willowbridge's computer and information needs, including trading information
systems, accounting information systems and support for ongoing research of new
computerized trading systems and effectiveness testing of existing trading
systems. Mr. O'Donnell has been employed by Willowbridge since September 1,
1992. From June 1987 through August 1992, Mr. O'Donnell was Manager of Computer
Information Systems at Caxton Corporation. From April 1979 through May 1987, Mr.
O'Donnell was manager of Research Information Systems at Commodities
Corporation. Prior to that, he was employed by Penn Mutual from September
1973 through March 1979 as Senior Programmer Analyst. He is a graduate of
LaSalle University with a B.A. in mathematics.
Steven R. Crane is Vice President of Willowbridge. He oversees the
accounting and financial reporting for Willowbridge. Mr. Crane has been
employed by Willowbridge since April 1993. Prior to that, he was employed
by Caxton Corporation from April 1992 to April 1993 as a Senior Accountant.
From September 1989 through April 1992, Mr. Crane worked as a Senior
Auditor for Deloitte & Touche LLP. Mr. Crane is a Certified Public
Accountant and a member of the AICPA. He graduated magna cum laude
from North Carolina State University with a B.A. in accounting.
THE TRUST, TRUSTEE, MANAGING OWNER AND AFFILIATES
The Managing Owner (Original Prospectus, pages 45-46)
This section is modified to reflect that the Managing Owner is also the
general partner and CPO of two additional commodity funds which were formed
after the Original Prospectus, were organized under the laws of Ireland,
and are being offered pursuant to CFTC Rule 4.7 exclusively to non-U.S.
investors.
Directors and Officers of the Managing Owner (Original Prospectus, pages 46-47)
Donald Levine ceased acting as Secretary of both the Managing Owner and
Seaport in October, 1996, and was replaced by David Buchalter.
The following person has been added as a principal of the Managing Owner:
Thomas T. Bales, born 1959, is a First Vice President of Futures
Administration in the Futures Division for Prudential Securities and serves in
various capacities for other affiliated companies. Prior to joining the Futures
Division, Mr. Bales served as in-house counsel in the Law Department for
Prudential Securities from October 1987 through May 1996. Mr. Bales joined
Prudential Securities in November 1981 as an Analyst in the Credit Analysis
Department and later served as a Section Manager.
4
<PAGE>
CAPITALIZATION
(Original Prospectus, page 50)
<TABLE>
<CAPTION>
As Adjusted
Title of Class Outstanding Maximum
<S> <C> <C>
General Interests . . . . . . $ 258,000 (a) (b)
Limited Interests . . . . . . 23,185,500 (a) (b)
Total Contributions . . . . . 23,443,500 $101,010,000
</TABLE>
(a) As of October 1, 1996.
(b) The Trust may not sell more than $100,000,000 of Limited Interests. The
maximum number of Limited Interests which may be sold to reach this
$100,000,000 amount cannot currently be determined because Limited
Interests are sold at their Net Asset Value, which amount fluctuates
daily. General Interests also are sold at Net Asset Value.
EXPERTS
(Original Prospectus, page 90)
The Statement of Financial Condition of Prudential Securities Futures
Management Inc. as of December 31, 1995, and the Statement of Financial
Condition of Willowbridge Strategic Trust as of December 31, 1995, and the
Statement of Financial Condition of Prudential-Bache Capital Return Futures
Fund 2, L.P. as of December 31, 1995 included in the Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and have been so included in reliance upon the
reports of such firm and given upon their authority as experts in accounting
and auditing.
5
<PAGE>
Deloitte & Two World Financial Center Telephone: (212) 436-2000
Touche LLP New York, New York 10281-1414 Facsimile:(212) 436-5000
- ----------
(LOGO)
INDEPENDENT AUDITORS' REPORT
To the Interestholders of
Willowbridge Strategic Trust:
We have audited the accompanying statement of financial condition of
Willowbridge Strategic Trust as of December 31, 1995. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of financial condition is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of financial condition. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of financial
condition presentation. We believe that our audit of the statement of financial
condition provides a reasonable basis for our opinion.
In our opinion, such statement of financial condition presents fairly, in all
material respects, the financial position of Willowbridge Strategic Trust as of
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
October 14, 1996
- -----------------
Deloitte Touche
Tohmatsu
International
- -----------------
6
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $15,459,594 $ 1,000
Net unrealized gain on open commodity positions 199,963 --
----------- ------------
Net equity 15,659,557 1,000
Other receivable 7,693 --
----------- ------------
Total assets $15,667,250 $ 1000
----------- ------------
----------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Management fee payable $ 39,168 $ --
----------- ------------
Commitments
Trust capital
Limited interests (172,440.473 and 0 interests outstanding) 15,454,967 --
General interests (1,931.566 and 10 interests outstanding) 173,115 1,000
----------- ------------
Total trust capital 15,628,082 1,000
----------- ------------
Total liabilities and trust capital $15,667,250 $ 1,000
----------- ------------
----------- ------------
Net asset value per limited and general interest (``Interests'') $ 89.62 $ 100.00
----------- ------------
----------- ------------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
7
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the period from
May 1, 1996
(commencement of
operations)
through
June 30,
1996
<S> <C>
- ---------------------------------------------------------------------------------------------------
REVENUES
Net realized loss on commodity transactions $ (1,405,524)
Net unrealized gain on commodity positions 199,963
Interest income 116,173
--------------------------
(1,089,388)
--------------------------
EXPENSES
Commissions 183,456
Management fees 67,829
--------------------------
251,285
--------------------------
Net loss $ (1,340,673)
--------------------------
--------------------------
ALLOCATION OF NET LOSS
Limited interests $ (1,324,788)
--------------------------
--------------------------
General interests $ (15,885)
--------------------------
--------------------------
NET LOSS PER WEIGHTED AVERAGE LIMITED
AND GENERAL INTEREST
Net loss per weighted average limited and general interest $ (8.95)
--------------------------
--------------------------
Weighted average number of limited and general interests outstanding 149,742.020
--------------------------
--------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1995 10 $ -- $ 1,000 $ 1,000
Contributions 176,112.039 16,937,500 188,000 17,125,500
Net loss -- (1,324,788) (15,885 ) (1,340,673)
Redemptions (1,750.000) (157,745) -- (157,745)
------------ ----------- --------- -----------
Trust capital--June 30, 1996 174,372.039 $15,454,967 $173,115 $15,628,082
------------ ----------- --------- -----------
------------ ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
8
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to June 30, 1996)
A. General
Willowbridge Strategic Trust (the ``Trust'') was organized under the Delaware
Business Trust Statute on October 16, 1995 and commenced trading operations on
May 1, 1996. The Trust will terminate on December 31, 2015 unless terminated
sooner as provided in the Second Amended and Restated Declaration of Trust and
Trust Agreement (the ``Trust Agreement''). The Trust was formed to engage in the
speculative trading of commodity futures, options and forward contracts. 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 principal underwriter and selling agent for the Trust's interests (the
``Interests'') as well as the commodity broker (``Commodity Broker'') of the
Trust.
The Trust is offering a maximum of $100,000,000 of limited interests. On May
1, 1996, the Trust completed its initial offering with gross proceeds of
$12,686,200 from the sale of 125,352 limited interests and 1,510 general
interests. Additional Interests are being offered monthly at the then current
net asset value per Interest until no later than two years from the date of the
prospectus (February 7, 1996) but in no event after $100,000,000 in limited
interests are sold (the ``Continuous Offering Period''). A minimum initial
contribution of $5,000 ($2,000 for an IRA account) is required for each new
limited owner unless the Managing Owner, in its sole discretion, approves a
contribution of a lesser amount. Existing limited owners are permitted to make
additional contributions in increments of not less than $100 during the
Continuous Offering Period.
Redemptions are permitted monthly, on at least 10 days' prior written notice,
commencing with the end of the first full month of Trust trading activity, May
31, 1996. Redemptions will be at the net asset value per Interest, however,
Interests redeemed on or prior to the end of the first and second successive
six-month periods after their purchase are subject to a redemption charge of 4%
and 3%, respectively, of the net asset value at which they are redeemed. These
redemption charges will be paid to the Managing Owner. Partial redemptions are
permitted.
The Managing Owner is required to maintain at least a 1% interest in the
Trust so long as it is acting as the Managing Owner. Therefore, it must
contribute to the Trust between $101,000 and $1,010,000 depending upon the total
number of limited interests sold during the Initial & Continuous Offering
Periods. In return, it is entitled to a proportionate number of general
interests with at least a 1% interest in the profits and losses of the Trust.
The Managing Owner, on behalf of the Trust, entered into an agreement (the
``Advisory Agreement'') with Willowbridge Associates Inc., an independent
commodity trading manager (the ``Trading Manager''). The Managing Owner has made
100% of the Trust's assets available for trading by the Trading Manager;
however, the Managing Owner retains the authority to override trading
instructions that violate the Trust's trading policies. The Advisory Agreement
is for an initial term of approximately one year and may be renewed thereafter
for additional successive one-year terms. The Managing Owner retains the right
to retain additional or substitute commodity trading managers at its discretion.
The June 30, 1996 financial statements have been prepared without audit. In
the opinion of management, these financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Trust as of June 30, 1996 and the results of its
operations for the period ended June 30, 1996. However, the operating results
for the interim period may not be indicative of the results expected for the
full year.
B. Summary of Significant Accounting Policies
Basis of Accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
9
<PAGE>
Income Taxes
The Trust is not required to provide for, or pay, any federal or state income
taxes. Income tax attributes that arise from its operations will be passed
directly to the individual limited owners and the Managing Owner. The Trust may
be subject to other state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
The Trust allocates profits and losses for both financial and tax reporting
purposes to the limited owners and the Managing Owner monthly on a pro-rata
basis based on each owner's Interests outstanding during the month.
Distributions (other than on redemptions of Units) are made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital accounts of the owners. No distributions have been made since
inception.
C. Fees
Organizational, Offering, General and Administrative Costs
PSI or its affiliates pay the costs of organizing the Trust and offering its
Interests as well as administrative costs incurred by the Managing Owner or its
affiliates for services it performs for the Trust. These costs include, but are
not limited to, those discussed in Note D below. Routine legal, audit, postage,
and other third party costs are also paid by PSI or its affiliates.
Management and Incentive fees
The Trust pays the Trading Manager a monthly management fee of 1/4 of 1% (3%
per annum) of the Trust's Net Asset Value as of the last day of each month and a
quarterly incentive fee of 20% of ``New High Net Trading Profits'' (as defined
in the Advisory Agreement).
Commissions
The Managing Owner, on behalf of the Trust, entered into an agreement (the
``Brokerage Agreement'') with PSI to act as Commodity Broker whereby the Trust
pays a fixed monthly fee for brokerage services rendered. The monthly fee is
equal to .64583 of 1% (7.75% per annum) of the Trust's Net Asset Value as of the
first day of each month. From this fee, PSI pays all of the Trust's execution
(i.e., floor brokerage expenses, give-up charges and NFA, clearing and exchange
fees) and account maintenance costs, as well as compensation to employees who
sell Interests in the Trust.
D. Related Parties
The Managing Owner or its affiliates perform services for the Trust which
include but are not limited to: brokerage services, accounting and financial
management, registrar, transfer and assignment functions, investor
communications, printing and other administrative services.
One hundred percent of the proceeds of this offering are received in the
Trust's name and deposited in cash in segregated trading accounts at PSI and
will remain there for as long as the Trust's Brokerage Agreement with PSI
remains in effect. PSI credits the Trust monthly with 80% of the interest it
earns on the equity in these accounts and retains the remaining 20%.
