<PAGE>
December 22, 1997
E-mail Address
[email protected]
VIA FEDERAL EXPRESS
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Filing Desk
Re: World Monitor Trust ("the Trust") - Series B
Registration Statement on Form S-1
Prudential Securities Incorporated ("PSI")
and Prudential Securities Futures Management Inc., Sponsors
Dear Sir or Madam:
On behalf of World Monitor Trust, attached for electronic filing
pursuant to Regulation S-T under the Securities Act of 1933, as
amended, is a Registration Statement on Form S-1 for the
securities of Series B of the Trust. Filing fees in the amount
of $9,735.00 were sent by wire transfer to the Commission's
account at Mellon Bank in Pittsburgh, Pennsylvania.
The Trust is a "Series Trust" and will offer securities in three
Series - Series A, Series B and Series C. (The Registration
Statements for Series B and Series C are being filed concurrently
herewith under separate cover). The assets of each Series will
be segregated, valued separately and traded separately from all
other Series. The structure of the Trust was agreed upon by the
staff of the Division of Corporation Finance pursuant to a
telephone conference on October 15, 1997 among Martin Dunn, Paula
Dubberly, and Bryan Brown of the Division and various
representatives of PSI, including Lee B. Spencer, General Counsel
of PSI, and myself; it also was agreed that the Trust would file
its Registration Statements for each Series utilizing the same
prospectus for all three Series.
If you have any questions regarding the attached filing, please
call me at (212) 940-8720. If you need to reach me via
facsimile, my fax number is (212) 940-7079.
Very truly yours,
/s/ Fred M. Santo
- ---------------------
Fred M. Santo
FMS/bg
Enclosures<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on December 22, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________
WORLD MONITOR TRUST-SERIES B
(Exact Name of Registrant as Specified in its Charter)
Delaware 6799 Pending
(State of Organization) (Primary Standard Industrial (I.R.S.Employer
Classification Code Number) Identification
Number)
One New York Plaza, 13th Floor
New York, New York 10292-2013
(212) 214-1000
(Address and telephone number of
registrant's principal executive offices)
__________________________
Thomas M. Lane, President
Prudential Securities Futures Management, Inc.
One New York Plaza, 13th Floor
New York, New York 10292-2013
(212) 214-1000
(Name, address and telephone number of agent for service)
__________________________
Copies to:
Fred M. Santo, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
(212) 940-8800
__________________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
__________________________
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------
Title of Each Proposed Maximum Amount of Registration
Class of Aggregate Offering Fee
Securities to Price
be Registered
- ------------------------------------------------------------------------------
Series B Interests $33,000,000 $9,735
__________________________
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
<PAGE>
<PAGE>
WORLD MONITOR TRUST-SERIES B
________________
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing
Location in
Prospectus of Items Required in Form S-1
Form S-1 Item Location in Prospectus
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and
Outside Back Cover
Pages; Additional
Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges Summary of the
Prospectus
Risk Factors
4. Use of Proceeds The Series
Segregated Accounts
5. Determination of Offering Price The Offering
6. Dilution N/A
7. Selling Security Holders N/A
8. Plan of Distribution How to Subscribe
The Offering
9. Description of Securities to Be Registered Summary of Agreements-
Trust Agreement
10. Interests of Named Experts
and Counsel Experts
11. Information with Respect to
the Registrant Structure of the Trust
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Summary of Agreements-
Trust Agreement-
Indemnification
i
<PAGE>
WORLD MONITOR TRUST
$4,000,000 OF SERIES A BENEFICIAL INTERESTS
$3,000,000 OF SERIES B BENEFICIAL INTERESTS
$3,000,000 OF SERIES C BENEFICIAL INTERESTS
______________________________________________________________________
- Each Series of the Trust will engage in the
speculative trading of a diversified portfolio of
futures, forward (including interbank foreign
currencies) and options contracts. Each Series is
being separately offered, and the assets of each
Series will be segregated from the other Series,
separately valued, and independently managed.
Series Trading Advisor Program(s)
A Eagle Trading Systems, Inc. Eagle-FX and Global Systems
B Eclipse Capital Management, Inc. Global Monetary Program
C Hyman Beck & Company, Inc. Asset Allocation Portfolio
- Once trading commences, you may purchase additional
Interests, exchange your Interests in one Series for
Interests in another Series, or redeem your Interests on
a weekly basis
- The Interests of each Series are speculative securities
and their purchase involves a high degree of risk. You
should be aware that:
-- Futures, forward and options trading is volatile
and highly leveraged
-- Past performance is not necessarily indicative
of future results
-- Each Series will rely on its trading advisor for success
-- You could lose a substantial portion, or even all, of your investment
-- Your annual tax liability is anticipated to
exceed cash distributions to you
-- If you redeem an Interest in any Series during
the first 12 full months following the effective
date of your purchase, you will be charged a
redemption fee (4% in the first 6-month period,
3% in the second 6-month period) unless you
exchange that Interest for an Interest in
another Series or you invest your redemption
proceeds in another futures fund sponsored by
Prudential Securities Incorporated
-- Transfers are restricted; no market exists or
is expected to exist for the Interests of any
Series
- As a Limited Owner of Interests in one or more
Series, your liability for a Series will be limited
to your investment in that Series. The Managing
Owner will be responsible for the liabilities of each
Series in excess of the net assets of that Series.
<TABLE>
<CAPTION>
Price to the Public Selling Proceeds to
Per Interest Commissions the Trust*
<S> <C> <C> <C>
Series A . . $100 During Initial Offering None 100%
$34,000,000 Period, Net Asset
Maximum Value Thereafter
Series B . . $100 During None 100%
$33,000,000 Initial Offering
Maximum Period,
Net Asset Value
Thereafter
Series C . . $100 During None 100%
$33,000,000 Initial Offering
Maximum Period,
Net Asset Value
Thereafter
</TABLE>
* To be held in escrow at The Bank of New York during the Initial
Offering Period until turned over to each Series for trading.
______________________________________________________________________
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. 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.
______________________________________________________________________
PRUDENTIAL SECURITIES PRUDENTIAL SECURITIES FUTURES
INCORPORATED MANAGEMENT, INC.
Selling Agent and Clearing Broker Manager
The date of this Prospectus is _______, 1998
<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 82-85 AND A STATEMENT OF THE PERCENTAGE
RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT
OF YOUR INITIAL INVESTMENT AT PAGE 13.
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 52.
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.
- - You should rely only on
the information
contained in this
Prospectus or
incorporated by
reference (legally
forms a part of the
Prospectus). We have
not authorized anyone
to provide you with
information that is
different.
- - This Prospectus is not an
offer to sell, nor is it
seeking an offer to buy
these securities in any
jurisdiction where the
offer or sale is not
permitted.
- - There is no guarantee
that information in
this Prospectus is
correct as of any time
after the date
appearing on the cover.
- - World Monitor Trust is not
a mutual fund or any other
type of investment company
within the meaning of the
Investment Company Act of
1940, as amended, and is
not subject to the
regulations under that
Act.
- - After any of the
Trust's Series begins
trading, this
Prospectus must be
accompanied by a recent
monthly report of the
Trust.
- - Prudential Securities
Incorporated
("Prudential
Securities") and any
Additional Sellers must
deliver any
supplemented or amended
Prospectus issued by
the Trust.
- - You should not invest more
than 10% of your "liquid"
net worth (exclusive of
home, furnishings and
automobiles in the case of
individuals; or readily
marketable securities in
the case of entities) in
any Series of the Trust,
or in the Trust as a
whole.
2
<PAGE>
TABLE OF CONTENTS
Commodity Futures Trading
Commission ("CFTC") Risk
Disclosure Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Summary of the Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Structure of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Eagle and Its Principals. . . . . . . . . . . . . . . . . . . . . . . . .15
Eagle's Trading Systems . . . . . . . . . . . . . . . . . . . . . . . . .15
Eagle's Past Performance. . . . . . . . . . . . . . . . . . . . . . . . .18
Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Eclipse Capital and Its
Principals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Eclipse Capital's Trading
Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Eclipse Capital's Past
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Series C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
HB & Co. and Its
Principals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
HB & Co.'s Trading
Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Risk Factors Related to HB
& Co.'s Assets Allocation
Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
HB & Co.' Past
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Risks Relating to
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Trading Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Risks Related to the
Trading Advisors. . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Risks Relating to the Trust
and the Offering of
Series' Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Tax and ERISA Risks . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Regulatory Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Trading Limitations and
Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Description of the Trust, Trustee,
Managing Owner and
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Prudential Securities
Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
The Managing Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Directors and Officers
of the Managing Owner . . . . . . . . . . . . . . . . . . . . . . . . .61
Past Performance of Other
Pools Sponsored by the Managing Owner and
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .62
Prudential Securities
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Duties of the Managing Owner . . . . . . . . . . . . . . . . . . . . . . . . .70
Fiduciary Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . .71
Managing Owner's Commitments . . . . . . . . . . . . . . . . . . . . . . . . .72
Actual and Potential Conflicts of
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Who May Subscribe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Minimum Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Net Worth and Income
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Fundamental Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . .76
Ineligible Investors. . . . . . . . . . . . . . . . . . . . . . . . . . .77
Employee Benefit Plan
Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Publicly Offered Security . . . . . . . . . . . . . . . . . . . . . . . .77
How To Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Ways to Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
When a Subscription Becomes
Final. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Segregated Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Summary of Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
Advisory Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .86
Brokerage Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .88
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Management Responsibilities
of the Managing Owner. . . . . . . . . . . . . . . . . . . . . . . .89
Transfer of Interests. . . . . . . . . . . . . . . . . . . . . . . .90
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . .91
Redemption of Interests. . . . . . . . . . . . . . . . . . . . . . .91
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Reports and Accounting . . . . . . . . . . . . . . . . . . . . . . .93
Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Sharing of Profits
and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Election or Removal of
Managing Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Exercise of Rights by
Limited Owners . . . . . . . . . . . . . . . . . . . . . . . . . . .98
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .98
Amendments and Meetings. . . . . . . . . . . . . . . . . . . . . . .99
Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . .99
The Futures Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Federal Income Tax
Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Index to Certain Financial
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Financial Statements
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Managing Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Diversified Futures Trust I . . . . . . . . . . . . . . . . . . . . . . 133
Exhibit A - Form of Trust Agreement. . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Form of Redemption Request . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Form of Exchange Request. . . . .. . . . . . . . . . . . . . . . C-1
Exhibit D - Form of Subscription Agreement . . . . . . . . . . . . . . . . . D-1
State Suitability Requirements . . . . . . . . . . . . . . . . . . . . . . . D-7
3
<PAGE>
SUMMARY OF THE PROSPECTUS
This summary of certain provisions of this Prospectus is
intended for quick reference only and is not complete. The
remainder of this Prospectus contains more detailed
information; you should read the entire Prospectus and all
exhibits to the Prospectus before deciding to invest in any
Series of the Trust. This Prospectus is intended to be used
beginning _______________, 1998.
The Trust World Monitor Trust (the "Trust")
was formed as a Delaware business
trust on December 17, 1997, with
separate Series of Interests.
Its term will expire on December
31, 20__ (unless terminated
earlier in certain
circumstances). 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. See "Trust
Agreement."
The Series The Trust's Interests will be
offered in three separate and
distinct Series: Series A,
Series B and Series C. Each
Series will:
-engage in the speculative
trading of a diversified
portfolio of futures,
forward (including interbank
foreign currencies) and
options contracts and may,
from time to time, engage in
cash and spot transactions
-have one-year renewable
contracts with its own
independent professional
trading advisor that will
manage 100% of the Series'
assets and make the trading
decisions for the Series
segregate its assets from
the other Series and
maintain separate, distinct
records for each Series,
trade and account for its
assets separately from the
other Series and the other
Trust assets
-calculate the Net Asset
Value of its Interests
separately from the other
Series
-have an investment objective
of increasing the value of
your Interests over the long
term (capital appreciation),
while controlling risk and
volatility
Series A Trading for Series A will be
directed by Eagle Trading
Systems, Inc. ("Eagle"). Eagle
has been operating its various
trading systems since 1993. As
of November 30, 1997 Eagle had
approximately $283 million in
investor funds under management.
Eagle will be allocated 100% of
Series A's assets, which, in
turn, will be allocated initially
50% to its Eagle-Global System
and 50% to its Eagle-FX System.
See "The Series - Series A."
Series B Trading for Series B will be
directed by Eclipse Capital
Management, Inc. ("Eclipse
Capital"). Eclipse Capital has
been operating its trading
systems since August 1, 1986. As
of November 30, 1997, Eclipse
Capital had approximately $291
million in investor funds under
management. Eclipse Capital will
be allocated 100% of Series B's
assets, which will be traded
according to its Global Monetary
program. See "The Series -
Series B."
4
<PAGE>
Series C Trading for Series C will be
directed by Hyman Beck & Company,
Inc. ("HB & Co."). HB & Co. has
been operating its trading
systems since March 1991. As of
November 30, 1997, HB & Co. had
approximately $274 million in
investor funds under management.
HB & Co. will be allocated 100%
of Series C assets, which will be
traded according to its Asset
Allocation Program. See "The
Series - Series C."
Investment Risks INTERESTS IN EACH SERIES ARE
SPECULATIVE SECURITIES AND AN
INVESTMENT IN ANY SERIES OF THE
TRUST INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD BE AWARE THAT:
- Futures, forward and options
trading is speculative,
volatile and highly
leveraged;
- The trading advisors'
programs may not perform for
each Series as they have
performed in the past;
- Each of the Trust's Series
relies on its trading
advisor for success;
- There is no guarantee that
any Series will meet its
intended objective;
accordingly, you could lose
a substantial portion, or
even all, of your
investment;
- Your annual tax liability is
anticipated to exceed cash
distributions to you;
- Substantial charges will be
attributed to each of the
Trust's Series. We estimate
that each Series will have
to achieve net trading
profits (after taking
interest income into
account) of 4.15% per annum
in order to offset fees, and
of approximately 7.15% to
also offset the 3%
redemption charge imposed on
any Interests that you may
redeem as of the end of the
12th month following the
effective date of their
purchase;
- Transfers are restricted.
No trading market exists or
is expected to exist for the
Interests of any Series;
- Actual and potential
conflicts of interest exist
among Prudential Securities,
the Managing Owner and the
Trading Advisors;
- You will have limited voting
rights and no control over
the Trust's business;
- Unless the Series in which
you invest is successful -
and we cannot assure you
that it will be - it cannot
serve as a beneficial
diversification for your
portfolio.
5
<PAGE>
The Trustee Wilmington Trust Company, a
Delaware banking corporation, is
the Trust's sole Trustee. The
Trustee delegated to the Managing
Owner all of the power and
authority to manage the business
and affairs of the Trust and has
only nominal duties and
liabilities to the Trust.
The Managing Owner The Managing Owner is a
wholly-owned subsidiary of
Prudential Securities and
will administer the business
and affairs of each Series
(excluding commodity trading
decisions, except in certain
limited, and essentially
emergency, situations). See
"Actual and Potential
Conflicts of Interest." The
Managing Owner will make a
contribution to each Series
necessary to maintain at
least a 1% interest in the
profits and losses of each
Series at all times. See
"Managing Owner's Minimum
Purchase and Net Worth
Obligations." Under the
Trust Agreement, the
Managing Owner has agreed to
accept liability for the
obligations of each Series
that exceed that Series'
assets. See "Trust
Agreement."
Prudential Securities Prudential Securities, the
parent company of the
Managing Owner, is the
Trust's selling agent and
clearing broker. As
clearing broker for each
Series, Prudential
Securities will execute and
clear each Series' futures
and options transactions,
and will perform certain
administrative services for
each Series. See "Brokerage
Agreement." Because of
Prudential Securities'
affiliation with the
Managing Owner, the fee any
Series of the Trust will pay
to Prudential Securities was
not negotiated at arm's
length. See "Actual and
Potential Conflicts of
Interest." Each Series also
will engage in foreign
currency forward
transactions with Prudential
Securities, which in turn
will engage, as a principal,
in back-to-back transactions
with Prudential-Bache Global
Markets Inc. and its
subsidiaries ("PBGM"), also
affiliates of Prudential
Securities. PBGM will
attempt to earn a profit on
the spread in such
transactions; and even
though PBGM is an affiliate,
PBGM will charge a
competitive spread. All
compensation to be 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") (the "NASAA
Guidelines").
Liabilities You Assume Although the Managing Owner
has unlimited liability for
any obligations of a Series
that exceed that Series'
assets, your investment in a
Series is part of the assets
of that Series, and it will
therefore be subject to the
risks of that Series'
trading. You cannot lose
more than your investment in
any Series in which you
invest, and you will not be
subject to the losses or
liabilities of any Series in
which you have not invested.
We have received opinions of
counsel that creditors of
and equity holders in any
particular Series will have
recourse only to the assets
of that Series and to the
assets of the Managing
Owner, rather than to the
assets of any other Series,
provided that certain
requirements are met,
including, without
limitation, treating each
Series as separate from all
other Series. See "Trust
Agreement - Liabilities" for
a more complete explanation.
6
<PAGE>
Limitation of Liabilities The debts, liabilities,
obligations, claims and
expenses of a particular
Series shall be
enforceable against the
assets of that Series
only, and not against
the assets of the Trust
generally or the assets
of any other Series.
Who May Subscribe To subscribe in the Interests of
any Series:
- You must generally 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, although several
states impose higher
requirements - see "State
Suitability Requirements" in
the Subscription Agreement,
Exhibit D to this
Prospectus;
- You may not invest more than
10% of your liquid net worth
in any Series or combination
of Series;
- IRAs, Keogh and other
employee benefit plans are
subject to special
suitability requirements and
should not invest more than
10% of their assets in any
combination of Series.
See "Who May Subscribe."
What You Must Understand
Before You Subscribe You should not subscribe for
Interests unless you understand:
- the fundamental risks and
possible financial hazards of
the investment;
- the trading strategies to be
followed in the Series in which
you will invest;
- the tax consequences of this
investment;
- that if you decide to sell
securities in your Prudential
Securities account to subscribe
for Interests, you may have
income tax consequences from
that sale;
- the fees and expenses to which
you will be subject;
- your rights and obligations as a
Limited Owner.
See "Risk Factors," "The Series,"
"Fees and Expenses," and "Federal
Income Tax Consequences."
Your Minimum Subscription
and Interest Pricing Minimum required subscriptions
and Interest prices are as follows:
- Your minimum initial
subscription is $5,000 or,
for IRAs, $2000;
- You may purchase Interests
in all or any combination of
Series so long as your total
minimum subscription amount
is satisfied;
- The minimum initial purchase
in any one Series is $1,000;
- The price per Interest
during the Initial Offering
Period is $100;
- During the Continuous
Offering Period, each
Series' Interests will be
offered and sold at their
weekly Net Asset Value, and
existing Limited Owners will
be able to purchase
additional Interests in
increments of $100;
7
<PAGE>
- No front-end sales charges
or selling commissions will
be charged, and no Series'
Net Asset Value will be
diluted by the Trust's
organization and offering
expenses.
How to Subscribe To subscribe for any Series'
Interests:
- You will be required to have
a securities account with
Prudential Securities (or
with an Additional Seller, as
defined in the Glossary) and
to have funds in that account
equal to the amount of your
subscription at the time you
subscribe;
- Prudential Securities or an
Additional Seller will debit
your account for the full
amount of your subscription
on the next business day
following receipt of your
Subscription documents;
- We will accept subscriptions
in cash only.
You may revoke your subscription only
within five (5) Business Days (as
defined in the Glossary) of your
submission of a Subscription Agreement
to Prudential Securities (or an
Additional Seller), and may not revoke
it after that time. Any subscription
may be rejected in whole or in part by
the Managing Owner for any reason.
Initial Offering We will offer Interests of
each Series initially for a
period of up to 120 days
from the date of this
Prospectus (unless extended)
(the "Initial Offering
Period"). This Initial
Offering Period may be
shorter for a particular
Series if that Series'
"Subscription Minimum" - the
amount of subscription funds
required before a Series can
begin trading - is reached
before that date. See "The
Offering."
Series Subscription
Minimums The Subscription Minimums are as follows:
- Series A - $4,000,000
- Series B - $3,000,000
- Series C - $3,000,000
If any Series does sell its
Subscription Minimum to at least 150
subscribers (see "Who May Subscribe")
by the expiration of its Initial
Offering Period, all of that Series'
subscription monies, along with any
interest earnings, will be returned to
the subscribers promptly - within 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 Subscription funds for each
Series received during the
Initial Offering Period will be
deposited in each Series' escrow
account at The Bank of New York
and held there until the funds
are either released for trading
purposes or returned to the
subscribers. You will earn
interest on your escrowed
subscription funds, which will be
distributed to you within ten
(10) days after the close of the
Initial Offering Period of a
Series if the Subscription
Minimum for that Series is not
met (or as soon thereafter
8
<PAGE>
as practicable if payment cannot be
made within that time period).
If the Subscription Minimum for a
Series is met, interest earned on
your escrowed subscription funds
will be contributed to that
Series and you will receive a
commensurate number of additional
Interests (or fractions of
Interests) upon your admission as
a Limited Owner. See "The
Offering - Escrow of Funds."
Continuous Offering After trading commences, we
will offer Interests as of
the Dealing Day (as defined
in the Glossary) of each
week and will continue to
offer Interests in each
Series until the maximum
amount of each Series'
Interests which are
registered are sold (the
"Continuous Offering
Period"). The Managing
Owner may terminate the
Continuous Offering Period
at any time.
Subscription Effective Dates
During Continuous
Offering Period The effective date of
all accepted
subscriptions during the
Continuous Offering
Period, whether you are
a new subscriber to a
Series, or an existing
Limited Owner in a
Series who is purchasing
additional Interests in
that Series or
exchanging Interests in
one Series for Interests
in a different Series,
is the Dealing Day
(usually Monday) of the
week following the week
in which your
Subscription Agreement
or Exchange Request is
received on a timely basis.
Segregated Accounts/
Interest Income Except for that portion of
each Series' assets used as
margin to maintain that
Series' forward currency
contract positions, the
proceeds of the offering for
each Series will be
deposited in cash in
segregated and separate
trading accounts maintained
for each Series at
Prudential Securities in
accordance with CFTC
segregation requirements.
Prudential Securities
credits each Series with
100% of the interest earned
on its average net assets
(other than those assets
held in the form of U.S.
Government securities) on
deposit with Prudential
Securities each week.
Currently, this amount is
estimated to be the Federal
Funds rate.
Organization and Offering
Expenses Prudential Securities or an affiliate
is responsible for the payment of all
of the expenses associated with the
organization of the Trust and the
offering of each Series' Interests,
and no Trust Series will be required
to reimburse these expenses. As a
result, 100% of each Series' offering
proceeds will be available for that
Series' trading activities. See "The
Series" and "Fees and Expenses."
Transfer of Interests The Trust Agreement
restricts the
transferability and
assignability of the
Interests of each Series.
There is not now, nor is
there expected to be, a
primary or secondary trading
market for the Interests of
any Series.
Exchange Privilege Once trading commences,
Interests you own in one
Series may be exchanged
weekly for Interests of one
or more other Series for as
long as the Interests in the
Series you are seeking to
exchange into are being
offered to the public. The
exchange of Interests will
be treated as a redemption
of Interests in one Series
(with the related tax
consequences) and the
simultaneous purchase of
Interests in the Series you
exchange
9
<PAGE>
into. See "Federal
Income Tax Consequences."
Exchanges are made at the
applicable Series' then-
current Net Asset Value per
Interest (which includes,
among other things, accrued
but unpaid incentive fees
due to that Series' Trading
Advisor) at the Valuation
Point (the close of business
on Friday of each week, or
such other day as may be
determined by the Managing
Owner) immediately preceding
the Dealing Day (usually
Monday) on which your
Exchange will become
effective. The effective
date of an exchange will be
the first Dealing Day
following your submission of
an Exchange Request to the
Managing Owner (or
Additional Seller) on a
timely basis. No "exchange"
charges will be imposed.
See "Trust Agreement -
Exchange Privilege."
Redemption of Interests Once trading commences,
Interests you own in a
Series may be redeemed,
in whole or in part, on
a weekly basis. You may
redeem Interests as of
the beginning of any
Dealing Day (usually
Monday) upon at least
five (5) Business Days'
prior delivery of a
Redemption Request.
Redemptions are made at
the applicable Series'
then-current Net Asset
Value per Interest
(which includes, among
other things, accrued
but unpaid incentive
fees due to that Series'
Trading Advisor) on the
Valuation Point (the
close of business on
Friday) of the week in
which your Redemption
Request is received. If
you redeem your
Interests on or before
the end of six full
months following the
effective date of the
Interests being
redeemed, you will be
charged a redemption fee
of 4% of the Net Asset
Value at which your
Interests are redeemed;
if you redeem your
Interests after six
months, but on or before
the end of twelve full
months following the
effective date of the
Interest being redeemed,
you will be charged a 3%
redemption fee.
Redemption fees will be
paid to the Managing
Owner. See "Trust
Agreement - Redemption
of Interests" and
"Actual and Potential
Conflicts of Interest -
Prudential Securities'
Advising on Redemptions." These
redemption fees will not
be charged if you
exchange an Interest for
an Interest in another
Series or if you invest
your redemption proceeds
concurrently in another
futures fund sponsored
by Prudential
Securities.
Distributions The Managing Owner will make
distributions to you at its
discretion. Because the
Managing Owner does not
presently intend to make
ongoing distributions, your
income tax liability for the
profits of any Series in
which you have invested
will, in all likelihood,
exceed any distributions you
receive from that Series.
See "Federal Income Tax
Consequences."
Income Tax Consequences We have obtained an opinion
of counsel to the effect
that, under current federal
income tax law, each Series
in the Trust will be treated
as a partnership provided
(i) at least 90% of each
Series' annual gross income
consists of "Qualifying
Income" as defined in the
Internal Revenue Code of
1986, as amended (the
"Code") and (ii) the Trust
and each Series is
organized and operated in
accordance with its
governing agreements.
As long as each Series is treated as a
partnership for federal income tax
purposes, the Trust and each Series in
the Trust will not be subject to
10
<PAGE>
federal income tax. Instead, as a
Limited Owner, you generally will
recognize taxable income in an amount
equal to your allocable share of
trading profits and other income
generated from the Series in which you
have purchased Interests (whether or
not any cash is distributed to you).
Your ability to deduct losses and
expenses relating to the Trust's
trading activities may be subject to
significant limitations, and special
tax risks will apply to tax-exempt
Limited Owners and to non-United
States investors. The tax laws
applicable to the Trust and an
investment in Interests of each Series
are subject to change and
interpretation. For a more complete
discussion of tax risks relating to
this investment, see "Risk Factors -
Tax and ERISA Risks" and "Federal
Income Tax Consequences."
Reports and Accounting As of the end of each month
and as of the end of each
Fiscal Year, we will furnish
you with those reports
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 and any
other reports required by
any other governmental
authority, such as the SEC,
that has jurisdiction over
the activities of the Trust.
You also will be provided
with appropriate information
to permit you (on a timely
basis) to file your federal
and state income tax
returns.
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 is set forth
under "Financial
Statements."
Glossary of Terms See the "Glossary of Terms" for
the definition of certain key
terms used in this Prospectus.<PAGE>
11
<PAGE>
SUMMARY OF FEES AND EXPENSES
FEES PAID BY THE TRUST OR LIMITED OWNERS:
- -Brokerage Fee - an Prudential Securities will receive this amount for
annual percentage of brokerage services it renders, out-of-pocket
each Series' Net Asset trading costs it incurs, as well as for assisting the
Value: Managing Owner in managing non-commodities assets.
Series A: 7.75% The brokerage fee is determined at the close of
Series B: 7.75% business each Friday, and the sum of the amounts
Series C: 7.75% determined weekly will be paid monthly.
- -Redemption Fee - 4% or The Managing Owner will receive 4% and 3% of the Net
3% of the Net Asset Asset Value of any Interest of any Series redeemed
Value of an Interest during the first and second successive six-month
periods following the effective date
of its purchase. This redemption fee will not be
charged if you exchange an Interest for an Interest
in another Series or invest your redemption
proceeds in another futures fund sponsored
by Prudential Securities.
- -Management Fee - an Each Trading Advisor will receive a management
annual percentage of fee for its trading advisory services. The management
each Series' Net Asset fee is determined at the close of business each
Value: Friday, and the sum of the amounts determined weekly
Series A: 2% will be paid monthly.
Series B: 2%
Series C: 2%
- -Incentive Fee - a Each Trading Advisor can receive an incentive fee
percentage of each for the profit (realized and unrealized) it achieves
Series' New High Net for a Series. The incentive fee is determined as of
Trading Profits: the close of business on the last Friday of
Series A: 23% each calendar quarter but will accrue
Series B: 20% weekly for purposes of determining a Series' Net
Series C: 23% Asset Value for each week.
- -Extraordinary Expenses - Each Series will pay any extraordinary expenses
If and as incurred that may arise (for example, litigation and
indemnification expenses)
FEES PAID BY PRUDENTIAL SECURITIES OR ITS AFFILIATES:
- - Organization and Offering Include legal, accounting, filing fees
Expenses Approximately and printing costs
$225,000 per Series
- - Routine Operational/ Include filing, accounting,
Administrative photocopying, postage and
Expenses Approximately computer services costs
$80,000 per Series per
year
- -Routine Legal, Auditing Include expenses of third
and Other Expenses party service providers,
Approximately $60,000 including the Trustee
per Series per year
12
<PAGE>
<PAGE>
PROJECTED TWELVE-MONTH "BREAK-EVEN" ANALYSIS
THE FOLLOWING IS THE PROJECTED TWELVE-MONTH BREAK-EVEN
ANALYSIS FOR EACH SERIES. THE ANALYSIS TAKES INTO ACCOUNT
ALL FEES AND EXPENSES ENUMERATED ABOVE (OTHER THAN ADVISORY
INCENTIVE FEES AND EXTRAORDINARY EXPENSES WHICH ARE
IMPOSSIBLE TO PREDICT), EXPRESSED BOTH AS A DOLLAR AMOUNT
AND AS A PERCENTAGE OF A $5,000 INITIAL INVESTMENT:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
<S> <C> <C> <C> <C> <C> <C>
Description Dollar Percentage Dollar Percentage Dollar Percentage
of Charges Break- Break-Even Break- Break-Even Break- Break-Even
Even Even Even
Brokerage
Fees $387.50 7.75% $387.50 7.75% $387.50 7.75%
Advisory
Management
Fees $100.00 2.00% $100.00 2.00% $100.00 2.00%
Advisory
Incentive
Fees (1) - - - - - -
Total $487.50 9.75% $487.50 9.75% $487.50 9.75%
Less
Estimated
Interest
Income (2) ($280.00) (5.60%) ($280.00) (5.60%) ($280.00) (5.60%)
Estimated
12-Month
Break-Even
Level
Without
Redemption
Charges (3) $207.50 4.15% $207.50 4.15% $207.50 4.15%
Redemption
Charges (3) $150.00 3.0% $150.00 3.0% $150.00 3.0%
Estimated
12-Month
Break-Even
Level After
Redemption
Charges $357.50 7.15% $357.50 7.15% $357.50 7.15%
</TABLE>
- ------------
1 Advisory Incentive Fees are only paid on "New High Net Trading Profits."
New High Net Trading Profits are determined after deducting Brokerage and
Advisory Management Fees, and does not include interest income.
Each Series could pay advisory Incentive Fees in years in which
the Series breaks even, or even loses money, due to the quarterly,
rather than annual, nature of such fees.
2 Each Series will be credited with 100% of the interest income
earned on that Series' assets. Currently estimated to be
the Federal Funds rate of approximately 5.60%.
3 A redemption fee of 4% will be assessed on an Interest redeemed
on or before the end of the sixth full month after the
effective date of its purchase. A redemption fee of 3% will
be assessed on an Interest redeemed after the end
of the sixth, but on or before the end of the 12th, full month after its
purchase. Because this break-even analysis is a twelve-month computation,
only the 3% redemption fee, which is imposed at the end of the
twelve-month period, is used. Redemption fees will not be charged
if you exchange an Interest for an Interest in another Series or
if you invest your redemption proceeds concurrently in another
futures fund sponsored by Prudential Securities.
13
<PAGE>
<PAGE>
STRUCTURE OF THE TRUST
The Trust was formed on December 17, 1997 as a Delaware
Business Trust with separate Series, pursuant to the
requirements of the Delaware Business Trust Statute (the
"Business Trust Statute"). The Trust's registered office is
c/o Wilmington Trust Company (the "Trustee"), Rodney Square
North, 1110 North Market Street, Wilmington, Delaware 19890.
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 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 a Series in
excess that Series' assets. Limited Owners do not have any
such liability. See "The Trust Agreement - Liabilities -
Exercise of Rights by Limited Owners."
Overview of the Series
The Trust's Interests will be offered in three separate
Series: Series A, B and C. Each Series will engage in the
speculative trading of a diversified portfolio of futures,
forward (including interbank foreign currencies) and options
contracts and may, from time to time, engage in cash and spot
transactions. Each Series will have its own professional
commodity trading advisor (a "Trading Advisor") that will
manage 100% of that Series' assets and make that Series'
trading decisions. It is expected that between 15% and 40% of
each Series' assets normally will be committed as margin for
commodities trading, but from time to time these percentages
may be substantially more or less. See "Trust's Trading
Limitations and Policies."
The Trading Advisors for the Series were selected based
upon the Managing Owner's evaluation of each Trading Advisor's
past performance, trading portfolios and strategies, as well
as how each Trading Advisor's performance, portfolio and
strategies complement and differ from the others'. The
Managing Owner is authorized under the Advisory Agreements,
however, to utilize the services of additional trading
advisors for any Series. For each of Series A, B and C, the
Managing Owner will allocate 100% of the proceeds from the
Initial Offering of each Series' Interests to the Trading
Advisor for that Series for commodities trading purposes. It
is currently contemplated that each Series' Trading Advisor
will continue to be allocated 100% of additional capital
raised from that Series during the Continuous Offering of
Interests. The Trading Advisors are not affiliated with the
Trust, the Trustee, the Managing Owner or Prudential
Securities, but each of Eagle and Eclipse Capital does
currently act as a commodity trading advisor to other public
or private funds sponsored by Prudential Securities. If a
Trading Advisor's trading reaches a level where certain
position limits restrict its trading, that Trading Advisor
will modify its trading instructions for the Series and its
other accounts in a good faith effort to achieve an equitable
treatment of all accounts. See "Past Performance of Other
Pools Sponsored by the Managing Owner and Its Affiliate."
None of the Trading Advisors or any of their principals
currently have any beneficial interest in the Trust, but some
or all of such persons may acquire such an interest in the
future. For a summary of the Advisory Agreements between each
Trading Advisor, the Trust and the Managing Owner, see
"Advisory Agreements."
Set forth below is a description of each Series' Trading
Advisor and its principals, as well as a general description
of the trading strategies and trading portfolios each Trading
Advisor will employ in its trading on behalf of the Trust.
These descriptions were derived by the Managing Owner in part
from information contained in each Trading Advisor's CFTC
Disclosure Document, which each Trading Advisor itself
prepared. Because the Trading Advisors' trading strategies
are proprietary and confidential, the descriptions that follow
are of necessity general in nature.
14
<PAGE>
SERIES A
Eagle Trading Systems, Inc. ("Eagle") will be allocated
100% of Series A assets. In its trading, Eagle utilizes two
trading strategies: the Eagle-Global System and the Eagle-FX
System.
EAGLE AND ITS PRINCIPALS
Eagle is a Delaware corporation, organized in May 1993,
with its main business offices at 701 Mount Lucas Road,
Princeton, New Jersey 08542. Eagle became a registered
commodity trading advisor ("CTA") and commodity pool operator
("CPO") with the CFTC and a member of the National Futures
Association (the "NFA") on June 22, 1993.
Menachem Sternberg is the Chairman of the Board and Chief
Executive Officer of Eagle and is a member of the NFA. Prior
to joining Eagle in January 1997, Mr. Sternberg was a Senior
Vice President and senior trader at Caxton Corporation
("Caxton"), and since July 1995, also was a principal of
Caxton Associates L.L.C. Caxton is a New York-based money
management firm investing in the foreign exchange, global
financial, and commodities markets. Prior to joining Caxton
in 1992, Mr. Sternberg was the President and a director of
Tiverton Trading, Inc., ("Tiverton") a registered commodity
trading advisor. From August 1989 to December 1991, Mr.
Sternberg also was a Managing Director of Global Research and
Trading Ltd., a corporation engaged in the research and
development of trading and investment strategies in the
futures, forward and option markets. Prior to that time, Mr.
Sternberg was employed by Commodities Corporation (U.S.A.)
from 1979 until December 31, 1989, first as a research
consultant and subsequently as a First Vice President of CC
(U.S.A.). In 1986 he became an employee of Tiverton in
addition to his employment at CC (U.S.A.). Prior to joining
CC (U.S.A.), Mr. Sternberg was a systems analyst.
Mr. Sternberg received a B.A. cum laude from Tel Aviv
University and a Ph.D. in Economics from Princeton University.
His doctoral dissertation, entitled "Uncertainty and the Use
of Forward Contracts," dealt with theoretical issues
concerning hedging and market behavior. In addition to his
involvement in global financial markets, Mr. Sternberg has
advised governmental and corporate clients as an economic
consultant and has authored numerous research and academic
papers. He also served on the faculty of Ben Gurion
University and as a visiting scholar at Princeton University.
Liora Sternberg is the President and a Director of Eagle
and is a member of the NFA. Mrs. Sternberg has been involved
in the computer industry since 1977. Beginning in October
1982, she was employed by Menorah Insurance Company Ltd. as a
system analyst, in charge of designing financial applications.
From January 1984 until January 1992, she was managing the
General Insurance computer applications department. Mrs.
Sternberg initiated and supervised the development and
implementation of a wide range of computer support systems,
both at the management and operational levels. Her position
required involvement in key management and business decisions
of the company. Starting in January 1992, Mrs. Sternberg
devoted her time to the study of financial markets and the
design of computerized trading systems. In May 1993, Mrs.
Sternberg formed and became the President of Eagle. Mrs.
Sternberg received a B.A. in Computer Science and Philosophy
from Bar Ilan University in 1982.
Nancy Goldak is a Vice President of Eagle in charge of
trade executions and operations. Prior to joining Eagle in
May 1994, Mrs. Goldak was a Vice President of Reynwood Trading
Corporation and managed its trading desk from November 1987.
Mrs. Goldak performed duties involving treasury cash
management, compliance and brokerage operations for
Commodities Corporation (U.S.A.) N.V. from November 1979 to
October 1987.
EAGLE'S TRADING SYSTEMS
Eagle will make its trading decisions for Series A using
two trading systems, both of which are based on technical
trading analysis. The systems were developed using artificial
intelligence techniques that simulate the operation of diverse
combinations of trading rules on up to fifteen years of
historic market data (to the extent available). The systems'
trading rules incorporate trend following elements, money
management principles, predetermined risk limits and
volatility adjustment parameters. Each system uses a
computerized, trend-following
15
<PAGE>
approach that is based on the systematization of these factors.
This systematic approach is designed to enable Eagle to
participate in intermediate and long-term trends while
avoiding those markets experiencing excessive volatility.
Eagle's trading systems result in computer-generated
signals based on mathematical analyses of closing market
prices that incorporate the elements described above. The
signals determine the types of instruments to trade, whether
to take a long or short position, the maturity and size of
each position and the timing of the execution of trades.
No assurance can be given that all of the factors
discussed above or all the pertinent information will be
available to Eagle in implementing any particular trading
decision. Eagle's failure to include any of these factors or
information in making trading decisions may cause Series A to
miss significant profit opportunities or to incur substantial
losses.
The Eagle-Global System
The Eagle-Global System
presently tracks and may
trade up to 30 different
futures and forward
markets trading on
exchanges in the U.S. and
abroad. The system covers
a wide variety of
commodities, currencies
and U.S. and global
financial markets. Eagle,
in its sole discretion,
reserves the right to
change the markets and
exchanges in which it
trades.
The Eagle-FX System
The Eagle-FX system
presently tracks and may
trade up to 17 different
foreign currencies. The
system's trading is
executed by using forward
contracts in the interbank
foreign exchange markets.
The systems's trading
rules are similar to those
used by the Eagle-Global
system, with some
modification in view of
the special nature of the
currencies markets.
Eagle, in its sole
discretion, reserves the
right to change the list
of currencies in which it
trades.
<TABLE>
Eagle-Global Futures and Forward Contracts and Markets
<CAPTION>
Softs Grains Foreign Financial Instruments
<S> <C> <C>
World Sugar #1 CSC Corn CBT German Bund LIFFE
Wheat CBT Short Sterling LIFFE
Soybeans CBT Long Gilt LIFFE
Energy Notional MATIF
Crude Oil NYM Pibor MATIF
Heating Oil NYM JGB TSE & SIMEX
Natural Gas NYM Euroyen TIFFE
Metals Currencies Stock and Stock Indexes
Gold CMX British Pound IMM S&P 500 IMM
Silver CMX Canadian Dollar IMM FTSE LIFFE
Copper LME German Mark IMM NIKKEI SIMEX
Aluminum LME Japanese Yen IMM DAX DTB
Swiss Franc IMM
U.S. Financial Instruments
Treasury Bonds CBT
Treasury Notes CBT
Eurodollars CBT
</TABLE>
16
<PAGE>
Eagle-FX Currencies
Deutsche Mark
Japanese Yen
Swiss Franc
British Pound
Canadian Dollar
French Franc
Italian Lira
Dutch Guilder
Belgian Franc
Danish Krone
Norwegian Krone
Swedish Krone
Austrian Shilling
Austrian Dollar
Singapore Dollar
Finnish Marrka
New Zealand Dollar
Exchange Legend
CBT - Chicago Board of Trade
CME - Chicago Mercantile Exchange
CMX - COMEX
CSC - Cocoa, Sugar, Coffee Exchange
DTB - Deutsche Teminboevse
IMM - International Monetary Market
LIFFE - London Financial Exchange
LME - London Metals Exchange
MATIF - France Exchange
NYC - NY Cotton Exchange
NYM - NY Mercantile Exchange
SIMEX - Singapore Int'l Monetary Exchange
TIFFE - Tokyo Int'l Futures Exchange
TSE - Tokyo Stock Exchange
Allocations Between Programs
The percentage of Series A assets to be allocated at any
point in time to the Eagle-Global and Eagle-FX trading systems
is determined by the Managing Owner, subject to Eagle's
consent, based on its assessment of market conditions, Trading
Advisor capacity (i.e., the amount that Eagle can trade
effectively without violating its trading and risk management
capabilities), risk/reward considerations, performance and
other factors deemed relevant at the time. The initial
allocation is expected to be Eagle-Global - 50% and Eagle-FX
- - 50%. These allocations will change automatically because of
trading gains and losses, but they also may be altered if the
Managing Owner determines, using the factors enumerated above
that it is in the Series' best interest to do so. In the
event Eagle wishes to add or delete a trading program, it must
obtain the consent of the Managing Owner. Eagle utilizes
other, different trading strategies for some of its other
clients; but it is not contemplated that it will use any of
these other trading strategies for Series A trading. Limited
Owners will be given prompt written notice of any material
change in the trading strategies used.
Set forth below for calendar year 1997 is a bar graph
showing, on a weighted average basis, the volume of trades
effected by Eagle in the foregoing commodities using the two
trading strategies to be used for Series A. This weighting
will change as market conditions change, and there is every
likelihood that these weightings will be different for Series
A during future periods.
Volume of Trading for the Period January 1, 1997 to October
31, 1997:
Foreign Exchange 47.0% < (Represents FX System)
Imm Currencies 8.0%
Financials 28.9%
Stock Indices 0.5%
Grains & Softs 6.4%
Energy 5.6%
Metals 3.5%
100.0%
17
<PAGE>
(GRAPH)
The domestic and non-US exchanges
on which the above commodities currently are traded are:
Domestic Exchanges CBOT, CME, CSC, NYC, NYM, and IMM.
Non-US Exchanges DTB, LIFFE, LME, MATIF, SIMEX, TSE and TIFFE.
EAGLE'S PAST PERFORMANCE
The following capsule summaries were supplied by Eagle.
The Managing Owner is relying on Eagle for the accuracy of the
information supplied in these capsules. The information in
Capsules A(1A) through A(3) has not been audited. However,
the Trading Advisor represents and warrants that these
capsules are complete and accurate in all material respects.
Eagle-Global System
The following is a capsule summary of the past performance
for the Eagle-Global System. PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
As of September 30, 1997
Name of CTA: Eagle Trading Systems, Inc.
Program: Eagle-Global System
Start Date: August 1993 (All Trading for Eagle)
August 1995 (Eagle-Global System)
No. Accounts: 13 (Eagle-Global System)
Aggregate $$:
All Programs: $ 257,056,793 (Eagle Total Assets including Notional)
$ 242,349,530 (Eagle Total Assets excluding Notional)
$$ in This Program: $ 85,029,974 (Eagle-Global System Total
Assets including Notional)
$ 75,593,590 (Eagle-Global System Total
Assets excluding, Notional)
18
<PAGE>
Largest monthly
draw-down: (14.29)% Aug 1995
"Largest monthly draw-down" means the
greatest percentage decline in account
value due to losses sustained in the Eagle-
Global System from the beginning to the end
of a calendar month.
Worst peak-to-
valley draw-
down: (27.59)% February 1996 to July 1996
"Worst peak-to-valley draw-down" means the
greatest cumulative percentage decline in
month-end account value due to losses
sustained in the Eagle-Global System during
a period in which the initial month-end
account value is not equaled or exceeded by
a subsequent month-end account value.
Closed accounts;
Eagle-Global Profitable = 1
Unprofitable = 1
CAPSULE A(1A) - EAGLE-GLOBAL SYSTEM MONTHLY/ANNUAL RATES OF RETURN
(Based on 30 - 60% Funding Level)
MONTH 1995
Aug (14.29)%
Sep 17.74
Oct 21.71
Nov 23.39
Dec 8.73
ANNUAL 64.78%
(5 months)
As of September 30, 1997 the composite funding level for the
accounts in Capsule A(1) was approximately 54%.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
CAPSULE A(1B) - EAGLE-GLOBAL SYSTEM MONTHLY/ANNUAL RATES OF RETURN
(Based on Fully Funded Subset)
MONTH 1997 1996 1995
Jan 5.05% 8.90%
Feb 5.40 (13.14)
Mar (11.80) (0.94)
Apr 1.93 5.78
May (4.23) (10.04)
Jun 0.88 1.34
Jul 16.95 (12.73)
Aug (5.56) 5.14
Sep 10.69 18.64
Oct 27.67 0.55%
Nov 8.14 2.36
Dec (7.71) (2.44)
ANNUAL 17.57% 25.34% 0.41%
(9 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
19
<PAGE>
Eagle-FX System
The following is a capsule summary of the past
performance for the Eagle-FX System. PAST PERFORMANCE IS
NOT INDICATIVE OF FUTURE RESULTS.