When the Trust engages in forward foreign currency transactions, it trades
with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Trust's prospectus, is obligated to charge a
competitive price.
E. Credit and Market Risk
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Trust's unrealized
gain (loss) on open commodity positions reflected in the statements of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
10
<PAGE>
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Trust must rely solely on the credit of its broker (PSI) with
respect to forward transactions.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's Trading Manager to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI is the sole
counterparty or broker); limiting the amount of margin or premium required for
any one commodity or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the Trading Manager as it, in good faith, deems
to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant in accepting
orders for the purchase or sale of domestic futures and options contracts, is
required by Commodity Futures Trading Commission (``CFTC'') regulations to
separately account for and segregate as belonging to the Trust all assets of the
Trust relating to domestic futures and options trading and not to commingle such
assets with other assets of PSI. At June 30, 1996, such segregated assets
totalled $6,920,259. Part 30.7 of the CFTC regulations also requires PSI to
secure assets of the Trust related to foreign futures and options trading which
totalled $8,739,298 at June 30, 1996. There are no segregation requirements for
assets related to forward trading.
As of June 30, 1996, all open futures contracts mature within six months.
As of June 30, 1996, gross contract amounts of open futures contracts are:
<TABLE>
<CAPTION>
June 30,
1996
-----------
<S> <C>
Financial Futures Contracts:
Commitments to purchase $ 9,123,704
Commitments to sell $ 1,623,469
Currency Futures Contracts:
Commitments to purchase $ 7,688,300
Commitments to sell $42,280,200
Other Futures Contracts:
Commitments to purchase $19,732,820
Commitments to sell $ 9,424,055
</TABLE>
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or options contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the value of the contracts. As such, the
Trust considers the ``fair value'' of its futures, forward and options contracts
to be the net unrealized gain or loss on the contracts (plus premiums on
options). Thus, the amount at risk associated with counterparty nonperformance
of all contracts is the net unrealized gain included in the statements of
financial condition. The market risk associated with the Trust's commitments to
purchase commodities is limited to the gross contract amounts involved, while
the market risk associated with its commitments to sell is unlimited since the
Trust's potential involvement is to make delivery of an underlying commodity at
the contract price; therefore, it must repurchase the contract at prevailing
market prices.
11
<PAGE>
At June 30, 1996 the fair values of futures contracts were:
<TABLE>
<CAPTION>
Assets Liabilities
----------- -----------
<S> <C> <C>
Domestic exchanges
Financial $ 71,125 $ 10,844
Currencies 147,112 177,880
Other 490,161 321,630
Foreign exchanges
Financial 22,221 --
Other -- 20,302
----------- -----------
$ 730,619 $ 530,656
----------- -----------
----------- -----------
</TABLE>
The following table presents the average fair value of futures contracts for
the period from May 1, 1996 (the commencement of operations) through June 30,
1996.
<TABLE>
<CAPTION>
Assets Liabilities
------------ -----------
<S> <C> <C>
Domestic exchanges
Financial $ 80,688 $ 14,328
Currencies 144,921 118,440
Other 334,102 453,315
Foreign exchanges
Financial 11,111 11,196
Other -- 20,314
------------ -----------
$570,822 $ 617,593
------------ -----------
------------ -----------
</TABLE>
The following table presents the net realized gains (losses) and the net
unrealized gains (losses) of futures and options contracts for the period from
May 1, 1996 (the commencement of operations) through June 30, 1996.
<TABLE>
<CAPTION>
Net Realized Net Unrealized
Gains (Losses) Gains (Losses) Total
-------------- -------------- -----------
<S> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ (313,625) $ 60,281 $ (253,344)
Currencies 49,662 (30,768) 18,894
Other (1,028,451) 168,531 (859,920)
Foreign exchanges
Financial (53,985) 22,222 (31,763)
Other -- (20,303) (20,303)
Options Contracts:
Domestic exchanges
Currencies (47,250) -- (47,250)
Other (11,875) -- (11,875)
-------------- -------------- -----------
$ (1,405,524) $199,963 $(1,205,561)
-------------- -------------- -----------
-------------- -------------- -----------
</TABLE>
12
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust commenced operations on May 1, 1996 with gross proceeds of
$12,686,200 allocated to commodities trading. Additional Interests are offered
monthly at the then current net asset value per Interest until no later than two
years from the date of the prospectus (February 7, 1996) but in no event after
$100,000,000 in limited interests are sold.
At June 30, 1996, 100% of the Trust's net assets were allocated to commodity
trading. A significant portion of the net assets are held in cash which is used
as margin for the Trust's trading in commodities. Inasmuch as the sole business
of the Trust is to trade in commodities, the Trust continues to own such liquid
assets to be used as margin. PSI credits the Trust monthly with 80% of the
interest it earns on the equity in these accounts and retains the remaining 20%.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in commodity futures contract prices
during a single day by regulations referred to as ``daily limits.'' During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Trust from promptly liquidating its commodity
futures positions.
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The Managing Owner attempts to minimize these risks
by requiring the Trust's Trading Manager to abide by various trading limitations
and policies. See Note E to the financial statements for a further discussion of
the credit and market risks associated with the Trust's futures, forward and
options contracts.
The Trust does not have, nor does it expect to have, any capital assets.
Redemptions of limited interests for the period from May 1, 1996
(commencement of operations) through June 30, 1996 were $157,745. Additional
contributions raised through the continuous offering for the period May 1, 1996
(commencement of operations) to June 30, 1996 resulted in additional gross
proceeds to the Trust of $4,440,300. Future redemptions and contributions will
impact the amount of funds available for investment in commodity contracts in
subsequent periods.
Results of Operations
The Trust commenced trading operations on May 1, 1996, and as such, no
comparative information is available for 1995.
The net asset value per Interest as of June 30, 1996 was $89.62, a decrease
of 10.38% from the May 1, 1996 initial net asset value per Interest of $100.00.
The Trust's performance was negative in the month of May. Losses were
incurred in the grains, softs, currencies, metals, energies, financials, meats,
and stock indices sectors. In the grains markets, profits in corn offset losses
in wheat and soybean by-products. Corn prices rose steadily during most of May
as heavy rains in the U.S. prevented farmers from planting their spring crops.
However, late in the month, forecasts for clear weather in these regions pushed
corn prices down thereby reducing overall profits. In the softs sector, cotton
prices also reacted to U.S. weather conditions, dropping in price late in the
month. In the coffee markets, prices reversed as anticipated freezes in Brazil
became less likely to occur. In the currencies sector, the dollar remained
strong against the German mark and Japanese yen, but at month-end a market
correction eliminated prior gains. In the energies sector, prices declined
during the month as the U.N. agreed to permit Iraqi oil in the market creating
an adverse effect on long positions in unleaded gas. In the financials sector,
U.S. bond markets remained volatile, which affected bond markets worldwide, as
13
<PAGE>
investors struggled to interpret conflicting U.S. economic reports. Positions in
U.S. and Japanese bonds were unprofitable.
The Trust's performance was also negative in the month of June. Profits in
the energies, metals, currencies and softs sectors were outweighed by losses in
the grains, financials, meats and stock indices sectors. In the energies sector,
positions in natural gas and light crude oil were profitable. In the precious
metals sector, selling gold positions were benefited by continuing International
Monetary Fund discussions about the possibilities of gold sales. The Trust
incurred losses in the grains sector. More favorable weather conditions during
June and reports of cancellations of some grain export orders caused grain
futures to decline during the month. However, month-end prices were somewhat
boosted by new indications of tight grain supply and hot weather conditions. In
the U.S. financials markets, the Trust also incurred losses. Interest rates rose
sharply on a very strong Labor Department non-farm payroll figure. Later in the
month, the market reflected conflicting expectations of the degree of U.S.
economic strength and the level of inflation. In the currencies sector, losses
were incurred in positions in the German mark which were offset by gains in the
Japanese yen.
Interest income is earned on the equity balances held at PSI and, therefore,
varies monthly according to interest rates, trading performance, contributions
and redemptions. Interest income was approximately $116,000 for the period ended
June 30, 1996.
Commissions are calculated on the Trust's net asset value at the beginning of
the month and, therefore, vary according to trading performance, contributions
and redemptions. Commissions for the period ended June 30, 1996 were
approximately $183,000.
All trading decisions for the Trust are made by Willowbridge Associates Inc.,
the Trading Manager. Management fees are calculated on the Trust's net asset
value at the end of each month and, therefore, are affected by trading
performance, contributions and redemptions. Management fees for the period ended
June 30, 1996 were approximately $68,000.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement between the Trust, the
Managing Owner and the Trading Manager. No incentive fees were earned during the
period ended June 30, 1996.
14
<PAGE>
Deloitte & Two World Financial Center Telephone: (212) 436-2000
Touche LLP New York, New York 10281-1414 Facsimile:(212) 436-5000
- ----------
(LOGO)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Prudential Securities Futures Management Inc.:
We have audited the accompanying statement of financial condition
of Prudential Securities Futures Management Inc. (a wholly-owned
subsidiary of Prudential Securities Incorporated) as of
December 31, 1995. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the statement of financial condition is free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the statement of financial condition. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
statement of financial condition presentation. We believe that
our audit of the statement of financial condition provides a
reasonable basis for our opinion.
In our opinion, such statement of financial condition presents
fairly, in all material respects, the financial position of the
Company as of December 31, 1995 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
January 24, 1996
- -----------------
Deloitte Touche
Tohmatsu
International
- -----------------
15
<PAGE>
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash $ 7,387 $ 4,251
Investments in partnerships 1,266,762 2,798,716
Receivable from partnerships 180,431 121,039
Other receivables 2,000 2,000
Total assets $ 1,456,580 $ 2,926,006
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Due to Parent and affiliate, net $ 1,389,734 $ 2,778,828
Accrued expenses 24,762 14,328
Total liabilities 1,414,496 2,793,156
Commitments and Contingencies
Stockholder's Equity
Common stock (no par value,
2,000 shares authorized,
100 shares issued and outstanding) 100 100
Additional paid-in capital 9,800,000 9,200,000
Retained earnings 41,984 132,750
9,842,084 9,332,850
Less: Noninterest-bearing demand notes due
from Prudential Securities Group Inc. (9,800,000) (9,200,000)
Total stockholder's equity 42,084 132,850
Total liabilities and stockholder's equity $ 1,456,580 $ 2,926,006
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE>
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
June 30, 1996 (unaudited) and December 31, 1995
A. General
Prudential Securities Futures Management Inc. (the "Company") is
a wholly-owned subsidiary of Prudential Securities Incorporated
("PSI" or the "Parent"), which is a wholly-owned subsidiary of
Prudential Securities Group Inc. ("PSGI"). The Company is a
general partner or managing owner of limited partnerships and
Delaware business trusts (collectively, "the Partnerships") formed
to engage in the speculative trading of commodity futures, forward
and option contracts pursuant to trading systems developed by
independent commodity trading advisors. As such, the Company is
registered with the Commodity Futures Trading Commission ("CFTC")
as a commodity pool operator. The Company is also registered with
the CFTC as a Commodity Trading Advisor and provides commodity
trading management services to clients of PSI.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Company are maintained on the accrual
basis of accounting in accordance with generally accepted
accounting principles which require management to make estimates
and assumptions that affect the reported amounts in the financial
statements.
Income taxes
The Company is a member of a group of affiliated companies which
join in filing a consolidated federal income tax return. Pursuant
to a tax allocation agreement, tax expense is determined for
individual profitable companies on a separate return basis. Profit
members pay this amount to an affiliated company which in turn
apportions the payment among the loss members in proportion to
their losses or, where appropriate, to the member company
providing identifiable tax deductions.
The Company utilizes the asset and liability method for
calculating income taxes. At June 30, 1996, the Company's federal
and state income tax receivables (Due from affiliate) were $25,224
and $6,772, respectively ($67,289 and $21,647, respectively, at
December 31, 1995).
17
<PAGE>
C. Investments In Partnerships
The Company's investments in partnerships are carried at its share
of the underlying equity in the Partnerships' net assets. The
Company's investments in partnerships and its percentage ownership
in those partnerships are as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
<S> <C> <C> <C> <C>
Prudential-Bache Capital Return $290,532 1.0% $1,976,675 6.2%
Futures Fund 2, L.P.
Diversified Futures Trust I 649,097 1.1% 576,089 1.2%
Prudential Securities Aggressive
Growth Fund L.P. 86,103 1.0% 195,066 1.6%
Prudential Securities Foreign
Financials Fund, L.P. 30,217 1.1% 47,935 1.7%
Willowbridge Strategic Trust 173,115 1.1% 1,000 100.0%
Signet Partners II, L.P. 8,317 1.1% 1,000 100.0%
Others 29,381 1.0% 951 100.0%
$1,266,762 $2,798,716
</TABLE>
The following represents combined condensed financial information
for the Partnerships in which the Company has an investment:
<TABLE>
<CAPTION>
June 30,1996 December 31, 1995
<S> <C> <C>
Assets $119,951,729 $98,654,169
Liabilities $ 5,302,616 $ 5,538,729
Partners' Capital 114,649,113 93,115,440
Total $119,951,729 $98,654,169
</TABLE>
D. Related Parties
The Company has an interest-bearing loan payable to PSGI in the
amount of $1,308,966 at June 30, 1996 ($2,603,923 at December 31,
1995) which bears interest at PSGI's effective borrowing rate and
is payable on demand. The loan was used to fund the purchase of
investments in the Partnerships.
The Company occupies space provided by PSI and is charged for this
space. PSI also provides all administrative, legal, financial and
other services to the Company and the Partnerships. The Company is
billed for such services performed for both itself and the
Partnerships (the balance of which is $119,994 and $263,413 at
June 30, 1996 and December 31, 1995, respectively, and is included
in Due to Parent and affiliate). The amount due from the
Partnerships related to these services is $105,431 at June 30,
1996 ($121,039 at December 31, 1995) and is included in
Receivable from partnerships.
The Company's officers and directors are also officers of PSI.
18
<PAGE>
E. Stockholder's Equity
The Company maintains a net worth in accordance with the limited
partnership and trust agreements of the Partnerships.
The Company has noninterest-bearing demand notes receivable from
PSGI in the amount of $9,800,000 at June 30, 1996 ($9,200,000 at
December 31, 1995). These notes receivable are classified as a
reduction of Stockholder's Equity as they represent capital
subscribed but not funded. The demand notes are partially
collateralized by U.S. Government security reverse repurchase
agreements which contract amounts plus accrued interest
approximate $7,200,000 at June 30, 1996 ($5,800,000 at December
31, 1995).
F. Commitments and Contingencies
As a general partner or managing owner, the Company may be
contingently liable for costs and liabilities incurred by the
Partnerships.
19
<PAGE>
Deloitte & Two World Financial Center Telephone: (212) 436-2000
Touche LLP New York, New York 10281-1414 Facsimile:(212) 436-5000
- ----------
(LOGO)
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
Independent Auditors' Report
To the Partners of
Prudential-Bache Capital Return Futures Fund 2, L.P.:
We have audited the accompanying statement of financial condition of
Prudential-Bache Capital Return Futures Fund 27 L.P. as of December 31, 1995 .
This financial statement is the responsibility of the Partnership's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of financial condition is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of financial condition. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of financial
condition presentation. We believe that our audit of the statement of financial
condition provides a reasonable basis for our opinion.
In our opinion, such statement of financial condition presents fairly, in all
material respects, the financial position of Prudential-Bache Capital Return
Futures Fund 2, L.P. as of December 31, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
January 29, 1996
- -----------------
Deloitte Touche
Tohmatsu
International
- -----------------
20
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 6,563,447 $16,630,972
U.S. Treasury bills, at amortized cost 22,289,551 15,519,076
Net unrealized gain on open commodity positions 936,424 872,394
----------- ------------
Total assets $29,789,422 $33,022,442
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 533,475 $ 1,143,534
Management fees payable 87,519 97,931
Accrued expenses 55,556 45,374
Due to affiliates 52,491 63,134
Incentive fees payable 14,719 --
Options, at market -- 3,000
----------- ------------
Total liabilities 743,760 1,352,973
----------- ------------
Commitments
Partners' capital
Limited partners (145,591 and 151,718 units outstanding) 28,755,130 29,692,794
General partner (1,471 and 10,100 units outstanding) 290,532 1,976,675
----------- ------------
Total partners' capital 29,045,662 31,669,469
----------- ------------
Total liabilities and partners' capital $29,789,422 $33,022,442
----------- ------------
----------- ------------
Net asset value per limited and general partnership unit
(``Units'')
$ 197.51 $ 195.71
----------- ------------
----------- ------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
21
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
(Unaudited with respect to June 30, 1996)
A. General
Prudential-Bache Capital Return Futures Fund 2, L.P. (the ``Partnership'') is
a Delaware limited partnership formed on June 8, 1989 which will terminate on
December 31, 2009 unless terminated sooner under the provisions of its Amended
and Restated Agreement of Limited Partnership (the ``Partnership Agreement'').
On October 6, 1989, the Partnership completed its offering having raised
$101,010,000 from the sale of 1,000,000 units of limited partnership interest
and 10,100 units of general partnership interest and commenced operations. The
Partnership was formed to engage in the speculative trading of commodity
futures, forward and options contracts. Physical commodities may also be traded
from time to time. The general partner of the Partnership is Prudential
Securities Futures Management Inc. (the ``General Partner''), a wholly-owned
subsidiary of Prudential Securities Group Inc. (``PSGI''). Prudential Securities
Incorporated (``PSI''), a wholly-owned subsidiary of PSGI, was the principal
underwriter of the Units and is the commodity broker. The General Partner is
required to maintain at least a 1% interest in the Partnership as long as it is
acting as the Partnership's general partner.
Initially, sixty percent (60%) of the net proceeds of the offering was
deposited in the Partnership's trading accounts for commodity trading purposes
(referred to as the Partnership's ``Adjusted Net Asset Value''). The General
Partner generally maintains not less than seventy-five percent (75%) of the
Adjusted Net Asset Value in interest-bearing U.S. Government obligations
(primarily U.S. Treasury bills), a significant portion of which is utilized for
margin purposes for the Partnership's commodity trading activities. The
remaining twenty-five percent (25%) of Adjusted Net Asset Value is held in cash
in the Partnership's commodity trading accounts. As a protective device in
conjunction with the letter of credit (see further discussion below), the
remaining forty percent (40%) of the net proceeds was placed in reserve (the
``Reserve Assets'') and was not committed to commodities trading until December
31, 1994 (the ``Capital Return Date''). On the Capital Return Date, the letter
of credit expired. Additionally, on January 3, 1995 the Reserve Assets matured
and the resulting proceeds were allocated for commodities trading to TSA Capital
Management, an independent commodities trading manager.
All trading decisions for the Partnership are made by Welton Investment
Services Corporation, TSA Capital Management and John W. Henry & Co., Inc.,
independent commodity trading managers, since January 1, 1995. During the period
May 1, 1994 through December 31, 1994, John W. Henry and Co., Inc. and Welton
Investment Services Corporation shared responsibilities for the Partnership's
trading decisions. During the period January 1, 1992 through April 30, 1994,
John W. Henry & Co., Inc. and another independent commodity trading manager
shared responsibilities for the Partnership's trading decisions. (The
independent commodity trading managers are each a ``Trading Manager''). The
General Partner retains the authority to override trading instructions that
violate the Partnership's trading policies.
On October 6, 1989, an irrevocable letter of credit (``Letter of Credit'')
was issued in favor of the Partnership by Barclays Bank plc (the ``Bank''). The
Letter of Credit was intended to provide protection to the limited partners
against loss of their initial investment through the Capital Return Date when
the limited partners had the option to redeem their units and receive the
greater of the then current net asset value per Unit or 100% of their initial
investment. As described above, the Letter of Credit expired on December 31,
1994 (with no payment required of the Bank) and does not provide protection
thereafter.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of expenses during the reporting period. Actual results could differ
from those estimates.
22
<PAGE>
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 of futures and forward contracts is
reflected as net unrealized gain or loss. Options transactions are reflected in
the Statements of Financial Condition at market value which is inclusive of the
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.
To the extent practicable, the Partnership invests a significant portion of
its Adjusted Net Asset Value in U.S. Treasury bills to fulfill original margin
requirements. U.S. Treasury bills are carried at amortized cost, which
approximates market. Interest on these obligations accrued for the benefit of
the Partnership.
Certain balances from the prior year have been reclassified to conform with
the current financial statement presentation.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from the Partnership's operations
are passed directly to the individual partners. The Partnership may be subject
to other state and local taxes in jurisdictions in which it operates.
Profit and loss allocations, distributions and redemptions
Net realized profits or losses for tax purposes are allocated first to
partners who redeem Units to the extent the amounts received on redemption are
greater than or are less than the amounts paid for the redeemed Units by the
partners. Net income or loss for financial reporting purposes is allocated
quarterly to all partners on a pro rata basis based on each partner's number of
Units outstanding during the quarter.
Distributions (other than on redemptions of Units) are made at the sole
discretion of the General Partner on a pro rata basis in accordance with the
respective capital accounts of the partners. No distributions have been made
since inception.
The Partnership Agreement provides that a limited partner may redeem its
units as of the last business day of any full calendar quarter (beginning with
the end of the first full calendar quarter of the Partnership's operations,
which was the quarter ended September 30, 1989) at the then current net asset
value per Unit reduced by each Unit's pro rata portion of unamortized
organizational costs.
Commissions
The General Partner, on behalf of the Partnership, entered into an agreement
with PSI to act as commodity broker for the Partnership. The Partnership pays
PSI fees equal to a rate of .7083% per month (an 8.5% annual rate) of the
Partnership's Adjusted Net Asset Value as of the first day of each month.
Management and incentive fees
The Partnership pays John W. Henry & Co., Inc. and Welton Investment Services
Corporation monthly management fees equal to 1/3 of 1% (a 4% annual rate) and
TSA Capital Management monthly management fees equal to 1/6 of 1% (a 2% annual
rate) of the portion of the Partnership's Adjusted Net Asset Value allocated to
that Trading Manager as of the end of each month.
In addition, the Partnership also pays each Trading Manager a quarterly
incentive fee equal to 15% of the ``New High Net Trading Profits'' generated by
each Trading Manager (as defined in the Advisory Agreement between the
Partnership, the General Partner and each Trading Manager).
General and administrative expenses
In addition to the costs, fees and expenses previously discussed, the
Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses payable by, or allocable to, the Partnership. The
amount of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. The Partnership also pays amounts directly to unrelated
parties for certain operating expenses.
C. Related Parties
The General Partner and its affiliates perform services for the Partnership
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.
23
<PAGE>
The Partnership maintains its trading and cash accounts at PSI, the
Partnership's commodity broker. Approximately 75% of the net asset value is
invested in interest-bearing U.S. Government obligations (primarily U.S.