As of September 30, 1997
Name of CTA: Eagle Trading Systems, Inc.
Program: Eagle-FX System
Start Date: August 1993 (All Trading for Eagle)
August 1993 (Eagle-FX System traded
exclusively by Eagle)
September 1991 (Trading of Eagle-FX
System under management of Tiverton)
No. Accounts: 6
Aggregate $$:
All Programs: $ 257,056,793 (Eagle Total
Assets including Notional)
$ 242,349,530 (Eagle Total Assets
excluding Notional)
$$ in This Program. $ 43,485,870 (Eagle-FX System Total
Assets including Notional)
$ 39,615,180 (Eagle-FX System Total
Assets excluding Notional)
Largest monthly
draw-down: (19.12)% January 1992
"Largest monthly draw-down" means the
greatest percentage decline in
account value due to losses sustained
in the Eagle-FX System from the
beginning to the end of a calendar
month.
Worst peak-to-
valley draw-down: (25.67)% September 1992 to November 1994
"Worst peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
account value due to losses sustained
in the Eagle-FX System during a
period in which the initial month-end
account value is not equaled or
exceeded by a subsequent month-end
account value.
Closed accounts;
Eagle-FX Profitable = 0
Unprofitable = 0
<TABLE>
CAPSULE A(2) - EAGLE-FX MONTHLY/ANNUAL RATES OF RETURN
<CAPTION>
MONTH 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Jan 8.69% 10.94% (0.58)% (8.62)% (2.51)% (19.12)%
Feb 10.93 (5.10) 15.48 (6.15) 3.29 (4.51)
Mar (0.67) 13.26 17.30 (0.37) (4.47) 3.82
Apr 4.49 4.75 2.08 1.08 (1.77) (3.49)
May 0.32 (3.57) (10.96) (3.65) 2.35 0.34
Jun (0.93) (1.22) (1.93) 11.48 1.81 25.95
Jul 15.45 (3.63) (2.16) 4.02 0.23 13.10
Aug (2.53) (0.92) 1.40 (16.13) 1.23 17.05
Sep (1.72) 11.75 (0.96) 1.57 2.79 (7.00)
Oct 5.99 (0.30) 10.33 (0.86) (0.45)
Nov 2.78 (2.54) (12.92) 1.59 3.71
Dec 2.24 (9.66) 1.09 (3.38) (1.90)
ANNUAL 37.55% 41.40% 3.54% (20.16)% (0.08)% 21.95%
(9 months)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS<PAGE>
20
<PAGE>
Eagle's Supplemental Performance Information
Capsule A(3) represent the customer accounts traded by
Eagle pursuant to a different trading strategy from that to
be utilized by Series A.
Eagle System
As of September 30, 1997
Name of CTA: Eagle Trading Systems, Inc.
Program: Eagle System
Start Date: August 1993 (All Trading for Eagle)
August 1993 (Eagle System traded
exclusively by Eagle)
September 1989 (Trading of Eagle System
under management of Tiverton)
No. Accounts: 14 (Eagle System)
Aggregate $$:
All Programs: $257,056,793 (Eagle Total Assets
including Notional)
$242,349,530 (Eagle Assets excluding
Notional)
$$ in This
Program: $128,494,478 (Eagle System Total Assets
including Notional)
$127,094,289 (Eagle System Total Assets
excluding Notional)
Largest monthly
draw-down: (19.42)% February 96
"Largest monthly drawdown" means the
greatest percentage decline in account
value due to losses sustained in the
Eagle-System from the beginning to the
end of a calendar month.
Worst peak-to-
valley
draw-down: (28.09)% February 1996 - September 1996
"Worst peak-to-valley draw-down" means
the greatest cumulative percentage
decline in month-end account value due to
losses sustained in the Eagle System
during a period in which the initial
month-end account value is not equaled or
exceeded by a subsequent month-end
account value.
Closed accounts;
Eagle System Profitable = 7
Unprofitable = 1
CAPSULE A(3) - EAGLE SYSTEM ANNUAL RATES OF RETURN
(Based on Fully Funded Subset)
1997 1996 1995 1994 1993 1992
ANNUAL 19.71% 17.88% 72.74% 29.13% 56.05% 34.93%
(9 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
21
<PAGE>
<PAGE>
Eagle-FX System/Eagle-Global System Proforma
Set forth in Capsule A(4) on page 24 is hypothetical
combined pro forma information that was prepared by the
Managing Owner and which attempts to show the relative
weighting of the two trading strategies to be used by Eagle
for Series A on a pro forma basis from October 1995, the
earliest date when both trading strategies were being used
at the same time, through October 1997. Although this
capsule was derived from Eagle's actual trading results
depicted in Capsules A(1A) and A(2), Capsule A(4) reflects
the performance of a hypothetical portfolio whose assets are
allocated in the same proportions as Series A's initial
assets are expected to be allocated. Thereafter, no attempt
was made to maintain the initial allocations between the two
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 Capsule A(4) may be of some relevance to
prospective investors in determining whether or not to
subscribe for Interests in Series A, the performance
information presented in this capsule should by no means be
taken as an indication of how Series A as a whole or how
Series A Limited Owners' individual investments will perform
or would have preformed over the same time period.
Prospective investors are referred to the Eagle Global and
Eagle FX Systems' actual performance at Capsules A(1A) and
A(2) in this Prospectus. Prospective investors should be
aware in reviewing Capsule A(4) 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.
[THIS SPACE LEFT BLANK INTENTIONALLY]
22
<PAGE>
<PAGE>
As of October 1997
Name of CTA: Eagle Trading Systems, Inc.
Program: Eagle-FX System & Eagle-Global System
Start Date: August 1993 (All Trading for Eagle)
August 1993 (Eagle-FX System)
August 1995 (Eagle-Global System-Notionalized)
October 1995 (Eagle-Global System-Fully Funded)
No. Accounts: 6 (Eagle-FX System)
13 (Eagle-Global System)
Aggregate:
All Programs: $216,376,600 (All Proforma Total
Assets excluding Notional)
$245,930,354 (All Proforma Total
Assets including Notional)
$$ in This Program $ 36,637,771 (Eagle-FX System excluding Notional)
$ 45,191,284 (Eagle-FX System including Notional)
$ 62,087,313 (Eagle-Global System
excluding Notional)
$ 80,994,815 (Eagle-Global System
including Notional)
Proforma worst monthly
draw-down:
October 1995 to
October 1997: (9.58)% February 1996
Year-to-Date 1997 (6.51%) March 1997
"Worst monthly draw-down" means
greatest percentage decline in
net asset value due to losses
sustained by Eagle-FX System and
Eagle-Global System from the
beginning to the end of a
calendar month.
Proforma worst
peak-to-valley
draw-down:
October 1995 to
October 1997: (14.77)% May 1996 to July 1996
Year-to-Date 1997 (6.51)% March 1997
"Worst peak-to-valley draw-down"
means greatest cumulative
percentage decline in month-end
net asset value of the Eagle-FX
System and Eagle-Global System
due to losses sustained during a
period in which the initial
month-end net asset value of the
Eagle-FX System & Eagle-Global
System is not equaled or exceeded
by a subsequent month-end asset
value of the Eagle-FX System &
Eagle-Global 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.
[THIS SPACE LEFT BLANK INTENTIONALLY]
23
<PAGE>
<PAGE>
CAPSULE A(4) - EAGLE PROFORMA PERFORMANCE
50% Eagle-FX Systems, 50% Eagle-Global System Proforma
(7.75% Brokerage, 2/23%, 100% Interest)
RATE OF RETURN
(Computed on a compounded monthly basis)
Month 1997 1996 1995
Jan 6.96% 9.87%
Feb 8.32 (9.58)
Mar (6.51) 5.42
Apr 2.96 5.19
May (2.08) (6.83)
Jun (0.31) (0.35)
Jul 16.00 (8.19)
Aug (4.12) 1.70
Sep 3.45 15.44
Oct (5.50)* 16.34 (0.11)%
Nov 5.52 (0.19)
Dec (3.16) (5.95)
ANNUAL 18.35% 31.05% (6.23)%
(10 Months) (3 Months)
*Estimated Rate of Return
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
24
<PAGE>
SERIES B
Eclipse Capital Management, Inc. ("Eclipse Capital") is
allocated 100% of Series B assets. In its trading for Series
B, Eclipse Capital will utilize its Global Monetary Program.
ECLIPSE CAPITAL AND ITS PRINCIPALS
Eclipse Capital is a Kentucky corporation incorporated in
July 1983, with its main offices at 12400 Olive Boulevard,
Suite 408, St. Louis, Missouri 63141. Eclipse Capital was
registered with the CFTC on August 14, 1986 as a CTA and is a
member in good standing of the NFA.
Thomas W. Moller, the sole shareholder of Eclipse Capital,
has served as its President, Treasurer, and sole director
since founding the firm. Mr. Moller received an undergraduate
degree in Business and Economics from Vanderbilt University
and a graduate degree in Accounting from the University of
Kentucky. He was a Certified Public Accountant and has a
background in financial planning and investment management.
In 1980, as Chief Financial Officer of a privately held
company, he designed and implemented one of the first variable
rate loan hedge programs using interest rate futures
contracts. In 1982 he formed Interest Rate Management, Inc.,
another CTA that provided interest rate hedging advisory and
management services. Mr. Moller has devoted 100% of his time
to Eclipse Capital since September, 1986, and is primarily
involved in the areas of trading, research, and product
development.
Ronald R. Breitigam is Secretary and Vice President,
Trading, with responsibility for the implementation of Eclipse
Capital's trading strategies. After graduating from Pacific
Union College in 1982, Mr. Breitigam became an independent
floor trader at the Mid-America Commodity Exchange. He served
as an institutional broker with Thompson McKinnon (1984-1985)
and Paine Webber (1986), and in 1986 formed his own trading
company to work full time implementing various strategies.
Mr. Breitigam joined Eclipse Capital in May, 1989.
James W. Dille, Ph.D. is Vice President, Information
Systems, with responsibility for computer-based research,
development and operations. Dr. Dille has undergraduate and
graduate engineering degrees from the University of Virginia.
He received his masters and Ph.D. in Applied Sciences from
Harvard University specializing in the areas of Decision and
Control Theory and Computer Science. From 1987 through 1993
he worked for McDonnell Douglas Training Systems where he was
responsible for research in the areas of computer
architectures and networking. He is an affiliate professor at
Washington University in St. Louis, teaching courses on
numerical analysis and the simulation and analysis of complex
systems. Dr. Dille joined Eclipse Capital in January, 1994.
Eclipse Capital'S TRADING SYSTEM
Eclipse Capital's will make its trading decisions for
Series B according to its Global Monetary Program. The Global
Monetary Program incorporates quantitative trend analysis and
technical trading principles.
The Global Monetary Program is systematic and trend-
following in nature, with the objective of capitalizing on
intermediate and long-term price trends. Eclipse Capital
makes all trading decisions pursuant to its proprietary trend
identification, capital allocation, and risk management
models, using multiple models to accentuate overall
diversification. Trend identification models use various
technical and statistical analysis techniques to identify and
evaluate price trends. Capital allocation models determine
the percentage of trading capital allocated to various markets
and trading models.
Eclipse Capital's risk management models were developed
with the objective of limiting losses, capturing profits, and
conserving capital in choppy, "sideways markets". The risk
management principles that Eclipse Capital employs include:
(1) using stop orders to exit trades when markets are moving
against an established position; (2) diversifying positions
among several different futures and/or futures groups to limit
exposure in any one area; (3)
25
<PAGE>
using multiple entry and exit points; (4) limiting the
assets committed as margin, generally within a range of
5% to 25% of assets managed, at minimum
exchange margin requirements, but possibly above or below that
range at certain times; and (5) prohibiting the use of
unrealized profits in a particular futures contract as margin
for additional contracts in the same or a related futures
contract.
Decisions whether to trade a particular futures contract
are based upon various factors, including liquidity,
significance in terms of desired degrees of concentration,
diversification and profit potential, both historical and at
a given time. These decisions are based upon output generated
by a proprietary risk management program but require the
exercise of judgment by principals of Eclipse Capital. The
specific contracts traded have been selected based on
liquidity, historical volatility, and the degree of past
directional movement. The actual number of contracts held at
any particular point depends on a number of factors, including
evaluation of market volatility and potential risk versus
return. There are occasions when a trading model may indicate
that no position is appropriate in a particular contract or
contract group.
In addition to technical trading in futures contracts,
Eclipse Capital also may employ trading techniques such as
spreads and straddles, and buy or sell futures options.
Eclipse Capital may make non-material alterations to its
trading programs without approval from the Managing Owner if
Eclipse Capital determines that such changes are in the best
interest of the Series Limited Owners.
The Global Monetary Program
The Global Monetary Program is a financial, metals and
energy program that trades a global portfolio of futures,
options on futures and exchanges-of-futures-for-physical
("EFP") contracts on interest rate instruments, currencies,
stock indices, precious and base metals, and energy products.
The foreign currency portion of the portfolio may be traded in
the interbank foreign exchange market. A key component of
this program is the extensive diversification achieved by
applying multiple trading models to a wide variety of
financial markets located throughout the world.
Global Monetary Program Contracts And Markets
SFE Australian Bank Bills
SFE Australian 3-Year Bond
SFE Australian Ten Year Bond
SIMEX Euroyen
SIMEX Nikkei
SIMEX Japanese Bond
Tokyo Japanese Bond
LIFFE Euromark
LIFFE Eurolira
LIFFE German Bund
LIFFE Italian Bond
LIFFE Short Sterling
LIFFE Long Gift
LIFFE Euroswiss
SOFFEX Swiss Government Bond
DTB German 5-Year Bond
MATIF Pibor
MATIF Notional Bond
CME Eurodollar
CBOT US Bond
CBOT US 5-Year
MONT Canadian Bond
MONT Canadian Bank Bills
MEFF Spanish Bond
London Metals Exchange 3 Month Copper
London Metals Exchange 3 Month Aluminum
London Metals Exchange 3 Month Zinc
COMEX Gold
COMEX Silver
NYMEX Crude Oil
NYMEX Natural Gas
Australian Dollar
British Pound
Canadian Dollar
French Franc
German Mark
Japanese Yen
Swiss Franc
British Pound/German Mark
German Mark/French Franc
German Mark/Italian Lira
German Mark/Japanese Yen
German Mark/Swiss Franc
* All currencies are executed in the interbank cash market
and then exchanged for physical (EFP) to the CME or FINEX for
actual futures contracts.
26
<PAGE>
<PAGE>
Set forth below is a bar graph showing the target risk
allocation for the Global Monetary Program. Actual trading
will change as market conditions change, and there is every
likelihood that the targeted risk allocations may vary for
Series B during future periods.
Global Monetary Program Risk Allocation:
Interest rate instruments: 45%
Currencies: 30%
Stock Indices: 5%
Precious & Base Metals: 10%
Energy Products 10%
(GRAPH)
[THIS SPACE LEFT BLANK INTENTIONALLY]
27
<PAGE>
<PAGE>
ECLIPSE CAPITAL'S PAST PERFORMANCE
The following capsule summaries were supplied by
Eclipse Capital. The Managing Owner is relying on Eclipse
Capital for the accuracy of the information supplied in
these capsules. The Information in Capsules B(1) through
B(3) has not been audited. However, the Trading Advisor
represents and warrants that these capsules are complete and
accurate in all material respects.
Global Monetary Program
The following is a capsule summary of the past
performance for Eclipse Capital's Global Monetary Program.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
As of October 31, 1997
Name of CTA: Eclipse Capital Management, Inc.
Program: Global Monetary Program
Start Date: April 1986 (All trading by Eclipse Capital)
August 1990 (Eclipse Capital Global Monetary Program)
No. Accounts: 18
Aggregate $$: $243,590,464 (All Programs excluding Notional)
All Programs $247,490,464 (All Programs including Notional)
$$ in this
Program $241,478,239 (Global Monetary Program excluding Notional)
$245,378,239 (Global Monetary Program including Notional)
Largest monthly
draw-down: (14.62)% July 1994
"Largest monthly draw-down"
means the greatest percentage
decline in account value due to
losses sustained in the Global
Monetary Program from the
beginning to the end of a
calendar month.
Worst peak-to-
valley
draw-down: (26.97)% March 1994 to September 1994
"Worst peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
account value due to losses
sustained in the Global Monetary
Program during a period in which
the initial month-end account
value is not equaled or exceeded
by a subsequent month-end
account value.
Closed Accounts: Profitable = 13
Unprofitable = 4
[THIS SPACE LEFT BLANK INTENTIONALLY]
28
<PAGE>
<PAGE>
CAPSULE B(1) - ECLIPSE CAPITAL GLOBAL MONETARY PROGRAM
MONTHLY/ANNUAL RATES OF RETURN
MONTH 1997 1996 1995 1994 1993 1992
Jan 2.07% 5.45% (2.28)% 1.34% 4.23% (6.77)%
Feb (0.41) (0.07) 1.19 3.00 9.34 5.38
Mar 1.67 (0.30) 4.52 6.09 (2.11) 5.51
Apr (4.93) 5.58 0.84 (3.43) 1.42 (5.29)
May 4.01 1.96 8.09 (2.91) (1.02) (0.24)
Jun 0.34 0.11 (2.34) 0.28 3.03 11.74
Jul 8.80 0.58 1.04 (11.70) 3.09 16.56
Aug (2.21) 3.04 6.80 (5.12) 0.81 8.13
Sep 5.00 2.77 (0.57) (1.42) 3.61 (10.27)
Oct (0.78) 3.51 0.34 0.90 2.06 1.88
Nov 7.03 2.16 4.50 (0.03) 2.33
Dec (2.19) (0.64) (2.24) 2.84 (2.50)
ANNUAL 13.69% 30.68% 20.21% -11.37% 30.37% 12.95%
(10 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
29
<PAGE>
<PAGE>
Eclipse Capital's Supplemental Performance Information
Capsules B(2) through B(4) represent the customer
accounts traded by Eclipse Capital pursuant to different
trading strategies from those to be utilized by Series B.
Global Yield Program
This "sector" program trades a specialized portfolio
comprised entirely of domestic and foreign interest rate
instruments. Global money markets and bond futures contracts
are traded on major exchanges located throughout the world,
including Chicago, Montreal, London, Paris, Madrid, Tokyo,
Singapore and Sydney.
As of October 31, 1997
Name of CTA: Eclipse Capital Management, Inc.
Program: Global Yield Program
Start Date: April 1986 (All trading by Eclipse
Capital)
April 1992 (Eclipse Capital Global
Yield Program)
No. Accounts: 1
Aggregate $$:
All Programs: $243,590,464 (All Programs excluding
Notional)
$247,490,464 (All Programs including
Notional)
$$ in this Program: $2,112,225 (Global Yield Program)
Largest monthly
draw-down: (14.41)% July 1994
"Largest monthly draw-down" means the
greatest percentage decline in
account value due to losses sustained
in the Global Yield Program from the
beginning to the end of a calendar
month.
Worst peak-to
valley draw-down: (26.10)% May 1994 to January 1995
"Worst peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
account value due to losses sustained
in the Global Yield Program during a
period in which the initial month-end
account value is not equaled or
exceeded by a subsequent month-end
account value.
Closed Accounts: Profitable = 6
Unprofitable = 7
CAPSULE B(2) - GLOBAL YIELD PROGRAM ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993 1992
ANNUAL 6.51% 15.21% 14.02% 0.02% 32.40% 12.20%
(10 Months) (9 Months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
30
<PAGE>
<PAGE>
Foreign Exchange Program
(Not open to new investment)
Name of CTA: Eclipse Capital Management, Inc.
Program: Foreign Exchange Program
Start Date: April 1986 (Inception of trading by CTA)
March 1992 (Inception of trading in program)
No. Accounts: 0
Aggregate $$: $223,823,768 (All Programs excluding Notional)
All Programs: $226,323,768 (All Programs including Notional)
$$ in this Program: $0 (Foreign Exchange Program)
Largest monthly drawdown: (20.86)% September 1992
"Largest monthly draw-down"
means the greatest
percentage decline in
account value due to losses
sustained in the Foreign
Exchange Program from the
beginning to the end of a
calendar month.
Worst peak-to-valley
drawdown: (20.86)% August 1992 to September 1992
"Worst peak-to-valley draw-
down" means the greatest
cumulative percentage
decline in month-end account
value due to losses
sustained in the Foreign
Exchange Program during a
period in which the initial
month-end account value is
not equaled or exceeded by a
subsequent month-end account value.
Closed Accounts: Profitable = 3
Unprofitable = 2
CAPSULE B(3) - FOREIGN EXCHANGE PROGRAM ANNUAL RATES OF RETURN
1995 1994 1993 1992
ANNUAL 10.20% (4.93)% 6.35% 13.18%
(3 Months) (10 Months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
[THIS SPACE LEFT BLANK INTENTIONALLY]
31
<PAGE>
<PAGE>
Financial Futures Account
(Not open to new investment)
Name of CTA: Eclipse Capital Management, Inc.
Program: Financial Futures Account
Start Date: April 1986 (Inception of trading by CTA)
April 1986 (Inception of trading in program)
No. Accounts: 0
Aggregate $$: $223,823,768 (All programs excluding Notional)
All programs: $226,323,768 (All programs including Notional)
$$ in this Program: $0 (Financial Futures Account)
Largest monthly
draw-down: (20.91)% October 1994
"Largest monthly draw-down"
means the greatest
percentage decline in
account value due to losses
sustained in the Financial
Futures Account from the
beginning to the end of a
calendar month.
Worst peak-to-valley
draw-down: (69.20)% February 1989 to April 1992
"Worst peak-to-valley draw-
down" means the greatest
cumulative percentage
decline in month-end account
value due to losses
sustained in the Financial
Futures Account during a
period in which the initial
month-end account value is
not equaled or exceeded by a
subsequent month-end account value.
Closed Accounts: Profitable = 99
Unprofitable = 314
CAPSULE B(4) - FINANCIAL FUTURES ACCOUNT ANNUAL RATES OF RETURN
1996 1995 1994 1993 1992 1991
ANNUAL 4.41% (7.33)% (18.16)% 60.35% (5.43)% (13.42)%
(6 Months) (3 Months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]<PAGE>
32
<PAGE>
Notes to Performance Summaries
The following notes refer to Capsules B(1) through
B(4).
In the preceding performance summaries, Assets Under
Management (excluding Notional) represent the total actual
equity (including cash and cash equivalents) deposited in
the accounts at the carrying FCM plus committed funds.
Assets Under Management (including Notional) represent
the total actual equity (including cash and cash
equivalents) deposited in the accounts at the carrying FCM
plus committed funds plus Notional funds.
Largest Monthly Draw-down is the largest monthly loss
experienced by any single account in the relevant program in
any calendar month expressed as a percentage of the total
equity in such account in the program and includes the month
and year of such draw-down. Largest Peak to Valley Draw-
down is the largest calendar month-end to calendar month-end
loss experienced by any single account in the program
expressed as a percentage of total equity (including
Notional equity) in such account in the program.
Prior to August 1, 1996, Monthly Rate of Return is
calculated by dividing net performance by the sum total of
the starting equity plus the time-weighted additions minus
the time-weighted withdrawals for the period. Beginning in
1994, additions and withdrawals made other than at the
beginning of the month are time-weighted. Time weight is
calculated by multiplying an addition by the number of days
in the period it was available for trading and/or a
withdrawal by the number of days in the period it was not
available for trading, and dividing by the total number of
days in the period. Prior to August 1, 1996, the time
weighting of additions and withdrawals method yields the
same Rates of Return as the Fully-Funded Subset Method
(described below), because Eclipse Capital did not manage
Notional funds prior to August 1, 1996.
For the periods beginning after August 1, 1996, Eclipse
Capital has adopted a new method of computing rate-of-return
and performance disclosure, referred to as the Fully-Funded
Subset method, pursuant to an Advisory published by the
CFTC. The Fully-Funded Subset refers to that subset of
accounts included in the applicable composite which is
funded entirely by Actual Funds (as defined in the
Advisory). 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 are
representative of the trading program. Eclipse Capital has
performed these computations for periods subsequent to
August 1, 1996.
Annual Rate of Return is calculated by dividing the
change in the net asset value of a hypothetical $1,000
investment (VAMI) during the period by the VAMI at the
beginning of the period or at the commencement of trading.
VAMI is calculated by multiplying (1 plus the period rate of
return %) times the prior period value of a hypothetical
$1,000 investment (VAMI).
[THIS SPACE LEFT BLANK INTENTIONALLY]
33
<PAGE>
<PAGE>
Eclipse Capital Global Monetary Program Proforma
Set forth in Capsule B(5) on page 35 is hypothetical
combined pro forma information prepared by the Managing Owner
using the Trading Advisor's actual trading results depicted in
Capsules B(1). Capsule B(5) reflects the performance of a
hypothetical portfolio whose assets are traded under a fee
structure similar to the fee structure of Series B. 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 Series B, the performance
information presented in this capsule should by no means be
taken as an indication of how Series B or how Limited Owners'
individual investments will perform or would have performed
over the same time period. Prospective investors are referred
to the Global Monetary Program's actual performance at Capsule
B(1) in this Prospectus. Prospective investors should be
aware in reviewing Capsule B(5) 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.
As of October, 1997
Name of CTA: Eclipse Capital Management, Inc.
Program: Global Monetary Program
Start Date: April 1996 (All Trading for Eclipse Capital)
August 1990 (Global Monetary System)
No. Accounts: 18
Aggregate:
All Programs: $243,590,464 (Proforma Total Assets excluding Notional)
$247,490,464 (Proforma Total Assets including Notional)
$$ in This Program $241,478,239 (Global Monetary Program
excluding Notional)
$245,378,239 (Global Monetary Program
including Notional)
Proforma largest
monthly draw-down:
Prior Five Years: (12.03)% July 1994
Year-to-Date 1997: (5.40)% April 1997
"Largest monthly draw-down" means
greatest percentage decline in net
asset value due to losses sustained by
Global Monetary Program from the
beginning to the end of a calendar
month.
Proforma worst
peak-to-valley
draw-down:
Prior Five Years (23.07)% April 1994 to September 1994
Year-To-Date 1997 (5.04)% April 1997
"Worst peak-to-valley draw-down" means
greatest cumulative percentage decline
in month-end net asset value of the
Global Monetary Program due to losses
sustained during a period in which the
initial month-end net asset value of
the Global Monetary Program is not
equaled or exceeded by a subsequent
month-end asset value of the Global
Monetary Program.
34
<PAGE>
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.
CAPSULE B(5) - ECLIPSE CAPITAL PROFORMA PERFORMANCE
Eclipse Capital Management, Inc. - Global Monetary Program
Proforma (7.75%, 2/20%, 100% Interest)
<TABLE>
RATE OF RETURN
(Computed on a compounded monthly basis)
<CAPTION>
Month 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Jan 2.00% 6.44% (2.25)% 1.04% 3.71% (8.20)%
Feb (0.46) (1.56) 1.05 2.57 9.60 (6.18)
Mar 1.26 (0.40) 4.51 5.71 (2.09) 6.50
Apr (5.40) 7.12 0.84 (3.70) 1.53 (5.67)
May 3.80 0.84 9.59 (3.05) (0.84) (0.17)
Jun 0.08 (0.13) (3.25) 0.37 3.16 13.36
Jul 8.79 0.28 0.72 (12.03) 3.14 16.88
Aug (2.42) 2.84 7.49 (5.18) 0.77 7.82
Sep 4.94 2.93 (0.92) (1.56) 3.37 (9.50)
Oct (1.10)* 4.34 (0.26) 0.76 1.96 1.89
Nov 7.10 2.56 4.36 0.14 2.15
Dec (2.58) (0.12) (2.37) 2.93 (2.33)
ANNUAL 11.32% 30.11% 20.98% (13.47)% 30.48% 13.53%
(10 Months)
*Estimated Rate of Return
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
[THIS SPACE LEFT BLANK INTENTIONALLY]
35
PAGE
<PAGE>
SERIES C
Hyman Beck & Company, Inc. ("HB & Co.") is allocated 100%
of Series C assets. In its trading for Series C, HB & Co.
will utilize its Asset Allocation Program. HB & Co., at the
request of the Managing Owner, will trade Series C's Asset
Allocation Portfolio account at one and one-half times
leverage. HB & Co. has not previously traded Asset Allocation
Portfolio accounts at additional leverage. Furthermore, the
Asset Allocation Portfolio to be utilized on behalf of Series
C's account will be comprised of HB & Co.'s Global, FX,
Diversified and Short-Term Select Portfolios. As described
below, to date Asset Allocation Portfolio accounts have
generally included HB & Co.'s Short-Term Original Portfolio
rather than its Short-Term Select Portfolio. Accordingly, the
trading approach to be utilized in respect of the Series C
Interests will represent a new trading approach for which
there is no past performance record.
HB & CO. AND ITS PRINCIPALS
HB & Co. is a Delaware corporation incorporated in
February 1991, with its principal offices at 6 Campus Drive,
Parsippany, New Jersey 07054. HB & Co. became registered with
the CFTC as a CTA and CPO and a member of the NFA effective
March 1991.
Alexander Hyman is the President and a principal of HB &
Co. and a fifty percent shareholder of HB & Co. Mr. Hyman,
along with Mr. Beck, is directly responsible for all trading
and money management decisions made by HB & Co. Mr. Hyman is
also an Executive Vice President and a principal of Praxis
Capital Management LLC ("Praxis"), a New Jersey limited
liability company registered with the CFTC as a CTA and CPO.
From 1983 through February 1991, Mr. Hyman was employed by
Dean Witter Reynolds, Inc., a registered futures commission
merchant ("Dean Witter"), where, at the time of his departure,
he was First Vice President and Associate Director of the
Managed Futures Division and a Director and principal of Dean
Witter Futures & Currency Management Inc., a registered CTA
("Dean Witter Futures"). Mr. Hyman was also a Director of
Demeter Management Corporation, the sponsor of all of Dean
Witter's public futures funds. While at Dean Witter, Mr.
Hyman also was responsible for the development of managed
futures products. Mr. Hyman graduated from Hofstra University
in May 1983 with a B.B.A. degree in International Business and
Economics.
Carl J. Beck is Vice President, Secretary, Treasurer, and
a principal of HB & Co. and is also a fifty percent
shareholder of HB & Co. Mr. Beck, along with Mr. Hyman, is
directly responsible for all trading and money management
decisions made by HB & Co. Mr. Beck is also an Executive Vice
President, the Secretary and a principal of Praxis. From 1985
through February 1991, Mr. Beck was employed by Dean Witter,
where, at the time of his departure, he held the position of
Vice President and Senior Portfolio Manager. Mr. Beck was
also a Vice President and principal of Dean Witter Futures
where he was responsible for day-to-day management and trading
activities. Prior to joining Dean Witter, Mr. Beck was
employed by J. Aron & Co., a commodity trading firm. As of
April 1994, Mr. Beck was appointed to and serves on the Board
of Managers of the Coffee, Sugar & Cocoa Exchange, Inc. Mr.
Beck graduated magna cum laude from Fordham University in May
1983 with a B.A. degree in Economics and earned an M.B.A.
degree in Finance from New York University in May 1989.
Chris J. Garavente is a principal of HB & Co. and is
responsible for strategic planning, business management,
product development and new client relationships. Mr.
Garavente is also the President and a principal of Praxis.
Prior to joining HB & Co. in April 1997, Mr. Garavente was
employed by PaineWebber, Inc. from February 1990 through
February 1996. He had capital commitment responsibility for
U.S. Treasuries, federal agency securities, futures, options,
derivative products, currencies, currency options, forwards,
mortgage backed securities and related derivatives, and fixed
income derivatives. His management responsibilities included
taxable fixed income trading, strategic planning, balance
sheet allocation, financing, economic and quantitative
research. At the time of his departure he held the title of
Managing Director and Global Risk Manager, supervising over
500 professionals globally. He also served on the
Asset/Liability Committee and the Firm's Operating Committee.
From 1984 to 1990, Mr. Garavente was employed by Merrill Lynch
& Co., Inc. where he held the title of Managing Director. At
the time of his departure, he was responsible for U.S.
government bond trading, financing, yield curve arbitrage and
proprietary trading. Mr. Garavente graduated from Cornell
University in 1977 with a B.S. degree in business.
Troy W. Buckner is a principal of HB & Co. and is
responsible for research activities at HB & Co. Prior to
joining HB & Co. in June 1995, Mr. Buckner was a principal at
Classic Capital, Inc., an international investment management
firm, where he designed systematic trading programs from
January 1994 to June 1995. From December 1989 to January
1994, Mr. Buckner was self employed as an independent trader
while developing an advanced architecture useful in the
modeling of financial and commodity market prices. From March
1989 to December 1989, Mr. Buckner traded energy futures
contracts for George E. Warren Corp., an energy trading firm.
From June 1986 to March 1989, Mr. Buckner was employed by
Salomon Brothers Inc., a securities brokerage and investment
firm, where he specialized in the sale of stock market
portfolios as well as futures and option strategies. Mr.
Buckner
36
<PAGE>
graduated from the University of Delaware with a B.S.
in Finance in 1984 and earned an M.B.A. from the University of
Chicago in 1986.
David B. Fuller is a principal of HB & Co. Mr. Fuller is
responsible for accounting and administration. Prior to
joining HB & Co. in March 1994, Mr. Fuller was employed by
Link Strategic Investors, Inc., an international investment
management firm ("Link"), where, at the time of his departure,
he held the position of Senior Financial Officer. Prior to
joining Link in January 1993, Mr. Fuller was the Senior
Financial Officer for Bearbull Investment Products (U.S.A.),
an international investment management firm. From January
1989 to July 1991, Mr. Fuller was Controller of Rayner &
Stonington, L.P., a registered CTA, where he was responsible
for accounting and financial reporting. From October 1984 to
December 1988 Mr. Fuller was Controller and Assistant
Treasurer of Gill and Duffus Inc., members of the Coffee,
Sugar & Cocoa Exchange, Inc. Mr. Fuller began his career in
1978 in public accounting and is a member of the American
Institute of Certified Public Accountants, and the New York
Society of Certified Public Accountants. Mr. Fuller graduated
from Lehigh University in May 1978 with a B.S. degree in
Accounting.
Richard A. DeFalco is a principal of HB & Co. Mr. DeFalco
is responsible for marketing, client services and support for
the firm. Prior to joining HB & Co. in April 1997, Mr.
DeFalco was employed by PaineWebber, Inc. from May 1989
through March 1997 where, at the time of his departure, he
held the position of National Marketing Manager. Mr.
DeFalco's responsibilities included the marketing of managed
futures and hedge fund products in addition to being a member
of PaineWebber's Managed Futures Product selection committee.
Mr. DeFalco was also an advisory officer to PaineWebber
Futures Management Corporation, a registered CPO. Mr. DeFalco
began his career at PaineWebber in the Futures Credit
Department.
John J. McCormick is a principal of HB & Co. and is
directly responsible for the implementation of trading
decisions for all HB & Co.'s futures interest portfolios.
Prior to joining HB & Co., Mr. McCormick was employed by Dean
Witter from December 1986 through February 1991 where, at the
time of his departure, he held the position of Assistant Vice
President and Internal Accounts Manager. Mr. McCormick is
also responsible for generating most of the research reports
used by Messrs. Hyman and Beck in determining their trading
decisions. Mr. McCormick graduated from Fordham University in
1986 with a B.S. degree in Accounting and earned an M.B.A.
degree in Finance from Fordham University in May 1993.
John S. Ryan is a principal of HB & Co. and is responsible
for systems management and program design at HB & Co. Prior to
joining HB & Co. in March 1993, Mr. Ryan was employed by
International Business Machines Corporation from February 1988
to March 1993, where he held various positions and, most
recently, was responsible for Corporate Networks Design and
Implementation in the New York metropolitan area. Mr. Ryan
graduated from Baruch College in May 1991 with a B.B.A. degree
in Computer Information Systems.
HB & CO.'S TRADING SYSTEM
HB & Co.'s trading pursuant to technical trend-following
analysis emphasizes mathematical and charting approaches, and
its profitability depends on the occurrence in the future, as
in the past, of major price trends in some markets. HB &
Co.'s technical, trend-following trading approach will seldom
direct market entry or exit at the most favorable price in the
particular market trend. Rather, this trading style seeks to
close out losing positions quickly and to hold profitable
positions, or portions thereof, for as long as the trading
systems determine that the particular market trend continues
to exist. There can be no assurance, however, that profitable
positions can be liquidated at the most favorable price in a
particular trend. As a result, the number of losing
transactions can be expected to exceed the number of
profitable transactions. However, if the systems are
successful, these losses should be more than offset by a few
large gains.
HB & Co. employs risk management techniques which have
been developed by Messrs. Beck and Hyman with the objectives
of limiting losses, controlling market exposure and capturing
profits. HB & Co.'s trading approach also includes a "neutral
mode" which may indicate that no position is appropriate in a
particular contract or contract group in an attempt to
preserve capital in trendless markets. Position size is a
dynamic function of the volatility and price trend of each
market and may vary significantly from one trade to the next
within each market.
HB & Co. also employs a technical, systematic program that
combines money management principles with non-linear modeling
techniques. This technical approach to the markets does not
depend on the occurrence of major price trends in order to be
profitable. Rather, trades are made under various market
conditions and are typically of short duration, averaging six
days in length enabling HB & Co. to trade correlated markets
differently. HB & Co. believes that the non-linear models
should excel at pattern recognition and the detection of
conditional relationships between and among different data
inputs.
37
<PAGE>
The process of generating trades begins with the selection
of a price target, with respect to given market conditions,
that reflects the likelihood that short-term reward will be
substantially in excess of risk. An assortment of time
series' variables are calculated as input to be used in the
modeling process. With each variable an attempt is made to
depict a different facet of a given market's historical price
movement. HB & Co. believes that because the timing of trades
is significantly random, diversification and expected returns
may be enhanced by adding viable markets to the portfolio's
mix. Positions may be initiated in either trending or choppy
markets when the models indicate a high probability of
substantial reward relative to anticipated risk. Although
positions are established at frequent intervals, there is no
position approximately 60% of the time in any given market.
The trading philosophy assumes that there are many significant
short-term moves, but that relatively few of them offer the
desired risk/reward ratio.
HB & Co. may, from time to time, change or refine the
trading systems employed to manage its accounts as a result of
ongoing research and development. Limited Owners generally
will not be informed of these changes as they may occur. The
principals of HB & Co. review and maintain discretion over all
computer generated trading parameters.
Although technical trading systems normally consist of a
series of fixed rules applied manually or by computer, such
systems still require certain subjective judgments and
decisions. For example, Messrs. Beck and Hyman will select
the contracts and markets which will be followed, the
contracts and markets which will be actively traded and the
contract months in which positions will be maintained.
Messrs. Beck and Hyman will also determine when to roll over
a position (i.e., liquidate a position which is about to
expire and initiate a new position in a more distant contract
month). These types of decisions require consideration of,
among other things, the volatility of a particular market, the
pattern of price movements (both interday and intraday), open
interest, trading volume, changes in spread relationships
between various contract months and between various contracts
and overall portfolio balance and risk exposure. With respect
to the timing and execution of trades, Messrs. Beck and Hyman
may also rely to some extent on the judgment of others, such
as floor brokers. No assurance can be made that consideration
will be given to any or all of the foregoing factors by Mr.
Beck and Mr. Hyman with respect to every trade for Series C or
that consideration of any of such factors in a particular
situation will lessen Series C's risk of loss.
Along with the subjective decision making authority
reserved for Messrs. Beck and Hyman, HB & Co. also maintains
certain risk management procedures for determining the
appropriate quantity of contracts to be traded for Series C.
HB & Co. may continually adjust the position size of an order
immediately prior to placement, and/or after the initial
position is established, based on such factors as past market
volatility, prices of commodities, amount of risk, potential
return and margin requirements. The decision not to trade a
certain futures interest at certain times or to reduce the
number of contracts traded in a particular futures interest
may result in missing significant profit opportunities that
otherwise might have been captured if HB & Co. depended solely
on the computer-based aspects of its trading strategy or on
different trading strategies altogether.
HB & Co. may, at its discretion, adjust leverage in
certain markets or the entire portfolio. Adjustments to
certain positions or the entire portfolio for leverage may
positively or negatively affect performance. Consistent with
HB & Co.'s risk management procedures, it is anticipated that
Asset Allocation Portfolio accounts, due to their greater
markets and strategy diversification, will be more
aggressively leveraged (committing a larger percentage of
account assets to margin) from time to time than will accounts
participating in the individual HB & Co. portfolios. Factors
that may affect the decision to adjust leverage include
research, portfolio diversification, current market
volatility, risk exposure, subjective judgment, and evaluation
of other general market conditions. No assurance is given to
Limited Owners that such leverage adjustments will be to their
financial benefit, and such leverage adjustments may actually
result in lost opportunities or substantial losses.
The Asset Allocation Portfolio
The Asset Allocation Portfolio commenced trading in April
1992 and originally evolved from the intent of the principals
of HB & Co. to optimize participation in its Global, FX, and
Diversified Portfolios. Beginning November 1996, HB & Co.'s
Short-Term Original Portfolio was added to the Asset
Allocation Portfolio. Each of these portfolios is described
below. The strategy employed by the principals is to allocate
assets actively among these four individual portfolios in
order to exploit opportunities in different risk/reward
characteristics and performance cycles of the individual
portfolios. HB & Co. believes, based on its research to date,
that the performance of the Short-Term Original Portfolio may
exhibit a substantial degree of non-correlation with the long-
term, trend-following strategies utilized in the trading of
the Asset Allocation Portfolio. Such non-correlation may
result in additional opportunities for profit from shorter-
term market movements, additional diversification in HB &
Co.'s trading strategies, and reduced volatility in the Asset
Allocation Portfolio's performance over time. The Asset
Allocation Portfolio may engage, in varying degrees, the
Global, FX, Diversified, and Short-Term Portfolios or some
subset thereof. Client accounts participating in the Asset
Allocation Portfolio may from time to time be
38
<PAGE>
more aggressively leveraged, i.e., HB & Co. may commit a higher
percentage of such accounts' assets to margin than is
committed for accounts participating in any of the individual
HB & Co. portfolios. Allocation and leverage decisions are
made by the principals of HB & Co. with the aid of certain
research studies, and combined experience, in an effort to
minimize risk and maximize profit opportunities.
The Asset Allocation Portfolio represents accounts trading
a combination of each of the Global, FX, Diversified, and/or
Short-Term Portfolios; therefore, the assets and Rates of
Return set forth in the summary performance information and
chart are also reflected in the assets and Rates of Return set
forth in the individual Global, FX, Diversified, and Short-
Term Portfolio summaries. The first account traded pursuant
to the Asset Allocation Portfolio was established in April
1992 with all of its assets allocated to HB&Co.'s Diversified
Portfolio; in August 1992 the assets of such account were
reallocated to the Global and Diversified Portfolios; and in
January 1993 the assets of such account were allocated among
the Global, FX and Diversified Portfolios. From January 1993
through November 1996, all asset allocation portfolio accounts
have at all times included allocations among the Global, FX
and Diversified Portfolios. The Short-Term Portfolio was
added to the Asset Allocation Portfolio in November 1996.
RISKS RELATED TO HB & CO.'s ASSET ALLOCATION PROGRAM
The Trading Approach for Series C Has Not Previously Been
Used.
HB & Co. will utilize a new trading approach for which
there is no past performance record.
The Use of Multiple Strategies for Series C Interests May
Affect Series C Profits or Losses.
HB & Co.'s Asset Allocation Portfolio to be utilized for
Series C Interests will combine HB & Co.'s long-term
technical, trend-following strategies with its technical,
non-linear strategy. While the use of multiple
strategies within the Asset Allocation Portfolio is
anticipated to add diversification to HB & Co.'s overall
trading approach on behalf of the Series C Interests, the
use of multiple strategies may also result in the taking
of opposite positions from time to time in respect of
certain futures interest contracts, reducing or
eliminating profitable positions.
The Global Portfolio
The Global Portfolio trades over 30 futures and forward
markets worldwide with a concentration in world interest rate
and other financial markets. The Global Portfolio
participates in many of the internationally traded futures and
forward markets not necessarily represented in the Diversified
and FX Portfolios. These markets may include, but are not
limited to, Australian, British, French, German, Italian,
Japanese and U.S. fixed income instruments, precious and base
metals, foreign currencies, foreign and domestic stock
indices, and other internationally traded commodity markets.
The FX Portfolio
The FX Portfolio participates in the world currency
markets. The interbank dealer forward market offers the
opportunity to trade currencies for which there are no futures
markets. The FX Portfolio may participate in up to 40 foreign
currency crossrates (trading foreign currencies versus other
foreign currencies) and outrights (trading foreign currencies
versus the U.S. dollar). The currencies traded may include,
but are not limited to, markets such as the Australian dollar,
Austrian schilling, Belgian franc, British pound, Canadian
dollar, Dutch guilder, Danish krone, German mark, French
franc, Italian lira, Japanese yen, Malaysian ringgit, New
Zealand dollar, Norwegian krone, Singapore dollar, Spanish
peseta, Swedish krona, Swiss franc, and the U.S. dollar.
The Diversified Portfolio
The Diversified Portfolio offers access to markets not
typically represented in a traditional investment portfolio.
The Diversified Portfolio trades a portfolio of over 40
diverse futures, forward and cash markets and offers
diversification into select financial instruments, currencies,
and tangible commodities such as agricultural items, energy
products, precious and base metals, and other internationally
traded commodity markets.
The Short-Term Original Portfolio
The Short-Term Original Portfolio is a systematic program
that combines money management principles with non-linear
modeling techniques. Unlike other HB & Co. strategies, this
portfolio may buy or sell volatility depending on near-term
market conditions. It is common, for example, for this
portfolio to be long soybeans and
39
<PAGE>
short soybean meal or to be long heating oil and
short crude oil. The Short-Term Original
Portfolio currently trades 44 markets, including but not
limited to foreign and domestic stock indices, foreign
currencies, energy products, precious and base metals,
agricultural items, and foreign and domestic fixed income
instruments, with positions in an average of 20 futures and
forward markets at any point in time.
The Short-Term Select Portfolio
The Short-Term Select Portfolio utilizes the same
technical, non-linear approach currently employed in trading
the Short-Term Original Portfolio, but will concentrate its
trading in fewer markets. More specifically, the Short-Term
Select Portfolio trades futures and forward contracts in
approximately 30 of the most liquid markets, including but not
limited to foreign and domestic stock indices, foreign
currencies, foreign and domestic fixed income instruments,
precious and base metals and energy products. HB & Co.
expects, based on its research, that the risk/reward
characteristics of the Short-Term Select Portfolio will not be
materially different from those of its Short-Term Original
Portfolio.
HB & Co. Contracts and Markets
F=FX Portfolio; G=Global Portfolio; S=Short Term Portfolio;
D=Diversified Portfolio
Financial
Treasury bonds (G,S,D) CBT
Treasury notes (G,S,D) CBT
Treasury bills (D) CME
Eurodollars (G,S,D) CME
Municipal bonds (G,D) CBT
Canadian bonds (G) ME
Long gilts (G,S) LIFFE
Short sterling (G,S) LIFFE
German bunds (G,S) LIFFE
Euromark (G,S) LIFFE
French bonds (G,S) MATIF
PIBOR (G) MATIF
Italian bonds (G,S) LIFFE
Spanish bonds (G) MEFF
Japanese bonds (G,S) TSE & SIMEX
Euroyen (G,S) SIMEX
Australian bonds (G,S) SFE
Stock Indices
NYFE
NYSE Composite (G,D) CME
S&P 500 (G,S,D) LIFFE
FTSE (G,S) MATIF
CAC-40 (G,S) DTR
DAX (G,S) SIMEX
Nikkei (G,S) SFE
Australia All Ordinates (S) HKFE
Hang Seng Index (S)
Metals
Gold (G,S,D) COMEX
Silver (G,S,D) COMEX
Platinum (G,D) NYMEX
Copper (S,D) COMEX
London Aluminum (G,S) LME
London Copper (G,S) LME
London Zinc (S) LME
Agricultural
Corn (S,D) CBT
Oats (D) CBT
Soybeans (S,D) CBT
Soybean meal (S,D) CBT
Soybean oil (S,D) CBT
Wheat (S,D) CBT
FX (Interbank/IMM)
U.S. dollar (F,G)
Canadian dollar (F,S,D)
British pound (F,G,S,D)
German mark (F,G,S,D)
Swiss franc (F,S,D)
French franc (F,G,D)
Italian lira (F,G)
Belgian franc (F)
Spanish peseta (F)
Dutch guilder (F)
Swedish krona (F)
Japanese yen (F,G,S,D)
Malaysian ringgit (F)
Singapore dollar (F)
Australian dollar (F,G)
New Zealand dollar (G,D)
Select crosses involving
the above (F,G)
Energy
Crude oil (S,D) NYMEX
Heating oil (S,D) NYMEX
Unleaded gasoline (S,D) NYMEX
Natural gas (S,D) NYMEX
Gasoil (D) IPE
40
<PAGE>
Livestock
Live cattle (S,D) CME
Live hogs (D) CME
Feeder cattle (D) CME
Pork bellies (D) CME
Softs
Coffee (G,S,D) CSC
Sugar (G,S,D) CSC
Cocoa (G,S,D) CSC
Cotton (G,S,D) NYC
London Cocoa (G,D) LCE
Volume of Trading for HB & Co. Contracts and Markets
Set forth below for calendar year 1997 is a bar graph
showing, on a weighted average basis, the volume of trades
effected by HB & Co. in the foregoing commodities using the
trading strategy to be used for Series C. This weighting will
change as market conditions change, and there is every
likelihood that these weightings will be different for Series
C during future periods.
Financials 23.75% Agricultural 6.70%
Stock 10.10% FX (Interbank) 31.40%
Metals 13.00% Energy 4.70%
Livestock 1.30% Softs 9.05%
HB & CO.'S PAST PERFORMANCE
The foregoing capsule summaries were supplied by HB & Co.
The Managing Owner is relying on HB & Co. for the accuracy of
the information supplied in these capsules. The information
in Capsules C(1) through C(6) has not been audited. However,
the Trading Advisor represents and warrants that these
capsules are complete and accurate in all material respects.
Asset Allocation Portfolio
The following summary performance information and Capsule
C(1) reflect the composite performance results of the Asset
Allocation Portfolio directed by HB & Co. from April 1992
through September 1997 for 8 accounts ranging in size from
U.S. $630,000 to U.S. $17 million. Five open accounts were
profitable and no open accounts were unprofitable as of
September 30, 1997. Past performance is not necessarily
indicative of future results.
The Asset Allocation Portfolio represents, through
September 30, 1996, accounts trading a combination of each of
the Global, FX and/or Diversified Portfolios; therefore, the
assets and Rates of Return set forth in the summary
performance information and chart are also reflected in the
assets and Rates of Return set forth in the individual Global,
FX and Diversified Portfolio summaries and charts. The Short-
Term Original Portfolio was added to the Asset Allocation
Portfolio in November 1996. The Trust's account in respect of
the Series C Interests will be an Asset Allocation Portfolio
account traded at one and one-half times leverage and
utilizing HB & Co.'s Short-Term Select Portfolio (rather than
its Short-Term Original Portfolio). Accordingly, prospective investors
41
<PAGE>
should understand that the trading approach to be
used in respect of the Series C Interests constitutes a new HB
& Co. trading approach, and that this trading approach does
not have a past performance record. Furthermore, the proceeds
from additional subscriptions for Series C Interests will be
allocated among the portfolios comprising the Trust's Asset
Allocation Portfolio in the discretion of HB & Co. and other
than on a pro rata basis. In the event that the Short-Term
Select Portfolio is closed to new investment in the future,
the proceeds of additional subscriptions may be allocated to
HB & Co.'s trend-following portfolios only (the Global, FX and
Diversified Portfolios).
As of September 30, 1997
Name of CTA: HB & Co.
Program: Asset Allocation Portfolio
Start Date: March 1991 (All trading by HB & Co.)
April 1992 (Asset Allocation Program)
No. of Accounts open: 5
Aggregate $$:
All programs: $235,249,934 (All Programs excluding Notional)
$264,557,513 (All Programs including Notional)
$$ in this Program: $14,039,305 (Asset Allocation Portfolio
excluding Notional)
$27,980,143 (Asset Allocation Portfolio
including Notional)
Largest monthly
draw-down: (9.38)% February 1996
See Footnotes to HB & Co.'s
Performance Information at page 48
Worst peak-to-
valley draw-down: (18.30)% August 1993 to January 1995
See Footnotes to HB & Co.'s
Performance Information at page 48
Closed Accounts: Profitable = 1
Unprofitable = 2
CAPSULE C(1) - ASSET ALLOCATION PORTFOLIO MONTHLY/ANNUAL RATES OF RETURN
MONTH 1997 1996 1995 1994 1993 1992
Jan 7.39% 2.09% (9.02)% (0.59)% (3.76)% -
Feb 5.11 (9.22) 12.51 (5.96) 7.50 -
Mar 1.48 0.74 26.39 8.30 0.66 -
Apr (0.60) 6.04 3.79 (5.05) 3.11 1.49%
May 0.81 (2.62) 1.19 2.69 2.89 0.88
Jun 1.52 0.97 0.40 3.38 (1.12) 12.42
Jul 4.70 (0.51) (2.60) (4.03) 7.72 12.36
Aug (1.64) (4.53) 0.42 (2.97) (1.30) 3.69
Sep 2.11 0.35 (2.07) (0.02) 0.52 (2.37)
Oct 11.94 (0.63) 5.52 (2.64) 1.81
Nov 4.64 (0.62) (1.42) (0.55) 3.57
Dec (6.45) 3.34 (0.13) 4.90 (1.44)
ANNUAL 22.54% 1.67% 33.35% (1.29)% 18.58% 36.07%
(9 Months) (9 months)
SERIES C ASSETS WILL NOT BE TRADED PURSUANT TO THE FOREGOING
PROGRAM. THE ASSET ALLOCATION PORTFOLIO EMPLOYED ON BEHALF
OF THE SERIES C ASSETS WILL BE TRADED AT A HIGHER LEVEL OF
LEVERAGE (1.5 TIMES).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS<PAGE>
42
<PAGE>
Global Portfolio
As of September 30, 1997
Name of CTA: HB & Co.
Program: Global Portfolio
Start Date: March 1991 (All trading by HB & Co.)
April 1991 (Global Portfolio)
No. Accounts: 18
Aggregate $$: $235,249,934 (All Programs excluding Notional)
All Programs: $264,557,513 (All Programs including Notional)
$$ in this Program: $187,770,440 (Global Program excluding Notional)
$196,043,797 (Global Program including Notional)
Largest monthly draw-down: (12.77)% December 1996
See Footnotes to HB & Co.'s
Performance Information at page 48
Worst peak-to-valley (13.90)% July 1994 to February 1995
draw-down: See Footnotes to HB & Co.'s
Performance Information at page 48
Closed Accounts: Profitable = 26
Unprofitable = 17
CAPSULE C(2) - GLOBAL PORTFOLIO ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993 1992
ANNUAL 20.36% 10.82% 29.12% 3.81% 14.63% 22.56%
(9 months)
SERIES C ASSETS WILL NOT INITIALLY BE TRADED PURSUANT
TO THE FOREGOING PROGRAM.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
43
<PAGE>
<PAGE>
FX Portfolio
September 30, 1997
Name of CTA: HB & Co.
Program: FX Portfolio
Start Date: March 1991 (All trading by HB & Co.)
March 1991 (FX Portfolio)
No. of Accounts: 7
Aggregate $$:
All Programs: $235,249,934 (All Programs
excluding Notional)
$264,557,513 (All Programs
including Notional)
$$ in this Program: $19,463,355 (FX Portfolio
excluding Notional)
$21,088,167 (FX Portfolio
including Notional)
Largest monthly draw-down: (18.72)% November 1994
See Footnotes to HB & Co.'s
Performance Information at page 48
Worst peak-to-valley draw-down:
(52.49)% August 1993 - January 1995
See Footnotes to HB & Co.'s
Performance Information at page 48
Closed Accounts: Profitable = 6
Unprofitable = 31
CAPSULE C(3) FX PORTFOLIO ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993 1992
ANNUAL 26.01% 6.65% 40.58% (20.63)% 0.86% 34.69%
(9 months)
SERIES C ASSETS WILL NOT INITIALLY BE TRADED PURSUANT TO
THE FOREGOING PROGRAM
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
44
<PAGE>
<PAGE>
Diversified Portfolio
As of September 30, 1997
Name of CTA: HB & Co.
Program: Diversified Portfolio
Start Date: March 1991 (All trading by HB & Co.)
March 1991 (Diversified Portfolio)
No. of Accounts: 5
Aggregate $$:
All Programs: $235,249,934 (All Programs
excluding Notional)
$264,557,513 (All Programs
including Notional)
$$ in this Program: $2,837,014 (Diversified
Portfolio excluding Notional)
$5,798,700 (Diversified
Portfolio including Notional)
Largest monthly draw-down: (15.90)% February 1994
See Footnotes to HB & Co.'s
Performance Information at page
48
Worst peak-to-valley draw-down:
(30.42)% August 1993 - December 1995
See Footnotes to HB & Co.'s
Performance Information at page 48
Closed Accounts: Profitable = 17
Unprofitable = 25
CAPSULE C(4) - DIVERSIFIED PORTFOLIO ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993 1992
ANNUAL 2.08% (8.33)% (4.14)% (7.07)% 13.96% 20.12%
(9 months)
SERIES C ASSETS WILL NOT INITIALLY BE TRADED PURSUANT TO
THE FOREGOING PROGRAM.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
45
<PAGE>
<PAGE>
Short-Term Select Portfolio
As of September 30, 1997
Name of CTA: HB & Co.
Program: Short-Term Select Portfolio
Start Date: March 1991 (All trading by HB & Co.)
September 1997 (Short-Term
Select Portfolio)
No. Accounts: 1
Aggregate $$:
All Programs: $235,249,934 (All Programs
excluding Notional)
$264,557,513 (All Programs
including Notional)
$$ in this Program: $1,042,004 (Short-Term Select
excluding Notional)
$1,042,004 (Short-Term Select
including Notional)
Largest monthly draw-down: N/A
See Footnotes to HB & Co.'s
Performance Information at page 48
Worst peak-to-valley draw-down:
N/A
See Footnotes to HB & Co.'s
Performance Information at page 48
Closed Accounts: Profitable = 0
Unprofitable = 0
CAPSULE C(5) - SHORT-TERM SELECT PORTFOLIO ANNUAL RATES OF RETURN
1997
ANNUAL 4.20%
(1 month)
SERIES C ASSETS WILL NOT INITIALLY BE TRADED PURSUANT TO
THE FOREGOING PROGRAM
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
46
<PAGE>
HB & Co.'s Supplemental Performance Information
Short-Term Original Portfolio
Capsule C(6) represents the customer accounts traded by HB
& Co. pursuant to a trading strategy that will not be utilized
by Series C.
As of September 30, 1997
Name of CTA: HB & Co.
Program: Short-Term Original Portfolio
Start Date: March 1991 (All trading by HB & Co.)
April 1991 (Short-Term Original
Portfolio)
No. Accounts: 14
Aggregate $$:
All Programs: $235,249,934 (All Programs
excluding Notional)
$264,557,513 (All Programs
including Notional)
$$ in this Program: $25,179,125 (Short-Term
Original excluding Notional)
$41,626,844 (Short-Term
Original including Notional)
Largest monthly draw-down: (8.83)% August 1996
See Footnotes to HB & Co.'s
Performance Information at page 48
Worst peak-to-valley draw-down:
(12.47)% November 1996 - December 1996
See Footnotes to HB & Co.'s
Performance Information at page 48
Closed Accounts: Profitable = 2
Unprofitable = 1
CAPSULE C(6) - SHORT-TERM ORIGINAL PORTFOLIO ANNUAL RATES OF RETURN
1997 1996
ANNUAL 39.64% 0.58%
(9 months) (9 months)
SERIES C ASSETS WILL NOT BE TRADED PURSUANT TO
THE FOREGOING PROGRAM
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
47
<PAGE>
FOOTNOTES TO HB & CO.'s
PERFORMANCE INFORMATION
The following notes apply to HB & Co. Capsules C(1) through
C(6).
"Notional" funds are the amount by which the nominal account
size exceeds the amount of actual funds. The amount of notional
funds in the certain accounts that comprise the summaries set
forth herein requires additional disclosure under current CFTC
policy. Performance summaries reflect the adoption of a method
of presenting rate-of-return and performance disclosure
authorized by the CFTC, referred to as the Fully-Funded Subset
method.
"Aggregate $$: All programs excluding Notional" is the
aggregate amount of actual assets under the management of HB &
Co. in all programs as of the end of the period covered by the
capsule. This number excludes "Notional" funds. Aggregate
assets in all programs is estimated through September 30, 1997.
"Aggregate $$: All programs including Notional" is the
aggregate amount of total assets under the management of HB & Co.
in all programs as of the end of the period covered by the
capsule. This number includes "Notional" funds. Aggregate
assets in all programs is estimated through September 30, 1997.
"Aggregate $$: in this program excluding Notional" is the
aggregate amount of actual assets under the management of HB &
Co. in the program shown as of the end of the period covered by
the capsule. This number excludes "Notional" funds. Aggregate
assets in the program is estimated through September 30, 1997.
"Aggregate $$: in this program including Notional" is the
aggregate amount of total assets under the management of HB & Co.
in the program shown as of the end of the period covered by the
capsule. This number includes "Notional" funds. Aggregate
assets in all programs is estimated through September 30, 1997.
"Draw-down" means losses experienced by the composite record
over a specified period. Individual accounts may experience
larger draw-downs than are reflected in the composite record of
a particular trading portfolio. Where an individual account has
experienced a draw-down that is greater than has been experienced
on a composite basis, the largest draw-down experienced by such
individual account is presented. Draw-downs are measured on the
basis of month-end net asset values only.
"Largest monthly draw-down" means the greatest decline in
month-end net asset value due to losses sustained by a trading
portfolio on a composite basis or an individual account for any
particular month. For any portfolio trading for more than five
years, "Largest monthly draw-down" reflects the draw-down for the
current period and five full years and the draw-down for the
period from inception to date indicated.
"Worst peak-to-valley draw-down" means the greatest
cumulative percentage decline in month-end net asset value due
to losses sustained by a trading portfolio on a composite basis
or an individual account during any period in which the initial
month-end net asset value is not equaled or exceeded by a
subsequent month-end asset value. For any portfolio trading for
more than five years, "Worst peak-to-valley draw-down" reflects
the draw-down for the current period and five full years and the
draw-down for the period from inception to date indicated.
"Monthly Rate of Return" is net performance for the month,
in general, divided by beginning net asset value for the month.
However, in months in which significant additions or withdrawals
occurred other than at month-end, monthly rate of return has been
determined based on beginning net asset value plus weighted
average additions and withdrawals during the month. Monthly rate
of return for the first month in some tables equal net
performance for the month divided by additions for the month.
Beginning January 1996, monthly rate of return is calculated by
dividing the net performance of the Fully-Funded Subset in each
month by the beginning equity of the Fully-Funded Subset in each
month, except in periods of significant additions or withdrawals
of equity to the accounts in the Fully-Funded Subset. In such
instances, the Fully-Funded Subset is adjusted to exclude
accounts with significant additions or withdrawals of equity
which would
48
<PAGE>
materially distort the monthly rate of return as
calculated pursuant to the Fully-Funded Subset method. Monthly
Rate of Return for September 30, 1997 is an estimate.
To qualify for the use of the Fully-Funded Subset method,
the CFTC's 1993 Fully-Funded Subset 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
are representative of the trading program. HB & Co. has
performed these computations for the period subsequent to January
1, 1996. For periods prior to January 1, 1996, due to cost
considerations, the Fully-Funded Subset method has not been used.
Nevertheless, HB & Co. believes that the Rates of Return
presented in the performance capsules are representative of the
programs' performance for the periods presented.
"Annual Rate of Return" is calculated by multiplying on a
compound basis each of the Monthly Rates of Return and not by
adding or averaging such Monthly Rates of Return. For periods
of less than one year the results are for the period stated.
"The Asset Allocation Portfolio" represents accounts trading
a combination of each of the Global, FX, Diversified, and/or
Short-Term Original Portfolios. The first account traded
pursuant to the Asset Allocation Portfolio was established in
April 1992 with all of its assets allocated to HB & Co.'s
Diversified Portfolio; in August 1992 the assets of such account
were reallocated to the Global and Diversified Portfolios; and
in January 1993 the assets of such account were allocated among
the Global, FX and Diversified Portfolios. From January 1993 to
November 1996, all asset allocation portfolio accounts have at
all times included allocations among the Global, FX and
Diversified Portfolios. The Short-Term Original Portfolio was
added to the Asset Allocation Portfolio in November 1996.
HB & Co. Asset Allocation Portfolio Proforma
Set forth in Capsule C(7) on page 51 is hypothetical
combined pro forma information that was prepared by the Managing
Owner using the actual trading results depicted in Capsule C(1).
Capsule C(7) reflects the performance of a hypothetical portfolio
whose assets are traded under a fee structure similar to the fee
structure of Series C. 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 Series C, the performance
information presented in this capsule should by no means be taken
as an indication of how Series C as a whole or how Series C
Limited Owners' individual investments will perform or would have
performed, over the same time period. Prospective investors are
referred to HB & Co's. actual performance at Capsules C(1)
through C(6) in this Prospectus. Prospective investors should
be aware in reviewing Capsule C(7) 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
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PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL
TRADING RESULTS.
Name of CTA: Hyman Beck & Company, Inc.
Program: Asset Allocation Portfolio
Start Date: March 1991 (All Trading for HB & Co.)
April 1992 (Asset Allocation Portfolio)
No. Accounts: 5
Aggregate $$:
All Programs: $245,890,683 (Proforma Total
Assets excluding Notional)
$274,498,202 (Proforma Total
Assets including Notional)
$$ in This Program: $13,017,857 (Asset Allocation
Portfolio excluding Notional)
$27,258,695 (Asset Allocation
Portfolio including Notional)
Proforma largest monthly
draw-down:
April 1992 to October 1997: (14.21)% January 1995
Year-to-Date: (3.35)% October 1997
"Largest monthly draw-down" means
greatest percentage decline in
net asset value due to losses
sustained by Asset Allocation
Portfolio from the beginning to
the end of a calendar month.
Proforma Worst peak-to-valley
draw-down:
April 1992 to October 1997: (22.84)% August 1993 to January 1995
Year-to-Date: (3.35)% October 1997
"Worst peak-to-valley draw-down"
means greatest cumulative
percentage decline in month-end
net asset value of the Asset
Allocation Portfolio due to
losses sustained during a period
in which the initial month-end
net asset value of the Asset
Allocation Portfolio is not
equaled or exceeded by a
subsequent month-end asset value
of the Asset Allocation
Portfolio.
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.
[THIS SPACE LEFT BLANK INTENTIONALLY]
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CAPSULE C(7) HB & CO. PROFORMA PERFORMANCE
Hyman Beck: Asset Allocation Portfolio Proforma (1.5 times
Leverage, 2/23%, 7.75% Brokerage, 100% Interest)
RATE OF RETURN
(Computed on a compounded monthly basis)
Month 1997 1996 1995 1994 1993 1992
Jan 11.80% 2.88% (14.21)% (1.41)% (6.04)% -
Feb 6.46 (14.12) 18.06 (9.46) 10.67 -
Mar 1.69 0.79 33.50 12.37 0.62 -
Apr (1.50) 9.33 4.17 (8.35) 3.76 1.90%
May 0.77 (3.97) 0.97 3.50 3.54 0.95
Jun 2.16 1.52 (0.02) 4.59 (1.87) 15.94
Jul 6.26 (0.68) (4.68) (6.63) 10.08 15.78
Aug (1.98) (6.82) (0.16) (5.09) (2.05) 4.50
Sep 3.07 0.49 (3.85) (0.64) 0.41 (3.31)
Oct (3.35)* 18.26 (1.77) 7.55 (4.53) 2.12
Nov 6.99 (1.12) (2.74) (1.37) 4.37
Dec (10.24) 4.77 (1.07) 7.10 (2.04)
ANNUAL 27.32% 0.24% 32.40% (9.32)% 20.43% 45.69%
(10 Months)
*Estimated Rate of Return
THE RATES OF RETURN SET FORTH IN THE PROFORMA PERFORMANCE
ABOVE DO NOT REPRESENT THE RATES OF RETURN ACHIEVED BY ANY
ASSET ALLOCATION PORTFOLIO ACCOUNT. THE ASSET ALLOCATION
PORTFOLIO APPROACH TO BE USED IN RESPECT OF THE SERIES C
ASSETS CONSTITUTES A NEW HB & CO. TRADING APPROACH TRADED AT
A HIGHER DEGREE OF LEVERAGE (1.5 TIMES) THAT DOES NOT HAVE A
PAST PERFORMANCE RECORD.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
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RISK FACTORS
The Trust is a new venture in a high-risk business. An
investment in the Interests of each Series is very
speculative. You should make an investment in one or more of
the Series only after consulting with independent, qualified
sources of investment and tax advice and only if your
financial condition will permit you to bear the risk of a
total loss of your investment. You should consider an
investment in the Interests only as a long-term investment.
Moreover, to evaluate the risks of this investment properly,
you must familiarize yourself with the relevant terms and
concepts relating to commodities trading and the regulation of
commodities trading, which are discussed below in this
Prospectus in the section captioned "Futures Markets."
RISKS RELATING TO PERFORMANCE
Past Performance is Not Necessarily Indicative of Future
Performance.
The Trust selected each Trading Advisor to manage the
assets of each Series because each Trading Advisor performed
well through the date of its selection. You must consider,
however, the uncertain significance of past performance, and
you should not rely to a substantial degree on the Trading
Advisors' or the Managing Owner's records to date for
predictive purposes. You should not assume that any Trading
Advisor's future trading decisions will create profit, avoid
substantial losses or result in performance for the Series
comparable to that Trading Advisor's or to the Managing
Owner's past performance. In fact, as a significant amount of
academic study has shown, futures funds more frequently than
not underperform the past performance records included in
their prospectuses.
Because you and other investors will acquire, exchange and
redeem Interests at different times, you may experience a loss
on your Interests even though the Series in which you have
invested as a whole is profitable, and even though other
investors in that Series experience a profit. The past
performance of any Series may not be representative of each
investor's investment experience in it.
Likewise, you and other investors will invest in different
Series managed by different Trading Advisors. Each Series'
assets are
- segregated from the other Series' assets
- traded separately from every other Series and
- valued and accounted for separately from every other Series.
Consequently, the past performance of one Series has no
bearing on the past performance of another Series. You
cannot, for example, consider Series A past performance in
deciding whether to invest in Series B or Series C.
Furthermore, the Trading Advisor for Series C will utilize a
new trading approach for which there is no past performance
record. See "Risks Related to HB & Co.'s Asset Allocation
Program" at page 39.
There Is No "Principal Protection" Feature.
You are not assured of any minimum return. You could lose
your entire investment (including any undistributed profits),
in addition to losing the use of your subscription funds for
the period you maintain an investment in any Series. See
"Trust Agreement - Liabilities" for a more complete
explanation.
Performance Is Not Correlated To the Debt Or Equity Markets.
We anticipate that over time each Series' performance will
be "non-correlated" with the general equity and debt markets
- - that each Series' performance might or might not be similar
to the performance of the general financial markets. Non-
correlation means, for example, that the Net Asset Value of a
Series may rise while stock indices rise or while stock
indices fall. Non-correlation is not, however, negative
correlation. Negative correlation would mean that there is an
inverse relationship between a Series' performance and the
performance of the general
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<PAGE>
financial markets (for example, that the Net Asset
Value of a Series will rise when stock
indices fall or will fall when stock indices rise). Because
of non-correlation, during certain periods a given Series may
perform in a manner very similar to more traditional portfolio
holdings, providing few, if any, diversification benefits.
The Series Have No Operating Histories.
The Series have not commenced trading and have no
performance histories.
TRADING RISKS
Futures, Forward and Options Trading Is Volatile.
A principal risk in futures, forward and options trading
is volatile performance. Because the trading decisions for
each of the Trust's Series will be made by a single Trading
Advisor, the trading for each Series is similar to a single-
advisor fund where one trading advisor makes all the trading
decisions. In single-advisor funds, volatility may increase
as compared to a fund with several trading advisors who,
collectively, can diversify risk to a greater extent (assuming
those advisors are non-correlated with each other). See
"Series A," "Series B" and "Series C" and "The Futures
Markets."
Options Trading Can Be More Volatile and Expensive Than
Futures Trading.
Each Trading Advisor trades 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. If market volatility is incorrectly predicted,
the use of options can be extremely expensive.
Futures, Forward and Options Trading Is Highly Leveraged.
The low margin normally required in futures, forward and
options trading provides a large amount of leverage; i.e.,
contracts can have a value substantially greater than their
margin and 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 "The Futures Markets - Exchanges; Position and
Daily Limits; Margin" and "Trust Agreement - Liabilities."
Futures, Forward and Options Trading May Be Illiquid.
Although each Series generally will purchase and sell
actively traded contracts (see "Trading Limitations and
Policies"), we cannot assure you that orders will be executed
at or near the desired price, particularly in thinly traded
markets, in markets that lack trading liquidity, or because of
applicable "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.
Eagle, Eclipse Capital and HB & Co., like many other
trading advisors, use primarily technical trading systems for
many of their trading decisions. See "Series A," "Series B"
and "Series C." For any technical trading system to be
profitable, there must be price moves or trends in some
commodities of the kind that the system seeks to follow and
that are significant enough to dictate entry or exit
decisions. Trendless markets have occurred in the past,
however, and are likely to recur. In addition, 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 lessens the prospect of sustained price
moves in the future may reduce the likelihood that any
commodity trading advisor's technical systems will be
profitable. A number of markets traded by the Series, in
particular the currency and interest-rate markets, are likely
targets for governmental intervention.
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<PAGE>
The Large Number of Existing Technical Traders Could Adversely
Affect Each Series.
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 trading
volume in the particular markets included in each Series'
portfolio could result in traders' attempting to initiate or
liquidate substantial positions at or about the same time as
a Series' Trading Advisor, or otherwise altering historical
trading patterns or affecting the execution of trades, all to
the significant detriment of a Series.
Discretionary Decision-Making May Result in Missed
Opportunities or Losses.
Each of the Trading Advisors' strategies involve some
discretionary aspects in addition to their technical factors.
For example, the Trading Advisors often use discretion in
selecting contracts and markets to be followed. Discretionary
decision making may result in a Trading Advisor's failing to
capitalize on certain price trends or making unprofitable
trades in a situation where another trader relying solely on
a systematic approach might not have done so. See "Series A,"
"Series B" and "Series C."
Trading on Exchanges Outside the United States May Be Riskier
Than Trading on U.S. Exchanges.
All Series will trade on non-U.S. exchanges as a component
of their trading programs. Foreign exchanges, whether or not
linked to a U.S. exchange, are not regulated by the CFTC or by
any other United States governmental agency or
instrumentality; and, therefore, trading on these exchanges
may involve more risks than similar trading on U.S. exchanges.
See the CFTC Risk Disclosure Statement.
The Unregulated Nature of the Forward Markets Creates Counter-
Party Risks That Do Not Exist on U.S. Futures Exchanges.
Forward contracting, for example, foreign currency trading
in the interbank foreign exchange markets, is not regulated by
the CFTC or by any other U.S. government agency; and forward
contracts are not guaranteed by an exchange or its clearing
house. If a Series were to take a position as a principal
with a counterparty that fails, a default would most likely
result, depriving that Series of any profit potential, or
forcing the Series to cover its commitments for resale, if
any, at the then current market price.
Because each Series executes its forward trading
exclusively with Prudential Securities (and its affiliates,
PBGM), as principal, liquidity problems might be greater in a
Series' forward trading than they would be if trades were
placed with and through a larger number of forward market
participants. If governmental authorities impose exchange and
credit controls or fix currency exchange rates, trading in
certain currencies might be eliminated or substantially
reduced, and the Series' forward trading might be limited to
less than desired levels. The imposition of credit controls
also might require that Prudential Securities or PBGM 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 each Series may claim for tax purposes because
of 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 "Federal Income Tax
Consequences."
Each Series' Start-up Period Entails Increased Investment
Risks.
Each Series will encounter a start-up period following the
close of its Initial Offering Period, and may encounter
similar start-up periods following subsequent closings during
the Continuous Offering Period. During such start-up periods,
each Series will incur certain risks relating to the initial
investment of the assets received at such times, because no
Series can develop a fully diversified portfolio instantly
upon the commencement of trading. A decline in the initial Net
Asset Value of a Series could result from the level of
diversification in that Series' trading activities at the
outset, which may be lower than in a fully committed
portfolio.
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RISKS RELATED TO THE TRADING ADVISORS
Each Series Relies on Its Trading Advisor for Success.
The Trading Advisor for each Series will make the
commodity trading decisions for that Series. Therefore, the
success of each Series and the Trust as a whole largely
depends on the judgment and ability of the Trading Advisors.
We cannot assure you that a Trading Advisor's trading for any
Series will prove successful under all or any market
conditions.
We Cannot Assure You That the Trading Advisors or Their
Trading Strategies Will Continually Serve The Series.
We cannot assure you that (i) any Trading Advisor, the
Managing Owner or the Trust, will not exercise their rights to
terminate the Advisory Agreement for any Series under certain
conditions, (ii) the Advisory Agreement with any Trading
Advisor, once it expires, will be renewed on the same terms as
the current Advisory Agreement for that Trading Advisor, or
(iii) if any Series retains a new trading advisor, that the
new advisor will be retained on terms as favorable to the
Series as those negotiated with that Series' Trading Advisor
or that the new advisor will be required to recoup losses
sustained previously before being entitled to receive
incentive fees.
Each Trading Advisor's Past Performance Record Is
Inconsistent.
The performance records of each Trading Advisor reflect
significant variations in profitability from period to period.
See "Past Performance Information" under "Series A," "Series
B" and "Series C."
Other Clients of Each Trading Advisor May Compete With Each
Series.
Each Trading Advisor manages large amounts of other funds
and advises other clients at the same time as it manages
Series assets; consequently, each Series may experience
increased competition for the same positions. See "Actual and
Potential Conflicts of Interest."
Possible Adverse Effects of Increasing the Assets Under Each
Trading Advisor's Discretion.
No Trading Advisor has agreed to limit the amount of
additional equity that it may manage. We cannot assure you
that any Trading Advisor's strategies will not be adversely
affected by additional equity that it accepts, especially if
the acceptance of additional equity affects the Trading
Advisor's capacity (i.e., the amount that a Trading Advisor
can trade effectively without exceeding its trading and risk
management capabilities).
RISKS RELATED TO THE TRUST AND THE OFFERING OF SERIES
INTERESTS
You Will Have a Limited Ability to Transfer Your Interests,
and Your Ability to Liquidate Your Interests May Be Impeded.
There is not now, nor is there expected to be, any primary
or secondary market for the Interests. In addition, the Trust
Agreement, included as Exhibit A, restricts transfers and
assignments of Interests. You will be permitted to redeem
your Interests generally as of the Dealing Day (usually
Monday) each week (each, a "Redemption Date"). The Trust will
redeem your Interests at 100% of their Series' Net Asset Value
as of the Valuation Point (the close of business on Friday)
immediately preceding the applicable Dealing Day. If you
redeem your Interests on or before the end of the first six
months after the effective date of your Interest, you may be
charged a redemption fee of 4% of the Net Asset Value at which
your Interests are redeemed. If you redeem your Interests
after the sixth month, but on or before the end of the twelfth
month after the effective date of your purchase of Interests,
you may be charged a 3% redemption fee. These redemption
fees, if applicable, will be paid to the Managing Owner. If
a substantial number of Limited Owners redeem their Interests
in a Series, that Series could be required to liquidate
positions at unfavorable prices. However, redemptions in one
Series will not affect trading in any other Series. Under
extraordinary circumstances, such as an inability to liquidate
positions, the Trust may delay redemption
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<PAGE>
payments to you beyond the period specified in the Trust Agreement. See
"Trust Agreement - Redemption of Interests."
Each Series Will Have to Overcome Substantial Fees and
Commissions in Order to Break Even Each Year.
Each Series is required to pay substantial fees that could
deplete its assets, including a 7.75% annual fee to Prudential
Securities for brokerage and other services, and a 2% annual
management fee to each Trading Advisor. After taking into
account (i) all fees and expenses to be paid by a Series, but
excluding the advisory incentive fee (which is paid only on
New High Net Trading Profits) and extraordinary expenses
(which are impossible to predict) and (ii) estimated interest
income earnings on each Series' assets, expected to be the
Federal Funds rate, currently approximately 5.60% per annum,
it is currently estimated that each Series will have to
achieve annual net trading profits of approximately 4.15% in
order to offset the next twelve months of expenses, and of
approximately 7.15% to also offset the 3% redemption charge
imposed on Interests if they are redeemed at or before the end
of the 12th month following their effective date. This break-
even level will be higher to the extent that interest rates
decrease, or lower, to the extent that interest rates
increase, in the future. See "Projected Twelve-Month Break-
Even Analysis."
The Payment of Quarterly Incentive Fees Does Not Assure the
Realization of Profits.
Each Series also pays its Trading Advisor a quarterly
incentive fee based upon the "New High Net Trading Profits"
earned by that Trading Advisor on the Net Asset Value of the
Series for which the Trading Advisor has trading
responsibility. These profits include unrealized appreciation
on open positions. Accordingly, it is possible that a Series
will pay an incentive fee on trading profits that do not
become realized (in whole or in part). Each Series' Trading
Advisor will retain all incentive fees paid, even if that
Series incurs a subsequent loss on those fees. Because the
incentive fee is paid quarterly, it is possible that an
incentive fee may be paid during a year in which the Net Asset
Value per Interest of a Series ultimately declines from the
outset because of losses occurring after the date of an
incentive fee payment or because of the non-realization of
profits on which an incentive fee was paid. See "Fees and
Expenses."
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 Advisors. See "Actual and Potential Conflicts of
Interest."
You Have Limited Rights.
Pursuant to the Trust Agreement, you will exercise no
control over the Trust's business. However, certain actions,
such as termination or dissolution of a Series, may be taken,
or approved, upon the affirmative vote of Limited Owners
holding Interests representing at least a majority (over 50%)
of the Net Asset Value of the Series (excluding Interests
owned by the Managing Owner and its affiliates). See "Trust
Agreement - Exercise of Rights by Limited Owners."
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 made no independent investigation of the terms of
this offering or the structure of the Trust. Except for the
agreements with the Trading Advisors 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.
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TAX AND ERISA RISKS
Your Tax Liability Is Anticipated to Exceed Distributions to
You.
For federal income tax purposes, the amount of your
taxable income or loss for each taxable year of the Trust will
be determined on the basis of your allocable share of ordinary
income and loss generated from the Series in which you have
purchased Interests, as well as capital gains and losses
recognized during such year. If the Series in which you own
Interests has taxable income for a year, that income will be
taxable to you in accordance with your allocable share of
Trust income from that Series, whether or not any amounts have
been or will be distributed to you. Under certain
circumstances, all or part of such income would be taxable to
Employee Benefit Plans or Individual Retirement Funds (as
defined below) and other tax-exempt Limited Owners. Also, the
Series in which you have an interest might sustain losses
offsetting its profits after the end of a year, so that if you
did not redeem your Interests as of such year-end, you might
never receive the profits on which you have 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 "Trust
Agreement - Distributions" and "- Sharing of Profits and
Losses." Accordingly, it is anticipated that you 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.
Your ability to claim current deductions for certain
expenses or losses, including capital losses of the Series in
which you have Interests, will be subject to various
limitations and the income tax effects of a Series'
transactions may differ from the economic consequences of
those transactions. See "Federal Income Tax Consequences."
Partnership Treatment Is Not Assured.
The Trust has received an opinion of counsel to the effect
that, under current federal income tax law, each Series in the
Trust will be treated as a partnership for federal income tax
purposes, provided (i) at least 90% of each Series' annual
gross income consists of "Qualifying Income" as defined in the
Code, and (ii) each Series is organized and operated in
accordance with its governing agreements. The Managing Owner
believes it likely, but not certain, that each Series will
meet this income test. The Trust has not requested, and does
not intend to request, a ruling from the Internal Revenue
Service (the "IRS") concerning its tax treatment. An opinion
of counsel is not binding on the IRS or the courts, and is
subject to any changes in applicable tax laws.
If a Series of the Trust were to be treated as a
corporation for federal income tax purposes, the net income of
that Series would be taxed at corporate income tax rates,
thereby substantially reducing its distributable cash; you would
not be allowed to deduct losses of that Series; and
distributions to you, other than liquidating distributions,
would constitute dividends to the extent of the current or
accumulated earnings and profits of that Series and would be
taxable as such. See "Federal Income Tax Consequences."
There Is the Possibility of a Tax Audit.
We cannot assure you that a Series' tax returns will not
be audited by a taxing authority or that an audit will not
result in adjustments to the Series' returns. If an audit
results in an adjustment, you may be required to file amended
returns and to pay additional taxes plus interest. See
"Federal Income Tax Consequences."
Employee Benefit Plan Considerations.
Special considerations apply to investments in the Trust
by "Benefit Plan Investors" (employee benefit plans subject to
the Employee Retirement Income Security Act of 1974
("ERISA")), IRAs, Keogh Plans that do not cover common law
employees and by other employee benefit plans not subject to
ERISA. See "Who May Subscribe."
You are strongly urged to consult your own tax
adviser and counsel about the possible tax
consequences to you of an investment in the Trust.
Tax consequences may differ for different investors,
and you could be affected by changes in the tax laws.
See "Federal Income Tax Consequences."
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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
"Description of the Trust, Trustee, Managing Owner and
Affiliates."
Government Regulations May Change.
Considerable regulatory attention has recently been
focused on publicly distributed partnerships, and, in
particular, on "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 about
speculative pools of capital trading in the currency markets,
because these pools have the potential to disrupt central
banks' attempts to influence exchange rates. In the current
environment, you must recognize the possibility that future
regulatory changes may alter, perhaps to a material extent,
the nature of an investment in any Series of the Trust.
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 of any other counterparty with whom it trades.
CFTC Registrations Could be Terminated.
If the CE Act registrations or NFA memberships of the
Managing Owner, the Trading Advisors or Prudential Securities
are no longer effective, these entities would not be able to
act for the Trust.
The foregoing risk factors are not a complete
explanation of all the risks involved in purchasing
interests in a fund that invests in the highly
speculative, highly leveraged trading of futures,
forwards and options. You should read this entire
Prospectus before determining to subscribe for
Interests.
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable to
the Trust as a whole and, at the outset, to each Trading
Advisor individually, because each Trading Advisor initially
will manage 100% of a separate Series' assets. The
application of these limitations and policies will be
identical for all Series of the Trust and each Trading
Advisor. A Trading Advisor sometimes may be prohibited from
taking positions for a Series that it would otherwise prefer
to acquire because of the need to comply with these
limitations and policies. The Managing Owner will monitor
compliance with the trading limitations and policies set forth
below, and it may impose such additional restrictions upon the
trading activities of any Trading Advisor (through
modification of the limitations and policies) as it, in good
faith, deems appropriate and in the best interests of each
Series, subject to the terms of each Advisory Agreement. See
"Advisory Agreements."
The Managing Owner will not approve a material change in
the following trading limitations and policies for any Series
without obtaining the prior written approval of Limited Owners
holding Interests representing at least a majority (over 50%)
of the Net Asset Value of that Series (excluding Interests
owned by the Managing Owner and its Affiliates). The Managing
Owner may, however, without obtaining such approval,
impose additional limitations on the
trading activities of each Series or on the types of
instruments in which a Trading Advisor can invest
if the Managing Owner determines that
additional limitations are necessary to assure that 90% of the
Series income is Qualifying Income or are in the best
interests of a Series.
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Trading Limitations
A Series will not: (i) engage in pyramiding its
commodities positions (i.e., use 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
Series' commodities positions or obtaining lines of credit for
the trading of forward currency contracts; provided, however,
that each Series 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 that would circumvent the foregoing
prohibition; (iv) permit any Trading Advisor to share in any
portion of the commodity brokerage fees paid by a Series;
(v) commingle its assets, except as permitted by law; or
(vi) permit the churning of its commodity accounts.
Each Series 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, each Trading Advisor
has agreed to abide by the trading policies of the Trust,
which currently are as follows:
(1) Series funds generally will be invested in
contracts that are traded in sufficient volume which, at
the time such trades are initiated, are reasonably
expected to permit entering and liquidating positions.
(2) Stop or limit orders may, in a Trading Advisor's
discretion, be given with respect to initiating or
liquidating positions in order to attempt to limit losses
or secure profits. If stop or limit orders are used,
however, no assurance can be given 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) A Series 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) A Series may occasionally make or accept delivery
of a commodity including, without limitation, currencies.
A Series also may engage in "EFP" transactions (i.e., an
exchange of futures for physical transaction, as permitted
on the relevant exchange) involving currencies and metals
and other commodities.
(5) A Series may, from time to time, employ trading
techniques such as spreads, straddles and conversions.
(6) A Series will not initiate open positions that
would result in net long or short positions requiring as
margin or premium for outstanding positions in excess of
15% of a Series' Net Asset Value for any one commodity, or
in excess of 662 3% of a Series' Net Asset Value for all
commodities combined. Under certain market conditions,
such as where there is an inability to liquidate open
commodities positions because of daily price fluctuations,
the Managing Owner may be required to commit as margin in
excess of the foregoing limits; and in such a case the
Managing Owner will cause the Trading Advisor to reduce
its open futures and option positions to comply with these
limits before initiating new commodities positions.
(7) If a Series engages in transactions in forward
currency contracts other than with or through Prudential
Securities and/or PBGM, it will engage in such
transactions only with or through a bank that has, as of
the end of its last fiscal year, an aggregate balance in
its capital, surplus and related accounts of at least
59
<PAGE>
$100,000,000, as shown by its published financial
statements for that year, and through other broker-dealer
firms whose aggregate balance in its capital, surplus and
related accounts is at least $50,000,000. If transactions
are effected for a Series in the forward markets, the only
forward markets that will be 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.
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING OWNER AND AFFILIATES
Organization
Prudential Securities
Group Inc.
100%
Prudential Securities
Incorporated Wilmington Trust
Company
100% Trustee
Prudential Securities Managing Trust
Futures Management Inc. Owner
The Trust was formed on December 17, 1997 under the
Business Trust Statute of the State of Delaware. The sole
trustee of the Trust is Wilmington Trust Company (the
"Trustee"), which delegated its duty and authority for the
management of the business and affairs of the Trust to
Prudential Securities Futures Management Inc. (the "Managing
Owner"), and will have no liability. See "Fiduciary
Responsibilities - Accountability." The Managing Owner is a
wholly-owned subsidiary of Prudential Securities Incorporated
("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 any of the Trading Advisors. 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,
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 PSGI, Prudential Securities, the
Managing Owner and the Trading Advisors, and 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. The
Trustee will accept service of legal process upon the Trust in
the State of Delaware. See "Trust Agreement - Trustee."
Limited Owners will be notified by the Managing Owner of any
change of the Trust's trustee.
60
<PAGE>
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.
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 ("CPO") since June 1989 and as a
commodity trading advisor ("CTA") 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. For a
description of the Managing Owner's responsibilities to the
Trust, see "Duties of the Managing Owner."
The Managing Owner is currently the general
partner/managing owner and commodity pool operator of four
publicly owned commodity funds (Prudential-Bache Capital
Return Futures Fund 2, L.P., Prudential Securities Aggressive
Growth Fund, L.P., Diversified Futures Trust I and
Willowbridge Strategic Trust), and three non-public commodity
funds (Prudential Securities Foreign Financials Fund, L.P.,
Signet Partners II, L.P. and Diversified Futures Trust II).
The Managing Owner also serves as investment manager of six
offshore futures funds (Prudential-Bache International Futures
Funds A - F) and as an investment adviser of an offshore hedge
fund (Devonshire Multi-Strategy Fund). An affiliate of the
Managing Owner, Seaport Futures Management Inc. ("Seaport"),
a Delaware corporation formed in June 1979, is the general
partner and commodity pool operator of five publicly owner and
CPO of five publicly owned commodity funds, as well as a
public commodity fund that terminated on January 31, 1995.
See "Past Performance of Other Pools Sponsored by the Managing
Owner and its Affiliate" in this Section.
Since 1980, Prudential Securities has sponsored 28 public
and private commodity pools in addition to the Trust,
including offshore funds. The first six pools (started
between 1980 and 1982) terminated after an average term of
five and one-half years; the seventh through tenth pools
(started between 1988 and 1993) terminated after an average
term of approximately four and three-quarters years; and the
remaining eighteen pools (started between 1988 and 1997) are
still in existence.