Treasury bills), a significant portion of which is utilized for margin purposes
for the Partnership's commodity trading activities.
When the Partnership engages in forward foreign currency transactions, it
trades with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Partnership's prospectus, is obligated to charge
a competitive price.
D. Credit and Market Risk
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected on the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The General Partner attempts to minimize both credit and market risks by
requiring the Partnership's trading managers to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The General Partner
may impose additional restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the trading managers
as it, in good faith, deems to be in the best interest of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission (``CFTC'')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI. At
June 30, 1996 and December 31, 1995, such segregated assets totalled $22,350,062
and $26,171,977, respectively. Part 30.7 of the CFTC regulations also requires
PSI to secure assets of the Partnership related to foreign futures and options
trading which totalled $7,021,602 and $7,008,411 at June 30, 1996 and December
31, 1995, respectively. There are no segregation requirements for assets related
to forward trading.
As of June 30, 1996 and December 31, 1995, the Partnership's open forward and
options contracts mature within three months, but open futures contracts mature
within nine months and one year, respectively.
24
<PAGE>
At June 30, 1996 and December 31, 1995, gross contract amounts of open
futures, forward and options contracts are:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Financial Futures Contracts:
Commitments to purchase $104,363,236 $359,544,988
Commitments to sell $ 24,869,599 $ 25,500,889
Currency Forward Contracts:
Commitments to purchase $ 22,815,528 $ 19,425,878
Commitments to sell $ 37,905,133 $ 36,217,031
Currency Futures and Options
Contracts:
Commitments to purchase $ 6,003,800 $ 14,350,975
Commitments to sell $ 22,421,847 $ 28,217,838
Other Futures Contracts:
Commitments to purchase $ 280,356 --
Commitments to sell $ 16,921,955 $ 3,593,525
</TABLE>
The gross contract amounts represent the Partnership's potential involvement
in a particular class of financial instrument (if it were to take or make
delivery on an underlying futures, forward or options contract). The gross
contract amounts significantly exceed the future cash requirements as the
Partnership intends to close out open positions prior to settlement and thus is
generally subject only to the risk of loss arising from the change in the value
of the contracts. As such, the Partnership considers the ``fair value'' of its
futures, forward and options contracts to be the net unrealized gain or loss on
the contracts (plus premiums on options). Thus, the amount at risk associated
with counterparty nonperformance of all contracts is the net unrealized gain
included in the statements of financial condition. The market risk associated
with the Partnership's commitments to purchase commodities is limited to the
gross contract amounts involved, while the market risk associated with its
commitments to sell is unlimited since the Partnership's potential involvement
is to make delivery of an underlying commodity at the contract price; therefore,
it must repurchase the contract at prevailing market prices.
At June 30, 1996 and December 31, 1995, the fair values of futures, forward
and options contracts were:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------------------- --------------------------
Fair Value Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ -- $ 126,000 $ 461,831 $ --
Currencies 51,841 132,955 133,670 338,563
Other 495,735 960 795 100
Foreign exchanges
Financial 253,708 24,497 785,691 9,984
Other 1,794 -- -- --
Forward Contracts:
Currencies 457,317 39,559 244,587 405,533
Options Contracts:
Domestic exchanges
Currencies -- -- -- 3,000
---------- ----------- ---------- -----------
$1,260,395 $ 323,971 $1,626,574 $ 757,180
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
25
<PAGE>
PAST PERFORMANCE INFORMATION (Original Prospectus, pages 108-126)
The discussion below concerning the presentation of past performance
information replaces the information contained on pages 108 through 126 in the
Original Prospectus.
Introduction
The information set forth herein is in capsule form as required by the
Commodity Futures Trading Commission ("CFTC") under its Rule 4.25. The
information presented in the following capsules has been calculated on the
accrual basis of accounting in accordance with generally accepted accounting
standards. Additional information in tabular form is available and will be
provided upon written request to the Managing Owner at no additional cost.
In reviewing the capsule summaries which follow, subscribers should bear
in mind that the performance shown varies from period to period, and that
there are deviations, some of which are material, in the periodic rates of
return achieved.
The trading strategies utilized by the Trading Manager have evolved over
the years based on accumulated experience and further testing of data. The
Trust has not experienced, and will not necessarily experience, the same
results as those set forth in the capsule summaries due to differences in such
variables as the selection of the trading programs used and the allocation of
assets among them, the proportion of funds utilized as margin in the markets,
time of market entry, starting date of the account, brokerage commissions
(which may be higher or lower than other accounts under the Trading Manager's
management), management and incentive compensation, leverage employed, and
changes in the Trading Manager's trading strategies or approach, including the
size and the degree of diversification in terms of the number of and
differences in commodities traded at a particular time. In addition,
performance is affected by the timing and execution of orders to open and
close positions and the amount of interest earned, which fluctuates based upon
interest rates available and the portion of an account utilizing
interest-bearing instruments.
The Trust's experience also has not been, and is not likely to be,
similar to that of the other commodity pools sponsored by the Managing Owner
or its affiliate, Seaport, as the trading in certain of those commodity pools
was directed primarily by different trading managers (utilizing their own
proprietary systems) than those to be utilized by the Trust (see Section C.
below for a description of the commodity pools which the Trading Manager
currently is managing). In addition, the specific attributes of each of the
other commodity pools sponsored by the Managing Owner or its affiliate further
distinguishes it from the Trust. For instance, in contrast to the Trust, some
of those commodity pools are advised by several advisors, are privately
offered, or are principal-protected. Moreover, the fee structure of each
commodity pool is distinguishable from the fee structure for the Trust.
26
<PAGE>
<PAGE>
A. The Trust
Set forth below (The Trust Capsule) is the performance record of the Trust
from inception (February 7, 1996) through August 31, 1996.
THE TRUST'S PERFORMANCE SHOULD NOT BE EXPECTED TO BE SIMILAR TO ANY OF THE
PERFORMANCE RESULTS IN THE OTHER CAPSULES SET FORTH UNDER THIS SECTION.
THE INFORMATION IN THE TRUST CAPSULE HAS NOT BEEN AUDITED. HOWEVER, THE
MANAGING OWNER REPRESENTS AND WARRANTS THAT THE CAPSULE IS ACCURATE IN ALL
MATERIAL RESPECTS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. IT SHOULD
NOT BE ASSUMED THAT THE TRUST WILL EXPERIENCE RESULTS COMPARABLE TO THE RESULTS
EXPERIENCED BY THE TRUST IN THE PAST.
B. Other Pools Sponsored by the Managing Owner and its Affiliate
Set forth below (in Capsule A) is the performance record of trading from
January 1991 through August 31, 1996, for the three publicly formed commodity
funds (Prudential-Bache Capital Return Futures Fund 2, L.P., Prudential
Securities Aggressive Growth Fund, L.P. and Diversified Futures Trust
I), and three non-public commodity funds (Prudential Securities Financial
Futures Fund, L.P., Prudential Securities Foreign Financials Fund, L.P.
and Signet Partners II, L.P.), for which the General Partner
acts or acted as the general partner and commodity pool operator and
two offshore investment funds (Prudential-Bache International Futures Fund A PLC
and Prudential-Bache International Futures Fund C PLC) organized as investment
companies incorporated in Ireland and offered only to non-U.S. residents, for
which the General Partner acts as investment manager and for which a CFTC
Rule 4.7 eligibility notice was filed, and each of the four public commodity
funds for which its affiliate, Seaport Futures Management Inc. ("Seaport")
acts as general partner and commodity pool operator, as well as a public
commodity fund for which Seaport acted as general partner and commodity
pool operator until January 31, 1995.
The Trading Manager currently acts as the trading advisor to four of these
pools, as indicated on the following capsule. In each instance, the Trading
Manager replaced another trading advisor in July 1995. The Trading
Manager does not use the same five trading strategies for any
of these pools as it uses in trading the Trust's assets. The Trading
Manager does, however, use at least one of the trading strategies that
it uses for the Trust in managing the assets of each of these four
pools (XLIM is used in two pools, Argo is used in one pool, and the CFM Program,
which allows the Trading Manager to select from among seven trading strategies,
including the five strategies to be used for the Trust, is used in one pool). In
addition, the advisory management and incentive fees which the Trading Manager
receives from these four pools is the same as it receives from the Trust.
THE INFORMATION IN CAPSULE A HAS NOT BEEN AUDITED. HOWEVER, THE MANAGING
OWNER REPRESENTS AND WARRANTS THAT THE CAPSULE IS COMPLETE AND ACCURATE IN ALL
MATERIAL RESPECTS.
C. Trading Manager
On behalf of the Trust, the Managing Owner initially allocated the
Trust's assets to the following five Willowbridge trading strategies:
XLIM, Argo, Titan, Vulcan and Siren. The initial allocations were as
follows: XLIM-50%, Argo-20%, and Titan, Vulcan and Siren-10% each.
As of October 1, 1996, the allocations are: XLIM-55.07%, Argo-16.87%,
Titan-9.92%, Vulcan-9.56%, and Siren-8.58%. These proportions will
continue to change as the Trust earns trading profits and incurs
trading losses. The allocations may be altered subject to Willowbridge's
consent if the Managing Owner determines it is in the Trust's
best interests to do so. The performance of these trading strategies through
August 31, 1996 is reflected in capsule summaries B through G.
27
<PAGE>
Capsules H and I represent the customer accounts traded by the Trading Manager
pursuant to different trading strategies from those to be utilized by the Trust.
The proprietary performance of the XLIM trading strategy is separately set
forth in Capsule J.
The foregoing capsule summaries were supplied by the Trading Manager. The
Managing Owner is relying on the Trading Manager for the accuracy of the
information supplied in these capsules.
THE INFORMATION IN CAPSULES B THROUGH J HAS NOT BEEN AUDITED. HOWEVER, THE
TRADING MANAGER REPRESENTS AND WARRANTS THAT THESE CAPSULES ARE COMPLETE AND
ACCURATE IN ALL MATERIAL RESPECTS.
* * * * *
SEE THE NOTES TO THE FOREGOING CAPSULES FOR A MORE DETAILED EXPLANATION OF
THE INFORMATION PRESENTED IN EACH CAPSULE. THESE NOTES ARE AN INTEGRAL PART
OF EACH SUCH CAPSULE.
* * *
28
<PAGE>
<PAGE>
Capsule Performance of Willowbridge Strategic Trust
Rate of Return
Month
1996
January
February
March
April
May -9.86%
June -0.58%
July -9.17%
August 2.75%
September
October
November
December
Year -16.36%
Name of Pool: Willowbridge Strategic Trust
Type of Pool: Publicly-Offered
Date Pool Began Trading: May 1996
Aggregate Subscriptions: $20,559,400
Current Net Asset Value: $18,057,814
Drawdown means losses experienced by the Willowbridge Strategic Trust
over a specified period.
Worst Monthly Percentage Drawdown: -9.86% 5/96
Worst Monthly Percentage Drawdown means greatest percentage decline
in net asset value due to losses sustained by the Willowbridge Strategic
Trust from the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown: -18.60% 5/96 - 7/96
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the Willowbridge Strategic
Trust due to losses sustained during a period in which the initial
month-end net asset value of the Willowbridge Strategic Trust is
not equaled or exceeded by a subsequent month-end net asset value
of the Willowbridge Strategic Trust.
Rate of Return is calculated each month by dividing net performance
by beginning equity. The monthly returns are then compounded to arrive
at the annual rate of return. For periods less than one year, results
are year to date.