The most recent statement of financial condition of the
Managing Owner and report of the independent accountants
thereon is set forth under "Financial Statements - The
Managing Owner."
Directors and Officers of the Managing Owner
The current officers and directors of the Managing Owner
are as follows:
Thomas M. Lane, Jr., born 1948, has been the President and
a Director of the Managing Owner and Seaport Futures
Management Inc. since December 1997. Mr. Lane has also been
a Senior Vice President of Futures Sales and Execution
Services in the Futures Division, since joining Prudential
Securities Incorporated in September 1995. In this position,
Mr. Lane is responsible for the Futures Floors in London, New
York, Chicago, Kansas City and Singapore. Mr. Lane is also
responsible for the inventory finance area and the Futures
Sales offices in London, Chicago, New York and Kansas City.
He is a Director of the National Futures Association and is
also a member of PSI's Operating Council. Prior to joining
PSI, Mr. Lane was employed by Merrill Lynch as the Vice
President of Group Future Sales and Marketing from November
1983 until September 1995, and prior to that, Imperial
Chemical as a Marketing Manager.
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 has
been an Executive Vice President of Prudential Securities
since October 1991 and currently is the Director of its
Futures and International Divisions, responsible for managed
futures, global strategy, international expansion, sales,
trading
62
<PAGE>
desk operations and administration, and also is a
member of Prudential Securities' Operating Committee. Prior
to joining Prudential Securities in October 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 1972.
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 First Vice President of the Futures Division.
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.
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.
David Buchalter, born 1958, has been Secretary of both the
Managing Owner and Seaport since October 1996. Mr. Buchalter
is a Senior Vice President and Senior 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.
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 First 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.
Pamela Morgan, born 1959, has been a Vice President of the
Managing Owner since October 1994. Ms. Morgan is a Managing
Director for Prudential-Bache International Bank and Senior
Vice President of Prudential Securities. She has managed a
variety of departments with increasing levels of
responsibility within Prudential Securities, most recently as
First Vice President of Finance and Administration in the
Futures Division of Prudential Securities, with responsibility
for Risk Management, Credit, Finance, Compliance and Audit.
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.
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.
Past Performance of Other Pools Sponsored by the Managing
Owner and Its Affiliate
Set forth on the following page (in Capsule D) is the
performance record of trading from January 1992 through
October 1997 for the four publicly formed commodity funds
(Prudential-Bache Capital Return Futures
62
<PAGE>
Fund 2, L.P., Prudential Securities Aggressive Growth Fund, L.P.,
Diversified Futures Trust I, and Willowbridge Strategic Trust)
and three non-public commodity funds (Prudential Securities
Foreign Financials Fund, L.P., Signet Partners II, L.P. and
Diversified Futures Trust II) for which the Managing Owner
acts as the general partner and CPO; for the six offshore
investment funds (Prudential-Bache International Futures Fund
A -F PLC) organized as investment companies incorporated in
Ireland and offered only to non-U.S. residents, for which the
Managing Owner acts as investment manager and for which a CFTC
Rule 4.7 eligibility notice was filed; and for the five public
commodity funds for which the Managing Owner's affiliate,
Seaport Futures Management Inc. ("Seaport") acts as general
partner and CPO. Performance information also is shown for
one public and one non-public commodity fund for which Seaport
(until January 31, 1995) and the Managing Owner (until
December 17, 1995) acted, respectively, as general partner and
CPO.
THE INFORMATION IN CAPSULE D HAS NOT BEEN AUDITED.
HOWEVER, THE MANAGING OWNER REPRESENTS AND WARRANTS THAT THE
CAPSULE IS COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS.
[THIS SPACE LEFT BLANK INTENTIONALLY]
63
<PAGE>
<PAGE>
CAPSULE D
CAPSULE PERFORMANCE OF OTHER POOLS OPERATED BY PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC. AND AFFILIATE [a]
(SEE ACCOMPANYING NOTES)
<TABLE>
<CAPTION>
ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY
BASIS)
WORST WORST
MONTHLY PEAK TO
PERCENT VALLEY YEAR
TYPE INCEPTION AGGREGATE CURRENT DRAW- DRAW- TO
OF OF SUBSCRIPTIONS TOTAL NAV DOWN DOWN DATE
NAME OF POOL POOL TRADING ($ X 1,000) ($ X 1,000) [b] [c] 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <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% -6.37% 19.73% 1.57% -9.54% - -
10/89 12/88-1/93
PRUDENTIAL-BACHE
DIVERSIFIED
FUTURES
FUND L.P.
(PBDFF) 3,5,6,8,10 10/88 29,747 18,573 -18.37% -36.63% -9.80% 31.49% -10.05% 33.95% 24.81% 2.47%
1/92 1/92-5/92
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND
L.P. (PBCRFF) 1a,3,5, 5/89 137,705 16,369 -5.26% -24.43% -0.04% 12.33% -21.44% 23.98% 8.58% 2.10%
7,8,20 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 30,728 -11.36% -24.24% 0.49% 21.32% -8.07% 27.26% 19.10% 7.01%
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 17,303 -10.95% -17.84% 10.28% 8.85% 10.41% 16.63% 16.79% -12.06%
1/91 9/90-6/91
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P.-OPTIMAX
(PBOFF) 3,5,7,8,10,11 4/96 69,603 14,679 -6.39% -11.32% - - - - 11.68% 9.22%
8/97 5/96-8/96
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P. - A
(PBOFF) 1,3,5,7,10,11 2/91 63,356 - -6.00% -10.72% 7.15% 10.88% -6.42% 7.18% -0.41% -
1/92 8/93-2/95
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P. - B
(PBOFF) 3,5,7,8,10,11 2/91 6,247 - -9.90% -20.26% 5.74% 15.34% -10.66% 7.59% -1.59% -
1/92 8/93-2/95
PRUDENTIAL
SECURITIES
OPTIMAX FUND
2 L.P. -
OPTIMAX 2
(PBOFF2) 3,5,7,8,9,12 4/97 17,416 8,191 -7.63% -7.91% - - - - - -4.27%
8/97 8/97-10/97
PRUDENTIAL
SECURITIES
OPTIMAX FUND
2 L.P. - A
(PBOFF2) 1,3,5,7,9,12 1/92 15,197 - -5.82% -13.53% 1.04% 4.43% -5.51% 13.93% 3.88% 0.86%
9/93 9/93-1/95
PRUDENTIAL
SECURITIES
OPTIMAX
FUND 2
L.P. - B
(PBOFF2) 3,5,7,8,9,12 1/92 2,219 - -9.49% -20.94% 2.41% 4.36% -6.57% 18.44% 5.24% 0.68%
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% - 0.81% -24.46% -2.05% - -
11/94 8/93-1/95
PRUDENTIAL
SECURITIES
FOREIGN
FINANCIALS
FUND L.P.
(PSFFF) 2,4,6,8,9 1/93 4,098 2,058 -17.68% -25.96% - 1.14% 16.00% 20.38% 6.65% -8.80%
9/93 9/93-1/94
PRUDENTIAL
SECURITIES
AGGRESSIVE
GROWTH
FUND L.P.
(PSAGF) 3,5a,7,8,9 8/93 20,335 6,765 -9.70% -32.68% - -19.67% -13.51% 29.50% 7.89% -4.09%
9/93 8/93-1/95
DIVERSIFIED
FUTURES TRUST
I (DFT) 3,5a,6,8,9 1/95 65,908 66,264 -5.89% -8.36% - - - 42.65% 23.49% 3.77%
2/96 2/97-5/97
DIVERSIFIED
FUTURES TRUST
II (DFTII) 2,4,6,8,9 3/97 37,161 37,833 -3.71% -5.26% - - - - - 1.35%
5/97 4/97-6/97
SIGNET
PARTNERS
II, LP
(SPLP2) 2,4,7,8,9 2/96 1,531 1,127 -6.37% -6.37% - - - - 9.70% 9.13%
8/97 8/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES FUND
A PLC (PBIFA) 2,4,6,9,13 6/96 24,605 16,873 -10.76% -18.11% - - - - 12.30% -3.74%
8/97 8/97-10/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND B
PLC (PBIFB) 2,4,6,9,13 7/96 56,871 57,410 -8.84% -14.88% - - - - 28.50% 7.78%
5/97 2/97-5/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND C
PLC (PBIFC) 2,4,6,9,13 6/96 20,705 11,079 -6.82% -20.08% - - - - 22.70% -6.48%
8/97 12/96-4/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND D
PLC (PBIFD) 2,4,7,9,13 10/96 15,250 11,084 -6.50% -7.88% - - - - -1.10% 7.58%
4/97 8/97-10/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND E PLC
(PBIFE) 2,4,6,9,13 1/97 8,987 6,596 -9.41% -9.41% - - - - - 0.30%
8/97 8/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND F
PLC (PBIFF) 2,4,6,9,13 9/97 6,686 5,620 -9.50% -9.50% - - - - - -8.60%
10/97 10/97
WILLOWBRIDGE
STRATEGIC
TRUST
(WILLO) 3,4,6,8,9 5/96 57,621 45,979 -10.01% -18.60% - - - - 3.47% -3.81%
8/97 5/96-7/96
</TABLE>
64
<PAGE>
<PAGE>
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, 1997, the A & B
Units merged into OptiMax Units on April 1, 1996.
12 - Following the expiration of the principal-protected
feature of the A Units on March 31, 1997, the A & B
Units merged into OptiMax 2 Units on April 1, 1997.
Notes:
[a] All performance is presented as of October, 1997.
[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
65
<PAGE>
<PAGE>
NOTES TO CAPSULE D:
(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 costs. PBOFF and PSOFF2 are each charged a
flat 8% annual brokerage fee on the Partnership's Traded
Assets, plus transaction costs. PSAGF is charged a flat
8% annual brokerage fee on such Partnership's Net Asset
Value, plus transaction costs. 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 and April 1, 1997, respectively, the Class
A and B Units of PBOFF and PBOFF2, respectively were
consolidated into a single Class. DFT and WILLO pay 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, PSFNF was charged a flat
annual 8% brokerage fee on its Net Asset Value and PSFFF,
from April 1, 1994 until July 25, 1997, was charged a flat
annual 8% brokerage fee on its Net Asset value and 8.8%
thereafter. PBIFA, B, C, D, E and F each pay a flat
annual brokerage fee of 5.75% of Net Asset Value, plus
transaction costs. DFT II is charged a flat annual 6.75%
brokerage fee on its Net Asset Value.
(2) Advisory Management (MF) and Incentive (IF) Fees -
PBDFF - 4% MF 15% IF
PBCRFF - 4% MF 15% IF
PBCRFF2 - 2-4% MF 15-20% IF
PBCRFF3 - 2-3% MF 17-20% IF
PBOFF - 2-3% MF 17-23% IF
PSOFF2 - 2-3% MF 15-20% IF
PSAGF - 2% MF 15-23% IF
DFT - 4% MF 15% IF
DFT II - 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
PBIFB - 4% MF 15% IF
PBIFC - 2% MF 20% IF
PBIFD - 2-3% MF 15-17.5% IF
PBIFE - 2% MF 20% IF
PSIFF - 2% MF 25% IF
WILLO - 3% 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.
Prudential Securities
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
66
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of Trade, Chicago Mercantile Exchange, Commodity Exchange,
Inc., and all other major United States commodity exchanges.
Since 1980 Prudential Securities has sponsored twenty-four
public and private commodity pools other than the Trust. The
first five pools (started between 1980 and 1982) terminated
after an average term of five and one-half years; a sixth pool
(started in March 1988) terminated after approximately six and
three-quarters years on January 31, 1995; a seventh pool
(started in 1993) terminated after approximately three years
on December 17, 1995; the remaining seventeen pools (started
between 1988 and 1997) are still in existence.
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 have
been no administrative, civil, or criminal actions, including
actions which are pending, on appeal or concluded, against
Prudential Securities or any of its principals which are
material, in light of all the circumstances, to an investor's
decision to invest in the Trust.
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 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.
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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 allegation against Prudential Securities was 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 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
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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 Securities
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 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.
On February 29, 1996, the State of New Mexico Securities
Division issued a final order, subject to a settlement,
whereby Prudential Securities neither admitted nor denied any
allegations that Prudential Securities failed to supervise two
former employees and a Branch Office Manager of its Phoenix,
Arizona branch and that such persons engaged in
misrepresentation, fraud, unsuitable trading, failure to
properly register and failure to report a
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suspected forgery. Prudential Securities consented to the
imposition of a censure and paid a fine in the amount of
$15,000 and investigative fees in the amount of $2,000.
On May 20, 1997, the CFTC filed a complaint against PSI,
Kevin Marshburn (a former PSI Financial Advisor) and two of
Marshburn's sales assistants. The complaint alleges, in
essence, that during the period from May 1993 through March
1994: (i) Marshburn fraudulently allocated trades among his
personal account and certain customer accounts; (ii) PSI did
not properly supervise Marshburn by failing to have policies
and procedures in place to detect and deter the alleged
allocation scheme; and (iii) PSI failed to maintain and
produce records with respect to transactions during the period
in issue. The complaint seeks several forms of relief against
PSI, including a cease and desist order, suspension or
revocation of registration, restitution, and civil penalties
of up to $100,000 for each alleged violation. PSI has denied
the operative allegations against it and is vigorously
defending the action.
DUTIES OF THE MANAGING OWNER
Management of the Trust
The Managing Owner will manage each Series' business and
affairs, but will not (except in certain limited, and
essentially emergency, situations) direct the trading
activities for any Series. The Managing Owner will be
responsible for the renewal of the Advisory Agreements with
the Trading Advisors, as well as for the selection of
additional and/or substitute trading advisors, provided,
however, that in no event shall the Managing Owner retain a
commodity trading advisor affiliated with Prudential
Securities. See "Advisory Agreements." In addition, the
Managing Owner selected the Trustee and is 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 the Net Asset Value of each Series and all
fees and expenses, if any, to be paid by each Series. The
Managing Owner provides suitable facilities and procedures for
handling and executing redemptions, exchanges, transfers and
distributions (if any), and the orderly liquidation of each
Series. Prudential Securities currently acts, and is expected
to continue to act, as each Series' executing and clearing
broker. In the event Prudential Securities is unable or
unwilling to continue in that capacity, however, the Managing
Owner is responsible for selecting another futures commission
merchant.
Retention of Affiliates
The Managing Owner may retain affiliates to provide
certain administrative services necessary to the prudent
operation of the Trust and each Series so long as the Managing
Owner has made a good faith determination that:
- the affiliate that it proposes to engage is qualified to
perform such services;
- the terms and conditions of the agreement with an
affiliate are no less favorable than could be obtained
from equally qualified unaffiliated third parties; and
- the maximum period covered by any such agreement shall
not exceed one year, and shall be terminable without
penalty upon 60 days' prior written notice by the Trust.
The fees of any such affiliates will be paid by Prudential
Securities or an affiliate.
Notification of Decline in Net Asset Value
If the estimated Net Asset Value per Interest of any
Series declines, as of the end of any Business Day, to less
than 50% of the Net Asset Value per Interest of that Series as
of the end of the immediately preceding
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Valuation Point, the Managing Owner will notify
the Limited Owners of that Series
within seven (7) Business Days of such decline. The notice
will include a description of the Limited Owners' voting and
redemption rights.
Maximum Contract Term
The Trust or any Series of 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 participates in the income and losses
of each Series in the proportion which its ownership of
General Interests bears to the total number of Interests of a
Series on the same basis as the Limited Owners, but the
Managing Owner receives no fees or other remuneration from a
Series.
FIDUCIARY RESPONSIBILITIES
Accountability
Pursuant to the Business Trust Statute, the Trustee
delegated to the Managing Owner responsibility for the
management of the business and affairs of the Trust and each
Series, and it has neither a duty to supervise or monitor the
Managing Owner's performance nor liability for the acts or
omissions of the Managing Owner. The Trustee retains a
statutory fiduciary duty to the Trust only for the performance
of the express obligations it retains under the Trust
Agreement, which are limited to the making of certain filings
under the Business Trust Statute and to accepting service of
process on behalf of the Trust in the State of Delaware. The
Trustee owes no other duties to the Trust or any Series. 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. Under the Business Trust
Statute, if, in law or equity, the Trustee or the Managing
Owner has duties (including fiduciary duties) to the Trust or
to the Limited Owners, and liabilities relating to those
duties, (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 of a Series,
a Limited Owner may seek legal relief for himself (or itself)
or, subject to the satisfaction of certain conditions, may
seek on behalf of that Series 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 of
that Series (a class action), to recover damages from the
Managing Owner for violations of fiduciary duties. See "Trust
Agreement - Indemnification." 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 of a Series may have the right,
subject to procedural and jurisdictional requirements, to
bring a class action against a Series in federal court to
enforce their rights under the federal securities and
commodities laws; and (ii) Limited Owners of a Series who have
suffered losses in connection with the purchase or sale of
their Interests in that Series 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.
Reparations and Arbitration Proceedings
Limited Owners of a Series 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 Advisor
of that Series (a registered
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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 certain
provisions in the Advisory Agreements, the Brokerage Agreement
and the Trust Agreement generally make it more difficult to
establish a basis for liability against any Trading Advisor,
Prudential Securities and the Managing Owner than it would be
absent such provisions, including (a) each Advisory Agreement
gives broad discretion to each Trading Advisor; and (b) each
Advisory Agreement, the Brokerage Agreement and the Trust
Agreement contain exculpatory and indemnity provisions (see
"Advisory Agreement", "Brokerage Agreement" and "Trust
Agreement"). Payment of any indemnity to any such person by
the Trust or any Series of the Trust pursuant to such
provisions would reduce the assets of the Series affected.
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 developing and
changing areas of the law, Limited Owners who believe that the
Trustee, the Managing Owner, Prudential Securities or any
Trading Advisor 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 COMMITMENTS
Minimum Purchase Commitment
The Managing Owner intends to contribute funds to each
Series in order to have a 1% interest in the capital, profits
and losses of each Series and in return will receive General
Interests in each Series. The Managing Owner is required to
maintain at least a 1% interest in the capital, profits and
losses of each Series so long as it is acting as the Managing
Owner of the Trust, and it will make such purchases as are
necessary to effect this requirement. In addition to the
General Interests the Managing Owner receives in respect of
its Minimum Purchase Commitment, the Managing Owner may
purchase Limited Interests in any Series as a Limited Owner.
See "The Offering - Initial Offering." All Interests
purchased by the Managing Owner are held for investment
purposes only and not for resale. No principal of the
Managing Owner owns any beneficial interest in the Trust.
Net Worth Commitment
The Managing Owner's net worth is set forth in its
Financial Statements on page 129 and is significantly in
excess of the minimum net worth requirements under the NASAA
Guidelines. The Managing Owner and PSGI have each agreed that
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 any regulation-required amounts.
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
Affiliation of the Managing Owner,
Prudential Securities and PSGI
The Managing Owner is a wholly-owned subsidiary of
Prudential Securities, which acts as the selling agent and
clearing broker for each Series and performs other services
for the Trust. Prudential Securities is a wholly-owned
subsidiary of PSGI, and the Managing Owner and Prudential
Securities are each affiliates of PSGI. PBGM, an affiliate of
Prudential Securities, is involved in the Trust's foreign
currency forward transactions. These subsidiary and affiliate
relationships create certain conflicts of interest, described
below. See "The Trust, Trustee, Managing Owner and
Affiliates."
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Conflicts Related to the Brokerage Fee
Because the Managing Owner is an affiliate of Prudential
Securities, the fixed fee Prudential Securities receives is
not the result of arm's-length negotiations. Other customers
of Prudential Securities may pay commissions that are effec-
tively lower than the fixed fee payable by a Series (e.g., if
Prudential, Securities determines that the size of any such
other account, the anticipated volume and frequency of its
trading and the costs associated with the servicing of that
account, or any other reasons, justify a lower rate). To the
extent that other brokers would charge lower commission rates
than those charged by Prudential Securities, each Series will
pay effectively higher commissions for similar trades.
However, Limited Owners obtain several benefits from investing
in the Trust that might not otherwise be available to them for
an investment as reasonable as the minimum investment in the
Trust (e.g., limited liability, investment diversification,
and administrative convenience).
As a result of the fixed fee being charged each Series by
Prudential Securities, the Managing Owner may have a conflict
of interest in two additional respects. First, the Managing
Owner is responsible for determining whether distributions are
to be made to Limited Owners by any Series of the Trust.
However, because any distributions will reduce the Series'
assets on which Prudential Securities' fixed fee is
calculated, the Managing Owner will have an incentive to
reduce or eliminate distributions in order to maximize the
fee. Second, the Managing Owner was responsible for selecting
the Trading Advisors and will be responsible for selecting any
new commodity trading advisors for any Series. The Managing
Owner may have an incentive to select trading advisors that do
not trade frequently, because Prudential Securities will
receive the same fee regardless of how many transactions are
effected for a Series. The Trust Agreement requires the
Managing Owner to determine whether each Series is receiving
the best price and services available under the circumstances
and whether the rates are competitive, and, if necessary, to
renegotiate the fee structure to obtain such rates and
services for the each Series. In making the foregoing
determinations, the Managing Owner may not rely solely on a
comparison of the fees paid by other major commodity pools.
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 fees generated by a Series.
Conflicts Related to Forward Transactions
PBGM, an affiliate of Prudential Securities, attempts to
earn a spread on any foreign currency forward transactions
between the Trust and Prudential Securities, on the one hand,
and Prudential Securities and PBGM on the other. Because the
Managing Owner and Prudential Securities are each affiliates
of PSGI, and PBGM is an affiliate of Prudential Securities,
the Managing Owner may have an incentive to retain Prudential
Securities as the Series' clearing broker and to engage in
foreign currency forward transactions with PBGM as the
counterparty. However, the Managing Owner has a fiduciary
obligation to the Trust notwithstanding its relationship with
Prudential Securities and PBGM, and it will be mindful of this
obligation in all dealings 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.
Trading For Own Account, the Accounts of Others
The officers, directors and employees of the Managing
Owner and of Prudential Securities, and agents and
correspondents of Prudential Securities, may from time to time
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 for itself, its officers,
directors, employees or customers, agents or correspondents
(or employees of such agents or correspondents) or the
Managing Owner. These transactions might be effected when
similar Series trades are not executed or are executed at less
favorable prices, or these persons or entities might compete
with a Series in bidding or offering on purchases or sales of
contracts without knowing that Series also is so bidding or
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offering. 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.
Prudential Securities-Related Activities
As part of its commodity brokerage services, Prudential
Securities maintains managed accounts serviced by outside
commodity trading advisors, as well as discretionary and
guided 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 that
makes fundamental and technical information available daily to
its Financial Advisors and certain customers and recommends
market positions from time to time. In servicing managed
accounts, discretionary accounts and/or guided accounts,
Prudential Securities Financial Advisors may take or advocate
a position similar to or opposite of that taken by Prudential
Securities and/or any Series, and there is no assurance that
any Series' positions will prove more profitable than those of
such other accounts. However, because Prudential Securities
does not have discretion over the positions taken on behalf of
any Series, it will not be able to affect, either positively
or negatively, any Series' positions.
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 "Brokerage Agreement." This compensation is
paid by Prudential Securities out of the fixed fee it receives
from each Series 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 for redeemed Interests.
Accordingly, Prudential Securities Financial Advisors have a
financial incentive to advise Limited Owners not to redeem
Interests in any Series. However, Prudential Securities
Financial Advisors are expected to act in the best interests
of their clients, notwithstanding any personal interests to
the contrary.
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 each Series of the Trust for the execution of
trades, and there is no assurance that any Series of the Trust
will obtain the most favorable prices on such trades. Because
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 prices of any Series' transactions. See
"Past Performance of Other Pools Sponsored by the Managing
Owner and its Affiliate."
Management of Other Accounts by the Trading Advisors
The Trading Advisors are permitted, and have specifically
indicated their intention, to manage and trade accounts for
other investors (including other commodity pools) and to trade
commodities for their own accounts and the accounts of their
principals. They will continue to be free to do so, so long
as each Trading Advisor's ability to carry out its obligations
and duties to the Series for which it has trading
responsibility under the Advisory Agreements is not materially
impaired thereby. See "Advisory Agreements." The Trading
Advisors might compete with the Series in bidding or offering
on purchases or sales of contracts through the same or a
different trading program than that to be used by a Series,
and there can be no assurance that any such trades will be
consistent with those of the Series, or that the Trading
Advisors or their principals will not be the other party to a
trade entered into by any Series. [In addition, certain
affiliates of the Trading Advisors operate commodity pools
that may be competitive with the Series.] Pursuant to the
Advisory Agreements, each Trading Advisor must treat the
Series for which it has trading responsibility equitably and
provide the Managing Owner with access to information so that
the Managing Owner can be assured of such equitable treatment.
Limited Owners, however, have no inspection rights. See
"Advisory Agreements." In addition, because the financial
incentives of a Trading Advisor in other accounts managed by
it may exceed any incentives payable by a Series,
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the Trading Advisor might have an incentive to favor those accounts over
a Series in trading. The Trading Advisor's management of
other clients' accounts may increase the level of competition
among other clients and a Series 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 a Trading Advisor and its principals and
affiliates will be aggregated for purposes of applying
speculative position limits in the United States. Thus, a
Series might be unable to enter into or hold certain positions
if such positions, when added to contracts held for other
accounts of that Series' Trading Advisor or for the Trading
Advisor itself, would exceed the applicable speculative
position limits. See "Trading Risks - Futures, Forward and
Options Trading May Be Illiquid."
WHO MAY SUBSCRIBE
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. AN
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 "Tax and ERISA Risks - Your Tax Liability May
Exceed Distributions to You." If losses accrue to a Series,
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 "Federal
Income Tax Consequences."
By accepting subscriptions on behalf of Individual
Retirement Accounts or other Benefit Plan Investors, the Trust
is not, nor are the Managing Owner, the Trading Advisors,
Prudential Securities or any other party, representing that
this investment meets any or all of the relevant legal
requirements for investments by any particular Benefit Plan
Investor or that this investment is appropriate for any
particular Benefit Plan Investor. The person with investment
discretion should consult with his attorney and financial
advisers as to the propriety of this investment in light of
the particular Benefit Plan investor's circumstances and
current tax law.
Subscriptions for the purchase of the Interests are
subject to the following conditions:
Minimum Purchases
- Initial Subscription $5,000; $2,000
(IRAs); the initial subscription
for Interests may be in any one or
a combination of Series
- Minimum Initial Subscription $1,000 for any Series
- Additional Purchases $100 increments
Net Worth and Income Requirements
The following Net Worth and/or Net Asset Requirements may
be higher under the securities laws of the State of
subscriber's residency. The requirements of each State are
set forth in the Subscription Agreement annexed as Exhibit D
hereto under the caption "State Suitability Requirements."
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The Managing Owner also may impose greater net worth or income
requirements on subscribers who propose to purchase more than
the minimum number of Interests
Subscriber Category
Subscribers (other than
"Benefit Plan Investors,"
which include "Individual
Retirement Funds," "Non-
ERISA Plans" and "ERISA
Plans," all as defined
below) must:
Requirements
Have a net worth
(exclusive of home,
home furnishings and
automobiles) of at
least $150,000
OR
Have a net worth
(similarly
calculated) of
$45,000 and an
annual gross income
of $45,000
AND
Invest no more than
10% of Subscriber's
liquid net worth in
any Series or in all
Series combined
Subscribers that are
"Individual Retirement
Funds" (IRAs or Keogh plans
covering no common law
employees) or "Non-ERISA
Plans" (employee benefit
plans not subject to ERISA
(for example, government
plans)) and their
participants must:
Have a net worth
(exclusive of home,
home furnishings and
automobiles) of at
least $150,000
OR
Have a net worth
(similarly
calculated) of at
least $45,000 and an
annual gross income
of at least $45,000
AND
Have an aggregate
investment in any
Series or in all
Series combined that
does not exceed 10%
of its assets
Subscribers that are "ERISA
PLANS" (employee benefit
plans subject to ERISA
(qualified pension, profit
sharing plans, and Keogh
plans and welfare benefit
plans, such as group
insurance plans, or other
fringe benefit plans))
must:
Have net assets of
at least $150,000
AND
Have an aggregate
investment in any
Series or in all
Series combined that
does not exceed 10%
of its assets
The fiduciary of an ERISA Plan should consider, among
other things, whether the investment is prudent, considering
the nature of the Trust and the Trust's Series.
Fundamental Knowledge
Each subscriber should make sure that it understands,
among other things, (i) the fundamental risks and possible
financial hazards of the investment; (ii) the trading
strategies to be followed in the Series in which it will
invest; (iii) that transferability of the Interests is
restricted; (iv) that the Managing Owner will manage and
control each Series' and the Trust's business operations;
(v) the tax consequences of the investment; (vi) the
liabilities being assumed by an Interestholder, (vii) the
redemption and exchange rights that apply, and (viii) the
Trust's structure, including each Series' fees. In addition,
the Managing Owner must consent to each subscription, which
consent may be withheld in whole or in part for any reason.
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Ineligible Investors
Interests may not be purchased with the assets of a
Benefit Plan Investor if the Trustee, the Managing Owner,
Prudential Securities, the Trading Advisor or any of their
respective affiliates (a) is an employer maintaining or
contributing to such Benefit Plan Investor, or (b) has
investment discretion over the investment of the assets of the
Benefit Plan Investor. An investment in any Series of the
Trust is not suitable for Charitable Remainder Annuity Trusts
or Charitable Remainder Unit Trusts. See "Tax and ERISA Risks
- - Employee Benefit Plan Considerations."
Employee Benefit Plan Considerations
Section 404(a)(1) of ERISA and the regulations promulgated
thereunder by the United States Department of Labor (the
"DOL") provide as a general rule that a fiduciary of an ERISA
Plan must discharge his duties with respect to such ERISA 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 of any ERISA
Plan acts imprudently in selecting an investment or an
investment course of action for ERISA Plan, the fiduciary may
be held personally liable for losses incurred by the ERISA
Plan as a result of such imprudence. Among the factors that
should be considered are (i) the diversification and liquidity
of the ERISA Plan's portfolio; (ii) the potential return on
the proposed investment and the effect on that return if any
portion of a Series' income constitutes "unrelated business
taxable income" (see "Federal Income Tax Consequences - Tax-
Exempt Limited Owners and Unrelated Business Taxable Income");
and (iii) the place the proposed investment would occupy in
the ERISA Plan's portfolio taken as a whole.
The acceptance of a subscription by the Managing Owner
from a Benefit Plan Investor does not constitute a
representation or judgment by the Managing Owner that an
investment in any Series of the Trust is an appropriate
investment for that entity or that such an investment meets
the legal requirements applicable to that entity.
Generally, under Title I of ERISA, the ERISA Plan trustees
or duly authorized investment managers (within the meaning of
section 3(38) of ERISA) have exclusive authority and
discretion to manage and control assets of the ERISA Plan.
ERISA also prohibits a fiduciary from causing an ERISA Plan to
enter into transactions involving ERISA Plan assets with
various "parties in interest" (within the meaning of section
3(14) of ERISA) to the ERISA Plan. If such a "prohibited
transaction" is entered into, certain excise taxes may be
payable, and the ERISA Plan fiduciaries may be liable to the
ERISA Plan for any losses incurred.
If the assets of any Series of the Trust are deemed to be
"Plan Assets" (as defined under ERISA) of its investing ERISA
Plans, the Managing Owner and the Trading Advisor of such
Series will be deemed to be fiduciaries of each ERISA Plan and
Individual Retirement Fund - investing in that Series, and the
general prudence and fiduciary responsibility provisions of
ERISA will be applicable to the Managing Owner and the Trading
Advisor, possibly prohibiting certain transactions entered
into by that Series. Under a regulation of the DOL (the
"Regulation") if, inter alia, a Benefit Plan Investor acquires
a "publicly-offered security," the Series, as the issuer of
the security, will not be deemed to hold Plan Assets.
Publicly Offered Security
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. To assure satisfaction of this condition, the
Managing Owner will not close the offering of Interests of any
Series unless more than 150 investors acquire Interests in
that Series. 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 that 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 that 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
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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 Benefit Plan Investor will comprise its investment
in a Series; those assets will not, however, solely by reason
of such investment, comprise any of the other underlying
assets of the Series. This view is based on the assumption
that the 100-investor rule discussed above will be satisfied,
that the Series' Interests will be registered under the
Securities Act within 120 days after the end of the Trust's
fiscal year during which the offering of the Interests
occurred (or such later time as may be allowed by the SEC) and
that the Managing Owner will not impose transfer restrictions
that would violate the "freely transferable" requirement. See
"Trust Agreement - Transfer of Interests." In the event that,
for any reason, the assets of any Series 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 Benefit
Plan Investor. See "Trust Agreement - Redemption of
Interests."
Certain ERISA Plan and Individual Retirement Fund
investors may currently maintain relationships with Prudential
Securities and its affiliates whereby Prudential Securities or
such affiliate provides brokerage services or other services
to such ERISA Plan or Individual Retirement Fund. These
relationships may cause Prudential Securities and/or its
affiliates to be deemed to be fiduciaries of those ERISA Plan
or Individual Retirement Fund Investors. The DOL has issued
a regulation defining the term "fiduciary" which provides that
a registered broker will not be deemed a fiduciary of an ERISA
Plan or Individual Retirement Fund solely because the broker,
in the ordinary course of its business as a broker, executes
transactions for the purchase and sale of securities on behalf
of the ERISA Plan or Individual Retirement Fund pursuant to
specific instructions within narrowly drawn parameters.
Prudential Securities will, however, be deemed a
party-in-interest with respect to such ERISA Plan or
Individual Retirement Fund. The regulation further provides
that where a broker either (i) has discretionary control over
assets of an ERISA Plan or an Individual Retirement Fund or
(ii) 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 ERISA Plan or Individual Retirement Fund's investment
decisions, and the broker renders individualized investment
advice to the ERISA Plan or Individual Retirement Fund based
on the needs of that ERISA Plan or Individual Retirement Fund,
that broker will be deemed a fiduciary (but only with respect
to that portion of the ERISA Plan's or Individual Retirement
Fund'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 a Series by an ERISA Plan or
Individual Retirement Fund investor with such a pre-existing
relationship could possibly be interpreted to constitute a
prohibited use of ERISA Plan's or Individual Retirement Fund's
assets because it has the effect of directly or indirectly
benefiting one or more parties-in-interest. Prudential
Securities has determined that, for any ERISA Plan or
Individual Retirement Fund assets with respect to which it
believes it is a fiduciary, neither Prudential Securities nor
any affiliate will recommend an investment in the Interests of
a Series, nor will it or any affiliate allocate to a Series
any ERISA Plan assets over which they have discretionary
control. Prudential Securities believes, however, that with
respect to the assets of an ERISA Plan or Individual
Retirement Fund with which it has a non-fiduciary,
party-in-interest brokerage relationship, any investment in a
Series that is undertaken on behalf of such a ERISA Plan by an
independent fiduciary who possesses the requisite experience
and acumen to understand the operation of the Trust and the
Series, who determines that the investment is appropriate and
in the best interests of the ERISA Plan Investor and who makes
such a decision under arm's-length conditions should not be
viewed as a prohibited transaction. Benefit Plan Investors
should pay particular attention to the section of this
Prospectus entitled "Federal Income Tax Consequences -Tax-
Exempt Limited Owners and Unrelated Business Taxable Income."
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HOW TO SUBSCRIBE
To subscribe for Interests, a subscriber must:
- have an account at Prudential Securities
(or an Additional Selling Agent);
- complete a Subscription Agreement (Exhibit D) if you
are a new or existing Subscriber to the Series being
purchased
- complete an Exchange Request (Exhibit C) if you are
exchanging Interests in one Series for Interests of
one or more other Series
- have cash in its Prudential Securities
account (or account with an Additional
Selling Agent) to cover the subscription
amount;
- deliver the Subscription Agreement or Exchange
Request to a Prudential Securities Financial Advisor
(or Additional Selling Agent) 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 minor (UGMA or UTMA)
An individual can gift up to $10,000
per year per person without paying
federal gift tax.
Depending on state
law, you can establish a custodial
account under the Uniform Gift to
Minors Act (UGMA) or the Uniform
Transfers to Minors Act (UTMA).
- -Trust
The subscribing trust must be
established before an account can be
opened.
- -Business or Organization
Corporations, partnerships,
associations or other groups.
- -Benefit Plans
Individual Retirement Funds, Non-
ERISA Plans or ERISA Plans.
When a Subscription Becomes Final
THE MANAGING OWNER MAY, AT ITS DISCRETION, REJECT ANY
SUBSCRIPTION IN WHOLE OR IN PART. Subscriptions will not be
final or binding on any subscriber until Prudential Securities
or an Additional Seller has been in receipt of subscriber's
Subscription Agreement or Exchange Request for at least five
(5) Business Days. A subscriber may revoke a subscription
only within five (5) Business Days of submission of a
Subscription Agreement to Prudential Securities (or an
additional Seller). Thereafter, all subscriptions will be
irrevocable by 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. All accepted subscribers will receive written
confirmation of acceptance into the applicable Series of the
Trust.
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THE OFFERING
Initial Offering
The Interests will be offered for sale, pursuant to Rule
415 of Regulation C under the Securities Act, through
Prudential Securities (or such Additional Sellers as may be
retained by Prudential Securities). Initially, the Interests
for each Series will be offered for a period of up to one
hundred and twenty (120) days after the date of this
Prospectus (unless extended for up to an additional 60 days in
the sole discretion of the Managing Owner). This period may
be shorter for any Series if that Series' "Subscription
Minimum" - the amount of subscription funds required before a
Series can begin trading - is reached before that date (the
"Initial Offering Period"). Each Series may commence
operations at any time following the sale of its Subscription
Minimum to at least 150 investors (see "Who May Subscribe").
The Subscription Minimum for each Series is:
- Series A - $4,000,000
- Series B - $3,000,000
- Series C - $3,000,000
The Managing Owner, Prudential Securities, the Trustee, the
Trading Advisor and their respective principals, stockholders,
directors, officers, employees and affiliates may subscribe
for Interests as a Limited Owners, and any such Interests in
a Series subscribed for by such persons will be counted for
purposes of determining whether the Series' Subscription
Minimum is sold during the Initial Offering Period.
If the maximum number of Interests in each Series (the
"Subscription Maximum") are sold during the Initial Offering
Period, the net proceeds to each Series will be:
- Series A - $34,000,000
- Series B - $33,000,000
- Series C - $33,000,000
Determination of the Subscription Maximum in each Series will
be made after taking into account the Managing Owner's
contribution. Because 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 each Series' trading
activities.
Interests are being offered for a minimum initial
subscription of $5,000 per subscriber or, for any investment
made on behalf of an IRA, for a minimum initial subscription
of $2,000. A subscriber may purchase Interests in any one or
a combination of Series, although the minimum purchase for any
single Series is $1,000. The Interests are being sold
initially at $100 per Interest. The $100-per-Interest price
reflects the full Net Asset Value per Interest of each Series
and was determined arbitrarily.
Escrow of Funds
During the Initial Offering Period, within two (2)
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 account
at Prudential Securities or the Additional Selling Agent and
deposited by Prudential Securities (or the Additional Seller)
in an escrow account in the applicable Series' name or names
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 until the funds are turned over to the Trust's
Series for trading purposes or until this offering is
terminated, in which event the subscription amounts will be
refunded, with interest. 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 that is consistent with the provisions of Rule
15c2-4 of the Securities Exchange Act of 1934, as amended.
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If the Subscription Minimum for a Series is met, the
interest earned on each Subscriber's escrowed subscription
funds will be contributed to the Series and each subscriber
will receive a commensurate number of additional Interests (or
fractions of Interests) therefor (taking into account both the
time and amount of a subscriber's deposit). All interest
earned on the proceeds of the subscription amounts held in
escrow by the Escrow Agent during the Initial Offering Period
will be.
If the Subscription Minimum for any Series is not sold
during the Initial Offering Period, then promptly, but in no
event later than ten (10) business days thereafter, the
purchase price paid by a subscriber for that Series, 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, interest checks will be transmitted to
Prudential Securities (or an Additional Seller) for deposit
into the IRA's account. 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.
Continuous Offering Period
After each Series' Subscription Minimum is sold, and until
each Series' Subscription Maximum is sold ("Continuous
Offering Period"), each Series' Interests will be offered on
a weekly basis at the Series' Net Asset Value per Interest as
of the "Valuation Point" (the close of business on Friday of
each week) immediately preceding the subscription effective
date. Additional Interests may be purchased in increments of
$100. Subscribers will be admitted as Limited Owners as of
the applicable Dealing Day of each week (usually Monday).
A Subscriber's Subscription agreement must be received by
the Managing Owner at its principal office on a timely basis
- - at least five (5) Business Days before the Dealing Day on
which the subscription is to become effective, and sufficient
funds must be in the subscriber's Prudential Securities
account on a timely basis. 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 the subscription. Funds from accepted
subscriptions will be transferred from the subscriber's
Prudential Securities account (or from the subscriber's
account at an Additional Seller) and deposited in the
applicable Series' trading account. Once the weekly Net Asset
Value per Interest is determined, a confirmation of each
accepted subscription will be sent to subscribers.
Subscription Effective Dates
The effective date of all accepted subscriptions during
the Continuous Offering Period, whether you are a new
subscriber to a Series, or an existing Limited Owner in a
Series who is purchasing additional Interests in that Series
or exchanging Interests in one Series for Interests in a
different Series (see "Exchange Privilege"), is the Dealing
Day (usually Monday) of the week following the week in which
your Subscription Agreement is received on a timely basis.
Sale of Interests
The Trust will not, directly or indirectly, pay or award
any finder's fees, commissions or other compensation as an
inducement to any investment adviser to advise a potential
Limited Owner to purchase Interests in a Series. 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 that are members of the National
Association of Securities Dealers, Inc. ("Additional U.S.
Sellers") and/or certain foreign securities firms,
collectively, "Additional Sellers"). At no additional cost to
the Trust, Prudential Securities will, at the time of a sale,
grant a per-Interest sales credit to the Prudential Securities
branch office that sells an Interest to a Limited Owner (other
than an Individual Retirement Account of an employee of
Prudential Securities). 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 hold 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 cost to the Trust, at rates that
will not generally exceed 2.5% of the Net Asset Value per
Interest. Aggregate expenses incurred in connection with
retail salaries, expenses, reimbursement, sales seminars,
bonus and sales incentives will
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not exceed the limitation imposed on such expenses by the
National Association of Securities Dealers, Inc. ("NASD").
Beginning 12 months after the month in which the sale of
each Interest is effective, Prudential Securities will, again
at no additional cost to the Trust, compensate its employees
who render certain on-going, additional services to Limited
Owners (other than an Individual Retirement Account of
employee of Prudential Securities). Employees eligible for
this compensation are those who have sold Interests and who
are registered under the Commodity Exchange Act, as amended
(the "CE Act"), and who 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.
This compensation will be paid periodically, on an Interest-
by-Interest basis, and will not generally exceed 2% of the Net
Asset Value of the applicable Series per annum. Prudential
Securities will not compensate any individual whom it no
longer employs but may compensate employees who, although not
responsible for the initial sale of an Interest, continue to
provide on-going services in place of an individual who was
responsible for the initial sale. Any employee compensated in
this manner must have the appropriate registrations and
proficiency requirements. Any Additional Sellers retained by
the Trust also will receive continuing compensation.
Employees of Additional U.S. Sellers receiving continuing
compensation are required to be registered and qualified in
the same manner as Prudential Securities employees. See "Who
May Subscribe," "Fees, Compensation and Expenses" and "Summary
of Brokerage Agreement."
Prudential Securities, as the Selling Agent for this
Offering of Interest, is an "underwriter" within the meaning
of the Securities Act of 1933. Trading Advisors are not
underwriters, promoters or organizers of the Trust.
SEGREGATED ACCOUNTS
All of the proceeds of this offering will be received in
the name of each Series and will be deposited and maintained
in cash in segregated trading accounts maintained for each
Series at Prudential Securities. Except for that portion of
any Series' assets that is deposited as margin to maintain
forward currency contract positions, each Series' assets will
be maintained in accordance with requirements of the CE Act
and the regulations thereunder, which means that assets will
be maintained either on deposit with Prudential Securities or,
for margin purposes, with the various exchanges on which the
Series are permitted to trade. Assets also may be maintained
on deposit in U.S. banks, although there is no present
intention to do so. Assets will not be maintained in foreign
banks. Prudential Securities credits each Series with 100% of
the interest earned on the average net assets of each Series
on deposit at Prudential Securities. Assets are expected to
earn interest at the Federal Funds rate, currently
approximately 5.60%, but that rate may change from time to
time. The Managing Owner will not commingle the property of
any Series with the property of another person, nor will the
Trust commingle the assets of one Series with the assets of
any other Series. The Trust will not invest in or loan funds
to any other person or entity, nor will assets from one Series
be loaned to or allocated to another Series.
FEES AND EXPENSES
CHARGES TO BE PAID BY THE TRUST
Brokerage Fee to Prudential Securities
For commodity brokerage and other administrative services,
each Series pays Prudential Securities a fixed brokerage fee.
The brokerage fee is determined at the close of business each
Friday, and the sum of the amounts determined weekly will be
paid monthly. The brokerage fee will equal, on an annual
basis, 7.75% of each Series' Net Asset Value. See "Actual and
Potential Conflicts of Interest-Affiliation of the Managing
Owner, Prudential Securities and PSGI." Payments are made
within days of the end of each month. No material change
related to the brokerage fee will be made except upon
twenty (20) Business Days' prior notice to Limited Owners, and
no increase in the brokerage fees shall take effect except at
the beginning of a month. In no event will the brokerage fee
paid by a Series exceed any limitations imposed by the NASAA
Guidelines, or be
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increased without the approval of at least
a majority in interest of the Limited Owners of the affected
Series. The fixed brokerage fee paid to Prudential
Securities, equated to an amount per round-turn transaction is
expected to be approximately $67 for Series A, $34 for Series
B and $48 for Series C.
From its fixed Brokerage Fee, Prudential Securities is
responsible for the payment of the following:
Compensation to Prudential Securities Employees
See "Sale of Interests" under "The Offering."
Out-of-Pocket Execution Costs
Prudential Securities will pay all of the floor
brokerage expenses and give-up charges, as well as
the NFA, exchange and clearing fees incurred in
connection with each Series' futures trading
activities. These costs are expected to be
approximately 1% per annum of each Series' Net Asset
Value.
In addition, Prudential Securities will credit
each Series with interest income equal to 100% of the
interest income earned on the Series' assets
deposited with it. Interest income is anticipated to
be earned at the Federal Funds rate.
Forward Transactions through Prudential-Bache Global Markets
Inc.
In connection with a Series interbank transactions,
Prudential Securities engages in foreign currency forward
transactions with a Series and PBGM, an affiliate of
Prudential Securities, as principal, will attempt to earn a
profit on the bid-ask spreads (which must be competitive) on
any foreign currency forward transactions entered into between
a Series and Prudential Securities on the one hand, and
Prudential Securities and PBGM 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
Series for maintaining such lines of credit, but will require
margin deposits with respect to forward contract transactions.
See "Risk Factors - Forward Contracts."
Management and Incentive Fees to the Trading Advisors
Under the terms of the Advisory Agreements among the
Trust, the Managing Owner and each Trading Advisor, each
Trading Advisor will receive an incentive fee (if it achieves
New High Net Trading Profits) and a management fee, in each
instance based on the applicable Series' Net Asset Value.
This incentive fee is determined as if the close of business
on the last Friday of each calendar quarter but will accrue
weekly for purposes of determining a Series' Net Asset Value
each week. See "Summary of Advisory Agreements." In no event
will the management and incentive fees to the Trading Advisor
exceed any limitations imposed by the NASAA Guidelines.
Management Fee
Each Series will pay its Trading Advisor a
management fee at an annual rate of 2% of the Series'
Net Asset Value. The management fee will be
determined at the close of business each Friday, and
the sum of the amounts determined weekly will be paid
monthly. The amounts determined weekly will reflect
profits and losses from trading activities. The
management fee will not be reduced on account of any
(i) distributions, redemptions, or reallocations made
as of the Last Friday of a week, (ii) accrued
management fees being calculated, (iii) accrued but
unpaid incentive fees for the current quarter, or
(iv) accrued but unpaid extraordinary expenses made
as of the end of any week for which the calculation
is being made.
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Incentive Fee
Each Series pays its Trading Advisor an
incentive fee on any New High Net Trading Profits
generated by it on that Series' Net Asset Value,
including realized and unrealized gains and losses
thereon as of the last Friday of each calendar
quarter (the "Incentive Measurement Date") as
follows:
- Series A - 23%
- Series B - 20%
- Series C - 20%
The incentive fee will accrue weekly. The first
incentive fee that may be due and owing to a Trading
Advisor in respect of any New High Net Trading
Profits will be due and owing as of the last Friday
of the first calendar quarter during which the
Trading Advisor has managed a Series' assets for at
least forty-five (45) days.
New High Net Trading Profits (for purposes of
calculating the Advisor's Incentive Fee only) will be
computed as of the Incentive Measurement Date and will
include such profits (as outlined below) since the
Incentive Measurement Date of the most recent preceding
calendar quarter for which an incentive fee was earned
(or, with respect to the first Incentive Fee, as of the
commencement of operations) (the "Incentive Measurement
Period"). New High Net Trading Profits for any Incentive
Measurement Period will be the net profits, if any, from
a Series trading during such period (including (i)
realized trading profit (loss) plus or minus (ii) the
change in unrealized trading profit (loss) on open
positions) and will be calculated after the determination
of a Series fixed brokerage fee and the Advisor's
Management Fee, but before deduction of any Incentive
Fees payable during the Incentive Measurement Period.
New High Net Trading Profits will not include interest
earned or credited on a Series assets and will be
adjusted (either increased or decreased, as the case may
be) to reflect Extraordinary Expenses (e.g., litigation,
costs or damages) paid during an Incentive Measurement
Period.
Effect of Fees. New High Net Trading Profits
will be generated only to the extent that the
Advisor's cumulative New High Net Trading Profits
exceed the highest level of cumulative New High Net
Trading Profits achieved by the Advisor as of a
previous Incentive Measurement Date. Except as set
forth below, net losses from prior quarters must be
recouped before New High Net Trading Profits can
again be generated.
Effect of Redemptions, Withdrawals and
Distributions. If a withdrawal or distribution
occurs at any date that is not an Incentive
Measurement Date, the date of the withdrawal or
distribution will be treated as if it were an
Incentive Measurement Date, and any Incentive Fee
accrued in respect of the withdrawn assets on such
date will be paid to the Advisor at the next
scheduled Incentive Measurement Date. New High Net
Trading Profits for an Incentive Measurement Period
shall be adjusted to exclude capital contributions to
a Series in an Incentive Measurement Period,
distributions or redemptions payable by a Series
during an Incentive Measurement Period, as well as
losses, if any, associated with withdrawals or
redemptions during the Incentive Measurement Period
and prior to the Incentive Measurement Date.
Prior Incentive Fees Paid. In calculating New
High Net Trading Profits, incentive fees paid for a
previous Incentive Measurement Period will not reduce
cumulative New High Net Trading Profits in subsequent
periods, so that a Trading Advisor does not have to
earn back its incentive fees before it can generate
additional New High Net Trading Profits. All
incentive fees paid to a Trading Advisor will be
retained by it despite any subsequent losses which
may be incurred.
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Timing of Payment
Management and Incentive Fees shall be paid
within fifteen (15) Business Days following the end
of the period for which they are payable.
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 TO BE PAID BY PRUDENTIAL SECURITIES OR ITS AFFILIATES
Prudential Securities or an affiliate is responsible for
the payment of the following charges and will not be
reimbursed by the Trust therefor:
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 for each Series will be paid by Prudential
Securities or one of its affiliates. These operational and
administrative expenses are expected to be approximately
$80,000 per Series per annum. Prudential Securities or an
affiliate also is responsible for all routine legal, auditing
and other expenses of third-party service providers to each
Series, including the Trustee. Such fees and expenses are
expected to be approximately $60,000 per Series per annum.
Organization and Offering Expenses
Expenses incurred in connection with the organization of
the Trust and the offering of Interests during the Initial and
Continuous Offering Periods are expected to be approximately
$225,000 per Series.
CHARGES PAID BY LIMITED OWNERS
Redemption Fees
Limited Owners who redeem their Interests during the first
twelve months following the effective date of their purchase
will be subject to the following redemption fees: Interests
redeemed on or before the end of the first full six months
after their effective date will be charged a redemption fee of
4% of the Net Asset Value at which they are redeemed.
Interests redeemed after six months, but on or before the end
of twelve full months after their effective date will be
charged a redemption fee of 3% of the Net Asset Value at which
they are redeemed. These redemption fees are 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 fees are not charged in
respect of Interests that are being exchanged for Interests in
other Series, or in respect of redemption proceeds that will
be concurrently invested in another Prudential Securities-
sponsored futures fund. See "Trust Agreement - Exchange
Privilege." Redemption fees 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 for each
Series, taking into account all fees and expenses enumerated
above (other than incentive fees and extraordinary expenses,
which are impossible to predict), plus interest income, is set
forth at page 13 above under the heading "Projected Break-Even
Analysis," and is expressed as a dollar amount and as a
percentage of a minimum $5,000 initial subscription.
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SUMMARY OF AGREEMENTS
ADVISORY AGREEMENTS
There is an Advisory Agreement among the Trust, the
Managing Owner and each Series' Trading Advisor by which the
Managing Owner delegated to each Trading Advisor sole
discretion and responsibility to trade commodities for a
Series. The Trading Advisor for each Series will place trades
based on its agreed-upon trading approach (the "Trading
Approach"), which is described under the heading "Series A,"
"Series B" and "Series C," and each Trading Advisor has agreed
that at least 90% of the gains and income if any, generated by
its Trading Approach will be from buying and selling
commodities or futures, forwards and options on commodities.
See "Federal Income Tax Considerations." All trading is
subject to the Trust's Trading Limitations and Policies which
are described under the heading "Trading Limitations and
Policies." Each Trading Advisor will be allocated 100% of the
proceeds from the offering of Interests during the Initial
Offering and the Continuous Offering Periods for the Series
for which it has trading responsibility.
The Advisory Agreements will be effective for one year
after trading commences and will be renewed automatically for
additional one-year terms unless terminated. Each Advisory
Agreement with a Trading Advisor will terminate automatically
(i) in the event that the Series it manages is terminated; or
(ii) if, as of the end of any Business Day, the Series' Net
Asset Value declines by 33-1/3% from the Series' Net Asset
Value (a) as of from the Series' Net Asset Value (a) as of
from the Series' Net Asset Value (a) as of the beginning of
the first day of the Advisory Agreement or (b) as of beginning
of the first day of any calendar year, in each case after
appropriate adjustment for distributions, redemptions,
reallocations and additional allocations.
Each Advisory Agreement also may be terminated at the
discretion of the Managing Owner at any time upon 30 days'
prior written notice to a Trading Advisor, or for cause on
less than 30 days' prior written notice, in the event that:
(i) the Managing Owner determines in good faith that the
Trading Advisor is unable to use its agreed upon Trading
Approach to any material extent; (ii) the Trading Advisor's
registration as a CTA under the CE Act or membership as a CTA
with the NFA is revoked, suspended, terminated or not renewed;
(iii) the Managing Owner determines in good faith that the
Trading Advisor has failed to conform and, after receipt of
written notice, continues to fail to conform in any material
respect, to (A) the Trading Limitations and Policies, or
(B) the Trading Advisor's Trading Approach; (iv) there is an
unauthorized assignment of the Advisory Agreement by the
Trading Advisor; (v) the Trading Advisor dissolves, merges or
consolidates with another entity or sells a substantial
portion of its assets, any portion of its Trading Approach
utilized by a Series or its business goodwill, in each
instance without the consent of the Managing Owner; (vi) the
Trading Advisor becomes bankrupt or insolvent; or (vii) for
any other reason if the Managing Owner determines in good
faith that the termination is essential for the protection of
the assets of a Series, including, without limitation, a good
faith determination by the Managing Owner that such Trading
Advisor has breached a material obligation to the Trust under
the Advisory Agreement relating to the trading of the Series'
Assets.
Each Trading Advisor also has 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 Advisor of an opinion of independent counsel
satisfactory to the Trading Advisor and the Trust that by
reason of the Trading Advisor's activities with respect to the
Trust, the Trading Advisor 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
CPO under the CE Act or membership as a CPO with the NFA is
revoked, suspended, terminated or not renewed; (iii) the
Managing Owner imposes additional trading limitation(s) which
the Trading Advisor does not agree to follow in its trading of
a Series' Assets; or the Managing Owner overrides trading
instructions; (iv) if the assets allocated to the Trading
Advisor decrease, for any reason, to less than $4 million in
the case of Series A, and to less than $3 million in the case
of Series B and C; (v) the Managing Owner elects to have the
Trading Advisor use a different Trading Approach and the
Trading Advisor 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).
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The business of each Trading Advisor is to manage
commodity trading accounts. See "Past Performance
Information" under "Series A," "Series B" and "Series C." In
addition to the trading management services each Trading
Advisor provides for a Series, each Trading Advisor also is
permitted to manage and trade accounts for other investors
(including other public and private commodity pools). Each
Trading Advisor may use the same Trading Approach and other
information it uses on behalf of the Trust, so long as the
Trading Advisor's ability to carry out its obligations and
duties to the Trust pursuant to the Advisory Agreement is not
materially impaired thereby.
No Trading Advisor will accept additional capital for
commodities management if doing so would have a reasonable
likelihood of resulting in the Trading Advisor's having to
modify materially its agreed upon Trading Approach in a manner
that might reasonably be expected to have a material adverse
effect on the Series for which it has trading responsibility;
the foregoing will not, however, prohibit a Trading Advisor
from accepting additional funds if to do so will require only
routine adjustments to its trading patterns in order to comply
with speculative position limits or daily trading limits.
Each Trading Advisor and its shareholders, directors,
officers, employees and agents also are permitted to trade for
their own accounts so long as their trading does not
materially impair the Trading Advisor's ability to carry out
its obligations and duties to the Trust. Limited Owners are
not permitted to inspect records of any of the Trading
Advisors or the individuals associated with the Trading
Advisors because of the confidential nature of such records.
Each Trading Advisor will, upon reasonable request, permit the
Managing Owner to review at the Trading Advisor's offices such
trading records that 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
Advisor for other accounts managed by the Trading Advisor.
None of the Trading Advisors nor their employees or
affiliates will be liable to the Managing Owner, its employees
or affiliates, except by reason of acts or omissions in
material breach of the Advisory Agreement 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, or not opposed to, the best interests of
the Trust; it being understood that all purchases and sales of
commodities are for the account and risk of the Trust, that
none of the Trading Advisors makes any guarantee of profit and
provides no protection against loss, and that the Trading
Advisors shall incur no liability for trading profits or
losses resulting therefrom except as set forth above.
Each of the Trading Advisors, and their employees and
affiliates will be indemnified by 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 any one of the Trading Advisors in connection
with any acts or omissions of the Trading Advisors relating to
their management of a Series 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 Advisor; (ii) the Trading
Advisor, and its officers, directors, shareholders and
employees, and each person controlling the Trading Advisor,
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 Series; and (iii) any such
indemnification will only be recoverable from the assets of
the Series and the Managing Owner and not from the assets of
any other Series; provided further, however, that no
indemnification shall be permitted for amounts paid in
settlement if either (A) the Trading Advisor 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
be made only 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 Series (on a pro rata basis, if applicable) 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 Advisor
undertakes to repay the advanced funds to the Series in cases
in which the foregoing indemnitees are not entitled to
indemnification under the terms of the Advisory Agreement and
(iii) in the case of advancement of expenses by the Series (on
a pro rata basis, if applicable), the indemnitee
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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
Advisor (which approval shall not be unreasonably withheld).
BROKERAGE AGREEMENT
Prudential Securities and the Trust entered into a
brokerage agreement (the "Brokerage Agreement"). As a result
Prudential Securities (i) acts as the Trust's executing and
clearing broker, (ii) acts as custodian of the Trust's assets,
(iii) assists with foreign currency, (iv) assists the Managing
Owner in the performance of its administrative functions for
the Trust, and (v) performs such other services for the Trust
as the Managing Owner may from time to time request.
As executing and clearing broker for each of the Trust's
Series, Prudential Securities receives each Trading Advisor's
orders for trades. An affiliate of Prudential Securities,
PBGM, assists with each Series' foreign currency forward
transactions. Generally, when the Trading Advisor gives an
instruction either to sell or buy a particular foreign
currency forward contract, the Trust engages in back-to-back
principal trades with Prudential Securities and its affiliate,
PBGM, in order to carry out the Trading Advisor's
instructions. In back-to-back currency transactions,
Prudential Securities, as principal, arranges bank lines of
credit and contracts with PBGM to make or to take future
delivery of specified amounts of the currency at the
negotiated price. Prudential Securities, again as principal,
in turn contracts with the Trust to make or take future
delivery of the same specified amounts of currencies at the
same price. In these transactions, Prudential Securities acts
in the best interests of the Trust.
Confirmations of all executed trades for each Series are
given to the Trust by Prudential Securities. The Brokerage
Agreement incorporates Prudential Securities' standard
Customer Agreement and related documents, which include
provisions that (i) all funds, commodities and open or cash
positions carried for each Series will be held as security for
that Series' 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.
As custodian of the Trust's assets, Prudential Securities
is responsible, among other things, for providing periodic
accountings of all dealings and actions taken by each Series
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 each Series of the
Trust.
Administrative functions provided by Prudential Securities
for each Series 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 in a Series, keeping Limited Owners apprised of
developments affecting the Series in which they are invested,
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
are performed on behalf of Prudential Securities by the
Financial Advisors who are registered under the CE Act who 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.
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. See "Fees and Expenses."
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The Brokerage Agreement is not exclusive and runs for
successive one-year terms to be renewed automatically each
year unless terminated. The Brokerage Agreement is terminable
by a Series (including by a vote of a majority-in-interest of
the Interestholders of that Series) or Prudential Securities
without penalty upon 60 days' prior written notice.
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.
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
serves as the Trust's sole trustee in the State of Delaware.
The Trustee is permitted to resign upon 60 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 the Trustee 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, 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 the assets
of the Trustee are not 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. See "Organization" and "The Trustee" under
"Description of The Trust, Trustee, Managing Owner and
Affiliates."
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," "Election or Removal of
Managing Owner," "Exercise of Rights by Limited Owners" and
"Amendments and Meetings" 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
Limited Owners having Interests representing at least a
majority of the Net Asset Value of each Series have notified
the Managing Owner that the Managing Owner is to be replaced
as the managing owner) and retain
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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, applicable federal securities and state "Blue
Sky" laws (see "Who May Subscribe") 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 refuse to recognize an assignment only if
necessary, in its judgment, to maintain the treatment of any
Series as a partnership for federal income tax purposes or to
preserve the characterization or treatment of Series income or
loss and upon receipt of an opinion of counsel supporting its
conclusion. See "Federal Income Tax Consequences - Treatment
as Partnerships." The Managing Owner will exercise this 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 that the
assignor or transferor continues to be recognized as a
beneficial owner of Series Interests 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) a contravention of
the NASAA Guidelines, as adopted in any state where the
proposed assignor and assignee reside, including the current
restriction that generally prohibits transfers or assignments
of Interests in one or more Series valued at less than $5,000
(or $2,000 in the case of IRAs) or transfers or assignments of
Interests in such amounts as would result in a Limited Owner's
or permitted assignees' having an aggregate investment in all
Series of less than $5,000 (or $2,000 in the case of IRAs),
unless the proposed transfer relates to a Limited Owner's
aggregate Interest in all Series; or (b) 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 Dealing Day immediately following the week in which
the Managing Owner receives the written instrument of
assignment. Assignments or transfers of Interests to any
other person shall be effective on the Dealing Day of the next
succeeding week, provided the Managing Owner shall have been
in receipt of the written instrument of assignment for at
least five (5) Business 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 as described above. Upon receipt by the Managing
Owner of (i) a duly executed and acknowledged, written
instrument of assignment, (ii) an opinion of the Trust's
independent counsel, rendered upon the Managing Owner's
request, that such assignment will not jeopardize a Series'
tax classification as a 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, the
Managing Owner may accept the assignee as a substituted
Limited Owner. 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 an account
of the Series' transactions or to inspect the books of the
Series. Under the Agreement an assigning Limited Owner is not
released from its 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 are responsible
for all costs relating to the assignment or transfer or their
own Interests.
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Exchange Privilege
Interests in one Series may be exchanged, without any
charge, for Interests of equivalent value of any other Series
(an "Exchange") on any Dealing Day, subject to the conditions
set forth below. An Exchange will be treated as a redemption
of Interests in one Series and a simultaneous purchase of
Interests in another Series. Each Interest purchased in an
Exchange will be issued and sold at a price per Interest equal
to 100% of the Net Asset Value of an Interest of the new
Series as of the Valuation Point immediately preceding such
Dealing Day. An exchanging Limited Owner may realize a
taxable gain or loss in connection with the Exchange. See
"Federal Income Tax Consequences - Transfers between Series."
Each Exchange is subject to satisfaction of the conditions
governing redemption on the applicable Dealing Day, as well as
the requirement that the Series being exchanged into is then
offering registered. The Net Asset Value of Interests to be
exchanged, as well as the Interests to be acquired, on the
applicable Dealing Day may be higher or lower than it is on
the date that the Request for Exchange is submitted due to the
potential fluctuation in the Net Asset Value per Interest of
each Series. In addition, see "Redemption of Interests." To
effect an Exchange, a Request for Exchange must be submitted
to the Managing Owner on a timely basis (i.e., at least five
(5) Business Days prior to the Dealing Day on which the
Exchange is to become effective). A Limited Owner must
request an Exchange on the form showing in Exhibit C.
Redemption of Interests
Interests or any portion thereof held by the Limited
Owners (or any assignee thereof) may be redeemed on the
Dealing Day of the week following the date the Managing Owner
is in receipt of a Redemption Request for at least five (5)
Business Days (a "Redemption Date"). Except as set forth
below, Interests will be redeemed at a redemption price equal
to 100% of the Net Asset Value per Interest of the applicable
Series, calculated as of the Valuation Point immediately
preceding the relevant Redemption Date. 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
Valuation Point. Interests redeemed on or before the end of
the first and second successive six-month periods after their
effective dates will be subject to a redemption fee of 4% and
3%, respectively, of the Net Asset Value at which they are
redeemed unless the redemption is part of an Exchange for
Interests in another Series offered hereby or invested in
another commodity pool sponsored by the Managing Owner. These
redemption fees will be paid to the Managing Owner.
In the event that the estimated Net Asset Value per
Interest of a Series, 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 of a Series as of the last
Valuation Point (i.e., Friday of the immediately preceding
week), Limited Owners will be given notice of such event
within seven (7) business days of such occurrence.
The Net Asset Value per Interest upon redemption on any
date also will reflect all accrued expenses for which the
applicable Series is responsible, including incentive 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 Series resulting from such redeeming Limited Owner (and
his assignee, if any) unrelated to the Series' business, as
well as the Limited Owner's liabilities for certain Series
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 (10) 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 applicable Series' commodity positions will be
liquidated to the extent necessary to effect such redemptions.
The Managing Owner may suspend temporarily any redemption if
the effect of the redemption, either alone or in conjunction
with other
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redemptions, would be to impair any Series' ability
to operate in pursuit of its objectives. The right to obtain
redemption also is contingent upon the Series' 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.
The Agreement provides that the Managing Owner also has
the right mandatorily to redeem, upon ten (10) 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 each Series in the
Trust shall expire on December 31, 20__. The Trust or, as the
case may be, any Series 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 Managing Owner's charter (and the
expiration of 90 days after the date of notice to the
Managing Owner of revocation without a reinstatement of
its charter) 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 Series or (ii) within 90 days of an Event of
Withdrawal, all the remaining Interestholders in each
Series 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 Withdrawal, if action is not
taken pursuant to (i) or (ii) and the Series are
dissolved, Limited Owners of each Series holding Interests
representing at least a majority (over 50%) of the Net
Asset Value of the Series (without regard for Interests
held by the Managing Owner or its Affiliates) may elect
to continue the business of the Trust and each Series by
forming a new business trust (the "Reconstituted Trust")
on the same terms and provisions set forth in the
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 that makes the
continued existence of the Trust or any Series in the
Trust unlawful, as the case may be;
(c) The failure to sell the Subscription Minimums of
all Series or any number of Series during the Initial
Offering Period;
(d) The suspension, revocation or termination of the
Managing Owner's registration as a CPO under the CE Act,
as amended, or membership as a CPO 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;
(e) The Trust or, as the case may be, any Series
becomes insolvent or bankrupt;
(f) The Limited Owners of each Series holding
Interests representing at least a majority (over 50%) of
the Net Asset Value of the Series (excluding Interests
held by the Managing Owner or an Affiliate) vote to
dissolve the Trust, with 90 days' prior written notice to
the Managing Owner;
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(g) The Limited Owners of each Series holding
Interests representing at least a majority (over 50%) of
the Net Asset Value of the Series (excluding Interests
held by the Managing Owner or an Affiliate) vote to
dissolve the Series with 90 days' prior written notice to
the Managing Owner;
(h) The decline of the Net Asset Value of a Series
by 50% from the Net Asset Value of the Series (i) as of
the commencement of the Series' 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; or
The Series may also dissolve, in the discretion of the
Managing Owner, upon the determination of the Managing Owner
that the Series' aggregate Net Asset Value in relation to the
operating expenses of the Series makes it unreasonable or
imprudent to continue the business of the Series. 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 any Series in the
Trust.
Upon dissolution of a Series, its affairs shall be wound
up, its liabilities discharged and its remaining assets
distributed pro rata to the Interestholders. To the extent
the Series 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.
If all Series are terminated, the Trust will terminate.
The Agreement provides that the death, legal disability,
bankruptcy or withdrawal of a Limited Owner will not terminate
or dissolve the Series (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 maintains its books on the accrual basis. The
financial statements of each Series in the Trust are audited
at least annually in accordance with Generally Accepted
Accounting Principles by independent certified public
accountants designated by the Managing Owner, in its sole
discretion. Each Limited Owner is furnished with unaudited
monthly and certified annual reports containing such
information as the CFTC and NFA require. Following the
inception of trading, current monthly and annual reports
accompany this Prospectus to all new subscribers after trading
in a Series commences. The CFTC requires that an annual
report be provided not later than one hundred and twenty (120)
days after the end of each fiscal year 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 Series and the Net
Asset Value per Interest per Series 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.
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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 a Series 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 Series 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 Series
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 Advisors, 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 is calculated on each business day as
required. Upon request, the Managing Owner will make
available to any Limited Owner the Net Asset Value per
Interest for a Series. Each Limited Owner will be notified of
any decline in the Net Asset Value per Interest of a Series to
less than fifty percent (50%) of the Net Asset Value per
Interest as of the last Valuation Point. Included in such
notification will be a description of the Limited Owners'
voting and redemption rights. See "Redemption of Interests,"
above.
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 (8) fiscal 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; and copies of any effective written trust
agreements, subscription agreements and any financial
statements of the Trust for the six (6) 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
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of the Trust during ordinary business hours. 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 Agreements or in the compensation of any party within
seven (7) 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
"Redemption of Interests," above. 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 Series held by him, as of the record date of distribution.
Any distribution shall become a liability of the Series for
purposes of calculating Net Asset Value as of the date of its
declaration until it is paid. See "Other Tax Factors -
Treatment of Cash Distributions; Redemptions; Sales," for the
income tax effect of such distributions.
Sharing of Profits and Losses
Each Interest in a Series has a tax capital account and
a book capital account. The initial balance of each will be
the amount paid for the Interest in the Series. At the end of
each week, the amount of any increase or decrease in the Net
Asset Value per Interest from the preceding week is credited
or charged against the book capital account of each Interest
for that Series.
At the end of each fiscal year of the Trust, all items of
ordinary income and deduction of each Series will be allocated
pro rata among the Interests in such Series outstanding on the
last day of each week. After such allocation is made, each
Series' 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
week 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 week will be allocated among all Interestholders who
were Interestholders during such week in proportion to their
respective book capital account balances for such week. Each
Series' 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 week 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 week will be allocated among
all Interestholders who were Interestholders during such week
in proportion to their respective book capital account
balances for such week. 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
Liability of Series
The Trust is formed in a manner such that each Series will
be liable only for obligations attributable to such Series and
Limited Owners will not be subject to the losses or
liabilities of any Series in which they have not invested. In
the event that any creditor or Limited Owner of Interests in
any particular Series asserted against the Trust a valid claim
with respect to its indebtedness or Interests, the creditor or
Limited Owner would only be able to recover money from that
particular Series and its assets and from the Managing Owner
and its assets. Accordingly, the debts, liabilities,
obligations, claims and expenses (collectively "Claims")
incurred, contracted for or otherwise existing solely with
respect to a particular Series will be enforceable only
against that particular Series and the assets of that Series
and against the Managing Owner and its
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assets, and not against any other Series or the Trust
generally or any of their respective assets. The
assets of any particular Series
include only those funds and other assets that are paid to,
held by or distributed to the Trust on account of and for the
benefit of that Series, including, without limitation, funds
delivered to the Trust for the purchase of Interests in a
Series. This limitation on liability is referred to as the
"Inter-Series Limitation on Liability." The Inter-Series
Limitation on Liability is expressly provided for under
Section 3804(a) of the Delaware Business Trust Act, 12 Del. C.
(the "DBTA"), which provides that if a trust has one or more
series, then the debts of any particular series will be
enforceable only against the assets of such series and not
against the trust generally, provided that the trust meets
certain requirements.
In furtherance of the Inter-Series Limitation on
Liability, every party, including the Limited Owners, the
Trustee and all parties providing goods or services to the
Trust, any Series or the Managing Owner on behalf of the Trust
or any Series, will consent in writing (a "Written Consent")
to: (i) the Inter-Series Limitation on Liability with respect
to such party's Claims or Interests; (ii) voluntarily reduce
the priority of its Claims against and Interests in the Trust
or any Series or their respective assets, such that its Claims
and Interests are junior in right of repayment to all other
parties' Claims against and Interests in the Trust or any
Series or their respective assets, except that (a) Interests
in the particular Series that such party purchased pursuant to
a Subscription Agreement or similar agreement and (b) Claims
against the Trust where recourse for the payment of such
Claims was, by agreement, limited to the assets of a
particular Series, will not be junior in right of repayment,
but will receive repayment from the assets of such particular
Series (but not from the assets of any other Series or the
Trust generally) equal to the treatment received by all other
creditors and Limited Owners that dealt with such Series and
(iii) a waiver of certain rights that such party may have
under the United States Bankruptcy Code, if such party held
collateral for its Claims, in the event that the Trust is a
debtor in a chapter 11 case under the United States Bankruptcy
Code, to have any deficiency Claim (i.e., the difference, if
any, between the amount of the Claim and the value of the
collateral) treated as an unsecured Claim against the Trust
generally or any other Series.
The Trust has obtained separate opinions of counsel
regarding Delaware law and federal bankruptcy law concerning
the effectiveness of the Inter-Series Limitation on Liability.
Delaware state law counsel has opined that if the Trust
complies with DBTA Section 3804(a), then the Inter-Series
Limitation on Liability will be enforceable. Delaware
counsel's opinion does not express any opinion concerning the
enforceability of the Inter-Series Limitation on Liability if
the Trust should become a debtor in a case under the United
States Bankruptcy Code. Relying on Delaware counsel's opinion
concerning the general enforceability under state law of the
Inter-Series Limitation on Liability, federal bankruptcy law
counsel has opined that, although the matter is not free from
doubt, in a case under the United States Bankruptcy Code in
which the Trust is a debtor, a court, properly applying the
law, would not disregard the Inter-Series Limitation on
Liability such that the assets of the other Series or the
Trust generally would become available to satisfy the Claims
or Interests of creditors or Limited Owners who agreed to look
solely to the assets of a particular Series with respect to
those Claims or Interests. Both opinions are subject to
various limitations, assumptions and exceptions that are
frequently taken in opinions of this kind.
Limited Owner Liability
A Limited Owner's capital contribution is subject to the
risks of the each Series' trading and 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) 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; and (ii) requires that every written
obligation of the Trust contain a statement that such
obligation may only be enforced against the assets
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of the applicable Series provided that the omission of such
disclaimer is not intended to create personal liability for
any Interestholder. 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 or the applicable Series 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.
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 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 Interests
representing at least a majority (over 50%) of the Net Asset
Value of each Series (not including Interests held by the
Managing Owner). 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 Interests
representing at least a majority (over 50%) of the Net Asset
Value of each Series (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 Interests
representing at least a majority (over 50%) of the Net Asset
Value of each Series (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 each Series of the Trust at
their Net Asset Value as of the next permissible Redemption
Date. See "Trust Agreement - Management Responsibilities of
the Managing Owner."
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 Interests representing a
majority (over 50%) of the Net Asset Value of each Series (not
including Interests held by the managing Owner) 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.
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Exercise of Rights by Limited Owners
Limited Owners holding Interests representing in excess
of fifty percent (50%) of the Net Asset Value of each Series
(excluding Interests held by the Managing Owner and its
Affiliates) must approve any material change in a Series'
trading policies, which change will not be effective without
such approval. See "Trading Limitations and Policies." In
addition, Limited Owners holding Interests representing in
excess of fifty percent (50%) of the Net Asset Value of each
Series (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
Interests representing at least ten percent (10%) of the Net
Asset Value of a Series. See "Amendments and Meetings" below.
Additionally, Limited Owners holding Interests representing at
least a majority (over 50%) of the Net Asset Value of a Series
(excluding Interests held by the Managing Owner and its
Affiliates) may vote to (i) terminate and dissolve the Series
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, (v) approve the termination of
any agreement between the Trust and the Managing Owner or its
Affiliates for any reason, without penalty, and (vi) approve
a material change in the trading policies of the Trust or a
Series, and, in the case of (iii) and (v) on sixty (60) days'
prior written notice.
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 each Series of 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 liability 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
each Series 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 of
the Managing Owner or any of its Affiliates, 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 in the
Agreement. Expenses incurred in defending a threatened or
pending action or proceeding against the Managing Owner may be
paid by each Series (on a pro rata basis, as the case may be)
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 each Series (on a
pro rata basis, as the case may be) 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 or expenses 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 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 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 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.
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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 Limited Owners holding Interests representing at least
a majority (over 50%) of the Net Asset Value of each Series
(which excludes the Interests 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 Interests equal to at least
ten percent (10%) of the Net Asset Value of each Series,
unless the proposed amendment affects only certain Series, in
which case such amendment may be proposed by Limited Owners
holding Interests equal to ten percent (10%) of the Net Asset
Value of each affected Series. Interestholders will be
supplied with a verbatim copy of any proposed amendment which
potentially could affect them and statements concerning the
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 representations, 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 that the Managing Owner
deems advisable, provided, however, that no such amendment
shall be adopted unless the amendment is not adverse to the
interests of the Limited Owners, is consistent with the
Managing Owner's management of the Trust pursuant to
Section 3806 of the Business Trust Statute, 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 each Series 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
holding Interests equal to at least ten percent (10%) of the
Net Asset Value of a Series. 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 Limited Owners holding Interests of the percentage
required to approve any such action if a meeting were held.
Fiscal Year
The Trust's fiscal year 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 December 17, 1997
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.
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THE FUTURES MARKETS
Futures and Forward Contracts
Futures contracts in the United States can be traded only
on approved exchanges and call for the future delivery of
various commodities. These contractual obligations may be
satisfied either by taking or making physical delivery or by
making an offsetting sale or purchase of a futures contract on
the same exchange. In certain instances, the S&P 500 contract
for example, delivery is made through a cash settlement.
Forward currency contracts are traded off-exchange through
banks or dealers. In such instances, the bank or dealer
generally acts as principal in the transaction and charges
"bid-ask" spreads.
Futures and forward trading is a "zero-sum" risk transfer
economic activity. For every gain, there is an equal and
offsetting loss.
Options on Futures Contracts
An option on a futures contract gives the purchaser of the
option the right but not the obligation to take a position at
a specified price (the "striking," "strike" or "exercise"
price) in a futures contract. A "call" option gives the
purchaser the right to buy the underlying futures contract,
and the purchaser of a "put" option acquires the right to take
a sell position in the underlying contract. The purchase
price of an option is referred to as its "premium." The
seller (or "writer") of an option is obligated to take a
position at a specified price opposite to the option buyer if
the option is exercised. Thus, in the case of a call option,
the seller must be prepared to sell the underlying futures
contract at the strike price if the buyer should exercise the
option. A seller of a put option, on the other hand, stands
ready to buy the underlying futures contract at the strike
price.
A call option on a futures contract is said to be
"in-the-money" if the strike price is below current market
levels and "out-of-the-money" if that price is above market.
Similarly, a put option on a futures contract is said to be
"in-the-money" if the strike price is above current market
levels and "out-of-the-money" if the strike price is below
current market levels.
Hedgers and Speculators
The two broad classifications of persons who trade futures
are "hedgers" and "speculators." Hedging is designed to
minimize the losses that may occur because of price changes,
for example, between the time a producer contracts to sell a
commodity and the time of delivery. The futures and forward
markets enable the hedger to shift the risk of price changes
to the speculator. The speculator risks capital with the hope
of making profits from such changes. Speculators, such as the
Trust, rarely take delivery of the physical commodity but
rather close out their futures positions through offsetting
futures contracts.
Exchanges; Position and Daily Limits; Margins
Each of the commodity exchanges in the United States has
an associated "clearinghouse." Once trades made between
members of an exchange have been cleared, each clearing broker
looks only to the clearinghouse for all payments in respect of
such broker's open positions. The clearinghouse "guarantee"
of performance on open positions does not run to customers.
If a member firm goes bankrupt, customers could lose money.
The CFTC and the United States exchanges have established
"speculative position limits" on the maximum positions that
each Trading Advisor may hold or control in futures contracts
on certain commodities.
Most United States exchanges limit the maximum change in
futures prices during any single trading day. Once the "daily
limit" has been reached, it becomes very difficult to execute
trades. Because these limits apply on a day-to-day basis,
they do not limit ultimate losses, but may reduce or eliminate
liquidity.
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When a position is established, "initial margin" is
deposited. On most exchanges, at the close of each trading
day, "variation margin," representing the unrealized gain or
loss on the open positions, is either credited to or debited
from a trader's account. If "variation margin" payments cause
a trader's "initial margin" to fall below "maintenance margin"
levels, a "margin call" is made, requiring the trader to
deposit additional margin or have his position closed out.
We expect each Series to trade on a number of foreign
commodity exchanges. Foreign commodity exchanges differ in
certain respects from their Unites States counterparts.
No United States agency regulates futures trading on
exchanges outside of the United States, which generally
involve 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.
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 any Series engages
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.
Trading Methods
Managed futures strategies are generally classified as
either (i) technical or fundamental or (ii) systematic or
discretionary.
Technical and Fundamental Analysis
Technical analysis operates on the theory that market
prices, momentum and patterns at any given point in time
reflect all known factors affecting the supply and demand for
a particular commodity. Consequently, technical analysis
focuses on market data as the most effective means of
attempting to predict future prices.
Fundamental analysis, in contrast, focuses on the study
of factors external to the markets, for example: weather, the
economy of a particular country, government policies, domestic
and foreign political and economic events, and changing trade
prospects. Fundamental analysis assumes that markets are
imperfect and that market mispricings can be identified.
Systematic and Discretionary Trading Approaches
A systematic trader relies on trading programs or models
to generate trading signals. Discretionary traders make
trading decisions of the basis of their own judgment.
Each approach involves inherent risks. For example,
systematic traders may incur substantial losses when
fundamental or unexpected forces dominate the markets, while
discretionary traders may overlook price trends which would
have been signaled by a system.
Trend Following
Trend-following advisors try to take advantage of major
price movements, in contrast with traders who focus on making
many small profits on short-term trades or through relative
value positions. Trend-following traders assume that most of
their trades will be unprofitable. They look for a few large
profits from big trends. During periods with no major price
movements, a trend-following trading manager is likely to have
big losses.
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Risk Control Techniques
Trading managers often adopt risk management principles.
Such principles typically restrict the size or positions taken
as well as establishing stop-loss points at which losing
positions must be liquidated. No risk control technique can
assure that big losses will be avoided.
The Programs used by each Series' Trading Advisors are
technical, systematic and trend-following. See "Series A,"
"Series B" and "Series C."
Managed Futures
A review of the above alerts an investor to the fact that
futures trading requires knowledge and expertise. It is for
this reason that Managed Futures have increased significantly
over time. [INSERT PSI INFO NEEDED TO SUPPORT SALES
LITERATURE]
Regulation of Markets
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.
Commodity Futures Trading Commission
The CFTC is an independent governmental agency that
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 to promote 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, CPOs 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.
The CFTC has adopted extensive regulations affecting CPOs
(such as the Managing Owner) and commodity trading advisors
(such as the Trading Advisors) 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
CPOs. 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.
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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.
National Futures Association
Substantially all CPOs CTAs, 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, CPOs and commodity trading advisors; (ii) arbitrating
commodity futures disputes between customers and NFA members;
(iii) conducting disciplinary proceedings; and
(iv) registering futures commission merchants, CPOs, commodity
trading advisors, introducing brokers and their respective
associated persons, and floor brokers.
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.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the federal income
tax consequences to Limited Owners of an investment in a
Series of the Trust. It is not intended as a complete
analysis of all possible tax considerations in acquiring,
holding and disposing of an interest in a Series and,
therefore, is not a substitute for careful tax planning by
each investor, particularly since the federal, state and local
income tax consequences of an investment may not be the same
for all taxpayers. Except as otherwise discussed herein, this
discussion has been prepared on the assumption that a
Limited Owner will be an individual who is a citizen or
resident of the United States. Prospective investors should
consult their own tax advisors with respect to the tax
consequences (including state and local and foreign tax
consequences) of an investment in a Series.
This discussion of federal income tax consequences below
is based upon existing law, contained in the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated under the Code, administrative rulings
and other pronouncements, and court decisions as of the date
hereof. The existing law, as currently interpreted, is
subject to change by either new legislation, or by differing
interpretations of existing law in regulations, administrative
pronouncements or court decisions, any of which could, by
retroactive application or otherwise, adversely affect a
Limited Owner's investment in the Trust. 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.
Opinion of Counsel
The Trust has obtained an opinion from Rosenman & Colin
LLP ("Tax Counsel") concerning the treatment of each Series in
the Trust as a partnership for federal income tax purposes.
See "Treatment as Partnerships" below. The opinion also
states that the discussion of federal income tax consequences
set forth in this Prospectus under the heading "Federal 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
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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.
Treatment as Partnerships
As described below, so long as each Series in the Trust
is classified as a partnership for federal income tax
purposes, no federal income tax will be payable by it as an
entity. Instead, each Limited Owner will be required to take
into account his distributive share of the items of income,
gain, loss, deduction and credit of the Series in which he had
invested, whether or not cash is distributed to that Limited
Owner during the taxable year. Under currently effective
Treasury Regulations, each Series of the Trust will be
classified as a partnership for federal income tax purposes
unless it elects to be taxed as a corporation. (See Treas.
Reg. SS 301.7701-2,3.) The Series will not make such
elections.
The Trust will be structured as a "Series fund," issuing
and selling its securities in multiple Series. Each Series
will be managed separately and will have a distinct investment
objective, a separately segregated asset pool, and a separate
trading account in its own name. Furthermore, the rights of
the holders in each Series are limited in redemption,
dissolution or liquidation of a Series, or of the Trust as a
whole, to the underlying assets of only that Series in which
they invested. Based on these facts, the Trust will not be
treated as an entity and each Series will be treated as a
separate partnership for federal income tax purposes. (See
Ltr. Ruls. 9552022 (September 28, 1995), 9450030 (September
19, 1994), 9435015 (June 3, 1994) and 9435017 (June 3, 1994)
wherein the IRS ruled that the applicable Series that
requested the ruling will be treated as a separate entity and
as a partnership for federal income tax purposes. (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 whether each Series will be treated as a separate
partnership. In this regard, the Managing Owner has been
advised by Tax Counsel, based on its review of the structure
of each Series, that each Series should qualify as a separate
partnership. Accordingly, any transfers from one Series to
another Series will be treated as a total liquidation of a
partnership interest and a contribution to a different
partnership or a distribution to the partner and a
contribution to a different partnership. Any partial
distribution or distribution treated as a total liquidation to
which this section applies will be treated in accordance with
other distributions. See "Other Tax Factors - Treatment of
Cash Distributions; Redemptions; Sales."
An entity otherwise classified as a partnership will
nevertheless be taxable as a corporation if it is a "publicly
traded partnership" (as defined in Section 7704 of the Code),
and fails to meet certain "Qualifying Income" requirements
described below. 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
exchanged or redeemed weekly.
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The Treasury Regulations provide "safe harbors" for
certain redemption arrangements. The redemption terms of the
Trust Agreement with respect to each Series will not satisfy
any of these safe harbors and Tax Counsel is unable to give
any assurances that each Series will not be publicly traded
partnerships. Even if a partnership is considered to be
publicly traded, however, 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, 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. The Managing
Owner believes that it is likely, but not certain, that each
Series will meet the "Qualifying Income" test.
The Internal Revenue Service recently proposed regulations
on the treatment of certain investment income as Qualifying
Income. These proposed regulations, which are subject to change
prior to adoption in final form, generally expand the definition
of Qualifying Income. In connection with requests for comments,
the preamble to the proposed regulations states that with regard
to the measurement of gain in determining whether 90 percent or
more of the partnership's gross income is Qualifying Income where
a partnership makes a mixed straddle account election, "[t]he IRS
believes that use of the daily mark-to-market method provided for
by section 1.1092(b)-4T would be inconsistent with the
congressional purpose behind section 7704." The various Series
intend to elect to establish mixed straddle accounts to determine
net gain or net loss on a daily basis (See "(f) Mixed Straddle
Rules" below). However, because of the Series' Trading
Approaches and the statement above relating only to the
computation and not character of gain, this position in the
preamble, even if adopted in final regulations, would not be
expected to adversely affect the Series' treatment as
partnerships.
Based on the facts set forth in this Prospectus and the
Managing Owner's representations set forth earlier, the Trust
and each of the Series in the Trust do not expect to be taxed
as corporations under the provisions of section 7704 of the
Code even if they 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" and "Summary of Advisory
Agreements"), 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 each Series of the Trust
should be taxed as a corporation. The continued treatment of
each Series as partnerships is also 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.
If each Series of the Trust were to be treated for federal
income tax purposes as a corporation, income, deductions,
gains and losses of each Series would be reflected only on its
tax return rather than being passed through to the Limited
Owners. In such event, each Series 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, the Limited Owners would not be entitled to take
into account their distributive shares of the Partnership's
losses and deductions in computing their taxable income, nor
would they be subject to tax on the Partnership's income.
Distributions would be taxed to a Limited Owner, first to the
extent of current or accumulated earnings and profits, as
ordinary income and second, to the extent any remaining
distributions exceed the Limited Owner's basis in his
Interest, as capital gain. Moreover, distributions would not
be deductible by the Trust or each of the Series in the Trust.
Overall, this treatment would substantially reduce the
anticipated benefits of an investment in the Partnership. 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.
Each Series of 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.
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Each Limited Owner will be required to report and
determine his tax liability with respect to his share of the
Series' taxable income, if any, from the Series in which the
Owner has an Interest, 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 (3), (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 returns for each Series are subject to review by the
IRS and other taxing authorities, which may dispute the
Series' tax positions. There can be no assurance that these
authorities will not make adjustments in the tax figures
reported in the Series' returns. Any adjustments resulting
from an audit may require each Limited Owner to file an
amended tax return, pay additional income taxes and interest,
which generally is not deductible, and possibly result in an
audit of the Limited Owner's own return. Any audit of a
Limited Owner's return could result in adjustments of
non-Series, as well as Series, income and deductions.
Generally, upon an IRS audit, the tax treatment of Series'
items will be determined at the Series level, and such
treatment generally will be binding on the Limited Owners.
If a Series' tax return were audited, the Series would
probably incur legal and accounting expenses in seeking to
sustain the Series' position. The payment of these expenses
would reduce cash otherwise available for distribution. In
addition, the Limited Owners might incur personal legal and
accounting expenses in connection with any amendment or audit
of their returns.
Each Limited Owner will generally be required to file its
tax returns in a manner consistent with the information
returns filed by the Series or be subject to possible
penalties, unless the Limited Owner files a statement with its
tax return on IRS Form 8082 describing any inconsistency.
Pursuant to the Trust Agreement, the Managing Owner will be
each Series' "Tax Matters Partner" and will have considerable
authority with respect to the tax treatment of Series items
and procedural rights of the Limited Owners. The Managing
Owner will be able to extend the statute of limitations on
behalf of all Limited Owners with respect to Series items, and
to effect settlements with the IRS binding all Limited Owners
to pay tax deficiencies. A Limited Owner may file with the
IRS a statement that the Managing Owner does not have the
authority to enter into a settlement agreement on behalf of
that Limited Owner.