29
<PAGE>
Capsule A
CAPSULE PERFORMANCE OF OTHER POOLS OPERATED BY PRUDENTIAL
SECURITIES FUTURES MANAGEMENT INC. AND AFFILIATE [a]
(SEE ACCOMPANYING NOTES)
<TABLE>
<CAPTION>
WORST WORST
MONTHLY PEAK
AGGREGATE CURRENT PERCENT TO VALLEY
TYPE INCEPTION SUBSCRIPTIONS TOTAL NAV DRAW- DRAW-
NAME OF POOL OF POOL OF TRADING ($ x 1,000) ($ x 1,000) DOWN [b] DOWN [c]
<S> <C> <C> <C> <C> <C> <C>
PRUDENTIAL-BACHE FUTURES GROWTH FUND, L.P. [d] (PBFG) 3, 5, 6, 8, 10 3/88 24,961 --- -14.38% -24.48%
10/89 12/88 - 1/93
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. (PBDFF) 3, 5, 6, 8, 10 10/88 29,747 16,578 -18.37% -36.63%
1/92 1/92 - 5/92
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND
L.P. (PBCRFF) 1a, 3, 5, 7, 8, 10 5/89 137,705 16,089 -5.26% -24.43%
11/94 9/93 - 1/95
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES
FUND 2 L.P. (PBCRFF2) 1a, 3, 5, 7, 8, 9 10/89 100,000 28,282 -11.36% -24.24%
1/92 1/92 - 5/92
PRUDENTIAL-BACHE CAPITAL RETURN
FUTURES FUND 3 L.P. (PBCRFF3) 1a, 3, 5, 7, 8, 10 5/90 64,863 18,340 -10.94% -17.84%
1/91 9/90 - 6/91
PRUDENTIAL-BACHE OPTIMAX FUND
L.P. - OPTIMAX (PBOFF) 3, 5, 7, 8, 10, 11 4/96 69,603 13,494 -6.36% -11.32%
7/96 5/96 - 8/96
PRUDENTIAL-BACHE OPTIMAX
FUND L.P. - A (PBOFF) 1, 3, 5, 7, 10 2/91 63,356 --- -6.00% -10.72%
1/92 8/93 - 2/95
PRUDENTIAL-BACHE OPTIMAX
FUND L.P. - B (PBOFF) 3, 5, 7, 8, 10 2/91 6,247 --- -9.90% -20.26%
1/92 8/93 - 2/95
PRUDENTIAL SECURITIES OPTIMAX
FUND 2 L.P. - A (PBOFF2) 1, 3, 5, 7, 9 1/92 15,197 7,420 -5.82% -13.53%
9/93 9/93 - 1/95
PRUDENTIAL SECURITIES OPTIMAX
FUND 2 L.P. - B (PBOFF2) 3, 5, 7, 8, 9 1/92 2,219 677 -9.49% -20.94%
9/93 6/95-7/96
PRUDENTIAL SECURITIES FINANCIAL
FUTURES FUND L.P. [e] (PSFNF) 2, 4, 6, 8, 9 1/93 3,557 --- -8.39% -40.23%
11/94 8/93 - 1/95
PRUDENTIAL SECURITIES FOREIGN
FINANCIALS FUND L.P. (PSFFF) 2, 4, 6, 8, 9 1/93 4,014 2,692 -17.69% -25.96%
9/93 9/93 - 1/94
PRUDENTIAL SECURITIES AGGRESSIVE
GROWTH FUND L.P. (PSAGF) 3, 5a, 7, 8, 9 8/93 20,335 8,623 -9.70% -32.67%
9/93 8/93 - 1/95
DIVERSIFIED FUTURES TRUST I (DFT) 3, 4, 6, 8, 9 1/95 60,095 58,918 -5.89% -6.49%
2/96 2/96 - 6/96
SIGNET PARTNERS II, LP (SPLP2) 2, 4, 7, 8, 9 2/96 1,300 1,089 -1.31% -1.31%
2/96 2/96
PRUDENTIAL-BACHE INTERNATIONAL FUTURES
FUND A PLC (PBIFA) 2, 4, 6, 9, 12 6/96 8,378 7,847 -9.45% -10.90%
6/96 6/96 - 7/96
PRUDENTIAL-BACHE INTERNATIONAL FUTURES
FUND C PLC (PBIFC) 2, 4, 6, 9, 12 6/96 7,797 7,555 -1.10% -1.10%
6/96 6/96
PRUDENTIAL-BACHE INTERNATIONAL FUTURES
FUND B PLC (PBIFB) 2, 4, 6, 9, 12 7/96 16,943 16,943 -0.30% -0.30%
8/96 8/96
<CAPTION>
ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
YEAR
TO-DATE
NAME OF POOL 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
PRUDENTIAL-BACHE FUTURES GROWTH FUND, L.P. [d] (PBFG) -1.93% -6.37% 19.73% 1.57% -9.54% ---
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. (PBDFF) 38.29% -9.80% 31.49% -10.05% 33.95% -2.25%
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND
L.P. (PBCRFF) 6.97% -0.04% 12.33% -21.44% 23.98% -8.92%
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES
FUND 2 L.P. (PBCRFF2) 26.33% 0.49% 21.32% -8.07% 27.26% -1.73%
PRUDENTIAL-BACHE CAPITAL RETURN
FUTURES FUND 3 L.P. (PBCRFF3) -1.40% 10.28% 8.85% 10.41% 16.63% -6.58%
PRUDENTIAL-BACHE OPTIMAX FUND
L.P. - OPTIMAX (PBOFF) --- --- --- --- --- -4.05%
PRUDENTIAL-BACHE OPTIMAX
FUND L.P. - A (PBOFF) 7.52% 7.15% 10.88% -6.42% 7.18% -0.41%
PRUDENTIAL-BACHE OPTIMAX
FUND L.P. - B (PBOFF) 10.03% 5.74% 15.34% -10.66% 7.59% -1.59%
PRUDENTIAL SECURITIES OPTIMAX
FUND 2 L.P. - A (PBOFF2) --- 1.04% 4.43% -5.51% 13.93% -9.62%
PRUDENTIAL SECURITIES OPTIMAX
FUND 2 L.P. - B (PBOFF2) --- 2.41% 4.36% -6.57% 18.44% -17.99%
PRUDENTIAL SECURITIES FINANCIAL
FUTURES FUND L.P. [e] (PSFNF) --- --- 0.81% -24.46% -2.05% ---
PRUDENTIAL SECURITIES FOREIGN
FINANCIALS FUND L.P. (PSFFF) --- --- 1.14% 16.00% 20.38% -13.95%
PRUDENTIAL SECURITIES AGGRESSIVE
GROWTH FUND L.P. (PSAGF) --- --- -19.67% -13.51% 29.50% -15.42%
DIVERSIFIED FUTURES TRUST I (DFT) --- --- --- --- 42.65% -1.71%
SIGNET PARTNERS II, LP (SPLP2) --- --- --- --- --- 3.14%
PRUDENTIAL-BACHE INTERNATIONAL FUTURES
FUND A PLC (PBIFA) --- --- --- --- --- -8.50%
PRUDENTIAL-BACHE INTERNATIONAL FUTURES
FUND C PLC (PBIFC) --- --- --- --- --- 1.00%
PRUDENTIAL-BACHE INTERNATIONAL FUTURES
FUND B PLC (PBIFB) --- --- --- --- --- 1.90%
</TABLE>
Key to type of pool
1 - Principal-protected pool currently
1a - Principal-protected pool initially, but not currently
2 - Privately offered pool
3 - Publicly offered pool
4 - Open ended pool
5 - Closed ended pool
5a - Initially open ended, currently closed ended
6 - Single advisor pool
7 - More than one advisor
8 - Non principal protected pool
9 - CPO is Prudential Securities Futures Management Inc.
10 - CPO is Seaport Futures Management, Inc.
11 - Following the expiration of the principal-protected
feature of the A Units on March 31, 1996, the A & B
Units merged into OptiMax Units on April 1, 1996.
12 - Offshore pool offered to Non-U.S. persons, authorized
and supervised by the Central Bank of Ireland.
Notes:
[a] All performance is presented as of August 31, 1996.
[b] "Worst monthly percent draw-down" means greatest percentage decline
in net asset value due to losses sustained by a pool, account
or other trading program from the beginning to the end of a
calendar month.
[c] "Worst peak to valley draw-down" means greatest cumulative percentage
decline in month-end net asset value due to losses sustained by
a pool, account or other trading program during a period in which the
initial month-end net asset value is not equaled or exceeded by a
subsequent month-end net asset value. "Draw-down" means losses
experienced by the pool over a specified period.
[d] Liquidated February 1995.
[e] Liquidated December 1995.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
30
<PAGE>
NOTES TO CAPSULE A:
(1) Brokerage Fees - PBDFF is (and PBFG was) charged a flat 9% annual
brokerage fee on such Partnership's Net Asset Value, PBCRFF is charged a
flat 8% annual brokerage fee on such Partnership's Net Asset Value,
PBCRFF2 is charged a flat 8-1/2% annual fee on such Partnership's Net
Asset Value and PBCRFF3 is charged a flat annual fee equal to 7-1/2% of
such Partnership's Net Asset Value. PBOFF and PSOFF2 are each charged a
flat 8% annual brokerage fee on the Partnership's Traded Assets. PSAGF
is charged a flat 8% annual brokerage fee on such Partnership's Net
Asset Value. Traded Assets in the case of PBOFF and PSOFF2 was
initially 60% of the initial Net Asset Value in respect of Class A Units
and 100% of the initial Net Asset Value in respect of Class B Units. On
April 1, 1996 the Class and B Units of PBOFF were consolidated into a
single Class. DFT pays the same annual brokerage fee as the Trust pays.
SPLP is charged on a per transaction basis at a rate equal to $10 per
round-turn. Until April 1, 1994, PSFFF and PSFNF were each charged on a
per transaction basis at the rate of $35 per round-turn. Thereafter,
PSFFF has been charged a flat annual 8% brokerage fee on its Net Asset
Value. PBIFA and PBIFC both pay up to 7.85% of their average Net Asset
Value in annual brokerage fees.
(2) Advisory Management (MF) and Incentive (IF) Fees -
PBDFF - 4% MF 15% IF
PBCRFF - 4% MF 15-20 IF
PBCRFF2 - 2-4% MF 15% IF
PBCRFF3 - 2-3% MF 15-20% IF
PBOFF - 2.5-3% MF 17-20% IF
PSOFF2 - 2-3% MF 15-20% IF
PSAGF - 2% MF 15% IF
DFT - 4% MF 15% IF
PSFNF - 1.9%-3% MF 20% IF
PSFFF - 1.9% MF 20% IF
PBFG - 2% MF 18% IF
SPLP - 2.5% MF 20% IF
PBIFA - 3% MF 20% IF
PBIFC - 2% MF 20% IF
(3) Rate of Return - is calculated each month by dividing net performance by
beginning equity. The monthly returns are then compounded to arrive at
the annual rate of return.
31
<PAGE>
Capsule B
Capsule Performance of Willowbridge Associates, Inc.