The Code's partnership audit rules also restrict the right
of a Limited Owner with a less than one percent interest in
the Series to receive notice of and to participate in
proceedings dealing with the tax treatment of Series' items.
The Managing Owner intends to keep all Limited Owners
informed of these proceedings.
(3) Calculation of "Adjusted Basis"; "At Risk" Limitation.
A Limited Owner's tax basis in its Interest will include
the amount of money that the Limited Owner contributes to the
Series, increased principally by (i) any additional
contributions made by the Limited Owner to the Series and (ii)
the Limited Owner's distributive share of any Series income,
and decreased, but not below zero, principally by (x)
distributions from the Series to the Limited Owner and (y) the
amount of his distributive share of Series' losses and
deductions.
A Limited Owner may deduct his share of any losses of the
Series of the Trust in which he has an Interest (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 Series and reduced, but not below zero, by (a) the amount
of his share of losses of the Series, (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
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in the Series (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 Series' losses for
any year in excess of such Limited Owner's amount "at risk" in
the Series' activities as of the end of such year. If a
Limited Owner owns an Interest in more than one Series, losses
from a specific Series may only be applied against the Limited
Owner's amount "at risk" in the same Series. 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 from the
Series in which he has an interest, and reduced by his share
of Trust losses, deductions and distributions from the Series
in which he has an interest, 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 a Series in 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 of
his Interests in the Series that he is redeeming, 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 in the same Series 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, (ii) certain items of accrued
interest and market discount income, and (iii) to the extent
gain is attributable to property described in Section 751 of
the Code, in which event the gain will be treated as ordinary
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 eighteen months, as mid-term capital gain
if the Interests so disposed of have been held for more than
one year and less than eighteen months, 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.
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(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 (short-term, mid-term and long-term).
The top tax rate currently applicable to net capital gain
(i.e., the excess of net long-term capital gain and mid-term
capital gain over net short-term capital loss) of
non-corporate taxpayers is 20% if the asset is held for more
than eighteen months, and 28% if the asset is held for more
than twelve and up to eighteen months, 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 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.
(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 Series' 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
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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 (20% maximum rate) 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 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
a Series of 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, each Series
in 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 each
Series in the Trust will qualify as and remain a "qualified
fund" except possibly in a year, if any, in which an event of
trading termination occurs. (Each Series in the Trust would
also 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 any Series in 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 a Series 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 eighteen months, mid-term capital gains and losses if
held for more than one year and less than eighteen months, 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.
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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 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 trading 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.
(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.
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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 instances 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 disposition 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 "The Offering
- - Escrow of Funds" and "Subscription Procedure and Escrow of
Funds."
(7) Deductibility of Investment Expenses.
If each Series in 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, each Series in
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 each Series' information return that each Series 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
each Series and its contemplated activities, however, is not
free from doubt at the present time, and each Series 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 Series' 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 nature of
each Series' trading activities in the particular year, and
may vary (as a result of changes in the each Series'
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
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income (which could not be offset by passive losses) rather
than as passive income. Temporary Treasury Regulation S1.469-1T(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 S1.469-1T(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 each Series 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 weekly 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 Agreement. See "Trust Agreement - Sharing of Profits
and Losses."
(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 Limited Owners who have realized economic gains, may
produce similar effects under certain circumstances in the
absence of such an election.
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(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 required to include in
its computation of its UBTI, its pro rata share of the
portion, if any, of the Trust's taxable income, from the
Series in which it owns an interest, 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
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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 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 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 U.S. branch profits tax at a rate
of 30% (or lower treaty rate, if applicable). Also, in that
event, the Trust could
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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. Also, 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 local
income and foreign 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. 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.
(17) State and Local Taxes; Foreign Taxes.
In addition to the federal income tax consequences
described above, the Trust, each Series in 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 any
Series in the Trust would reduce the Net Asset Value of that
Series of the Trust.
The Trust and each Series of the Trust should not be
subject to entity-level tax in New York so long as each Series
in 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.
Each Limited Owner may be liable for state and local
income taxes payable in the state or locality in which he is
a resident or doing business or in a state or locality in
which the Partnership conducts or is deemed to conduct
business. The income tax laws of each state and locality may
differ from the above discussion of federal income tax laws.
Prospective Limited Owners, particularly corporate Limited
Owners, should consult their own tax counsel with respect to
potential state and local income taxes payable as a result of
an investment in the Partnership.
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The Trust's transactions on foreign exchanges may cause
the Trust, the Series involved in the transaction 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.
* * *
IMPORTANCE OF OBTAINING PROFESSIONAL ADVICE
The foregoing analysis is not intended as a substitute for
careful tax planning, particularly because the income tax
consequences of an investment in the Trust and of securities
transactions are complex, and certain of these consequences
would vary significantly with the particular situation of each
Limited Owner. Accordingly, prospective investors are
strongly urged to consult their own tax advisors regarding the
possible tax consequences of an investment in the Trust
including, for example, the alternative minimum tax.
LEGAL MATTERS
Legal matters in connection with this offering have been
passed upon for the Trust, the Managing Owner and Prudential
Securities by 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. registration statements for
each Series of Interests on Form S-1, as amended (the
"Registration Statements"), with respect to the securities
offered hereby. This Prospectus does not contain all of the
information set forth in such Registration Statements, 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 Statements have 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 Statements, including the exhibits thereto, for
further information with respect to the Trust and each Series'
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 of financial condition and related
statement of operations and of changes in trust capital of
World Monitor Trust included in this Prospectus have been
audited by various independent accountants. The periods
covered by these audits are indicated in the individual
accountants' reports. Such financial statements have been so
included in reliance on the report of the independent
accountants given on the authority of such firms as experts in
auditing and accounting.
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The statement of financial condition of Prudential
Securities Futures Management Inc. included in this Prospectus
has been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The statement of financial condition of Diversified
Futures Trust I included in this Prospectus has been so
included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The statements referred to under "Liabilities" have been
reviewed by Rosenman & Colin LLP and are included in reliance
upon their authority as experts in federal bankruptcy law in
the United States.
The statements referred to under "Federal Income Tax
Consequences" have been reviewed by Rosenman & Colin LLP and
are included in reliance upon their authority as experts in
tax law in the United States.
GLOSSARY OF TERMS
The following glossary may assist prospective investors
in understanding the terms used in this Prospectus:
Additional Seller. Means certain selected Additional U.S.
Sellers and/or certain foreign securities firms retained by
the Managing Owner.
Additional U.S. Seller. Means certain selected brokers
or dealers retained by the Managing Owner that are members of
the National Association of Securities Dealers, Inc.
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.
Business Day. A day other than Saturday, Sunday or other
day when banks and/or commodities exchanges in the city of New
York or the city of Wilmington are authorized or obligated by
law or executive order to close.
Clearing Broker. Any person who engages in the business
of effecting transactions in commodities contracts for the
account of the Trust. Prudential Securities acts in this
capacity for the Trust.
Code. The Internal Revenue Code of 1986, as amended.
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.
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.
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Continuous Offering. The period following the conclusion
of the Initial Offering Period on May 1, 1996 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 January 31, 1998.
Contract Month. The month in which a futures contract may
be satisfied by making or accepting delivery of the underlying
commodity.
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.
Dealing Day. The first Business Day after a Valuation
Point occurs.
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.
Extraordinary Expenses. Pursuant to Section 4.7(a) of the
Trust Agreement, Extraordinary Expenses of the Trust and each
Series include, but are not limited to, legal claims and
liabilities and litigation costs and any permitted
indemnification associated therewith.
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 that commenced as of
the date of this Prospectus and continues for a period of up
to 120 thereafter.
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.
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Limited Owner. A Limited Owner is any person or entity
acting in his, her or its capacity as an Interest-holder in
one or more Series 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.
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. 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 Advisor."
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 B).
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.
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Redemption Date. Means the Dealing Day of the week
following the date the Managing Owner is in receipt of a
Redemption Request for a least five (5) Business Days upon
which Interests held by Interestholders may be redeemed.
Secular trend. Intermediate upswings and downswings in
price that over a long period of time constitutes a big move.
Series. Means a separate series of the Trust as provided
in Sections 3806(b)(2) and 3804 of the Delaware Business Trust
Statute, the Interests of which shall be beneficial interests
in the Trust Estate separately identified with and belonging
to such Series.
Short contract. A contract to make delivery of (sell) a
specified amount of a commodity at a future date at a
specified price.
Special Redemption Date. The twentieth (20th) Business
Day following the notification by the Managing Owner to the
Limited Owners of a decline in the Net Asset Value per
Interest of any Series as of the last day of the immediately
preceding month.
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 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.
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
Advisor-Description of the Trading Advisor's Trading
Approach."
Trading Advisor. Any entity or entities acting in its
capacity as a commodity trading advisor to the Trust and any
substitute(s) therefor as provided herein.
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 Point. The close of business on Friday of each
week, or such other day as may be determined by the Managing
Owner.
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INDEX TO
CERTAIN FINANCIAL INFORMATION
Page
WORLD MONITOR TRUST
Statement of Financial Condition as of December __,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Statement of Financial Condition. . . . . . . . . . . . . . .
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants. . . . . . . . . . . . . . . . . . .
Statement of Financial Condition as of September 26,
1997 (unaudited)
and December 31, 1996 [(audited)]. . . . . . . . . . . . . . . . . .
Notes to Statements of Financial Condition . . . . . . . . . . . . . .
DIVERSIFIED FUTURES TRUST I
Report of Independent Accountants. . . . . . . . . . . . . . . . . . .
Statement of Financial Condition as of September 30, 1997
(unaudited) and December 31, 1996 [(audited)]. . . . . . . . . . . .
Notes to Statements of Financial Condition . . . . . . . . . . . . . .
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<PAGE>
Form of Report of Independent Accountants
____________, 1998
To the Managing Owner and
Limited Owners of
World Monitor Trust
In our opinion, the accompanying statement of financial
condition and the related statements of operations and of
changes in trust capital present fairly, in all material
respects, the financial position of World Monitor Trust (the
"Trust") at _________, 1997 and the changes in its trust
capital for the year ended December 31, 1997, in conformity
with generally accepted accounting principles. These
financial statements are the responsibility of the managing
owner; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our
audit of these statements in accordance with generally
accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by the managing owner, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.
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WORLD MONITOR TRUST
(a Delaware Business Trust)
FORM OF STATEMENTS OF FINANCIAL CONDITION
December 31, 1997
ASSETS SERIES A SERIES B SERIES C
Cash $ 1,000 $ 1,000 $ 1,000
TRUST CAPITAL
General Interests
(10 Interests issued
and outstanding
for each Series A, B and
C, respectively) $ 1,000 $ 1,000 $ 1,000
The accompanying notes are an integral part of these statements.
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WORLD MONITOR TRUST
(a Delaware Business Trust)
Form of Notes to Statements of Financial Condition
December 31, 1997
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust (the "Trust") is a business trust
organized under the laws of Delaware on December , 1997. The
Trust has not yet commenced operations. The Trust will
terminate on December 31, 20__ unless terminated sooner as
provided in the Trust Agreement. The Trust was formed to
engage in the speculative trading of a diversified portfolio
of futures, forward and options contracts and may, from time
to time, engage in cash and spot transactions. The trustee of
the Trust is Wilmington Trust Company. The managing owner is
Prudential Securities Futures Management Inc. (the "Managing
Owner"), a wholly-owned subsidiary of Prudential Securities
Incorporated ("PSI") which, in turn, is a wholly-owned
subsidiary of Prudential Securities Group Inc. PSI is the
selling agent for the Trust as well as the commodity broker
("Commodity Broker") of the Trust.
The Offering
Beneficial interests in the Trust ("Interests") will be
offered pursuant to Rule 415 of Regulation C under the
Securities Act of 1933 in three separate and distinct series
("Series"): Series A, B and C. The assets of each Series will
be segregated from the other Series, separately valued and
independently managed.
Up to $100,000,000 of Interests ("Subscription Maximum"),
$34,000,000 for Series A and $33,000,000 each for Series B and
C, are being offered to investors who meet certain established
suitability standards, with a minimum initial subscription of
$5,000 per subscriber or, for any investment made on behalf of
an individual retirement account ("IRA"), the minimum initial
subscription is $2,000. A subscriber may purchase Interests in
any one or a combination of Series, although the minimum
purchase for any single Series is $1,000.
Initially, the Interests for each Series will be offered for
a period of up to 120 days after the date of the Prospectus
("Initial Offering Period"). Each Series may commence
operations at any time if the minimum amount of Interests have
been sold before the Initial Offering Period is reached
("Subscription Minimum"). The Subscription Minimum is
$4,000,000 for Series A and $3,000,000 each for Series B and
C. If the Subscription Minimum is not sold for any Series
during the Initial Offering Period, the subscription amount
(which will be held in escrow) plus interest will be returned
to the subscriber. The price per Interest during the Initial
Offering Period is $100. Thereafter, or until the Subscription
Maximum for each Series is sold ("Continuous Offering
Period"), each Series' Interests will continue to be offered
on a weekly basis at the Net Asset Value per Interest.
Additional purchases may be made in $100 increments.
To date, $1,000 has been contributed to each Series by the
Managing Owner and in return the Managing Owner has received
10 General Interests. The Managing Owner is required to
maintain at least a 1% interest in the capital, profits and
losses of each Series so long as it is acting as the Managing
Owner, and it will make such contributions (and in return will
receive such General Interests) as are necessary to effect
this requirement.
The Trading Advisors
Each Series will have its own professional commodity trading
advisor that will make that Series' trading decisions. The
Managing Owner, on behalf of the Trust, intends to enter into
advisory agreements with Eagle Trading Systems, Inc., Eclipse
Capital Management, Inc. and Hyman Beck & Company, Inc. (each
a "Trading Advisor") to make the trading decisions for Series
A, B and C, respectively. Each advisory agreement may be
terminated at the discretion of the Managing Owner. The
Managing Owner will allocate 100% of the proceeds from the
initial offering of each Series' Interests to the Trading
Advisor for that Series and it is currently contemplated that
each Series' Trading Advisor will continue to be allocated
100% of additional capital raised from that Series during the
continuous offering of Interests.
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Exchanges, Redemptions and Termination
Once trading commences, Interests owned in one Series may be
exchanged, without any charge, for Interests of one or more
other Series on a weekly basis for as long as Interests in
those Series are being offered to the public. Exchanges are
made at the applicable Series' then current net asset value
per Interest as of the close of business on the Friday
immediately preceding the week in which the exchange request
is effected. The exchange of Interests will be treated as a
redemption of Interests in one Series (with the related tax
consequences) and the simultaneous purchase of Interests in
the Series exchanged into.
Redemptions will be permitted on a weekly basis. Interests
redeemed on or before the end of the first and second
successive six-month periods after their effective dates will
be subject to a redemption fee of 4% and 3%, respectively, of
the net asset value at which they are redeemed. Redemption
fees will be paid to the Managing Owner.
In the event that the estimated net asset value per Interest
of a Series at the end of any business day,
after adjustments for distributions, declines by
50% or more since the Friday of the immediately preceding week,
the Managing Owner will give notice to the limited owners
of that Series within 7 days of such decline
B. Summary of Significant Accounting Policies
Basis of Accounting
The books and records of each Series will be maintained on
the accrual basis of accounting in accordance with generally
accepted accounting principles.
Income Taxes
Each Series is not required to provide for, or pay, any
federal or state income taxes. Income tax attributes that
arise from their operations will be passed directly to the
individual limited owners including the Managing Owner. Each
Series may be subject to other state and local taxes in
jurisdictions in which they operate.
Profit and loss allocations and distributions
Each Series intends to allocate profits and losses for both
financial and tax reporting purposes to the owners weekly on
a pro-rata basis based on each owner's Interests outstanding
during the week. Distributions will be made at the sole
discretion of the Managing Owner on a pro-rata basis in
accordance with the respective capital balances of the owners;
however, the Managing Owner does not intend to make any
distributions.
C. Fees
Organizational, Offering, General and Administrative Costs
PSI or its affiliates will pay the costs of organizing each
Series and offering their Interests as well as administrative
costs incurred by the Managing Owner or its affiliates for
services it performs for each Series. These costs include, but
are not limited to, those discussed in Note D below. Routine
legal, audit, postage, and other routine third party
administrative costs also will be paid by PSI or its
affiliates.
Management and Incentive fees
Each Series will pay its Trading Advisor a management fee at
an annual rate of 2% of each Series' net asset value allocated
to its management. The management fee will be determined
weekly and the sum of such weekly amounts will be paid
monthly. Each Series will also pay its Trading Advisor a
quarterly incentive fee equal to
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<PAGE>
23% for each of Series A and C and 20%
for Series B of such Trading Advisor's "New High Net
Trading Profits" (as defined in each Advisory Agreement). The
incentive fee will also accrue weekly.
Commissions
The Managing Owner and the Trust intend to enter into a
brokerage agreement (the "Brokerage Agreement") with PSI to
act as Commodity Broker for each Series whereby each Series
will pay a fixed fee for brokerage services rendered at an
annual rate of 7.75% of each Series' net asset value. The fee
will be determined weekly and the sum of such weekly amounts
will be paid monthly. From this fee, PSI will pay all
organizational, offering, general and administrative expenses
discussed above, execution costs (i.e., floor brokerage
expenses, give-up charges and NFA, clearing and exchange
fees), as well as compensation to employees who sell Interests
in each Series.
D. Related Parties
The Managing Owner or its affiliates will perform services
for each Series that will include but are not limited to:
brokerage services, accounting and financial management,
investor communications, printing and other administrative
services.
All of the proceeds of this offering will be received in the
name of each Series and will be deposited and maintained in
cash in segregated trading accounts maintained for each Series
at PSI. Except for that portion of any Series' assets that is
deposited as margin to maintain forward currency contract
positions, each Series' assets will be maintained either on
deposit with PSI or, for margin purposes, with the various
exchanges on which the Series are permitted to trade. PSI will
credit each Series with 100% of the interest earned on the
average net assets of each Series on deposit at PSI. Each
Series will engage in foreign currency financial transactions
with PSI, which in turn will engage, as a principal, in
back-to-back transactions with an affiliate of PSI, who will
attempt to earn a profit by charging a competitive spread on
such transactions.
E. Credit and Market Risk
Since each Series' business will be to trade futures,
forward and options contracts, its capital will be 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 each
Series' unrealized gain (loss) on open commodity positions
reflected in the statements of financial condition. Each
Series' exposure to market risk will be influenced by a number
of factors including the relationships among the contracts to
be held by each Series as well as the liquidity of the markets
in which the contracts are to be 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, each Series must rely solely on
the credit of their broker (PSI) with respect to forward
transactions. Each Series will present unrealized gains and
losses on open forward positions as a net amount in the
statements of financial condition because they will enter into
a master netting agreement with PSI.
The Managing Owner will attempt to minimize both credit and
market risks by requiring each Series' Trading Advisor 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, PSI will be the sole counterparty
or broker); limiting the amount of margin or premium required
for any one commodity or all commodities; and generally
limiting transactions to contracts which are traded in
sufficient volume to permit the taking and liquidating of
positions. The Managing
126
<PAGE>
Owner may impose additional
restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the
Trading Advisors as it, in good faith, deems to be in the best
interests of each Series.
PSI, when acting as each Series' futures commission merchant
in accepting orders for the purchase or sale of domestic
futures and options contracts, will be required by Commodity
Futures Trading Commission ('CFTC') regulations to separately
account for and segregate as belonging to each Series all
assets of each Series relating to domestic futures and options
trading and not to commingle such assets with other assets of
PSI. Part 30.7 of the CFTC regulations also will require PSI
to secure assets of each Series related to foreign futures and
options trading. There are no segregation requirements for
assets related to forward trading.
127
<PAGE>
<PAGE>
Form of Report of Independent Accountants
____________, 1998
To the Board of Directors of
Prudential Securities Futures Management Inc.:
In our opinion, the accompanying statement of financial
condition presents fairly, in all material respects, the
financial position of Prudential Securities Futures Management
Inc. (the "Company") at December 31, 1996, in conformity with
generally accepted accounting principles. 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 of this
statement in accordance with generally accepted auditing
standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall statement of financial condition presentation. We
believe that our audit of the statement of financial condition
provides a reasonable basis for the opinion expressed above.
128
<PAGE>
<PAGE>
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
<TABLE>
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
SEPTEMBER 26, DECEMBER 31,
1997 1996
(unaudited)
<S> <C> <C>
Assets
Cash $ 11,229 $ 1,583
Investments in partnerships 2,009,196 1,446,501
Receivable from partnerships 0 126,860
Other receivables 17,098 77,000
Total assets $2,037,523 $1,651,944
Liabilities & Stockholder's Equity
Liabilities
Due to Parent and affiliates, net $2,008,658
$1,544,668
Accounts payable and accrued expenses 10,626
13,880
Total liabilities 2,019,284 1,558,548
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 9,600,000 9,600,000
Retained earnings 18,139 93,296
9,618,239 9,693,396
Less : Noninterest-bearing
demand notes due from
Prudential Securities Group Inc. (9,600,000) (9,600,000)
Total stockholder's equity 18,239 93,396
Total liabilities and
stockholder's equity $2,037,523 $1,651,944
</TABLE>
The accompanying notes are an integral part of these statements.
129
<PAGE>
<PAGE>
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Notes to Statements of Financial Condition
September 26, 1997 (unaudited) and December 31, 1996
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"), as well as an investment
manager of open-ended investment companies, all of which were
formed to engage in the speculative trading of commodity
futures, forward and option contracts pursuant to trading
systems developed by independent commodity trading advisors.
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
and certain combined and unitary state and local returns.
Pursuant to the tax allocation arrangements, total federal and
state and local tax expense is determined on a separate
company basis. Members with losses record tax benefits to the
extent such losses are recognized in the consolidated federal
and state and local tax provisions.
The Company utilizes the asset and liability method for
calculating income taxes. At September 26, 1997, the
Company's federal and state income tax payables (due to
affiliate) were $11,519 and $3,886, respectively. At December
31, 1996, the Company's federal and state income tax
receivables (due from affiliate) were $49,128 and $15,686,
respectively.
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:
130
<PAGE>
<TABLE>
<CAPTION>
Sept. 26, 1997 Dec. 31, 1996
<S> <C> <C> <C> <C>
Diversified Futures Trust I 668,399 1.0% 715,012 1.0%
Willowbridge Strategic Trust 504,006 1.0% 278,600 1.0%
Diversified Futures Trust II 393,759 1.0% 1,000 100%
Prudential-Bache Capital Return
Futures Fund 2, L.P 318,701 1.0% 310,207 1.0%
Prudential Securities Aggressive
Growth Fund L.P. 81,786 1.1% 89,886 1.0%
Prudential Securities Foreign
Financials Fund, L.P. 25,148 1.1% 35,246 1.1%
Signet Partners II, L.P. 15,397 1.4% 14,231 1.1%
Others 2,000 100% 2,319 100%
$2,009,196 $1,446,501
</TABLE>
The following represents combined condensed financial
information for the Partnerships in which the Company has an
investment:
<TABLE>
<CAPTION>
Sept. 26, 1997 Dec. 31,1996
<S> <C> <C>
Assets $196,032,786 $156,911,097
Liabilities $ 5,929,289 $ 13,807,338
Partners' Capital 190,103,497 93,115,440
Total $196,032,786 $143,103,759
</TABLE>
D. Related Parties
The Company has an interest-bearing loan payable to PSGI in
the amount of $1,984,043 at September 26, 1997 ($1,353,202 at
December 31, 1996) 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 $246,818 at December 31, 1996 and is included in Due
to Parent and affiliates). The amount due from the
Partnerships related to these services ($31,267 at December
31, 1996) is included in Receivable from partnerships.
The Company's officers and directors are also officers of
PSI.
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 $9,600,000 at September 26, 1997
and at December 31, 1996. 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 $5,300,000 at September 26, 1997
($7,500,000 at December 31, 1996).
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.
131
<PAGE>
<PAGE>
Form of Report of Independent Accountants
_______________, 1998
To the Managing Owner of
Interest Holders of
Diversified Futures Trust I
In our opinion, the accompanying statement of financial
condition presents fairly, in all material respects, the
financial position of Diversified Futures Trust I (the
"Trust") at December 31, 1996, in conformity with generally
accepted accounting principles. This financial statement is
the responsibility of the managing owner; our responsibility
is to express an opinion on this financial statement based on
our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by
the managing owner, and evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.<PAGE>
132
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Equity in commodity trading
accounts:
Cash $63,189,766 $79,506,881
Net unrealized gain on open
commodity positions 3,139,377 1,513,343
Net equity 66,329,143 81,020,224
Other receivable 33,115 20,607
Total assets $66,362,258 $81,040,831
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $1,673,230 $7,223,685
Management fee payable 221,207 270,136
Incentive fee payable --- 2,055,497
Total liabilities 1,894,437 9,549,318
Commitments
Trust capital
Limited interests (358,843.990 and
401,784.703 Interests outstanding) 63,823,090 70,776,499
General interests (3,625 and 4,059
Interests outstanding) 644,731 715,014
Total trust capital 64,467,821 71,491,513
Total liabilities and trust
capital $66,362,25 $81,040,831
Net Asset Value per Limited and
General Interests $177.86 $176.16
</TABLE>
The accompanying notes are an integral part of these statements
133
<PAGE>
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
(Unaudited with respect to September 30, 1997)
A. General
Diversified Futures Trust I (the "Trust") was organized
under the Delaware Business Trust Act on May 18, 1994 and will
continue until December 31, 2014 unless terminated sooner
under the provisions of the Amended and Restated Declaration
of Trust and Trust Agreement (the "Trust Agreement"). On
January 5, 1995, the Trust completed its initial offering
having raised $25,262,800 from the sale of 249,628 limited
interests ("Limited Interests") and 3,000 general interests
("General Interests") (collectively, the "Interests") and
commenced operations. The Trust was formed to engage in the
speculative trading of commodity futures and forward
contracts. The Trust's trustee is Wilmington Trust Company.
The managing owner of the Trust 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. ("PSGI"). PSI was the principal
underwriter of the Interests and is the commodity broker of
the Trust. 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.
The Trust was permitted to sell a maximum of $50,000,000 of
Limited Interests, plus $50,000,000 of additional Limited
Interests when PSI and the Managing Owner exercised the
over-subscription option granted to them by the Trust
Agreement. Following the close of the initial offering period,
additional Interests were offered and sold monthly at their
month-end net asset value ("NAV") per Interest during a
continuous offering period which expired on August 31, 1996.
Additional contributions raised during the Continuous Offering
Period resulted in additional proceeds to the Trust of
$41,129,100 from the sale of 299,640 Limited Interests and
1,628 General Interests.
All trading decisions are made for the Trust by John W.
Henry & Co., Inc. (the "Trading Manager"). The Trading
Manager was initially allocated the Trust's assets to be
traded pursuant to five of its trading programs as follows:
50% to the Financial and Metals Portfolio; 20% to the Global
Financial Portfolio; 20% to the Original Investment Program;
5% to the G-7 Currency Portfolio; and 5% to the Yen Financial
Portfolio. The Trading Manager may alter the relative
percentages only if the Managing Owner does not object to any
such alteration. As of April 1, 1997, the Managing Owner
reallocated assets previously traded pursuant to the Yen
Financial Portfolio to the Trading Manager's G-7 Currency
Portfolio, increasing the percentage of the Trust's assets
allocated to that program by 3%. In addition, the relative
percentages change from time to time as a result of the
performance of the various trading programs. The Managing
Owner retains the authority to override trading instructions
that violate the Trust's trading policies.
B. Summary of Significant Accounting Principles
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.
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.
Income taxes
The Trust is treated as a partnership for Federal income tax
purposes. As such, the Trust is not required to provide for,
or pay, any Federal or state income taxes. Income tax
attributes that arise from its operations are
134
<PAGE>
passed directly to the individual Interest holders. The Trust may
be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocation, subscriptions, distributions and
redemptions and net realized profits or losses for tax
purposes are allocated first to Interest holders who redeem
Interests to the extent the amounts received on redemption are
greater than or are less than the amounts paid for the
redeemed Interests by the Interest holders. Net realized
profits or losses remaining after these allocations are
allocated to each Interest holder in proportion to such
Interest holder's capital account at year-end. Net income or
loss for financial reporting purposes is allocated monthly for
all Interest holders on a pro rata basis based on each
Interest holder's number of Interests outstanding during the
month.
Distributions (other than on redemptions of Interests) are
made at the sole discretion of the Managing Owner on a pro
rata basis in accordance with the respective capital accounts
of the Interest holders. No distributions have been made since
inception.
Additional Interests were offered monthly at their month-end
NAV per Interest until the continuous offering period expired
on August 31, 1996 as further discussed in Note A.
The Trust Agreement provides that an Interest holder may
redeem its Interests as of the last business day of any full
calendar quarter (beginning with the end of the first full
calendar quarter of the Trust's operations, which was June 30,
1995) at the then current NAV per Interest.
C. Fees
Organizational and general and administrative costs
PSI or its affiliates paid the costs of organizing the Trust
and offering its Interests and pay the routine operational,
administrative, legal and auditing expenses.
Management and incentive fees
The Trust pays the Trading Manager a monthly management fee
equal to 1/3 of 1% (a 4% annual rate) of the Trust's NAV as of
the end of each month.
In addition, the Trust pays the Trading Manager a quarterly
incentive fee equal to 15% of the New High Net Trading Profits
(as defined in the Advisory Agreement between the Trust, the
Managing Owner and the Trading Manager).
Commissions
The Managing Owner, on behalf of the Trust, entered into an
agreement with PSI as commodity broker whereby the Trust pays
a fixed monthly fee for brokerage services rendered. The
monthly fee equals .64583 of 1% (7.75% per annum) of the
Trust's NAV as of the first day of each month. From this fee,
PSI pays all of the Trust's execution (i.e., floor brokerage
expenses and NFA, clearing and exchange fees) and account
maintenance costs.
D. Related Parties
The Managing Owner and its affiliates perform services for
the Trust which include, but are not limited to: brokerage
services, accounting and financial management, registrar,
transfer and assignment functions, investor communications,
printing and other administrative services. Except for costs
related to brokerage services, PSI or its affiliates pay the
costs of these services in addition to costs of organizing the
Trust and offering its Interests as well as the routine
operational, administrative, legal and auditing fees.
135
<PAGE>
The Trust maintains its trading and cash accounts at PSI,
the Trust's commodity broker. A significant portion of the
Trust's cash is utilized for margin purposes for the Trust's
commodity trading activities. PSI credits the Trust monthly
with 100% of the interest it earns on the equity in these
accounts.
In connection with the Trust's interbank transactions, PSI
engages in foreign currency forward transactions with the
Trust and an affiliate of PSI who, as principal, attempts to
earn a profit on the bid-ask spreads (which must be
competitive) on any foreign currency forward transactions
entered into between the Trust and PSI, on the one hand and,
PSI and such affiliate on the other. In connection with its
trading of foreign currencies in the interbank market, PSI may
arrange bank lines of credit at major international banks. To
the extent such lines of credit are arranged, PSI does not
charge the Partnership for maintaining such lines of credit,
but requires margin deposits with respect to forward contract
transactions.
As of September 30, 1997 and December 31, 1996, a non-U.S.
affiliate of the Managing Owner owned 4,592 and 5,170 Limited
Interests of the Trust, respectively.
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.
Futures and options contracts are traded on organized
exchanges and are thus distinguished from forward contracts
which are entered into privately by the parties. The credit
risks associated with futures and options contracts are
typically perceived to be less than those associated with
forward contracts, because exchanges typically provide
clearinghouse arrangements in which the collective credit
(subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the
exchange. On the other hand, the Trust must rely solely on the
credit of its broker (PSI) with respect to forward
transactions. The Trust presents unrealized gains and losses
on open forward positions at a net amount in the statements of
financial condition because it has a master netting agreement
with PSI.
The Managing Owner attempts to minimize both credit and
market risks by requiring the Trust's Trading Manager to abide
by various trading limitations and policies. The Managing
Owner monitors compliance with these trading limitations and
policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties
(currently PSI is the sole counterparty or broker); limiting
the amount of margin or premium required for any one commodity
or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The
Managing Owner may impose additional restrictions (through
modifications of such trading limitations and policies) upon
the trading activities of the Trading Manager as it, in good
faith, deems to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant
in accepting orders for the purchase or sale of domestic
futures and options contracts, is required by Commodity
Futures Trading Commission ('CFTC') regulations to separately
account for and segregate as belonging to the Trust all assets
of the Trust relating to domestic futures and options trading
and is not to commingle such assets with other assets of PSI.
At September 30, 1997 and December 31, 1996, such segregated
assets totalled $33,720,770 and $53,711,518, respectively.
Part 30.7 of the CFTC regulations also requires PSI to
secure assets of the Trust related to foreign futures and
options trading which totalled $32,740,681 and $26,551,088 at
September 30, 1997 and December 31, 1996. There are no
segregation requirements for assets related to forward
trading.
136
<PAGE>
As of September 30, 1997 and December 31, 1996, the Trust's
open forward and futures contracts mature within one year.
At September 30, 1997 and December 31, 1996, gross contract
amounts of open futures and forward contracts are:
<TABLE>
<CAPTION>
September 30, 1997 December 30, 1996
<S> <C> <C>
Financial Futures Contracts:
Commitments to purchase $520,240,071 $246,536,386
Commitments to sell $ 10,120,249 $ 85,149,239
Currency Forward Contracts:
Commitments to purchase $ 35,544,147 $ 55,393,671
Commitments to sell $ 75,505,404 $ 61,497,457
Other Futures Contracts:
Commitments to purchase $ 14,693,203 $ 6,735,960
Commitments to sell $ 13,096,550 $ 25,980,949
</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
forward 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 and forward
contracts to be the net unrealized gain or loss on the
contracts. Thus, the amount at risk associated with
counterparty nonperformance of all contracts is the net unrealized gain
included in the statements of financial condition. The market
risk associated with the Trust's commitments to purchase
commodities is limited to the gross contract amounts involved,
while the market risk associated with its commitments to sell
is unlimited since the Trust's potential involvement is to
make delivery of an underlying commodity at the contract
price; therefore, it must repurchase the contract at
prevailing market prices.
At September 30, 1997 and December 31, 1996, the fair values
of futures and forward contracts were:
137
<PAGE>
<TABLE>
<CAPTION>
September 30, 1997 December 30, 1996
Fair Value Fair Value
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic Exchanges
Financial $ 196,031 $ 144,813 $ 66,450 $ 175,344
Other 813,745 740,818 1,219,801 58,011
Foreign Exchanges
Financial 3,294,978 50,063 542,415 847,344
Other -- 97,375 7,758 --
Forward Contracts:
Currencies 290,897 423,205 1,592,852 835,234
$4,595,651 $1,456,274 $3,429,276 $1,915,933
</TABLE>
The following table presents the average fair value of
futures and forward contracts during the nine months ended
September 30, 1997 and for the year ended December 31, 1996,
respectively.
<TABLE>
<CAPTION>
Nine months ended
September 30, 1997 Year ended December 31, 1996
Average Fair Value Average Fair Value
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic Exchanges
Financial $ 561,103 $ 51,389 $ 687,217 $ 142,565
Other 1,012,084 249,081 1,170,685 209,225
Foreign Exchanges
Financial 1,547,698 335,762 2,812,593 208,886
Other 18,509 12,854 15,044 3,121
Forward Contracts:
Currencies 1,855,622 1,539,142 2,543,797 761,951
$4,995,016 $2,188,228 $7,229,696 $1,325,748
</TABLE>
<PAGE>
EXHIBIT A
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST
Dated as of December 17, 1997
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 . . . . . . . . . . . . . . . 8
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. . . . . . . . . . . . . . . . . . . . 10
SECTION 1.9 Series Trust. . . . . . . . . . . . . . . . . . . 10
ARTICLE II
SECTION 2.1 Term; Resignation. . . . . . . . . . . . . . . . . 10
SECTION 2.2 Powers . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.3 Compensation and Expenses of the
Trustee. . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.4 Indemnification. . . . . . . . . . . . . . . . . . 11
SECTION 2.5 Successor Trustee. . . . . . . . . . . . . . . . . 12
SECTION 2.6 Liability of Trustee . . . . . . . . . . . . . . . 12
SECTION 2.7 Reliance; Advice of Counsel. . . . . . . . . . . . 13
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . 14
SECTION 3.1 General. . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.2 Limited Interests. . . . . . . . . . . . . . . . . 16
SECTION 3.3 Establishment of Series of Interests.. . . . . . . 24
SECTION 3.4 Establishment of Classes. . . . . . . . . . . . . 25
SECTION 3.5 Assets of Series. . . . . . . . . . . . . . . . . 25
SECTION 3.6 Liabilities of Series. . . . . . . . . . . . . . . 25
SECTION 3.7 Dividends and Distributions. . . . . . . . . . . . 27
SECTION 3.8 Voting Rights. . . . . . . . . . . . . . . . . . . 28
SECTION 3.9 Equality . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.10 Exchange of Interests . . . . . . . . . . . . . . 28
ARTICLE IV
THE MANAGING OWNER . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.1 Management of the Trust. . . . . . . . . . . . . . 29
SECTION 4.2 Authority of Managing Owner. . . . . . . . . . . . 29
SECTION 4.3 Obligations of the Managing Owner. . . . . . . . . 32
SECTION 4.4 General Prohibitions . . . . . . . . . . . . . . . 34
SECTION 4.5 Liability of Covered Persons . . . . . . . . . . . 35
SECTION 4.6 Indemnification of the Managing Owner. . . . . . . 35
SECTION 4.7 Expenses . . . . . . . . . . . . . . . . . . . . . 37
(i)
<PAGE>
SECTION 4.8 Compensation to the Managing Owner . . . . . . . . 38
SECTION 4.9 Other Business of Interestholders. . . . . . . . . 38
SECTION 4.10 Voluntary Withdrawal of the Managing Owner. . . . 38
SECTION 4.11 Authorization of Registration
Statement. . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.12 Litigation. . . . . . . . . . . . . . . . . . . . 39
ARTICLE V
TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.1 General Prohibition. . . . . . . . . . . . . . . . 39
SECTION 5.2 Transfer of Managing Owner's General
Interests. . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.3 Transfer of Limited Interests. . . . . . . . . . . 40
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS . . . . . . . . . . . . . . . . . . . 44
SECTION 6.1 Capital Accounts . . . . . . . . . . . . . . . . . 44
SECTION 6.2 Monthly Allocations. . . . . . . . . . . . . . . . 44
SECTION 6.3 Allocation of Profit and Loss for
United States Federal Income Tax Purposes.. .. . . . . 45
SECTION 6.4 Allocation of Distributions. . . . . . . . . . . . 47
SECTION 6.5 Admissions of Interestholders;
Transfers. . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.6 Liability for State and Local and Other
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VII
SECTION 7.1 Redemption of Interests. . . . . . . . . . . . . . 48
SECTION 7.2 Redemption by the Managing Owner . . . . . . . . . 50
SECTION 7.3 Redemption Fee . . . . . . . . . . . . . . . . . . 50
SECTION 7.4 Exchange of Interests. . . . . . . . . . . . . . 50
ARTICLE VIII
THE LIMITED OWNERS . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.1 No Management or Control; Limited
Liability. . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.2 Rights and Duties. . . . . . . . . . . . . . . . . 51
SECTION 8.3 Limitation on Liability. . . . . . . . . . . . . . 52
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS . . . . . . . . . . . . . . . . . . . 53
SECTION 9.1 Books of Account . . . . . . . . . . . . . . . . . 53
SECTION 9.2 Annual Reports and Monthly Statements. . . . . . . 53
SECTION 9.3 Tax Information. . . . . . . . . . . . . . . . . . 53
SECTION 9.4 Calculation of Net Asset Value of a
Series . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.5 Other Reports. . . . . . . . . . . . . . . . . . . 54
(ii)
<PAGE>
SECTION 9.6 Maintenance of Records . . . . . . . . . . . . . . 54
SECTION 9.7 Certificate of Trust . . . . . . . . . . . . . . . 54
SECTION 9.8 Registration of Interests. . . . . . . . . . . . . 55
ARTICLE X
FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.1 Fiscal Year . . . . . . . . . . . . . . . . . . . 55
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS . . . . . . . . . . . . . . 55
SECTION 11.1 Amendments to the Trust Agreement . . . . . . . . 55
SECTION 11.2 Meetings of the Trust . . . . . . . . . . . . . . 57
SECTION 11.3 Action Without a Meeting. . . . . . . . . . . . . 57
ARTICLE XII
TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.1 Term. . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE XIII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. . . . . . . . . . . . . . . . . . 58
SECTION 13.2 Distributions on Dissolution. . . . . . . . . . . 60
SECTION 13.3 Termination; Certificate of Cancellation .. . . . 61
ARTICLE XIV
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 14.1 Power of Attorney Executed
Concurrently . . . . . . . . . . . . . . . . . . . . . 61
SECTION 14.2 Effect of Power of Attorney . . . . . . . . . . . 62
SECTION 14.3 Limitation on Power of Attorney . . . . . . . . . 62
(iii)
<PAGE>
ARTICLE XV
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 15.1 Governing Law. . . . . . . . . . . . . . . . . . . 62
SECTION 15.2 Provisions In Conflict With Law or
Regulations. . . . . . . . . . . . . . . . . . . . . . 63
SECTION 15.3 Construction. . . . . . . . . . . . . . . . . . . 64
SECTION 15.4 Notices . . . . . . . . . . . . . . . . . . . . . 64
SECTION 15.5 Counterparts. . . . . . . . . . . . . . . . . . . 64
SECTION 15.6 Binding Nature of Trust Agreement . . . . . . . . 64
SECTION 15.7 No Legal Title to Trust Estate. . . . . . . . . . 64
SECTION 15.8 Creditors . . . . . . . . . . . . . . . . . . . . 64
SECTION 15.9 Integration . . . . . . . . . . . . . . . . . . . 65
EXHIBIT A
CERTIFICATE OF TRUST
OF WORLD MONITOR TRUST . . . . . . . . . . . . . . . . . . . . . . 66
(iv)
<PAGE>
WORLD MONITOR TRUST
DECLARATION OF TRUST AND TRUST AGREEMENT
This DECLARATION OF TRUST AND TRUST AGREEMENT of WORLD
MONITOR TRUST ("Trust Agreement") is made and entered into
as of the 4th day of December 17, 1997 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 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.
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,
except for minor exceptions, 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 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 or any Series in
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 Contracts,
forward contracts, foreign exchange positions and traded
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 physical
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.
"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.
"Dealing Day" shall have the meaning set forth in the
Prospectus.
"Disposition Gain" means, for each Fiscal Year of the
Trust, the Series' aggregate recognized gain (including
the portion thereof, if any, treated as ordinary income)
resulting from each disposition of Series 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 Series for federal
A-2
<PAGE>
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 Series' aggregate recognized loss (including
the portion thereof, if any, treated as ordinary loss)
resulting from each disposition of Series 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 Series 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 with
respect to a Series commencing with the initial effective
date of the Prospectus and terminating no later than the
one hundred and twentieth (120th) day following such date
unless extended for up to an additional 60 days at the
sole discretion of the Managing Owner.
"Interestholders" means the Managing Owner and all
Limited Owners, as holders of Interests of a Series, 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 a Series 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 purchased by it.
A-3
<PAGE>
"Losses" means, for each Fiscal Year of each Series of
the Trust, losses of the Series 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 Series
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 of a Series" means the total assets
in the Trust Estate of a Series 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 Series, 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 of a Series shall include
any unrealized profit or loss on open Commodities
positions, and any other credit or debit accruing to
the Series but unpaid or not received by the Series.
(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 of a Series
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 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 of a
Series 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
A-4
<PAGE>
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 a Series 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 of a Series 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 a Series commodity
brokerage account shall be accrued at least weekly.
(d) The amount of any distribution made pursuant
to Article VI hereof shall be a liability of the
Series from the day when the distribution is declared
until it is paid.
"Net Asset Value of a Series per Interest" means the
Net Asset Value of a Series divided by the number of
Interests of a Series 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, "Benefit Plan Investor" (as defined in the
Prospectus) or other legal entity.
"Profits" means, for each Fiscal Year of each Series
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 a Series
for such Fiscal Year shall not enter into such
computations.
A-5
<PAGE>
"Prospectus" means the final prospectus and disclosure
document of the Trust and each Series thereof,
constituting a part of each Registration Statement, as
filed with the Securities and Exchange 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(s) of the Registration Statement(s).
"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 Dealing Day upon which
Interests held by the Interestholders may be redeemed in
accordance with the provisions of Article VII hereof.
"Registration Statement" means a registration
statement on Form S-1, as amended, filed for a Series with
the Securities and Exchange Commission pursuant to which
the Trust registered the Limited Interests of a Series, as
the same may at any time and from time to time be further
amended or supplemented.
"Series" means a separate series of the Trust as
provided in Sections 3806(b)(2) and 3804 of the Business
Trust Statute, the Interests of which shall be beneficial
interests in the Trust Estate separately identified with
and belonging to such Series.
"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 Advisor" means initially Eagle Trading
Systems Inc. for the Series A Interests, Eclipse Capital
Management, Inc. for the Series B Interests and Hyman Beck
& Company, Inc. for the Series C Interests, 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,
A-6
<PAGE>
purchase, or sale of Commodity Contracts or commodity options) to a
Series, and any substitute(s) therefor as provided herein.
"Trust" means the World Monitor Trust formed pursuant
to this Trust Agreement.
"Trust Agreement" means this 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.
"Trust Estate" means, with respect to a Series, any
cash, commodity futures, forward and option contracts, all
funds on deposit in the Series' accounts, and any other
property held by the Series, and all proceeds therefrom,
including any rights of the Series pursuant to any
Subscription Agreement and any other agreements to which
the Trust or a Series thereof is a party.
"Valuation Date" means the date as of which the Net
Asset Value of a Series is determined.
"Valuation Period" means a regular period of time
between Valuation Dates.
"Valuation Point" shall have the meaning set forth in
the Prospectus.
SECTION 1.2 Name.
(a) The name of the Trust is "World Monitor
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.
SECTION 1.3 Delaware Trustee; Business Offices.
(a) The sole Trustee of the Trust 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
A-7
<PAGE>
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
per Series in bank accounts in the name of each Series of
the Trust 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 that each Series in such Trust is
deemed to constitute a partnership under the Code and
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 of each Series for
purposes of taxation under the Code and applicable state
and local tax laws. Effective as of the date hereof, the
Trustee and the Managing Owner 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 and each Series shall be (a) to trade, buy, sell,
spread or otherwise acquire, hold or dispose of commodity
futures, forward and option contracts, including foreign
futures, forward contracts and foreign exchange positions
worldwide; (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 of each Series will qualify under applicable tax
law as interests in a partnership which holds the Trust
Estate of each Series 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 each Series as a
partnership in which each of the Interestholders thereof
is a partner
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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 of such Series 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) of each Series shall initially be the
Managing Owner. The Tax Matters Partner, at the expense
of each Series, (i) shall prepare or cause to be prepared
and filed each Series' 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 Series tax items; (B) the power to
extend the statute of limitations for all Interestholders
with respect to the Series' tax items; (C) the power to
file a petition with an appropriate federal court for
review of a final administrative adjustment of a Series;
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 Series,
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 by each
Interestholder of a Series in this Section 1.6(b) is
hereby approved by each Interestholder of such Series 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, each Series 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 each Series
of the Trust, to the extent not paid out of the assets of
the Series, to the same extent the Managing Owner would be
so liable if each Series were a partnership under the
Delaware Revised Uniform Limited Partnership Act and the
Managing Owner were a general partner of such partnership.
The foregoing provision shall not, however, limit the
ability of the Managing Owner to limit its liability by
contract. The obligations of the Managing Owner under
this Section 1.7 shall be evidenced by its ownership of
the General Interests which, solely for purposes of the
Business Trust Statute, will be deemed to be a separate
class of Interests in each Series. Without limiting or
affecting the liability of the Managing Owner as set forth
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in this Section 1.7, notwithstanding anything in this
Trust Agreement to the contrary, Persons having any claim
against the Trust by reason of the transactions
contemplated by this Trust Agreement and any other
agreement, instrument, obligation or other undertaking to
which the Trust is a party, shall look only to the Trust
Estate in accordance with Section 3.6 hereof for payment
or satisfaction thereof.
(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 or any Series
thereof.
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.
SECTION 1.9 Series Trust. The Interests of the Trust
shall be divided into Series as provided in Section
3806(b)(2) of the Business Trust Statute. Accordingly, it
is the intent of the parties hereto that Articles IV, V,
VI, VII, VIII, IX, X and XIII of this Trust Agreement
shall apply also with respect to each such Series as if
each such Series were a separate business trust under the
Business Trust Act, and each reference to the term Trust
in such Articles shall be deemed to be a reference to each
Series to the extent necessary to give effect to the
foregoing intent. The use of the terms Trust or Series
in this Agreement shall in no event alter the intent of
the parties hereto that the Trust receive the full benefit
of the limitation on interseries liability as set forth in
Section 3804 of the Business Trust Statute.
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 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
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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
(other than the Trust) 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 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.
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The indemnities contained in this Section 2.4 shall survive
the termination of this Trust Agreement or the removal or
resignation of the Trustee. The Indemnified Parties shall
not be entitled to indemnification 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 in accordance
with Section 3.6 hereof 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 Advisor(s);
(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
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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
and
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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 Managing Owner or an Affiliate of the
Managing Owner (other than 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.
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS
SECTION 3.1 General.
(a) The Managing Owner shall have the power and
authority, without Limited Owner approval, to issue
Interests in one or more Series from time to time as it
deems necessary or desirable. Each Series shall be
separate from all other Series in respect of the assets
and liabilities allocated to that Series and shall
represent a separate investment portfolio of the Trust.
The Managing Owner shall have exclusive power without the
requirement of Limited Owner approval to establish and
designate such separate and distinct Series, as set forth
in Section 3.3, and to fix and determine the relative
rights and preferences as between the Interests of the
separate Series as to right of redemption, special and
relative rights as to dividends and other distributions
and on liquidation, conversion rights, and conditions
under which the Series shall have separate voting rights
or no voting rights.
(b) The Managing Owner may, without Limited Owner
approval, divide Interests of any Series into two or more
classes, Interests of each such class having such
preferences and special or relative rights and privileges
(including exchange rights, if any) as the Managing Owner
may determine as provided in Section 3.4. The fact that
a Series shall have been initially established and
designated without any specific establishment or
designation of classes, shall not limit the authority of
the
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Managing Owner to divide a Series and establish and
designate separate classes thereof.
(c) The number of Interests authorized shall be
unlimited, and the Interests so authorized may be
represented in part by fractional Interests. From time to
time, the Managing Owner may divide or combine the
Interests of any Series or class into a greater or lesser
number without thereby changing the proportionate
beneficial interests in the Series or class. The Managing
Owner may issue Interests of any Series or class thereof
for such consideration and on such terms as it may
determine (or for no consideration if pursuant to an
Interest dividend or split-up), all without action or
approval of the Limited Owners. All Interests when so
issued on the terms determined by the Managing Owner shall
be fully paid and non-assessable. The Managing Owner may
classify or reclassify any unissued Interests or any
Interests previously issued and reacquired of any Series
or class thereof into one or more Series or classes
thereof that may be established and designated from time
to time. The Managing Owner may hold as treasury
Interests, reissue for such consideration and on such
terms as it may determine, or cancel, at its discretion
from time to time, any Interests of any Series or class
thereof reacquired by the Trust. The Interests of each
Series shall initially be divided into two classes:
General Interests and Limited Interests.
(d) Upon the initial contribution by the Managing
Owner to each initial Series of the Trust, the Managing
Owner became the holder of the General Interests of each
such Series. Upon the termination of the Initial Offering
Period pursuant to Section 3.2, the Managing Owner shall
receive additional General Interests (or fractions
thereof) in each Series in consideration for the required
contributions made to each Series as of such time by the
Managing Owner pursuant to Section 3.2. 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 in any week during the Continuous Offering
Period in an amount equal to such contributions divided by
the Net Asset Value of a Series per Interest calculated as
of the close of business on the last day of the week in
which such contributions were made.
(e) No certificates or other evidence of
beneficial ownership of the Interests will be issued.
(f) 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.
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<PAGE>
SECTION 3.2 Limited Interests.
(a) Offer of Series A Limited Interests.
(i) Series A Initial Offering Period.
During the Initial Offering Period, the Trust shall
offer pursuant to Securities and Exchange Commission
Rule 415, at an offering price of $100 per Series A
Limited Interest, a maximum of 340,000 Limited
Interests ($34,000,000). 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.
(ii) Effect of the Sale of at least
40,000 Series A Interests. In the event that at least
40,000 Series A Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series A Interests (including both Limited
Interests offered pursuant to the Prospectus and
Limited 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 Series A 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 Series A of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series A Interests, as soon as practicable
after the termination of the Series A Initial Offering
Period. Such accepted subscribers will be deemed
Series A Limited Owners at such time as such admission
is reflected on the books and records of Series A of
the Trust.
(iii) Paid-In Capital if at least 40,000
Series A Interests Are Sold. In the event that at
least 40,000 Series A Limited Interests are sold
during the Initial Offering Period, Series A shall
have paid-in capital of not less than $4,080,400
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.2(a)(v) hereof).
(iv) Effect of the Sale of Less than
40,000 Series A Interests. In the event that at least
40,000 Series A Limited Interests are not sold during
the Initial Offering Period for the Series A
Interests, all proceeds of the sale of Series A
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 for the
Series A Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series A.
(v) Managing Owner's Required Contribution.
In the event that 40,000 or more of the Series A
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series A Interests, the Managing
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Owner shall be required to contribute in cash to the capital of
Series A an amount, which, when added to the total
contributions to Series A by all Series A
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $40,000
(including the Managing Owner's Capital Contribution
pursuant to Section 3.1(d)). Thereafter, the Managing
Owner shall contribute in cash to the capital of
Series A an amount not less than 1.01% of any
additional Capital Contributions received from the
Series A Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series A Initial
or Continuous Offering Periods. The Managing Owner
will receive Series A General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series A Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series 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 Series A) in each material item of Series A 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.
(vi) Offer of Series A Limited Interests
After Initial Offering Period. In the event that
40,000 or more of the Series A Limited Interests are
sold during the Initial Offering Period for the
Series A Interests, the Trust may continue to offer
Series A Limited Interests and admit additional Series
A Limited Owners and/or accept additional
contributions from existing Series A Limited Owners
pursuant to the Prospectus.
Each additional Capital Contribution to
Series A during the Series A Continuous Offering
Period by an existing Series A Limited Owner must be
in a denomination which is an even multiple of $100.
During the Series A Continuous Offering Period, each
newly admitted Series A Limited Owner, and each
existing Series A Limited Owner that makes an
additional Capital Contribution to Series A, shall
receive Series A Limited Interests in an amount equal
to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the
Series A Net Asset Value per Series per Interest
calculated as of the Valuation Point immediately prior
to the Dealing Day on which such Capital Contribution
will become effective.
A Subscriber (including existing Series A
Limited Owners contributing additional sums) whose
subscription is received and accepted by the Managing
Owner after the termination of the Initial Offering
Period for Series A Interests shall be admitted to the
Trust and deemed a Series A Limited Owner with respect
to that subscription on the Dealing Day which occurs
at least five (5) Business Days after the Subscriber's
Subscription Agreement or Exchange Request
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is received by the Trust s selling agent, counting the day of
receipt by such selling agent as one Business Day.
(vii) Subscription Agreement. Each
Series A Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series A 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. If the
Managing Owner determines to accept subscription funds
by check, such funds shall be subject to prompt
collection. All subscriptions are subject to
acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds
from the sale of Series A 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 for the Series A Interests.
In the event subscriptions for at least 40,000 of the
Series A Interests are received and accepted during
the Initial Offering for the Series A Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series A Limited Interests
during its Initial Offering Period will be contributed
to Series A, for which the Series A Limited Owners
will receive additional Series A Interests on a pro
rata basis (taking into account time and amount of
deposit).
(ix) Optional Purchase of Series A
Limited Interests by Managing Owner and Trading
Advisor. Subject to approval by the Managing Owner,
any commodity broker (including, but not limited to,
PSI), any Trading Advisor, any principals,
stockholders, directors, officers, employees and
affiliates of the Managing Owner, any commodity
broker, and any Trading Advisor, may purchase any
number of Series A Limited Interests and will be
treated as Series A Limited Owners with respect to
such Interests. In addition to the Series A Interests
required to be purchased by the Managing Owner under
Section 3.2(a)(v), the Managing Owner also may
purchase any number of Series A Limited Interests as
it determines in its discretion.
(b) Offer of Series B Limited Interests.
(i) Series B Initial Offering Period.
During the Initial Offering Period, the Trust shall
offer pursuant to Securities and Exchange Commission
Rule 415, at an offering price of $100 per Series B
Limited Interest, a maximum of 330,000 Series B
Limited Interests ($33,000,000). The offering shall
be made pursuant to and on the terms and conditions
set forth in the Prospectus. The
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Managing Owner shall make such arrangements for the
sale of the Series B Limited Interests as it deems appropriate.
(ii) Effect of the Sale of at least
30,000 Series B Interests. In the event that at least
30,000 Series B Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series B Interests (including both Limited
Interests offered pursuant to the Prospectus and
Limited 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 Series B 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 Series B of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series B Interests, as soon as practicable
after the termination of the Series B Initial Offering
Period. Such accepted subscribers will be deemed
Series B Limited Owners at such time as such admission
is reflected on the books and records of Series B of
the Trust.
(iii) Paid-In Capital if at least 30,000
Series B Interests Are Sold. In the event that at
least 30,000 Series B Limited Interests are sold
during the Initial Offering Period, Series B shall
have paid-in capital of not less than $3,060,300
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.2(b)(v) hereof).
(iv) Effect of the Sale of Less than
30,000 Series B Interests. In the event that at least
30,000 Series B Limited Interests are not sold during
the Initial Offering Period for the Series B
Interests, all proceeds of the sale of Series B
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 for the
Series B Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series B.
(v) Managing Owner's Required Contribution.
In the event that 30,000 or more of the Series B
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series B Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series B an amount, which, when added to the total
contributions to Series B by all Series B
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $30,000
(including the Managing Owner's Capital Contribution
pursuant to Section 3.1(d)). Thereafter, the Managing
Owner shall contribute in cash to the capital of
Series B an amount not less than 1.01% of any
additional Capital Contributions received from the
Series B Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series B Initial
or
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Continuous Offering Periods. The Managing Owner
will receive Series B General Interests as provided in
Section 3.1(b). The Managing Owner shall, with
respect to any Series B Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series B 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 Series B) in each material item of Series B 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.
(vi) Offer of Series B Limited Interests
After Initial Offering Period. In the event that
30,000 or more of the Series B Limited Interests are
sold during the Initial Offering Period for the
Series B Interests, the Trust may continue to offer
Series B Limited Interests and admit additional Series
B Limited Owners and/or accept additional
contributions from existing Series B Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series B during the Series B Continuous Offering
Period by an existing Series B Limited Owner must be
in a denomination which is an even multiple of $100.
During Series B Continuous Offering Period, each newly
admitted Series B Limited Owner, and each existing
Series B Limited Owner that makes an additional
Capital Contribution to Series B, shall receive Series
B Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series B Net Asset
Value per Interest calculated as of the Valuation
Point immediately prior to the Dealing Day on which
such Capital Contribution will become effective.
A Subscriber (including existing Series B
Limited Owners contributing additional sums) whose
subscription is received and accepted by the Managing
Owner after the termination of the Initial Offering
Period for Series B Interests shall be admitted to the
Trust and deemed a Series B Limited Owner with respect
to that subscription on the first Dealing Day which
occurs at least five (5) Business Days after the
Subscriber's Subscription Agreement or Exchange
Request is received by the Trust s selling agent,
counting the day of receipt by such selling agent as
one Business Day.
(vii) Subscription Agreement. Each
Series B Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series B 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
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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.
(viii) Escrow Agreement. All proceeds
from the sale of Series B 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 for the Series B Interests.
In the event subscriptions for at least 30,000 of the
Series B Interests are received and accepted during
the Initial Offering for the Series B Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series B Limited Interests
during its Initial Offering Period will be contributed
to Series B, for which the Series B Limited Owners
will receive additional Series B Interests on a pro
rata basis (taking into account time and amount of
deposit).
(ix) Optional Purchase of Series B
Limited Interests by Managing Owner and Trading
Advisor. Subject to approval by the Managing Owner,
any commodity broker (including, but not limited to,
PSI), any Trading Advisor, any principals,
stockholders, directors, officers, employees and
affiliates of the Managing Owner, any commodity
broker, and any Trading Advisor, may purchase any
number of Series B Limited Interests and will be
treated as Series B Limited Owners with respect to
such Interests. In addition to the Series B Interests
required to be purchased by the Managing Owner under
Section 3.2(b)(v), the Managing Owner also may
purchase any number of Series B Limited Interests as
it determines in its discretion.
(c) Offer of Series C Limited Interests.
(i) Series C Initial Offering Period.
During the Initial Offering Period, the Trust shall
offer pursuant to Securities and Exchange Commission
Rule 415, at an offering price of $100 per Series C
Limited Interest, a maximum of 330,000 Series C
Limited Interests ($33,000,000). No fractional
Limited Interests shall be issued during the Initial
Offering Period. 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.
(ii) Effect of the Sale of at least
30,000 Series C Interests. In the event that at least
30,000 Series C Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series C Interests (including both Limited
Interests offered pursuant to the Prospectus and
Limited 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 Series C
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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 Series C of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series C Interests, as soon as practicable
after the termination of the Series C Initial Offering
Period. Such accepted subscribers will be deemed
Series C Limited Owners at such time as such admission
is reflected on the books and records of Series C of
the Trust.
(iii) Paid-In Capital if at least 30,000
Series C Interests Are Sold. In the event that at
least 30,000 Series C Limited Interests are sold
during the Initial Offering Period, Series C shall
have paid-in capital of not less than $3,060,300
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.2(c)(v) hereof).
(iv) Effect of the Sale of Less than
30,000 Series C Interests. In the event that at least
30,000 Series C Limited Interests are not sold during
the Initial Offering Period for the Series C
Interests, all proceeds of the sale of Series C
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 for the
Series C Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series C.
(v) Managing Owner's Required Contribution.
In the event that 30,000 or more of the Series C
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series C Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series C an amount, which, when added to the total
contributions to Series C by all Series C
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $30,000
(including the Managing Owner's Capital Contribution
pursuant to Section 3.1(d)). Thereafter, the Managing
Owner shall contribute in cash to the capital of
Series C an amount not less than 1.01% of any
additional Capital Contributions received from the
Series C Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series C Initial
or Continuous Offering Periods. The Managing Owner
will receive Series C General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series C Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series C 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 Series C) in each material item of Series C income,
gain, loss and deduction shall
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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.
(vi) Offer of Series C Limited Interests
After Initial Offering Period. In the event that
30,000 or more of the Series C Limited Interests are
sold during the Initial Offering Period for the
Series C Interests, the Trust may continue to offer
Series C Limited Interests and admit additional Series
C Limited Owners and/or accept additional
contributions from existing Series C Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series C during the Series C Continuous Offering
Period by an existing Series C Limited Owner must be
in a denomination which is an even multiple of $100.
During Series C Continuous Offering Period, each newly
admitted Series C Limited Owner, and each existing
Series C Limited Owner that makes an additional
Capital Contribution to Series C, shall receive Series
C Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series C Net Asset
Value per Interest calculated as of the Valuation
Point immediately prior to the Dealing Day on which
such Capital Contribution will become effective.
A Subscriber (including existing Series C
Limited Owners contributing additional sums) whose
subscription is received and accepted by the Managing
Owner after the termination of the Initial Offering
Period for Series C Interests shall be admitted to the
Trust and deemed a Series C Limited Owner with respect
to that subscription on the first Dealing Day which
occurs at least five (5) Business Days after the
Subscriber's Subscription Agreement or Exchange
Request is received by the Trust s selling agent,
counting the day of receipt by such selling agent as
one Business Day.
(vii) Subscription Agreement. Each
Series C Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series C 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.
(viii) Escrow Agreement. All proceeds
from the sale of Series C Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest
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bearing escrow account at The Bank of New
York, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series C Interests.
In the event subscriptions for at least 30,000 of the
Series C Interests are received and accepted during
the Initial Offering for the Series C Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series C Limited Interests
during its Initial Offering Period will be contributed
to the Series C, for which the Series C Limited Owners
will receive additional Series C Interests on a pro
rata basis (taking into account time and amount of
deposit).
(ix) Optional Purchase of Series C
Limited Interests by Managing Owner and Trading
Advisor. Subject to approval by the Managing Owner,
any commodity broker (including, but not limited to,
PSI), any Trading Advisor, any principals,
stockholders, directors, officers, employees and
affiliates of the Managing Owner, any commodity
broker, and any Trading Advisor, may purchase any
number of Series C Limited Interests and will be
treated as Series C Limited Owners with respect to
such Interests. In addition to the Series C Interests
required to be purchased by the Managing Owner under
Section 3.2(c)(v), the Managing Owner also may
purchase any number of Series C Limited Interests as
it determines in its discretion.
(d) Termination of the Trust. If the minimum
number of Interests in each Series being offered are not
sold during the Initial Offering Period for each Series,
then the Trust shall be terminated, and the Managing Owner
shall cause the certificate of cancellation required by
Section 3810 of the Business Trust Statute to be filed.
SECTION 3.3 Establishment of Series of Interests.
(a) Without limiting the authority of the
Managing Owner set forth in Section 3.3(b) to establish
and designate any further Series, the Managing Owner
hereby establishes and designates three initial Series, as
follows:
Series A, Series B and Series C
The provisions of this Article III shall be applicable to
the above designated Series and any further Series that
may from time to time be established and designated by the
Managing Owner as provided in Section 3.3(b).
(b) The establishment and designation of any
Series of Interests other than those set forth above shall
be effective upon the execution by the Managing Owner of
an instrument setting forth such establishment and
designation and the relative rights and preferences of
such Series, or as otherwise provided in such instrument.
At any time that there are no Interests outstanding of any
particular Series previously established and designated,
the Managing Owner may by an instrument executed by it
abolish that Series and the establishment and designation
thereof. Each instrument referred to in this paragraph
shall have the status of an amendment to this Trust
Agreement.
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<PAGE>
SECTION 3.4 Establishment of Classes. The division
of any Series into two or more classes and the
establishment and designation of such classes shall be
effective upon the execution by the Managing Owner of an
instrument setting forth such division, and the
establishment, designation, and relative rights and
preferences of such classes, or as otherwise provided in
such instrument. The relative rights and preferences of
the classes of any Series may differ in such respects as
the Managing Owner may determine to be appropriate,
provided that such differences are set forth in the
aforementioned instrument. At any time that there are no
Interests outstanding of any particular class previously
established and designated, the Managing Owner may by an
instrument executed by it abolish that class and the
establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an
amendment to this Trust Agreement.
SECTION 3.5 Assets of Series. All consideration
received by the Trust for the issue or sale of Interests
of a particular Series together with all of the Trust
Estate in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to
that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be
required by applicable tax laws, and shall be so recorded
upon the books of account of the Trust. Separate and
distinct records shall be maintained for each Series and
the assets associated with a Series shall be held and
accounted for separately from the other assets of the
Trust, or any other Series. In the event that there is
any Trust Estate, or any income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Series, the
Managing Owner shall allocate them among any one or more
of the Series established and designated from time to time
in such manner and on such basis as the Managing Owner, in
its sole discretion, deems fair and equitable. Each such
allocation by the Managing Owner shall be conclusive and
binding upon all Interestholders for all purposes.
SECTION 3.6 Liabilities of Series.
(a) The Trust Estate belonging to each particular
Series shall be charged with the liabilities of the Trust
in respect of that Series and only that Series; and all
expenses, costs, charges and reserves attributable to that
Series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series, shall
be allocated and charged by the Managing Owner to and
among any one or more of the Series established and
designated from time to time in such manner and on such
basis as the Managing Owner in its sole discretion deems
fair and equitable. Each allocation of liabilities,
expenses, costs, charges and reserves by the Managing
Owner shall be conclusive and binding upon all
Interestholders for all purposes. The Managing Owner
shall have full discretion, to the extent not inconsistent
with applicable law, to determine which items shall be
treated as income and which items as capital, and each
such determination and allocation shall be conclusive and
binding upon the Interestholders. Every written agreement,
instrument or other undertaking made or
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<PAGE>
issued by or on behalf of a particular Series shall include a recitation
limiting the obligation or claim represented thereby to
that Series and its assets.
(b) Without limitation of the foregoing
provisions of this Section, but subject to the right of
the Managing Owner in its discretion to allocate general
liabilities, expenses, costs, charges or reserves as
herein provided, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing
with respect to a particular Series shall be enforceable
against the assets of such Series only and against the
Managing Owner, and not against the assets (i) of the
Trust generally or (ii) of any other Series. Notice of
this limitation on interseries liabilities shall be set
forth in the Certificate of Trust of the Trust (whether
originally or by amendment) as filed or to be filed in the
Office of the Secretary of State of the State of Delaware
pursuant to the Business Trust Statute, and upon the
giving of such notice in the Certificate of Trust, the
statutory provisions of Section 3804 of the Business Trust
Statute relating to limitations on interseries liabilities
(and the statutory effect under Section 3804 of setting
forth such notice in the Certificate of Trust) shall
become applicable to the Trust and each Series. Every
Interest, note, bond, contract, instrument, certificate or
other undertaking made or issued by or on behalf of a
particular Series shall include a recitation limiting the
obligation on Interests represented thereby to that Series
and its assets.
(c) (i) Except as set forth below, any debts,
liabilities, obligations, indebtedness, expenses,
interests and claims of any nature and all kinds and
descriptions (collectively, "Claims and Interests"),
if any, of the Managing Owner and the Trustee (the
"Subordinated Claims") incurred, contracted for or
otherwise existing, arising from, related to or in
connection with all Series, any combination of Series
or one particular Series and their respective assets
(the "Applicable Series") and the assets of the Trust
shall be expressly subordinate and junior in right of
payment to any and all other Claims against the Trust
and any Series thereof, and any of their respective
assets, which may arise as a matter of law or pursuant
to any contract, provided, however, that the Claims of
each of the Managing Owner and the Trustee (if any)
against the Applicable Series shall not be considered
Subordinated Claims with respect to enforcement
against and distribution and repayment from the
Applicable Series, the Applicable Series' assets and
the Managing Owner and its assets; and provided
further that the valid Claims of either the Managing
Owner or the Trustee, if any, against the Applicable
Series shall be pari passu and equal in right of
repayment and distribution with all other valid Claims
against the Applicable Series and (ii) the Managing
Owner and the Trustee will not take, deemed or receive
from any Series or the Trust or any of their
respective assets (other than the Applicable Series,
the Applicable Series' assets and the Managing Owner
and its assets) any payment for the Subordinated
Claims;
(ii) The Claims of each of the Managing
Owner and the Trustee with respect to the Applicable
Series shall only be asserted and enforceable against
the Applicable Series, the Applicable Series' assets
and the Managing Owner and its assets; and such Claims
shall not be asserted or enforceable for any reason
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<PAGE>
whatsoever against any other Series, the Trust
generally, or any of their respective assets;
(iii) If the Claims of the Managing Owner
or the Trustee against the Applicable Series or the
Trust are secured in whole or in part, each of the
Managing Owner and the Trustee hereby waives (under
section 1111(b) of the Bankruptcy Code (11 U.S.C. S
1111(b)) any right to have any deficiency Claims
(which deficiency Claims may arise in the event such
security is inadequate to satisfy such Claims) treated
as unsecured Claims against the Trust or any Series
(other than the Applicable Series), as the case may
be;
(iv) In furtherance of the foregoing, if
and to the extent that the Managing Owner and the
Trustee receive monies in connection with the
Subordinated Claims from a Series or the Trust (or
their respective assets), other than the Applicable
Series, the Applicable Series' assets and the Managing
Owner and its assets, the Managing Owner and the
Trustee shall be deemed to hold such monies in trust
and shall promptly remit such monies to the Series or
the Trust that paid such amounts for distribution by
the Series or the Trust in accordance with the terms
hereof; and
(v) The foregoing Consent shall apply at all
times notwithstanding that the Claims are satisfied,
and notwithstanding that the agreements in respect of
such Claims are terminated, rescinded or canceled.
(d) Any agreement entered into by the Trust, any
Series, or the Managing Owner, on behalf of the Trust
generally or any Series, including, without limitation,
the Subscription Agreement entered into with each
Interestholder, will include language substantially
similar to the language set forth in Section 3.6(c).
SECTION 3.7 Dividends and Distributions.
(a) Dividends and distributions on Interests of
a particular Series or any class thereof may be paid with
such frequency as the Managing Owner may determine, which
may be daily or otherwise, to the Interestholders in that
Series or class, from such of the income and capital
gains, accrued or realized, from the Trust Estate
belonging to that Series, or in the case of a class,
belonging to that Series and allocable to that class, as
the Managing Owner may determine, after providing for
actual and accrued liabilities belonging to that Series.
All dividends and distributions on Interests in a
particular Series or class thereof shall be distributed
pro rata to the Interestholders in that Series or class in
proportion to the total outstanding Interests in that
Series or class held by such Interestholders at the date
and time of record established for the payment of such
dividends or distribution, except to the extent otherwise
required or permitted by the preferences and special or
relative rights and privileges of any Series or class.
Such dividends and distributions may be made in cash or
Interests of that Series or class or a combination thereof
as determined by the Managing Owner or pursuant to any
program that the Managing Owner may have in effect at the
time for the election by each Interestholder of the mode
of the making of such dividend or distribution to that
Interestholder.
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<PAGE>
(b) The Interests in a Series or a class of the
Trust shall represent beneficial interests in the Trust
Estate belonging to such Series or in the case of a class,
belonging to such Series and allocable to such class.
Each Interestholder in a Series or a class shall be
entitled to receive its pro rata share of distributions of
income and capital gains made with respect to such Series
or such class. Upon reduction or withdrawal of its
Interests or indemnification for liabilities incurred by
reason of being or having been a holder of Interests in a
Series or a class, such Interestholder shall be paid
solely out of the funds and property of such Series or in
the case of a class, the funds and property of such Series
and allocable to such class of the Trust. Upon
liquidation or termination of a Series of the Trust,
Interestholders in such Series or class shall be entitled
to receive a pro rata share of the Trust Estate belonging
to such Series or in the case of a class, belonging to
such Series and allocable to such class.
SECTION 3.8 Voting Rights. Notwithstanding any other
provision hereof, on each matter submitted to a vote of
the Interestholders of a Series, each Interestholder shall
be entitled to a proportionate vote based upon the product
of the Net Asset Value of a Series per Interest multiplied
by the number of Interests, or fraction thereof, standing
in its name on the books of such Series. As to any matter
which affects the Interests of more than one Series, the
Interestholders of each affected Series shall be entitled
to vote, and each such Series shall vote as a separate
class.
SECTION 3.9 Equality. Except as provided herein or
in the instrument designating and establishing any class
or Series, all Interests of each particular Series shall
represent an equal proportionate beneficial interest in
the assets belonging to that Series subject to the
liabilities belonging to that Series, and each Interest of
any particular Series or classes shall be equal to each
other Interest of that Series or class; but the provisions
of this sentence shall not restrict any distinctions
permissible under Section 3.7 that may exist with respect
to dividends and distributions on Interests of the same
Series or class. The Managing Owner may from time to time
divide or combine the Interests of any particular Series
or class into a greater or lesser number of Interests of
that Series or class without thereby changing the
proportionate beneficial interest in the assets belonging
to that Series or in any way affecting the rights of
Interestholders of any other Series or class.
SECTION 3.10 Exchange of Interests. Subject to
compliance with the requirements of applicable law, the
Managing Owner shall have the authority to provide that
Interestholders of any Series shall have the right to
exchange said Interests into one or more other Series in
accordance with such requirements and procedures as may be
established by the Managing Owner. The Managing Owner
shall also have the authority to provide that
Interestholders of any class of a particular Series shall
have the right to exchange said Interests into one or more
other classes of that particular Series or any other
Series in accordance with such requirements and procedures
as may be established by the Managing Owner.
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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 or any Series in 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 they may be amended from time to time,
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 each Series, which services may
not be performed by the Managing Owner or an
Affiliate(s) of the Managing Owner, provided, however,
that in no event shall the fees payable by the Trust
for such services exceed any limitations imposed by
the NASAA
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Guidelines as they may be amended from time
to time, 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
each Series 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 each
Series;
(f) To invest or direct the investment of funds
of any Series not then delegated to a Trading Advisor(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 each
Series 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 Series;
(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, a Series in 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 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
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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, and if the concurrence
of at least a majority in interest (over 50%) of the
outstanding Interests of all Series (not including
Interests owned by the Managing Owner) is not obtained;
(j) To 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 Advisor 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
Advisors or to pay the expenses of any Series in the
Trust; and provided further, that the Managing Owner may
make Commodities trading decisions at any time at which
any Trading Advisor shall become incapacitated or some
other emergency shall arise as a result of which such
Trading Advisor shall be unable or unwilling to act and a
successor Trading Advisor has not yet been retained;
(k) Monitor the trading activities of the
Trading Advisor so that:
(i) Any Series 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 of
a Series.
(ii) Any Series 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 of a Series. 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, a Series may be required to commit as margin in
excess of the foregoing limit. In such event the
Managing Owner will cause each Trading Advisor to
reduce its open futures or options positions to comply
with the foregoing limit before initiating new
Commodities positions.
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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
each Series of the Trust and for the conduct of its
business in all appropriate jurisdictions;
(c) Retain independent public accountants to
audit the accounts of each Series in the Trust;
(d) Employ attorneys to represent the Trust or
a Series thereof;
(e) Use its best efforts to maintain the status
of the Trust as a "business trust" for state law purposes,
and of each Series of the Trust as a "partnership" for
federal income tax purposes;
(f) Monitor the trading policies and limitations
of each Series, as set forth in the Prospectus, and the
activities of the Trust's Trading Advisor(s) in carrying
out those policies in compliance with the Prospectus;
(g) Monitor the brokerage fees charged to each
Series, and the services rendered by futures commission
merchants to each Series, to determine whether the fees
paid by, and the services rendered to, each Series 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 each Series. 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 Limited Owners
holding Interests representing at least a majority (over
50%) in Net Asset Value of the Series affected (excluding
Interests held by the Managing Owner);
(h) Have fiduciary responsibility for the
safekeeping and use of the Trust Estate of each Series,
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
each Series (including any interest earned thereon) in any
manner except as and to the extent permitted by the NASAA
Guidelines for the
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benefit of each Series in the Trust,
including, among other 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 each Series 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 any Series,
any other Interestholder or Covered Person or the Trustee,
such Covered Person acting under the Trust Agreement shall
not be liable to the Series, 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 the Subscription Minimum (as defined in
the Prospectus), 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 imposed by the
NASAA Guidelines as they may be amended from time to time.
"Net Worth" is defined in the NASAA Guidelines as
requiring the financial condition of the sponsor of an
issuance of securities to be in no case less than $50,000
nor be in excess of $1,000,000;
(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 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
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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 or any
Series shall not:
(a) Borrow money from or loan money to any
Interestholder or other Person or any other Series, except
that the foregoing is not intended to prohibit (i) the
deposit on margin with respect to the initiation and
maintenance of each Series' Commodities positions or (ii)
obtaining lines of credit for the trading of forward
contracts; provided, however, that each Series 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 each Series so as to restore the Series'
account to proper margin status in the event that the
Series 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, or with those
of any other Series;
(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;
(e) Engage in Pyramiding of its Commodities
positions; provided, however, that a Trading Advisor(s)
may take into account the Series' open trade equity on
existing positions in determining generally whether to
acquire additional Commodities positions on behalf of the
Series;
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(f) Permit rebates to be received by the
Managing Owner or any Affiliate 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 Advisor(s) to share in
any portion of brokerage fees related to commodity
brokerage services paid by a Series 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;
(j) Enter into any exclusive brokerage contract;
and
(k) operate the Trust in any manner so as to
contravene section 3804 of the Business Trust Statute.
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 or a Series thereof against any losses,
judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by it in connection
with its activities for a particular Series of the Trust,
provided that (i) the Managing Owner was acting on behalf
of or performing services for the relevant Series and has
determined, in good faith, that such course of conduct was
in the best interests of the Series and such liability or
loss was not the result of negligence, misconduct, or a
breach of this Trust Agreement on the
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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, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the
U.S. Code by or against 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, it being understood that
the source of payments made in respect of indemnification
under this Trust Agreement shall be the assets of each
Series on a pro rata basis, as the case may be.
(b) Notwithstanding the provisions of Section
4.6(a) above, the Managing Owner and any Person acting as
broker-dealer for each Series 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 or a particular
Series 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
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approves such advance; 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.
(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 or any Series thereof and
acting within the scope of the Managing Owner's authority
as set forth in this Trust Agreement.
(g) In the event the Trust or any Series 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 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.
(h) The payment of any amount pursuant to this
Section shall be subject to Section 3.6 with respect to
the allocation of liabilities and other amounts, as
appropriate, among the Series of the Trust.
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 each Series thereof 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.
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(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) routine services of the Trustee, legal
counsel, auditors and accountants, whether employed
directly or by Affiliates of the Managing Owner; (v)
postage, insurance and filing fees; (vi) client relations
and services and (vii) computer equipment and system
development shall be billed to and paid by the Managing
Owner or an Affiliate of the Managing Owner. All ongoing
expenses associated with (i) the fixed fee to be paid to
the Trust's Commodities broker, (ii) required payments to
the Trust's Trading Advisors and (iii) extraordinary
expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification
related thereto) shall be billed to and/or paid by the
appropriate Series of the Trust, subject to such other
limitations as are set forth herein concerning the
limitations on the Series' liability for the liabilities
of another Series.
(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 or any series
thereof for which payment one or more Series of the Trust
is responsible. In addition, payment to the Managing
Owner or such Affiliate for indirect expenses incurred in
performing services for the Trust or any Series thereof,
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
as described in the Prospectus.
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
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hundred and twenty (120) days' prior written notice to all Limited
Owners and the Trustee and the prior approval of Limited
Owners holding Interests equal to at least a majority
(over 50%) of the Net Asset Value of each Series
(excluding Interests held by the withdrawing Managing
Owner). If the withdrawing Managing Owner is the last
remaining Managing Owner, Limited Owners holding Interests
equal to at least a majority (over 50%) of the Net Asset
Value of each Series (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 of a Series thereof on
the next Redemption Date following the date of removal or
withdrawal.
SECTION 4.11 Authorization of Registration
Statements. Each Limited Owner (or any permitted assignee
thereof) hereby agrees that the Managing Owner is
authorized to execute, deliver and perform the agreements,
acts, transactions and matters contemplated hereby or
described in or contemplated by the Registration
Statements 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 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 (to the
extent that it is permitted to do so under the various
other provisions of this Agreement) 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 any Series in 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.
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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.
(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 each Series' tax classification as a
partnership, to avoid having any Series classified as a
publicly traded partnership or to avoid adverse legal
consequences to any Series in the Trust.
(i) A substituted Limited Owner is a
permitted assignee that has been admitted to any
Series 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 Series
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 Series.
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(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 Series' transactions
or to inspect the Series' 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
extraordinary costs (including attorneys' and
accountants' fees), if any, 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 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, acknowledgment 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 (A) the
assignment will not jeopardize the Series' tax
classification as a partnership and (B) the assignment
does not violate this Trust Agreement or the Business
Trust Statute.
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(c) Any Person admitted to any Series 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 each Series of the Trust as a
partnership for federal income tax purposes or to
preserve the characterization or treatment of any
Series' income or loss; or (B) 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 Series 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
Dealing Day of the next succeeding week, provided the
Managing Owner shall have been in receipt of the
written instrument of assignment for at least five (5)
Business 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
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"effective date" of an assignment of an Interest
in the Trust shall be the first day of
the week immediately following the week
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 Series 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 any Series may be 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, intra family assignment, family
dissolutions and transfers to affiliates), which would
result in either the assignee or the assignor holding
Interests in any combination of Series valued at less
than $5,000 (or $2,000 in the case of IRAs), provided,
however, that this limitation shall not apply in
respect of a Limited Owner wishing to assign its or
his entire interest in all Series of 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 of any Series. 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
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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 a Series 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 any Series 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 any Series 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.
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS
SECTION 6.1 Capital Accounts. A capital account
shall be established for each Interestholder on the books
of the Series in which an Interest is owned 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 a Series.
SECTION 6.2 Monthly Allocations. As of the close of
business (as determined by the Managing Owner) on the last
Business Day of each 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 of a Series as of such date as
compared to the next previous determination of Net Asset
Value of a Series 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
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(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 each Series, the Series' 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 Series
shall be allocated pro rata among the Interestholders
based on their respective book capital accounts as of the
last day of each week in which such Profits or Losses
accrued.
(b) Next, Disposition Gain or Disposition Loss
from the Series' 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 Series
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 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 week 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 week,
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.
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(iii) Disposition Gain realized during
any week that remains after the allocation pursuant to
Section 6.3(b)(ii) above shall be allocated to those
Interestholders who were Interestholders during such
week in the ratio that each such Interestholder's book
capital account bears to all such Interestholders'
book capital accounts for such week.
(iv) Disposition Loss realized during
any week 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 week,
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
week that remains after the allocation pursuant to
Section 6.3(b)(iv) above shall be allocated to those
Interestholders who were Interestholders during such
week in the ratio that each such Interestholder's book
capital account bears to all such Interestholders'
book capital accounts for such calendar week.
(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.
(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).
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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 a Series shall make with respect to the
Interests; provided, however, that a Series 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 Dealing Day following the week
in which such Interestholder's Subscription Agreement or
Exchange Request, as the case may be, is received,
provided the Managing Owner shall have been in receipt of
such Subscription Agreement or Exchange Request for at
least five (5) Business Days, or in which 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 any Series shall be separately
subject to taxation by any state or local or by any
foreign taxing authority, the Series shall be obligated to
pay such taxes to such jurisdiction. In the event that
the Series 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 Series
income, the amount of such taxes shall be considered a
loan by the Series to such Interestholder, and such
Interestholder shall be liable for, and shall pay to the
Series, any taxes so required to be withheld and paid over
by the Series 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 Series 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 Series to the
Interestholder in respect of its Interests so redeemed, or
in respect of any other actual distribution by the Series
to such Interestholder, shall be reduced by any
obligations owed to the Series by the Interestholder,
including, without limitation, the amount of any taxes
required to be paid over by the Series to the IRS or other
taxing authority
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and interest thereon as aforesaid.
Amounts, if any, deducted by the Series 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 any
Series depends upon long-term and uninterrupted investment
of capital. It is agreed, therefore, that Series 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 a
Series. 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 a Limited Interest
or portion thereof on the first Dealing Day following the
date the Managing Owner is in receipt of an acceptable
form of written notice of redemption for at least five (5)
Business Days (a "Redemption Date"). Interests will be
redeemed on a "first in, first out" basis based on time of
receipt of redemption requests at a redemption price equal
to the Net Asset Value of a Series per Interest calculated
as of the Valuation Point immediately preceding the
applicable Redemption Date. 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) The value of an Interest for purposes of
redemption shall be the book capital account balance of
such Interest at the Valuation Point immediately preceding
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. 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 a Series of such Interests upon redemption.
(c) The effective date of redemption shall be the
Redemption Date, and payment of the value of the redeemed
Interests (except for Interests redeemed as
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part of an Exchange as provided in Section 7.4) generally shall be
made within ten (10) Business Days following the
Redemption Date; provided, that all liabilities,
contingent or otherwise, of the Trust or any Series in the
Trust, except any liability to Interestholders on account
of their Capital Contributions, have been paid or there
remains property of the Series 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(d) and will be
redeemed on the first Redemption Date to occur after the
Managing Owner shall have been in receipt of such written
notice for at least five (5) Business Days.
(d) 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
five (5) Business Days following the Redemption Date
whether or not their Interests will be redeemed, unless
payment for the redeeming Interests is made within that
five (5) Business Day period, in which case the notice of
acceptance of the redemption shall not be required.
(e) 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).
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(f) Interests that are redeemed shall be
extinguished and shall not be retained or reissued by the
Trust or any Series.
(g) Except as discussed above, all requests for
redemption in proper form will be honored, and the Series'
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.
SECTION 7.3 Redemption Fee. The Managing Owner will
receive a redemption fee, as provided in the Prospectus,
of the Net Asset Value of an Interest of any Series
redeemed during the first and second successive six-month
periods following the effective date of its purchase.
This redemption fee will not be charged if you
simultaneously (i) exchange the redeemed Interest
Corporation thereof for an Interest of equal value in
another Series, or (ii) invest your redemption proceeds in
another futures fund sponsored by Prudential Securities.
SECTION 7.4 Exchange of Interests. Interests in one
Series may be exchanged, without applicability of
redemption fees, for Interests of equivalent value of any
other Series (an "Exchange") on any Dealing Day, subject
to the conditions on Redemptions in this Article VII.
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 transact any business for the Trust or any
Series thereof or have the power to sign for or bind the
Trust or any Series thereof, 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 of
any Series in which such Limited Owners owns an Interest
and profits remaining in the Series, 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.
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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 (or
any Series thereof in which it holds an Interest),
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
Series in which they hold Interests, 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 Series in which they
hold Interests 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. Except
with respect to Series or class differences, 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 Interests representing
at least a majority (over 50%) in Net Asset Value of each
affected Series (not including Interests held by the
Managing Owner and its Affiliates, including the commodity
broker) voting separately as a class may vote to (i)
continue the Series 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 a
Series, or the brokerage fees paid by a Series, as set
forth in the
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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 Series 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 any Series
of the Trust in excess of his Capital Contribution to that
Series 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, on a pro rata
basis among Series, to the full extent permitted by law
and the other provisions of this Agreement, and 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 one or more Series' Interests (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 instrument are not
binding upon the Limited Owners individually but are
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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. Nothing
contained in this Section 8.3 shall diminish the
limitation on the liability of each Series to the extent
set forth in Section 3.5 and 3.6 hereof.
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
SECTION 9.1 Books of Account. Proper books of
account for each Series 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 Series'
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 any Series, including
such access as is required under CFTC rules and
regulations. Such books of account shall be kept, and
each Series 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 of a
Series. Net Asset Value of a Series will be estimated as
required. Upon request, on any Business Day, the
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Managing Owner shall make available to any Limited Owner the
estimated Net Asset Value of a Series per Interest. Each
Limited Owner shall be notified of any decline in the
estimated Net Asset Value of a Series per Interest to less
than 50% of the Net Asset Value of a Series 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.
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 Advisor 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 Series' 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. The
Certificate of Trust shall not be amended in any respect
if the effect of such amendment is to diminish the
limitation on interseries liability under Section 3804 of
the Business Trust Statute.
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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.
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 Trust
shall commence on the date of filing of the Certificate of
Trust and end on the 31st day of December 1997. The
Fiscal Year in which any Series in the Trust shall
terminate shall end on the date of termination of the
Series.
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 Interests equal to at least ten percent (10%) of
the Net Asset Value of each Series of the Trust, unless
the proposed amendment affects only certain Series, in
which case such amendment may be proposed by Limited
Owners holding Interests equal to at least ten percent
(10%) of Net Asset Value of a Series of each affected
Series. Following such proposal, the Managing Owner shall
submit to the Limited Owners of each affected Series 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 Interests equal to at least a majority (over 50%)
of the Net Asset Value of a Series (excluding Interests
held by the Managing Owner and its Affiliates) of the
Trust or, if the proposed amendment affects only certain
Series, of each affected Series, 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
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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 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 each
Series 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
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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.
(f) No provision of this Agreement may be
amended, waived or otherwise modified orally but only by
a written instrument adopted in accordance with this
Section
SECTION 11.2 Meetings of the Trust. Meetings of the
Interestholders of the Trust or any Series thereof may be
called by the Managing Owner and will be called by it upon
the written request of Limited Owners holding Interests
equal to at least ten percent (10%) of the Net Asset Value
of a Series of the Trust or any Series thereof. 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 Trust or any Series
thereof 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 by written consent
setting forth the actions so taken. Such written consents
shall be treated for all purposes as votes at a meeting.
If the vote or consent of any Interestholder to any action
of the Trust or any Interestholder, as contemplated by
this Agreement, is solicited by the Managing Owner, the
solicitation shall be effected by notice to each
Interestholder given in the manner provided in Section
15.4. The vote or consent of each Interestholder so
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solicited shall be deemed conclusively to have been cast
or granted as requested in the notice of solicitation,
whether or not the notice of solicitation is actually
received by that Interestholder, unless the Interestholder
expresses written objection to the vote or consent by
notice given in the manner provided in Section 15.4 below
and actually received by the Trust within 20 days after
the notice of solicitation is effected. The Managing
Owner and all persons dealing with the Trust shall be
entitled to act in reliance on any vote or consent which
is deemed cast or granted pursuant to this Section and
shall be fully indemnified by the Trust in so doing. Any
action taken or omitted in reliance on any such deemed
vote or consent of one or more Interestholders shall not
be void or voidable by reason of timely communication made
by or on behalf of all or any of such Interestholders in
any manner other than as expressly provided in Section
15.4.