Argo Trading System
(Pursuant to the Fully-Funded Subset Method)
<TABLE>
Rate of Return
<CAPTION>
Month 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
January 2.61% -4.49% -9.14% -9.01% -7.71% -15.57%
February -16.70% 11.13% -6.86% 18.66% -2.15% -4.12%
March 7.30% 18.39% 6.58% 0.37% -4.85% 23.92%
April 17.39% 8.94% -2.31% 3.99% -0.31% -1.78%
May -8.52% 5.00% 16.12% 1.34% -0.40% 3.01%
June -0.80% -2.47% 11.47% 5.04% 5.69% 13.52%
July -14.84% -0.72% 3.23% 3.15% 20.04% -12.75%
August *4.10% 1.58% -2.83% -6.83% 13.84% 1.66%
September -2.05% 2.20% -8.42% -6.24% 8.17%
October 4.36% 1.42% -3.75% -2.55% -0.79%
November 2.19% 1.74% 4.99% 6.53% 4.64%
December 8.02% -0.32% 9.77% 1.79% 18.76%
Year *-13.39% 59.52% 20.28% 17.10% 22.09% 36.30%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Argo (Fully-Funded Subset Method)
Date CTA Began Trading Client Accounts: August 1, 1988
Date CTA Began Using Argo Trading System for Client accounts: August 1, 1988
Number of Accounts Using Argo Trading System: 65
Number of Accounts Using Argo Trading System Closed with
Profits past five years and year-to-date: 35
Number of Accounts Using Argo Trading System Closed with
Losses past five years and year-to-date: 10
CTA's Total Assets Under Management Excluding Notional: $422.68 million
CTA's Total Assets Under Management Including Notional: $499.55 million
CTA's Assets Under Management Using Argo Trading
System Excluding Notional: $116.01 million
CTA's Assets Under Management Using Argo Trading System
Including Notional: $133.09 million
Drawdown means losses experienced by the Argo Trading System over
a specified period.
Worst Monthly Percentage Drawdown past five years and
year-to-date: -16.70% 02/96
Worst Monthly Percentage Drawdown means greatest percentage decline
in net asset value due to losses sustained by the Argo
Trading System from the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown past five years and
year-to-date: -21.30% 11/90 - 02/91
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the Argo Trading
System due to losses sustained during a period in which the
initial month-end net asset value of the Argo Trading System
is not equaled or exceeded by a subsequent month-end net asset
value of the Argo Trading System.
Rate of Return is calculated each month by dividing net performance
by beginning equity adjusted by the value of additions and withdrawals
pursuant to the time-weighted method. The monthly returns are then
compounded to arrive at the annual rate of return.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
32
<PAGE>
Capsule C
Capsule Performance of Willowbridge Associates, Inc.
Siren Trading System
(Pursuant to the Fully-Funded Subset Method)
<TABLE>
Rate of Return
<CAPTION>
Month 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
January 2.41% -1.16% -3.28% 1.78% -8.55% -14.94%
February -5.78% 7.03% -1.23% 8.10% -7.52% 5.63%
March 5.85% 10.63% 6.69% 2.34% 2.58% 15.96%
April 5.65% 2.30% -2.72% 2.47% 3.60% -3.22%
May -1.28% 0.58% 10.98% -0.04% 8.43% 0.04%
June -1.46% -0.22% 10.47% 6.18% 5.74% 0.05%
July -7.97% -0.33% 5.77% -1.51% 2.68% 3.44%
August *5.23% 0.54% -8.27% -10.11% 12.18% 0.50%
September -0.44% 5.63% -5.37% -8.67% 7.09%
October 1.08% -0.57% -1.56% 0.30% -3.71%
November 0.16% 4.58% 6.31% -5.24% -5.73%
December 3.09% 6.43% 1.93% -4.31% 14.16%
Year *1.66% 25.12% 37.88% 9.45% -1.39% 16.43%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Siren (Fully-Funded Subset Method)
Date CTA Began Trading Client Accounts: August 1, 1988
Date CTA Began Using Siren Trading System for Client accounts: January 1, 1991
Number of Accounts Using Siren Trading System: 12
Number of Accounts Using Siren Trading System Closed
with Profits past five years and year-to-date: 4
Number of Accounts Using Siren Trading System Closed
with Losses past five years and year-to-date: 0
CTA's Total Assets Under Management Excluding Notional: $422.68 million
CTA's Total Assets Under Management Including Notional: $499.55 million
CTA's Assets Under Management Using Siren Trading System Excluding
Notional: $16.37 million
CTA's Assets Under Management Using Siren Trading System
Including Notional: $18.34 million
Drawdown means losses experienced by the Siren Trading System over
a specified period.
Worst Monthly Percentage Drawdown past five years
and year-to-date: -14.94% 01/91
Worst Monthly Percentage Drawdown means greatest percentage
decline in net asset value due to losses sustained
by the Siren Trading System from the beginning to the end
of a calendar month.
Worst Peak-to-Valley Drawdown past five years and
year-to-date: -17.53% 07/93 - 10/93
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the Siren Trading
System due to losses sustained during a period in which the
initial month-end net asset value of the Siren Trading System
is not equaled or exceeded by a subsequent month-end net asset
value of the Siren Trading System.
Rate of Return is calculated each month by dividing net performance
by beginning equity adjusted by the value of additions and withdrawals
pursuant to the time-weighted method. The monthly returns are then
compounded to arrive at the annual rate of return.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
33
<PAGE>
Capsule D
Capsule Performance of Willowbridge Associates, Inc.
Titan Trading System
(Pursuant to the Fully-Funded Subset Method)
<TABLE>
Rate of Return
<CAPTION>
Month 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
January 3.84% -5.91% -7.42% -4.60% -7.93% -20.66%
February -13.75% 16.10% -13.65% 19.05% -7.72% -5.45%
March 8.30% 22.75% 10.22% -2.56% 2.27% 9.26%
April 15.07% 10.77% 2.68% 4.02% -3.82% -8.32%
May -7.29% 1.98% 15.64% 4.90% 1.82% -3.09%
June -1.83% -1.36% 8.31% 5.48% 13.71% 26.99%
July -7.47% -0.43% -2.24% 4.34% 21.04% -25.07%
August *5.71% 1.85% -12.34% -9.38% 6.91% -6.45%
September -2.40% 7.73% -2.52% -5.55% 20.71%
October 4.83% 9.85% -2.08% 3.96% -4.53%
November 2.03% -1.43% -2.42% 6.21% 2.37%
December 6.28% -2.84% 9.92% 1.20% 62.31%
Year *-0.64% 68.10% 10.06% 23.28% 32.16% 24.11%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Titan (Fully-Funded Subset Method)
Date CTA Began Trading Client Accounts: August 1, 1988
Date CTA Began Using Titan Trading System for Client accounts: August 1, 1988
Number of Accounts Using Titan Trading System: 10
Number of Accounts Using Titan Trading System Closed
with Profits past five years and year-to-date: 3
Number of Accounts Using Titan Trading System Closed
with Losses past five years and year-to-date: 1
CTA's Total Assets Under Management Excluding Notional: $422.68 million
CTA's Total Assets Under Management Including Notional: $499.55 million
CTA's Assets Under Management Using Titan Trading
System Excluding Notional: $15.66 million
CTA's Assets Under Management Using Titan Trading
System Including Notional: $16.90 million
Drawdown means losses experienced by the Titan Trading
System over a specified period.
Worst Monthly Percentage Drawdown past five years and
year-to-date: -25.07% 07/91
Worst Monthly Percentage Drawdown means greatest percentage
decline in net asset value due to losses sustained by the
Titan Trading System from the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown past five years and
year-to-date: -39.89% 10/90 - 08/91
Worst Peak-to-Valley Drawdown means greatest cumulative
percentage decline in month-end net asset value of the
Titan Trading System due to losses sustained during a
period in which the initial month-end net asset value of the
Titan Trading System is not equaled or exceeded by a subsequent
month-end net asset value of the Titan Trading System.
Rate of Return is calculated each month by dividing net performance
by beginning equity adjusted by the value of additions and
withdrawals pursuant to the time-weighted method. The monthly
returns are then compounded to arrive at the annual rate of return.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
34
<PAGE>
Capsule E
Capsule Performance of Willowbridge Associates, Inc.
Vulcan Trading System
(Pursuant to the Fully-Funded Subset Method)
<TABLE>
Rate of Return
<CAPTION>
Month 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
January 2.87% -0.01% -6.63% -7.54% -5.85% -20.16%
February -16.30% 6.98% -4.11% 10.15% -6.37% -2.52%
March 6.41% 11.67% 6.21% 3.57% -3.85% 16.30%
April 13.42% 13.56% -4.99% 2.98% -5.33% -9.80%
May -8.20% -0.38% 15.43% -4.77% -1.32% -10.09%
June 0.56% -1.05% 10.41% 9.65% 10.96% 22.89%
July -7.82% -1.66% -1.81% 7.52% 21.33% -3.46%
August *3.68% 3.52% -10.18% -6.20% 6.35% -0.52%
September 3.56% 0.36% -0.30% -7.65% 11.65%
October 3.81% -1.51% 1.20% 8.75% -4.64%
November 2.16% 5.53% 7.60% 7.83% 2.93%
December 5.43% 8.26% 7.88% -2.85% 26.17%
Year *-8.32% 57.62% 14.67% 33.97% 19.30% 19.78%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: Vulcan (Fully-Funded Subset Method)
Date CTA Began Trading Client Accounts: August 1, 1988
Date CTA Began Using Vulcan Trading System for Client accounts: August 1, 1988
Number of Accounts Using Vulcan Trading System: 18
Number of Accounts Using Vulcan Trading System Closed
with Profits past five years and year-to-date: 6
Number of Accounts Using Vulcan Trading System Closed
with Losses past five years and year-to-date: 2
CTA's Total Assets Under Management Excluding Notional: $422.68 million
CTA's Total Assets Under Management Including Notional: $499.55 million
CTA's Assets Under Management Using Vulcan Trading
System Excluding Notional: $17.67 million
CTA's Assets Under Management Using Vulcan Trading
System Including Notional: $20.57 million
Drawdown means losses experienced by the Vulcan Trading
System over a specified period.
Worst Monthly Percentage Drawdown past five years and
year-to-date: -20.16% 01/91
Worst Monthly Percentage Drawdown means greatest percentage decline
in net asset value due to losses sustained
by the Vulcan Trading System from the beginning to the end of
a calendar month.
Worst Peak-to-Valley Drawdown past five years and
year-to-date: -30.19% 11/90 - 05/91
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the Vulcan Trading
System due to losses sustained during a period in which the
initial month-end net asset value of the Vulcan Trading
System is not equaled or exceeded by a subsequent month-end
net asset value of the Vulcan Trading System.
Rate of Return is calculated each month by dividing net performance
by beginning equity adjusted by the value of additions and
withdrawals pursuant to the time-weighted method. The monthly
returns are then compounded to arrive at the annual rate of return.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
35
<PAGE>
Capsule F
Capsule Performance of Willowbridge Associates, Inc.
XLIM Trading System
(Notional Excluded, Customer Only)
<TABLE>
Rate of Return
<CAPTION>
Month 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
January 3.38% -4.89% -11.93% 1.04% ____ -11.07%
February -3.22% 0.95% -12.67% 22.24% ____ 5.72%
March 5.54% 33.93% 0.04% -5.40% ____ 32.01%
April 11.41% 4.73% ____ -2.97% ____ -2.86%
May -3.15% 0.27% ____ -1.04% ____ -4.64%
June -0.26% -8.12% ____ 4.00% ____ 7.81%
July -8.19% -4.16% ____ 12.93% ____ -3.05%
August * 2.37% -1.30% ____ -8.79% ____ -13.74%
September 2.56% ____ -7.02% ____ ____
October 1.93% ____ 5.07% 2.65% ____
November 2.65% 3.23% 1.55% -2.63% ____
December 7.18% 1.13% 2.56% 8.41% ____
Year *6.81% 34.99% -19.68% 22.30% 8.36% 3.65%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: XLIM (Notional Excluded, Customer Only)
Date CTA Began Trading Client Accounts: August 1, 1988
Date CTA Began Using XLIM Trading System for Client accounts: August 1, 1988
Number of Accounts Using XLIM Trading System: 30
Number of Accounts Using XLIM Trading System
Closed with Profits past five years and year-to-date: 2
Number of Accounts Using XLIM Trading System Closed with Losses
past five years and year-to-date: 2
CTA's Total Assets Under Management Excluding Notional: $422.68 million
CTA's Total Assets Under Management Including Notional: $499.55 million
CTA's Assets Under Management Using XLIM Trading System
Excluding Notional: $186.18 million
CTA's Assets Under Management Using XLIM Trading System
Including Notional: $232.76 million
Drawdown means losses experienced by the XLIM Trading System
over a specified period.
Worst Monthly Percentage Drawdown past five years and
year-to-date: -13.74% 08/91
Worst Monthly Percentage Drawdown means greatest percentage decline
in net asset value due to losses sustained by the XLIM Trading
System from the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown past five years
and year-to-date: -29.10% 08/93 - 01/95
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the XLIM Trading System
due to losses sustained during a period in which the initial
month-end net asset value of the XLIM Trading System is not
equaled or exceeded by a subsequent month-end net asset value
of the XLIM Trading System.
Rate of Return is calculated each month by dividing net performance
by beginning equity adjusted by the value of additions and withdrawals
pursuant to the time-weighted method. The monthly returns are then
compounded to arrive at the annual rate of return.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
36
<PAGE>
Capsule G
Capsule Performance of Willowbridge Associates, Inc.
XLIM Trading System
(Notional Included, Customer Only)
<TABLE>
Rate of Return
<CAPTION>
Month 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
January 2.74% -4.89% -11.93% 1.04% ____ -11.07%
February -2.67% 0.87% -12.67% 22.24% ____ 5.72%
March 4.63% 31.21% 0.04% -5.40% ____ 32.01%
April 9.48% 4.41% ____ -2.97% ____ -2.86%
May -2.70% 0.25% ____ -1.04% ____ -4.64%
June -0.22% -7.52% ____ 4.00% ____ 7.81%
July -6.76% -3.91% ____ 12.93% ____ -3.05%
August *2.54% -1.28% ____ -8.79% ____ -13.74%
September 2.55% ____ -7.02% ____ ____
October 1.93% ____ 5.07% 2.65% ____
November 2.59% 3.23% 1.55% -2.63% ____
December 5.92% 1.13% 2.56% 8.41% ____
Year *6.32% 31.28% -19.68% 22.30% 8.36% 3.65%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: XLIM (Notional Included, Customer Only)
Date CTA Began Trading Client Accounts: August 1, 1988
Date CTA Began Using XLIM Trading System for Client accounts: August 1, 1988
Number of Accounts Using XLIM Trading System: 30
Number of Accounts Using XLIM Trading System Closed
with Profits past five years and year-to-date: 2
Number of Accounts Using XLIM Trading System Closed
with Losses past five years and year-to-date: 2
CTA's Total Assets Under Management Excluding Notional: $422.68 million
CTA's Total Assets Under Management Including Notional: $499.55 million
CTA's Assets Under Management Using XLIM Trading
System Excluding Notional: $186.18 million
CTA's Assets Under Management Using XLIM Trading
System Including Notional: $232.76 million
Drawdown means losses experienced by the XLIM Trading System
over a specified period.
Worst Monthly Percentage Drawdown past five years and
year-to-date: -13.74% 08/91
Worst Monthly Percentage Drawdown means greatest percentage
decline in net asset value due to losses sustained by the
XLIM Trading System from the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown past five years
and year-to-date: -29.10% 08/93 - 01/95
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the XLIM Trading System
due to losses sustained during a period in which the initial
month-end net asset value of the XLIM Trading System is not
equaled or exceeded by a subsequent month-end net asset value
of the XLIM Trading System.
Rate of Return is calculated each month by dividing net performance
by beginning equity adjusted by the value of additions and withdrawals
pursuant to the time-weighted method. The monthly returns are then
compounded to arrive at the annual rate of return.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
37
<PAGE>
Capsule H
Capsule Performance of Willowbridge Associates, Inc.
Other Trading Programs
(Pursuant to the Fully-Funded Subset Method)
<TABLE>
<CAPTION>
Annual Rate of Return
Currency CFM Primary
<S> <C> <C> <C>
1991 12.61%
1992 16.96%
1993 -8.59% 29.49% 16.79%
1994 -10.26% -10.51% 22.70%
1995 28.55% 24.52% 56.76%
YTD 1996 *-8.29% *-0.22% *-8.06%
Began Trading Client Accounts May 91 Jan 93 Jan 93
Worst Monthly Percentage Drawdown
past five years and YTD -8.14% -16.92% -16.67%
Date Feb 96 Feb 94 Feb 96
Worst Peak-to-Valley Drawdown
past five years and YTD -25.32% -29.04% -20.28%
Peak Jul 93 Aug 93 May 96
Valley Aug 94 Sep 94 Jul 96
Number of Open Accounts 5 5 12
Number of Closed Profitable Accounts
past five years and YTD 6 17 1
Number of Closed Unprofitable Accounts
past five years and YTD 22 25 1
Assets under Management
excluding Notional $6.71 m $22.99 m $30.81 m
Assets under Management
including Notional $11.71 m $22.99 m $32.90 m
</TABLE>
Drawdown means losses experienced by the trading program over
a specified period.
Worst Monthly Percentage Drawdown means greatest percentage decline
in net asset value due to losses sustained by the trading program from
the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the Trading program due
to losses sustained during a period in which the initial month-end
net asset value of the Trading program is not equaled or exceeded
by a subsequent month-end net asset value of the Trading program.
Annual Rate of Return is calculated by compounding the monthly rates
of return over the number of periods in a given year.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
38
<PAGE>
Capsule I
Capsule Performance of Willowbridge Associates, Inc.
Other Trading Programs
<TABLE>
<CAPTION>
Annual Rate of Return
MTech Rex Atlas
<S> <C> <C> <C>
1991 19.96% -37.94% -5.92%
1992 25.13% -18.54% 18.29%
1993 32.48% -10.37% -----
1994 21.68% -12.49% -----
1995 53.22% -13.07% -----
YTD 1996 *14.83% *-33.95% -----
Began Trading Client Accounts Jan 91 Aug 88 Nov 89
Worst Monthly Percentage Drawdown
past five years and YTD -13.62% -25.19% -16.58%
Date Jan 94 Feb 96 Jan 91
Worst Peak-to-Valley Drawdown
past five years and YTD -21.37% -76.19% -46.67%
Peak Aug 93 Sep 90 Oct 90
Valley Feb 94 Mar 96 May 92
Number of Open Accounts 1 1 0
Number of Closed Profitable
Accounts past five years and YTD 1 0 0
Number of Closed Unprofitable
Accounts past five years and YTD 0 2 1
Assets under Management
excluding Notional $9.65 m $0.62 m $0
Assets under Management
including Notional $9.65 m $0.62 m $0
</TABLE>
Drawdown means losses experienced by the trading program over a
specified period.
Worst Monthly Percentage Drawdown means greatest percentage decline
in net asset value due to losses sustained by the trading program from
the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the Trading program due to
losses sustained during a period in which the initial month-end net
asset value of the Trading program is not equaled or exceeded by a
subsequent month-end net asset value of the Trading program.
Annual Rate of Return is calculated by compounding the monthly rates
of return over the number of periods in a given year.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
39
<PAGE>
Capsule J
Supplemental
Capsule Performance of Willowbridge Associates, Inc.
XLIM Trading System
(Proprietary Trading)
<TABLE>
Rate of Return
<CAPTION>
Month 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
January 2.75% -5.71% -12.54% 1.48% -9.11% -11.12%
February -3.73% 1.06% -18.21% 18.53% -2.12% 5.90%
March 5.23% 29.39% 10.86% -4.43% -0.52% 30.11%
April 9.36% 3.68% -6.65% -3.10% -6.99% -3.09%
May -2.29% -0.53% 28.49% -1.27% 33.77% -4.42%
June -0.27% -6.83% 39.23% 4.35% 6.23% 8.52%
July -6.71% -2.74% 2.81% 10.81% 1.86% -3.07%
August *2.37% -1.27% 3.36% -7.18% 5.51% -14.00%
September 3.01% -1.38% -7.35% -5.97% 13.64%
October 2.48% 5.83% 5.48% 2.34% -7.56%
November 3.31% 4.20% 1.60% -1.73% 6.96%
December 6.26% 2.21% 2.10% 5.76% 6.86%
Year *5.94% 31.82% 56.39% 19.67% 25.73% 23.19%
</TABLE>
Name of CTA: Willowbridge Associates Inc.
Name of Trading Program: XLIM (Proprietary Trading)
Date CTA Began Trading Client Accounts: August 1, 1988
Date CTA Began Using XLIM Trading System for Client accounts: August 1, 1988
Number of Accounts Using XLIM Trading System: 3
Number of Accounts Using XLIM Trading System Closed
with Profits past five years and year-to-date: 2
Number of Accounts Using XLIM Trading System Closed
with Losses past five years and year-to-date: 0
CTA's Total Assets Under Management Excluding Notional: $422.68 million
CTA's Total Assets Under Management Including Notional: $499.55 million
CTA's Assets Under Management Using XLIM Trading
System Excluding Notional: $19.89 million
CTA's Assets Under Management Using XLIM Trading
System Including Notional: $19.89 million
Drawdown means losses experienced by the XLIM Trading System
over a specified period.
Worst Monthly Percentage Drawdown past five years and
year-to-date: -18.21% 02/94
Worst Monthly Percentage Drawdown means greatest percentage
decline in net asset value due to losses sustained by the
XLIM Trading System from the beginning to the end of a calendar month.
Worst Peak-to-Valley Drawdown past five years
and year-to-date: -32.69% 08/93 - 02/94
Worst Peak-to-Valley Drawdown means greatest cumulative percentage
decline in month-end net asset value of the XLIM Trading System
due to losses sustained during a period in which the initial
month-end net asset value of the XLIM Trading System is not
equaled or exceeded by a subsequent month-end net asset value
of the XLIM Trading System.
Rate of Return is calculated each month by dividing net performance
by beginning equity adjusted by the value of additions and withdrawals
pursuant to the time-weighted method. The monthly returns are then
compounded to arrive at the annual rate of return.
* Estimated Rate of Return
All Capsule Information is as of August 31, 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
40
<PAGE>
<PAGE>
GENERAL NOTES TO ALL WILLOWBRIDGE COMPOSITE CAPSULES:
(1) Brokerage commissions charged to accounts in the capsules may vary
substantially.
(2) Interest income includes accrued interest on cash balances and
discounted debt instruments (held for margin and investment purposes) included
in the equity of the accounts. However, not all accounts in the composite
earn Interest Income.
(3) Management and Incentive Fees represent monthly or quarterly Management
Fees and quarterly or annual Incentive Fees which are charged to the accounts
in the capsules and vary substantially. For certain accounts included in the
capsules, at the time an Incentive Fee is accrued or an accrual is reversed, a
corresponding offset is generally made to additions or withdrawals to reflect
the actual equity traded on which rate of return is based. Some of the
accounts included in the capsules are not charged a Management Fee.
(4) For the period when the Trading Manager commenced trading the programs
for Client Accounts through June 30, 1995, Rates of Return in Capsules B
through H, may be understated to the extent that certain accounts in the
capsules paid specified fees unrelated to the Trading Manager's trading (such
as selling commissions, distribution expenses, general partner fees or
manager-of-manager fees) that were treated as expenses rather than as
withdrawals of assets under the Trading Manager's management. Beginning July
1, 1995, such expenses are reflected in the capsules as withdrawals.
(5) Rate of Return is calculated as dividing Net Performance by Beginning
Equity adjusted by the value of Additions and Withdrawals pursuant to the
time-weighted method. Monthly Rates of Return are compounded to arrive at
Annual Rates of Return.
NOTIONAL FUNDS
"Notional" funds reflect the amount by which the "Nominal Account Size"
exceeds the amount of actual funds on deposit in, or legally committed to,
client accounts.
NOTES TO FULLY FUNDED SUBSET CAPSULES B, C, D, E, and H
In the accompanying composite Capsule B for the periods beginning January
1992, Capsule C for periods beginning April 1995, Capsule D for periods
beginning July 1995, Capsule E for periods beginning July 1994, and Capsule H
for periods beginning January 1992 (Currency Program), January 1993 (CFM
Program) and August 1995 (Primary Program), the Trading Manager has adopted
the Fully Funded Subset Method of computing rate-of-return and presenting
performance disclosure, pursuant to an Advisory published by the Commodity
Futures Trading Commission. To qualify for use of the Fully Funded Subset
Method, the Advisory requires that certain computations be made in order to
arrive at the Fully Funded Subset and that the accounts for which performance
is so reported meet two tests which are designed to provide assurance that the
Fully Funded Subset and the resultant Rates of Return (RORs) are
representative of the trading program. With respect to these capsules,
"notional" funds were not used prior to the dates noted above. The chart on
the following page attempts to illustrate the impact on partially funding an
account on Rate of Return.
"The Fully Funded Subset" represents the aggregate of Fully Funded Accounts
used to compute Monthly Rate of Return pursuant to Advisory 93-13. These
accounts may be adjusted to include or exclude certain accounts. A "Fully
Funded Account" is one which at its inception contains an amount of Actual
Funds equal to its Nominal Account Size. In such instances, the Fully Funded
Subset is adjusted to exclude accounts with significant additions or
withdrawals which would materially change the Rate of Return pursuant to the
Fully Funded Subset method.
41
<PAGE>
<PAGE>
The monthly Rates of Return for accounts excluded from the Fully Funded Subset
will often be different from the Rate of Return for the Fully Funded Subset.
Accounts not included in the Fully Funded Subset for any particular period may
include: accounts open or closed during the period; accounts which have
material additions or withdrawals during the period; and the accounts which
are being phased in to the program and, consequently, do not have a complete
set of positions that the other accounts in the program have. The Rates of
Return for these excluded accounts may be significantly higher or lower than
the Rate of Return for the Fully Funded Subset.
<TABLE>
<CAPTION>
ACTUAL
RATE OF
RETURN(1) RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS(3)
<S> <C> <C> <C> <C> <C> <C> <C>
20.00% 20.00% 26.67% 30.00% 40.00% 50.00% 60.00% 100.00%
15.00% 15.00% 20.00% 22.50% 30.00% 37.50% 45.00% 75.00%
10.00% 10.00% 13.33% 15.00% 20.00% 25.00% 30.00% 50.00%
5.00% 5.00% 6.67% 7.50% 10.00% 12.50% 15.00% 25.00%
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-5.00% -5.00% -6.67% -7.50% -10.00% -12.50% -15.00% -25.00%
-10.00% -10.00% -13.33% -15.00% -20.00% -25.00% -30.00% -50.00%
-15.00% -15.00% -20.00% -22.50% -30.00% -37.50% -45.00% -75.00%
-20.00% -20.00% -26.67% -30.00% -40.00% -50.00% -60.00% -100.00%
-25.00% -25.00% -33.33% -37.50% -50.00% -62.50% -75.00% -125.00%
-30.00% -30.00% -40.00% -45.00% -60.00% -75.00% -90.00% -150.00%
-35.00% -35.00% -46.67% -52.50% -70.00% -87.50% -105.00% -175.00%
-40.00% -40.00% -53.33% -60.00% -80.00% -100.00% -120.00% -200.00%
100.00% 75.00% 66.67% 50.00% 40.00% 33.33% 20.00%
LEVEL OF FUNDING(2)
</TABLE>
Footnotes to Matrix:
(1) This column represents the range of actual Rates of Return for fully
funded accounts reflected in the accompanying performance table.
(2) This represents actual funds divided by the fully funded trading level
expressed as a percentage Funding levels displayed in the matrix include
the most common funding percentages utilized by the accounts and the
lowest level of the funding allowed by the Trading Manager.
(3) These columns represent the Rate of Return experienced by an account at
various levels of funding traded by the Trading Manager. The Rates of
Return for accounts that are not fully funded are inversely proportional
to the actual Rates of Return based on the percentage of level of
funding.
42
<PAGE>
<PAGE>
NOTES TO COMPOSITE CAPSULES F AND G
Commencing in February 1995 for Capsule G, certain accounts in this
capsule include sums clients have instructed the Trading Manager to trade but
that are not deposited in, or otherwise legally committed to, those clients'
accounts. These excess sums are deemed to be "notional" funds for which
performance results are reported in accordance with the requirements of an
Advisory published by the CFTC. The computations in Capsule F reflect the
actual funds deposited in or withdrawn from clients' brokerage and other
accounts rather than the amount of "notional" funds clients instructed the
Trading Manager to trade. The Trading Manager has included these "notional"
amounts in Capsule G because they more accurately reflect the amount of
capital clients have instructed the Trading Manager to trade. Substantial
differences may exist between beginning equity for an account which includes
"notional" funds (and which is reflected in the Trading Manager's Capsule G)
and an account which contains only "actual" funds (and which is reflected in
the Trading Manager's Capsule F. Excluding "notional" funds from the
calculations of Rates of Return accentuates (i.e., increases the absolute
value of) both positive and negative Rates of Return.
NOTES TO PROPRIETARY CAPSULE J
Set forth in Capsule J is the composite pro forma performance record
through December 31, 1995 of the two proprietary trading accounts (one of
which has been closed) of Mr. Yang and his family traded pursuant to the XLIM
trading strategy. The actual trading results have been adjusted to reflect
the Trading Manager's standard fee structure by imposing a monthly management
fee charged at an annual rate of 3%, and an annual incentive fee at a rate of
25% of new high profit accrued on a monthly basis.<PAGE>
43
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
The date of this Supplement is October 23, 1996
[LOGO]
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
The date of this Prospectus is February 7, 1996.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules.
(a) The following documents (unless otherwise indicated) are
filed herewith and made a part of this Registration Statement:
*1.1 Form of Underwriting Agreement among the
Registrant, Prudential Securities Futures
Management Inc. and Prudential Securities
Incorporated.
*3.1
and
4.1 Second Amended and Restated Declaration of Trust
and Trust Agreement of the Registrant (annexed to
the Prospectus as Exhibit A).
*4.2 Form of Subscription Agreement (annexed to the
Prospectus as Exhibit C).
*4.3 Form of Request for Redemption (annexed to the
Prospectus as Exhibit B).
*5.1 Opinion of Rosenman & Colin LLP as to the legality
of Interests.
*8.1 Opinion of Rosenman & Colin LLP as to income tax
matters.
*10.1 Form of Escrow Agreement among the Registrant,
Prudential Securities Futures Management Inc.,
Prudential Securities Incorporated and The Bank of
New York.
*10.2 Form of Brokerage Agreement between the Registrant
and Prudential Securities Incorporated.
*10.3 Form of Advisory Agreement among the Registrant,
Prudential Securities Futures Management Inc., and
Willowbridge Associates Inc.
*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
Willowbridge Associates Inc.
*10.5 Form of Net Worth Agreement between Prudential
Securities Futures Management Inc. and Prudential
Securities Group Inc.
____________________
* Previously filed
II-1
<PAGE>
<PAGE>
*10.6 Form of Secured Demand Note.
*10.7 Form of Secured Demand Note Collateral Agreement
between Prudential Securities Futures Management
Inc. and Prudential Securities Group Inc.
24.1 The consent of Deloitte & Touche LLP is included
herewith.
24.2 The consent of Rosenman & Colin LLP is included
herewith.
24.3 The consent of Richards, Layton & Finger is
included herewith.
(b) The following financial statements are included in the
Prospectus:
1. Willowbridge Strategic Trust
(i) Report of Independent Public Accountants.
(ii) Audited Statement of Financial Condition as of
December 31, 1995 and Unaudited Statements of
Financial Condition and Operations as of
June 30, 1996.
(iii) Notes to Statements of Financial Condition.
2. Prudential Securities Futures Management Inc.
(i) Report of Independent Public Accountants.
(ii) Audited Statements of Financial Condition as
of December 31, 1995 and Unaudited Statement
of Financial Condition as of June 30, 1996.
(iii) Notes to Statements of Financial Condition.
3. Prudential-Bache Capital Return Futures Fund 2, L.P.
(i) Audited Statement of Financial Condition as of
December 31, 1995 and Unaudited Statement of
Financial Condition as of June 30, 1996.
(ii) Notes to Statements of Financial Condition.
All schedules have been omitted as the required information is
inapplicable or is presented in the Statements of Financial
Condition or related notes.
____________________
* Previously filed<PAGE>
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 23rd day of October, 1996.
WILLOWBRIDGE STRATEGIC TRUST
By: Prudential Securities Futures Management, Inc., Managing Owner
By: /s/James M. Kelso
James M. Kelso
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in their capacities as directors or officers of Prudential Securities
Futures Management Inc., the Managing Owner of the Registrant, on the
dates indicated below.
Signature Title Date
/s/James M. Kelso Director and October 23, 1996
James M. Kelso President
/s/A. Laurence Norton, Jr. Director October 23, 1996
A. Laurence Norton, Jr.
/s/Guy S. Scarpaci Director October 23, 1996
Guy S. Scarpaci
/s/Barbara J. Brooks Chief Financial October 23, 1996
Barbara J. Brooks Officer and
Treasurer
/s/Steven Carlino Chief Accounting October 23, 1996
Steven Carlino Officer and
Vice President
(Being the principal executive officer, the principal financial
officer, the principal accounting officer and a majority of the
directors of Prudential Securities Futures Management Inc.)
II-3
<PAGE>
<PAGE>
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 2 to
Registration Statement No. 33-80443 of Willowbridge Strategic Trust
of our report dated October 14, 1996, our report dated
January 24, 1996 relating to Prudential Securities Futures Management
Inc., and our report dated January 29, 1996 relating to Prudential-Bache
Capital Return Futures Fund 2, L.P. all appearing
in the Prospectus, which are a part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------
DELOITTE & TOUCHE LLP
New York, New York
October 21, 1996
<PAGE>
EXHIBIT 24.2
CONSENT OF COUNSEL
We hereby consent to the reference to us in the Prospectus
constituting part of this Registration Statement on Form S-1, under
the captions "Income Tax Consequences," "Legal Matters" and
"Experts".
/s/ Rosenman & Colin LLP
----------------------------
Rosenman & Colin LLP
New York, New York
October 23, 1996
<PAGE>
EXHIBIT 24.3
CONSENT OF COUNSEL
We hereby consent to the reference to us in the Prospectus
constituting part of this Registration Statement on Form S-1, under
the captions "Legal Matters". In giving the foregoing consent, we
do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities
and Exchange Commission thereunder.
/s/ Richards, Layton & Finger
-----------------------------
Richards, Layton & Finger
Wilmington, Delaware
October 23, 1996