ARTICLE XII
TERM
SECTION 12.1 Term. The term for which the Trust and
each Series is to exist shall commence on the date of the
filing of the Certificate of Trust, and shall expire on
December 31, ____, 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 of the
Trust or any Series. The Trust or, as the case may be,
any Series thereof shall dissolve at any time upon the
happening of any of the following events:
(a) The expiration of the Trust term as provided
in Article XII hereof.
(b) The filing of a certificate of dissolution
or revocation of the Managing Owner's charter (and the
expiration of 90 days after the date of notice to the
Managing Owner of revocation without a reinstatement of
its charter) or upon the withdrawal, removal, adjudication
or admission 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 and each Series or
(ii) within ninety (90) days of such Event of Withdrawal
all the remaining Interestholders agree in writing to
continue the business of the Trust and each Series 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 and a
failure of all remaining
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Interestholders to continue the
business of the Trust and to 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 Interests representing at least a
majority (over 50%) of the Net Asset Value of each Series
(not including Interests held by the Managing Owner and
its Affiliates) may elect to continue the business of the
Trust and each Series thereof 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 or any
Series thereof, as the case may be.
(d) The failure to sell the Subscription Minimums
(as defined in the Prospectus) of all Series or any number
of Series to at least 150 subscribers 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 or, as the case may be, any Series
becomes insolvent or bankrupt.
(g) The Limited Owners holding Interests
representing at least a majority (over 50%) of the Net
Asset Value of a Series (which excludes the Interests of
the Managing Owner) vote to dissolve the Series, notice of
which is sent to the Managing Owner not less than ninety
(90) Business Days prior to the effective date of such
Series' termination.
(h) The Limited Owners of each Series holding
Interests representing at least a majority (over 50%) of
the Net Asset Value of the Series (which excludes the
Interests of the Managing Owner) vote to dissolve 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 terminations.
(i) The decline of the Net Asset Value of a
Series of the Trust Estate by fifty percent (50%) from the
Net Asset Value of a Series of the Trust Estate (i) at the
commencement of the Series' trading activities or (ii) on
the first day of a fiscal
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year, in each case after
appropriate adjustment for distributions, additional
capital contributions and redemptions.
(j) The determination of the Managing Owner that
the Series' aggregate net assets in relation to the
operating expenses of the Series make it unreasonable or
imprudent to continue the business of the Series.
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) shall not result in the termination of the or any
Series thereof, 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 Series in which they own an Interest and
any right to an audit or examination of the books of the
Series in which they own an Interest, except for such
rights as are set forth in Article IX hereof relating to
the Books of Account and reports of the Series.
SECTION 13.2 Distributions on Dissolution. Upon the
dissolution of the Trust or any Series, 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 Series 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 or Series 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
Series 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
Series, 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 Series,
the Managing Owner will contribute to the Series 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
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Capital Contributions made by the Managing Owner
pursuant to this Section shall be applied first to satisfy
any amounts then owed by the Series to its creditors, and
the balance, if any, shall be distributed to those
Interestholders in the Series 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 all Series 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 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
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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;
(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
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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 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.
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(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 sent
electronically, by facsimile or by overnight courier; and
addressed, in each such case, to the address set forth in
the books and records of the Trust or such other 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, upon transmission and electronic
confirmation thereof or upon deposit with a representative
of an overnight courier, as the case may be. 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.
A-64
<PAGE>
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.
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
A-65
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
WORLD MONITOR TRUST
This Certificate of Trust is filed in accordance with the
provisions of the Delaware Business Trust Act (12 Del. C.
Section 3801 et seq.) and sets forth the following:
FIRST: The name of the trust is World Monitor Trust
(the "Trust").
SECOND: The name and the business address of the
Delaware trustee is Wilmington Trust Company, Rodney Square
North, 1110 North Market Street, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration.
THIRD: Pursuant to Section 3806(b)(2) of the Delaware
Business Trust Act, the Trust shall issue one or more series
of beneficial interests having the rights, powers and duties
as set forth in the Declaration of Trust and Trust Agreement
of the Trust dated December 17, 1997, as the same may be
amended from time to time (each a "Series").
FOURTH: Notice of Limitation of Liability of each
Series: Pursuant to Section 3804 of the Delaware Business
Trust Act, there shall be a limitation on liability of each
particular Series such that the debts, liabilities, claims,
obligations and expenses incurred, contracted for or otherwise
existing with respect to, in connection with or arising under
a particular Series shall be enforceable against the assets of
that Series only, and not against the assets of the Trust
generally or the assets of any other Series.
WILMINGTON TRUST COMPANY, Trustee
By_______________________________
A-66
<PAGE>
EXHIBIT B
WORLD MONITOR TRUST
REQUEST FOR REDEMPTION
_______________, 19_____
(Please date)
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
c/o Prudential Securities Incorporated
One New York Plaza, 12th Floor
Specialty Finance Operations
New York, New York 10292
Dear Sirs:
I hereby request redemption of the number of limited
liability beneficial interests ("Interests") specified below,
in the Series of the Trust indicated below, subject to all of
the conditions set forth in the Trust Agreement, as described
in the Prospectus:
Series A:
Series B:
Series C:
(specify number of Interests to be redeemed in each Series)
Redemption will be effective as of the Dealing Day (Monday
of each week) at the Series Net Asset Value on the Friday
immediately preceding the Dealing Date, assuming that this
Request for Redemption is received by the Managing Owner on at
least five (5) business days' prior written notice
("Redemption Date"). The first permissible Redemption Date
shall be the end of the first full week of trading activity by
the Series in which the Interests are owned ("Interests"). I
understand that Interests in each Series 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 5% of the Series 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 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
B-1
<PAGE>
<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 FIVE (5) BUSINESS DAYS' PRIOR TO THE LAST DAY
OF THE WEEK IN WHICH REDEMPTION IS TO BE EFFECTIVE.
B-2
<PAGE>
EXHIBIT C
EXCHANGE REQUEST
To: WORLD MONITOR TRUST
Prudential Securities Futures Management Inc.
One New York Plaza, 12th Floor
Specialty Finance Operations
New York, New York 10292
I hereby request the following exchange of Interests as of the
Dealing Date which first occurs five business days after your
receipt of this Exchange Request, upon the terms and
conditions described in the Prospectus for the
World Monitor Trust dated _______, 1998. I certify that
all of the statements made in my original Subscription
Agreement remain accurate. 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 Interests to which this
Exchange Request relates, with full power and authority to
request an Exchange 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.
Amount to be Redeemed Upon Exchange
Series A $____________ or
All Interests
Series B $____________ or
All Interests
Series C $____________ or
All Interests
<PAGE>
Amount to be Purchased Upon
Exchange
Series A $____________
Series B $____________
Series C $____________
<PAGE>
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
C-1
<PAGE>
SIGNATURE(S)
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)
IF SUBMITTED IN ACCORDANCE WITH REQUIRED PROCEDURES, THE
EXCHANGE REQUESTED HEREIN WILL BE EFFECTIVE AS OF THE DEALING
DAY (USUALLY MONDAY) OF THE WEEK FOLLOWING A WEEK AFTER WHICH
THIS EXCHANGE REQUEST WAS RECEIVED.
C-2
<PAGE>
FOR USE BY PSI-FA ONLY
____________________________________________________________________
Ledger Code Account Number FA# Phone Order
- -
Client Account Number at PSI __________________________
______________________________________________________________________
FA Name FA Telephone No. Branch Name and
Wire Code of Branch
______________________________________________________________________
Signature of FA and Date Signature of
Branch Manager and Date
FOR USE BY TRUST ONLY
Interests to be Redeemed:
Series A Interests: Amount $
Series B Interests: Amount $
Series C Interests: Amount $
Total $
Interests to be Purchased:
Series A Interests: Amount $
Series B Interests: Amount $
Series C Interests: Amount $
Total $
C-3
<PAGE>
EXHIBIT D
WORLD MONITOR TRUST
SUBSCRIPTION AGREEMENTS FOR
LIMITED LIABILITY BENEFICIAL INTERESTS
- -------------------------------------------------------------------------
INSTRUCTIONS (Please read carefully)
A. Using a typewriter or printing in ink, check the appropriate box or
fill in the blanks on Pages D-2 through D-4 as directed herein:
CHECK THE APPROPRIATE BOX
Boxes (i) NEW SUBSCRIBER(S)
(ii) EXISTING OWNER(S) OF SERIES A, B, OR C INTERESTS
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 AND SERIES. MINIMUM
SUBSCRIPTION FOR ALL SERIES IN THE AGGREGATE IS $5,000 FOR
INDIVIDUALS OR INSTITUTIONS OR ERISA PLANS (EXCEPT IRAs),
$2,000 FOR IRAs AND OTHER QUALIFIED ACCOUNTS. THE MINIMUM
INITIAL SUBSCRIPTION PER SERIES IS $1,000. 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 D-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 CHECK BOX TO INDICATE ACCOUNT TYPE (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.
<PAGE>
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.
Number 12 SUBSCRIBER(S) MUST INITIAL THE SUBORDINATION AGREEMENT IN
THE SPACE PROVIDED IN THE LEFT MARGIN.
B. Subscriber's admission as a Limited Owner of a Series will be
determined based on the date on which a fully completed, dated, and
signed Subscription Agreement is delivered to Prudential Securities
or an Additional Seller during the Initial and Continuous Offering
Period. 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.<PAGE>
D-2
<PAGE>
WORLD MONITOR TRUST
SUBSCRIPTION AGREEMENT and POWER OF ATTORNEY
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:
Series A Interests.....................$
Series B Interests.....................$
Series C Interests.....................$
2. Social Security Number 3. Prudential Securities Account
Number of Subscriber
______________________________ __________________________________
or
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 / / Keogh Plan (no
of Survivorship common law employees)
(All tenants' Signatures required)
/ / Tenants in Common (All tenants'
Signatures required)
/ / Community Property (Both
Signatures required) / / Other Employee Benefit
Plan (e.g.,
/ / Custodian Pension, Profit Sharing,
Keogh plan with employees)
/ / Partnership / / Individual Retirement Account
/ / Trust (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: $
D-3
<PAGE>
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 for the applicable Series, once it
commences trading, has been furnished to the person(s) named above
under the caption "Subscriber(s)."
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 each Series. 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 BRANCH MANAGER'S
FOR ALL ACCOUNTS 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 A
SERIES; (IV) THE EXISTENCE OF ACTUAL AND POTENTIAL
CONFLICTS OF INTEREST IN THE STRUCTURE AND OPERATION
OF A SERIES; (V) THE SERIES' 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 SERIES' 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.
D-4
<PAGE>
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)
D-5
<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 Advisors, 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 each Series which
constitutes its Commodity Futures Trading Commission ("CFTC")
Disclosure Document.
____ (6) I (we) am (are) purchasing the Limited Interests for our
own account.
____ (7) If trading for the applicable Series has commenced, I
(we) have received a copy of its most recent monthly report as
required by the CFTC.
____ (8) I (we) acknowledge that as a holder or holders of any
interests in, or claims of any kind against, any Series, I
(we) will seek to recover any debts, liabilities, obligations
and expenses incurred or otherwise existing with respect to
that Series solely from, or to assert such claims solely
against, (i) the assets of that Series (and not the assets of
any other Series or the Trust generally) or (ii) the Managing
Owner.
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. SUBSCRIBERS CONSENT AND SUBORDINATION AGREEMENT
____ I(we), a Subscriber(s) who is(are) purchasing Interests in the
Series that is the subject of this agreement (Series ___) (the
"Contracting Series"), agrees and consents (the "Consent") to look
solely to the assets (the "Contracting Series Assets") of the
Contracting Series and to the Managing Owner and its assets for payment.
The Contracting Series Assets include only those funds
D-6
<PAGE>
and other assets that are paid, held or distributed to the
Trust on account of and for the benefit of the Contracting
Series, including, without limitation, funds delivered
to the Trust for the purchase of Interests in a Series.
In furtherance of the Consent, the Subscriber agrees that (i) any
debts, liabilities, obligations, indebtedness, expenses and claims of
any nature and of all kinds and descriptions (collectively, "Claims")
incurred, contracted for or otherwise existing and (ii) any Interests,
beneficial interests or equity ownership of any kind (collectively,
"Interests"), arising from, related to or in connection with the Trust
and its assets and the Contracting Series and the Contracting Series
Assets, shall be subject to the following limitations:
(a) Subordination of certain claims and rights. (i) except as set
forth below, the Claims and Interests, if any, of the Subscriber
(collectively, the "Subordinated Claims and Interests") shall be
expressly subordinate and junior in right of payment to any and all
other Claims against and Interests in the Trust and any Series thereof,
and any of their respective assets, which may arise as a matter of law
or pursuant to any contract; provided, however, that the Subscriber's
Claims (if any) against and Interests (if any) in the Contracting Series
shall not be considered Subordinated Claims and Interests with respect
to enforcement against and distribution and repayment from the
Contracting Series, the Contracting Series Assets and the Managing
Owner and its assets; and provided further that (1) the Subscriber's
valid Claims, if any, against the Contracting Series shall be pari passu
and equal in right of repayment and distribution with all other valid
Claims against the Contracting Series and (2) the Subscriber's
Interests, if any, in the Contracting Series shall be pari passu and
equal in right of repayment and distribution with all other Interests
in the Contracting Series; and (ii) the Subscriber will not take, demand
or receive from any Series or the Trust or any of their respective
assets (other than the Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets) any payment for the Subordinated
Claims and Interests;
(b) the Claims and Interests of the Subscriber with respect to the
Contracting Series shall only be asserted and enforceable against the
Contracting Series, the Contracting Series Assets and the Managing Owner
and its assets; and such Claims and Interests shall not be asserted or
enforceable for any reason whatsoever against any other Series, the
Trust generally or any of their respective assets;
(c) if the Claims of the Subscriber against the Contracting Series or
the Trust are secured in whole or in part, the Subscriber hereby waives
(under section 1111(b) of the Bankruptcy Code (11 U.S.C. S 1111(b))) any
right to have any deficiency Claims (which deficiency Claims may arise
in the event such security is inadequate to satisfy such Claims) treated
as unsecured Claims against the Trust or any Series (other than the
Contracting Series), as the case may be;
(d) in furtherance of the foregoing, if and to the extent that the
Subscriber receives monies in connection with the Subordinated Claims
and Interests from a Series or the Trust (or their respective assets),
other than the Contracting Series, the Contracting Series Assets and the
Managing Owner and its assets, the Subscriber shall be deemed to hold
such monies in trust and shall promptly remit such monies to the Series
or the Trust that paid such amounts for distribution by the Series or
the Trust in accordance with the terms hereof; and
(e) the foregoing Consent shall apply at all times notwithstanding that
the Claims are satisfied, the Interests are sold, transferred, redeemed
or in any way disposed of and notwithstanding that the agreements in
respect of such Claims and Interests are terminated, rescinded or
canceled.
13. RISKS
These securities are speculative and their purchase involves a high
degree of risk. Risk Factors relating to the Interests in each Series
which are more fully described in the Prospectus include the following:
(i) futures, forward and options trading is speculative, volatile and
highly leveraged; (ii) each Series is largely reliant on the Trading
Advisor for success; (iii) past performance of the Trading Advisor for
each Series 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 each Series;
and it is estimated that each Series will have to achieve net trading
profits (after taking interest income into account) of approximately
4.14% per annum for Series A, B, and C in order to offset expenses, and
of approximately 7.14% 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 as well as the business of each
Series; (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 in a Series 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.
D-7
PAGE
<PAGE>
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND POWER OF
ATTORNEY ACCOMPANIES THIS PROSPECTUS AS A SEPARATE DOCUMENT
WORLD MONITOR TRUST
UNITS OF BENEFICIAL INTEREST BY SERIES
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
World Monitor Trust
Prudential Securities Futures
Management Inc.
One New York Plaza, 12th Floor
Specially Financial Operations
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
Series A, B, and/or C of World Monitor Trust (the "Trust") as 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 Series
Net Asset Value during the Continuous Offering Period. Incremental
subscriptions in excess of the foregoing minimums are permitted in $100
multiples. Existing Limited Owners in the subscribed Series (except in
certain states) may subscribe for additional Limited Interests in that
Series 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 Series'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 each Series of World
Monitor Trust," 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 DELIVERS SUBSCRIPTION DOCUMENTS TO PRUDENTIAL SECURITIES OR
AN ADDITIONAL SELLER. Thereafter, all subscriptions are irrevocable.
Due to the above rescission right, subscribers will not be admitted
as Limited Owners until the Monday first following five business days
after the subscription documents have been submitted to Prudential
Securities or an Additional Seller.
2. Representations and Warranties of Subscriber. I have received
the Prospectus together with the most recent Monthly Report of the
Trust, if trading has commenced for the Series in which I am investing.
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
D-8
<PAGE>
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.
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 Series 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.
D-9
<PAGE>
<PAGE>
STATE SUITABILITY REQUIREMENTS
All states except as listed below.
The general suitability requirement for subscribers to the
Series of 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
D-10
<PAGE>
WORLD MONITOR TRUST - SERIES B
The date of this Part II is December 22, 1997.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses to be incurred in connection with the offering are
as follows:
Description Amount
Securities and Exchange Commission filing
fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,735.00
NASD filing fee. . . . . . . . . . . . . . . . . . . . . . . . 3,900.00
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . *
Accounting fees. . . . . . . . . . . . . . . . . . . . . . . . *
Blue Sky registration fees and expenses . . . . . . . . . . . *
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14. Indemnification of Directors and Officers.
Reference is made to Section __ of Article __ at pages
____ to ____ of the Registrant's Declaration of Trust and
Trust Agreement dated December 17, 1997, annexed to the
Prospectus as Exhibit A, which provides for indemnification of
the Managing Owner and Affiliates of the Managing Owner under
certain circumstances.
Item 15. Recent Sales of Unregistered Securities.
On December 17, 1997, the Registrant sold 10 Interests to
the Managing Owner for $1,000 to effect the formation of the
Trust as a Delaware business trust. No underwriting discount
or sales commission was paid or received with respect to this
sale. The Registrant claims an exemption from registration
for this transaction based on Section 4(2) of the Securities
Act of 1933, as amended, as a sale by an issuer not involving
a public offering.
II-1
<PAGE>
<PAGE>
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 Declaration of Trust and Trust
Agreement of the Registrant (annexed
to the Prospectus as Exhibit A)
4.2 Form of Request for Redemption
(annexed to the Prospectus as Exhibit
B)
4.3 Form of Exchange Request (annexed to
the Prospectus as Exhibit C
4.4 Form of Subscription Agreement
(annexed to the Prospectus as Exhibit
D)
*5.1 Opinion of Rosenman & Colin LLP as to
legality
*5.2 Opinion of Richards, Layton & Finger
as to legality and inter-Series
liability
*5.3 Opinion of Rosenman & Colin LLP as to
legality with regard to federal
bankruptcy issues
*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 the
Advisor
10.4 Form of Representation Agreement
Concerning the Registration Statement
and the Prospectus among the
Registrant, Prudential Securities
Futures Management Inc., Prudential
Securities Incorporated, Wilmington
Trust Company and the Advisor
* To be filed by amendment
II-2
<PAGE>
10.5 Form of Net Worth Agreement between
Prudential Securities Futures
Management Inc. and Prudential
Securities Group Inc.
* 23.1 The consent of Price Waterhouse LLP is
included as part of the Registration
Statement
23.2 The consent of Rosenman & Colin LLP is
included as part of the Registration
Statement
24.3 The consent of Richards, Layton &
Finger is included as part of the
Registration Statement
* To be filed by amendment
(b) The following financial statements are included in
the Prospectus:
1. World Monitor Trust **
(i) Report of Independent Accountants.
(ii) Form of Audited Statement of Financial
Condition as of _____, 1998.
(iii) Form of Notes to Audited Statement of
Financial Condition.
2. Prudential Securities Futures Management Inc.
**
(i) Report of Independent Accountants.
(ii) Form of Audited Statement of Financial
Condition as of December 31, 1996.
(iii) Form of Notes to Statement of Financial
Condition.
(iv) Unaudited Statement of Financial Condition
as of September 30, 1997.
(v) Notes to Statement of Financial Condition.
3. Diversified Futures Trust I **
(i) Report of Independent Accountants.
(ii) Form of Audited Statement of Financial
Condition as of December 31, 1996.
(iii) Form of Notes to Statement of Financial
Condition.
II-3
<PAGE>
(iv) Unaudited Statement of Financial Condition
as of September 30, 1997.
(v) Notes to Statement of Financial Condition.
** Reports of Independent Public Accountants will be
filed by amendment as will the audited financial
statements.
All schedules have been omitted as the required
information is inapplicable or is presented in the Statements
of Financial Condition or related notes.
Item 17. Undertakings.
Registrant undertakes (a) to file, during any period in
which offers or sales are being made, a post-effective
amendment to the Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act
of 1933 (the "Act"), (ii) to reflect in the prospectus any
facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the Registration Statement and (iii) to include any material
information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any
material change to such information in the Registration
Statement; (b) that, for the purposes of determining any
liability under the Act, each such post-effective amendment be
deemed to be a new Registration Statement relating to the
securities offered herein and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof; and (c) to remove from registration by means
of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under
the Act may be permitted to the Managing Owner of Registrant,
including its directors, officers and controlling persons,
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than for
expenses incurred in a successful defense) is asserted against
Registrant by the Managing Owner under the Declaration of
Trust and Trust Agreement or otherwise, Registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-4
<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
22nd day of December, 1997.
WORLD MONITOR TRUST - SERIES B
By: Prudential Securities Futures Management,
Inc., Managing Owner
By: /s/ Thomas M. Lane
-----------------------------
Thomas M. Lane, President
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/ Thomas M. Lane President December 22, 1997
- ----------------------
Thomas M. Lane
/s/ Eleanor L. Thomas Vice President December 22, 1997
- -----------------------
Eleanor L. Thomas
- ------------------------
A. Laurence Norton, Jr. Director December __, 1997
/s/ Guy S. Scarpaci
- -------------------------
Guy S. Scarpaci Director December 22, 1997
/s/ Barbara J. Brooks
- -------------------------
Barbara J. Brooks Chief Financial December 22, 1997
Officer and
Treasurer
/s/ Steven Carlino
- --------------------------
Steven Carlino Chief Accounting December 22, 1997
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-5<PAGE>
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
We hereby consent to the use in the Prospectus constituting
part of the Registration Statement on Form S-1 (No. 333-
) of our report dated ______________, 1997 relating to
the statement of financial statements of World Monitor Trust
as of _____________, 1997 and our report dated ______, 1997
relating to the statement of financial condition of
Prudential Securities Futures Management Inc. (a wholly
owned subsidiary of Prudential Securities Incorporated)
which appear in the Prospectus. We also consent to the
reference to us under the heading "Experts" in such
Prospectus.
New York, New York
_______________, 1997
<PAGE>
EXHIBIT 23.2
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".
New York, New York
December 22, 1997
/s/ Rosenman & Colin LLP
Rosenman & Colin LLP
<PAGE>
<PAGE>
EXHIBIT 23.3
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
December 22, 1997
<PAGE>
As filed with the Securities and Exchange Commission on December 22,
1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
EXHIBITS
FILED WITH
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
WORLD MONITOR TRUST - SERIES B
(Exact Name of Registrant as Specified in Trust Certificate)
PAGE
<PAGE>
INDEX TO EXHIBITS
Page in
Sequential
Numbering
System
Exhibits
1.1 Form of Underwriting Agreement
among the Registrant,
Prudential Securities Futures
Management Inc. and Prudential
Securities Incorporated. . . . . . . . . . . . . . . . . .
3.1
and
4.1 Declaration of Trust and Trust
Agreement of the Registrant
(annexed to the Prospectus as
Exhibit A) . . . . . . . . . . . . . . . . . . . . . . . .
4.2 Form of Request for Redemption
(annexed to the Prospectus as
Exhibit B) . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Form of Exchange Request
(annexed to the Prospectus as
Exhibit C. . . . . . . . . . . . . . . . . . . . . . . . .
4.4 Form of Subscription Agreement
(annexed to the Prospectus as
Exhibit D) . . . . . . . . . . . . . . . . . . . . . . . .
*5.1 Opinion of Rosenman & Colin LLP
as to legality . . . . . . . . . . . . . . . . . . . . . .
*5.2 Opinion of Richards, Layton &
Finger as to legality and
inter-Series liability under
Delaware Law . . . . . . . . . . . . . . . . . . . . . . .
*5.3 Opinion of Rosenman & Colin LLP
as to federal bankruptcy
issues . . . . . . . . . . . . . . . . . . . . . . . . . .
*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 the
Advisor. . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
Page in
Sequential
Numbering
System
Exhibits
10.4 Form of Representation
Agreement Concerning the
Registration Statement and
the Prospectus among the
Registrant, Prudential
Securities Futures
Management Inc., Prudential
Securities Incorporated,
Wilmington Trust Company
and the Advisor. . . . . . . . . . . . . . . . . . . . . .
10.5 Form of Net Worth Agreement
between Prudential Securities
Futures Management Inc. and
Prudential Securities Group
Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
*23.1 The consent of Price Waterhouse LLP is
included as part of the Registration
Statement . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.2 The consent of Rosenman & Colin LLP is
included as part of the Registration
Statement. . . . . . . . . . . . . . . . . . . . . . . . .
23.3 The consent of Richards, Layton & Finger
is included as part of the Registration
Statement. . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
EXHIBIT 1.1
WORLD MONITOR TRUST
$34,000,000 of Series A Interests
$33,000,000 of Series B Interests
$33,000,000 of Series C Interests
New York, New York
, 1998
UNDERWRITING AGREEMENT
Prudential Securities Futures Management Inc., a Delaware
corporation (the "Managing Owner"), is the Managing Owner of
World Monitor Trust (the "Trust"), a business trust organized
under Chapter 38 of Title 12 of the Delaware Code (the
"Delaware Act"). Wilmington Trust Company (the "Trustee"), a
Delaware banking company, is the Trustee of the Trust and has
delegated all responsibility for the management of the Trust's
business and affairs to the Managing Owner. The Trust has
been formed primarily for the purpose of trading, buying,
selling, spreading or otherwise acquiring, holding or
disposing of a diversified portfolio of commodity futures,
forward and options contracts. Limited interests in the Trust
(the "Interests") will be issuable in multiple series (the
"Series"), each separately managed by a different professional
trading advisor (collectively, the "Trading Advisors"), each
of which is registered as a commodity trading advisor. Each
Series will be separately valued and its assets will be
segregated from the assets of the other Series. Holders of
Interests ("Limited Owners") will have the right to exchange,
through redemption and purchase, Interests of one Series for
Interests of any other Series. The Trust proposes to offer to
the public and to sell to subscribers acceptable to the
Managing Owner, the Interests upon the terms and subject to
the conditions set forth in this Underwriting Agreement (the
"Agreement") and the Registration Statements (and the
Prospectuses included therein) referred to below. A maximum
of $34,000,000 for Series A, $33,000,000 for Series B, and
$33,000,000 for Series C will be offered and sold during the
Initial Offering Period for each Series, and thereafter during
the Continuing Offering Period for each Series as such terms
are hereinafter defined in Section 2(a). The Interests of
each Series will be offered at $100 per Interest during the
Initial Offering Period and thereafter at the Net Asset Value
per Interest of the applicable Series ("Series Net Asset
Value"). All capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Prospectus of
the Trust dated this same date.
Prudential Securities Incorporated ("Prudential
Securities") will act as underwriter and sales agent for the
Trust on a "best efforts" basis.
1. The Managing Owner and the Trust, jointly and
severally, represent and warrant to Prudential Securities
that:
a. A separate Registration Statement on Form S-1
for each Series and as a part thereof a combined prospectus
for all Series with respect to all of the Interests being
offered (which Registration Statements together with all
amendments thereto, at the times and in the forms declared
effective by the Securities and Exchange Commission (the
"SEC") shall be referred to herein as the "Registration
Statements", and which prospectus in final form, together with
all amendments and supplements thereto, shall be referred to
herein as the "Prospectus"), prepared in full conformity with
the applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), the Commodity Exchange Act, as
amended (the "CE Act"), and the rules, regulations and
instructions promulgated under the 1933 Act and the CE Act,
respectively, have been filed with the SEC, the Commodity
Futures Trading Commission (the "CFTC"), the National
Association of Securities Dealers, Inc. (the "NASD") and the
National Futures Association (the "NFA") pursuant to the 1933
Act, the CE Act and the rules and regulations promulgated,
respectively, thereunder, as well as the rules and regulations
of the NASD and the NFA, in the form heretofore delivered to
Prudential Securities;
b. To the best of their knowledge, no order
preventing or suspending the effectiveness of the Registration
Statements or use of the Prospectus or any previous prospectus
with respect to the Interests has been issued by the SEC, the
CFTC, the NASD, the NFA or any other federal, state or other
governmental agency or body. The Registration Statements each
contain all statements which are required to be made therein,
conforms in all material respects to the requirements of the
1933 Act and the CE Act and the rules and regulations of the
SEC and the CFTC, respectively, thereunder, and does not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they were
made) not misleading; and, when the Registration Statements
become effective under the 1933 Act and at all times
subsequent thereto up to and including the Initial Closing
Date for each Series, and thereafter up to and including each
Subsequent Closing Date during the Continuous Offering Period,
as such terms are hereinafter defined in Section 6(d), the
Registration Statements and the Prospectus will contain all
material statements and information required to be included
therein by the 1933 Act and the CE Act and the rules and
regulations, respectively, thereunder, as well as the rules
and regulations of the NASD and the NFA, and will conform in
all material respects to the requirements of the 1933 Act, the
CE Act and the rules and regulations, respectively,
thereunder, as well as the rules and regulations of the NASD
and the NFA, and will not include any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein
(with respect to the Prospectus, in light of the circumstances
in which they were made) not misleading; provided, however,
that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Trust
or the Managing Owner by Prudential Securities, the Trustee or
their respective agents or by or on behalf of the Trading
Advisors or any other commodity trading advisor (an "Other
Advisor") engaged by the Managing Owner on behalf of the Trust
for use therein, all without prejudice to any defense that
Prudential Securities may have based upon its "due diligence"
investigation under the 1933 Act;
c. The Trust was duly formed and is validly
existing as a business trust in good standing under the
Delaware Business Trust Statute, with full power and
authority, and all necessary authorizations, approvals and
orders of and from all federal, state and other governmental
or regulatory officials and bodies, to carry out its
obligations under this Agreement, its certificate of trust
(the "Trust Certificate") and its Declaration of Trust and
Trust Agreement, dated as of __________, 1997 (the "Trust
Agreement"), and to own its properties and conduct its
business as described in the Prospectus;
d. On the date hereof, the Managing Owner is and,
at all times through the Initial Closing Date for each Series
and thereafter through each Subsequent Closing Date, will be
duly incorporated and validly existing as a corporation under
the laws of the State of Delaware with requisite corporate
power and authority, and all necessary authorizations,
approvals and orders of and from all required federal, state
and other governmental or regulatory officials and bodies, to
(i) conduct its business, (ii) enter into the agreements, and
(iii) consummate the transactions, each as described in the
Prospectus; and on the date hereof the Managing Owner is and
at all times through the Initial Closing Date for each Series
and thereafter through each Subsequent Closing Date, will be
duly qualified to conduct business as a foreign corporation in
good standing in every jurisdiction in which the character of
such business requires such qualification and the failure to
be so qualified would materially adversely affect its ability
to act as Managing Owner of the Trust and perform its
obligations hereunder;
e. The offer and sale of the Interests for each
Series have been duly authorized by the Managing Owner on
behalf of the Trust, and the Interests, when issued, will
constitute valid interests in the Trust which conform to the
description thereof contained in the Prospectus; and the
liability of each Limited Owner will be limited as set forth
in the Prospectus and the Trust Agreement, and no Limited
Owner will be subject to personal liability for the debts,
obligations, or liabilities of the Trust by reason of his
being a Limited Owner of the Trust other than as described in
the Prospectus and the Trust Agreement;
f. This Agreement has been duly and validly
authorized, executed and delivered by the Managing Owner and
the Trust and constitutes a valid and binding agreement of the
Managing Owner and the Trust enforceable in accordance with
its terms. Neither the offer and sale of the Interests, nor
the execution and delivery of this Agreement, nor compliance
by the Trust or the Managing Owner with all of the provisions
of this Agreement will conflict with, or result in a breach of
any of the terms or provisions of, or result in a default
under, the provisions of the Trust Certificate or the Trust
Agreement or the Certificate of Incorporation or By-Laws of
the Managing Owner or the terms of any indenture, mortgage,
deed of trust, loan agreement, other evidence of indebtedness
or other agreement or instrument to which the Trust or the
Managing Owner is a party or by which the Trust or the
Managing Owner is bound or to which any of the property or
assets of the Trust or the Managing Owner is subject, nor, to
the best of their knowledge, any applicable statute or any
order, rule or regulation of any court or of any federal,
state or other governmental or regulatory agency or body
having jurisdiction over the Trust or the Managing Owner or
any of their properties, nor will any such actions result in
the imposition of any lien, charge or encumbrance upon any of
the property or assets of the Trust or the Managing Owner, and
subsequent to the dates as of which information is given in
the Registration Statements and the Prospectus and except as
set forth or contemplated therein, neither the Trust nor the
Managing Owner has incurred any material liabilities or
obligations (direct or contingent) or entered into any
material transactions not in the ordinary course of its
business and no consent, approval, authorization, order,
registration or qualification of or with any court or any
federal, state or other governmental or regulatory agency or
body is required for the issue and sale of the Interests or
the consummation of the other transactions contemplated by
this Agreement, except the registration of the Managing Owner
under the CE Act as a commodity pool operator, membership by
the Managing Owner as a commodity pool operator with the NFA,
the registration under the 1933 Act of the Interests,
submission of the Prospectus to the NASD, CFTC and NFA, and
such consents, approvals, authorizations, orders,
registrations or qualifications as may be required by
securities or Blue Sky laws in connection with the offer and
sale of the Interests;
g. Price Waterhouse LLP, who has examined certain
financial statements of the Managing Owner and the Trust, is
an independent public accountant, as required by the CE Act
and the 1933 Act and the rules and regulations of the CFTC and
SEC, respectively, thereunder;
h. The Trust has been capitalized as set forth in
the Prospectus;
i. The Trust and the Managing Owner have complied,
and will continue to comply, with all laws, rules and
regulations having application to its or their business,
including rules and regulations promulgated by the CFTC and
NFA, the violation of which would materially and adversely
affect the business, financial condition or earnings of the
Trust or the Managing Owner; and there are no actions, suits
or proceedings pending or, to the best of the knowledge of the
Trust or the Managing Owner, threatened against it or them, at
law or in equity or before or by any federal, state, municipal
or other governmental or regulatory department, commission,
board, bureau, agency or instrumentality, or by any commodity
or security exchange worldwide in which an adverse decision
would materially and adversely affect the business, financial
condition, earnings or properties of the Trust or the Managing
Owner or their ability to comply with, and perform their
obligations under this Agreement, and which are not adequately
disclosed in the Prospectus;
j. On or before the Initial Closing Date for each
Series, and thereafter, on or before each Subsequent Closing
Date, the Managing Owner shall have purchased or subscribed
for the General Interests required of it by the Trust
Agreement and shall have a Net Worth (as defined in the Trust
Agreement) equal to or in excess of the requirements therein;
k. The financial statements of the Managing Owner
and the Trust contained in the Registration Statements and the
Prospectus fairly present the financial condition thereof and
the results of operations as of the dates and for the periods
therein specified; and such financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States consistently applied
throughout the periods involved; and no other financial
statements are required by Form S-1 to be included in the
Registration Statements or the Prospectus;
l. There are no contracts or other documents which
are required to be filed as Exhibits to the Registration
Statements by the 1933 Act or the CE Act or by the rules and
regulations of the SEC or CFTC, respectively, thereunder, or
by the rules and regulations of the NASD or NFA, which have
not been filed as required; and
m. The Trust has the power and authority to enter
into the various contractual obligations and agreements
referred to in the Prospectus, and the execution and delivery
of such agreements by the Trust and by the Managing Owner on
behalf of the Trust, the consummation of the transactions
contemplated therein, and the compliance with all of the terms
thereof by the Trust and the Managing Owner will be in
compliance with all applicable legal requirements to which
either the Trust or the Managing Owner is subject and will not
conflict with or constitute a breach of or default under, the
terms or provisions of any order of the SEC, the NASD, the
CFTC, or the NFA, the Trust Agreement, the Trust Certificate,
the Certificate of Incorporation or By-Laws of the Managing
Owner, or any other agreement or instrument to which either
the Trust or the Managing Owner is a party or by which either
is bound;
2. a. Subject to the terms and conditions, and on the
basis of the representations, warranties and covenants herein
set forth, the Trust hereby appoints Prudential Securities as
its selling agent and Prudential Securities agrees to use its
best efforts to procure subscribers during the various Initial
and Continuous Offering Periods on the terms and conditions
set forth, and for the periods described, in the Prospectus.
b. The Trust acknowledges that Prudential
Securities has no present intention to retain certain selected
brokers or dealers ("Additional Sellers") but that Prudential
Securities maintains the right to retain Additional Sellers in
the future, which in such case the Additional Sellers, if
located in the United States, will be members of the NASD and
will execute a selected dealers agreement to be agreed upon
between the parties.
c. During the various Initial and Continuous
Offering Periods, all Prudential Securities branch offices
will be required to forward subscriptions to the Prudential
Securities New York, Operational branch office and to the
Managing Owner no later than noon of the first business day
following receipt of an acceptable subscription agreement from
a subscriber for Interests ("Subscriber", or, collectively,
"Subscribers"). The Managing Owner shall have sole
responsibility for determining whether Subscribers are
qualified to become Limited Owners in the Trust and for
accepting subscriptions and determining their validity.
Prudential Securities agrees to use its best efforts to cause
subscribers to prepare their subscriptions in proper form.
Prudential Securities shall deposit the subscription proceeds
from the sale of Interests in each Series (the "Proceeds")
during the Initial Periods in escrow accounts designated by
Series at The Bank of New York in New York, New York (the
"Escrow Agent"), for the separate benefit of the Subscribers
of each Series, not later than noon of the second business day
following the receipt by the Managing Owner of completed
subscription agreements accompanied by such Proceeds.
Proceeds will be transferred to the escrow accounts at the
Escrow Agent from the Subscriber's account with Prudential
Securities (or from the Subscriber's account at an Additional
Seller), which funds must be in the Subscriber's account with
Prudential Securities (or at an Additional Seller) at the time
of the subscription. The Managing Owner will determine
whether to accept or reject all subscriptions within four (4)
business days following receipt of subscription documents from
Prudential Securities. Upon notification by the Managing
Owner to the Escrow Agent that a subscription for Interests of
a Subscriber has been rejected, for whatever reason, or in the
event that the Subscriber rescinds its subscription in
conformity with the requirements of the North American
Securities Administrators Association Inc. Guidelines for
Registration of Commodity Pool Programs, the Escrow Agent
shall by wire transfer return any Proceeds held in escrow,
excluding any interest thereon, to Prudential Securities, in
which case Prudential Securities shall credit the Subscriber's
account with Prudential Securities as soon thereafter as may
be practicable. The Escrow Agent shall make interest payments
to the Subscribers by delivering a check in the amount equal
to the interest allocable by Series to each Subscriber. In
the case of Individual Retirement Accounts ("IRA" accounts),
interest payments will be forwarded to Prudential Securities
for deposit into the subscriber's Prudential Securities
account. If subscriptions for the minimum number of
Interests in a Series set forth in the Prospectus (after
taking into account the Managing Owner's contribution) have
not been made by the conclusion of the Initial Offering Period
for a Series, then all Proceeds deposited in the escrow
account designated for that Series, and any interest earned
thereon, shall be returned (in the same way described above in
the case of a rejected or rescinded subscription) to the
Subscribers on a pro rata basis (and taking into account the
amount and time of deposit), no later than ten (10) business
days after the termination of the Initial Offering Period for
the affected Series, or as soon thereafter as practicable if
payment cannot be made in such time period.
d. During the Continuous Offering Period, the
Managing Owner also will determine whether to accept or reject
all subscriptions received and will do so (i) within one (1)
business day following receipt from Prudential Securities of
a "Request for Exchange" (in the form attached to the
Prospectus as Exhibit B) or the "Subscription Agreement" (in
the form attached to the Prospectus as Exhibit C) with
respect to a Limited Owner in an existing Series and (ii)
within four (4) business days following receipt of
subscription documents from Prudential Securities for a new
Subscriber. For subscriptions which are accepted, proceeds
will be transferred to the applicable Series account with The
Bank of New York from the Subscriber's account with Prudential
Securities (or from the Subscriber's account at an Additional
Seller), which funds must be in the Subscriber's account with
Prudential Securities (or an Additional Seller) at the time of
the subscription. For an existing Limited Owner, such
transfer will occur on the Subsequent Closing Date which first
follows the date on which the Managing Owner accepts the
subscription. For a new Subscriber, such transfer will occur
on the Subsequent Closing Date which first occurs five
business days after the subscription documents are delivered
by the Subscriber to Prudential Securities (or an Additional
Seller).
e. On the Initial Closing Date for a Series, and
thereafter on each Subsequent Closing Date with respect to
that Series, the acceptance, delivery, and receipt of
subscriptions for Interests will be subject to the terms and
conditions set forth in this Agreement, including, but not
limited to, (i) the payment of the full subscription price for
Interests and delivery of a properly completed Subscription
Agreement/Power of Attorney by each subscriber; (ii) the fact
that a new subscriber's subscription will not be final and
binding until five (5) business days following the
Subscriber's delivery of his subscription documents to
Prudential Securities (or an Additional Seller), and (iii)
compliance with Section 5 hereof. Upon the satisfaction of
such terms and conditions, the aggregate subscription price
for Interests (exclusive of any interest earned on such
subscriptions while held in escrow which is payable to the
subscribers) will be paid and delivered to the Trust in
accordance with the Escrow Agreement.
f. Prudential Securities represents and warrants
that (i) it is a duly organized and validly existing
corporation and is in good standing and qualified to transact
its business in the jurisdictions where it shall sell the
Interests; (ii) it has all requisite corporate power and
authority to act as selling agent in the manner contemplated
by this Agreement, the Prospectus and the Registration
Statements; (iii) with respect to the offer and sale of the
Interests, all references to it in the Prospectus are accurate
in all material respects and such information does not contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading; and (iv) this Agreement
has been duly authorized, executed and delivered on behalf of
it and is a valid and binding agreement enforceable in
accordance with its terms;
g. No selling commissions shall be paid to
Prudential Securities by the Trust or the Managing Owner in
connection with the transactions contemplated hereby.
Prudential Securities will, however, provide the branch office
from which a Limited Owner was sold an Interest during the
Initial and Continuous Offering Periods with a per Interest
sales credit. From this sales credit the branch office
normally will pay not more than ___% of the applicable Series
Net Asset Value per Interest to each of its employees (as may
be agreed upon by Prudential Securities and such employee)
with respect to Interests sold by such employee; provided,
however, that Prudential Securities will only pay such amounts
to employees who have all appropriate federal and state
securities registrations. Aggregate expenses incurred in
connection with retail salaries, expense reimbursement, sales
seminars, bonus and sales incentives will not exceed the
limitation imposed on such expenses by the NASD.
Notwithstanding the foregoing, the Trust understands that so
long as Prudential Securities is registered as a futures
commission merchant ("FCM"), Prudential Securities will,
commencing twelve months after the effective date of the sale
of each Interest, compensate each of its employees who have
sold such Interests who (i) is or will be registered as an
Associated Person ("AP") under the CE Act and be qualified to
do futures brokerage (in addition to having all applicable
federal and state securities registrations) and (ii) performs
or will perform certain administrative services specified in
the Prospectus on an ongoing basis for the Limited Owners who
purchased such Interests ("Continuing Compensation"). No
compensation set forth in this subsection (f) will be paid in
respect of Interests sold to Individual Retirement Accounts of
Prudential Securities employees.
As compensation for the brokerage services it will
perform for the Trust once trading commences, Prudential
Securities will receive a monthly brokerage fee from each
Series which, on an annual basis, will equal __% of its Series
Net Asset Value from which Prudential Securities will
compensate its employees as described above in the immediately
preceding paragraph. There will be no material change related
to such brokerage fee except upon 20 business days' notice to
Limited Owners, and no increase in such fee shall take effect
except at the beginning of a quarter.
Prudential Securities will not pay any portion of
Continuing Compensation to any individual who it no longer
employs, but may pay such compensation to certain of its
employees who, although not responsible for the sale of an
outstanding Interest, provide certain continuing
administrative services to Limited Owners in place of the
individual who was responsible for such sale, provided that
such replacement individual has the appropriate AP
registration and is qualified to do futures brokerage as set
forth above. Any Additional Sellers retained by the Trust, so
long as they are registered as FCMs, also will receive
Continuing Compensation, with any employees of Additional U.S.
Sellers being required to be registered as APs under the CE
Act and be futures qualified as set forth above. All Aps,
whether or not affiliated with Prudential Securities,
receiving Continuing Compensation must either have taken the
Series 3 or Series 31 Commodity Brokerage Exam or be
"grandfathered" as an AP qualified to do futures brokerage.
h. Prudential Securities agrees that it will not
take any of the following action against the Trust: (i) seek
a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Trust in an
involuntary case or proceeding under the Federal Bankruptcy
Code or any other federal or state bankruptcy, insolvency,
reorganization, rehabilitation, liquidation or similar law or
(B) adjudging the Trust a bankrupt or insolvent, or seeking
reorganization, rehabilitation, liquidation, arrangement,
adjustment or composition of or in respect of the Trust under
the Federal Bankruptcy Code or any other applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of
the Trust or of any substantial part of any of its properties,
or ordering the winding up or liquidation of any of its
affairs, or (ii) seek a petition for relief, reorganization or
to take advantage of any law referred to in the preceding
clause or (iii) file an involuntary petition for bankruptcy
(collectively "Bankruptcy or Insolvency Action").
i. In addition, Prudential Securities agrees that
for any obligations due and owing to it by any Series,
Prudential Securities will look solely and exclusively to the
assets of such Series or the Managing Owner, if it has
liability in its capacity as Managing Owner, to satisfy its
claims and will not seek to attach or otherwise assert a claim
against the other assets of the Trust, whether or not there is
a Bankruptcy or Insolvency Action taken. The parties agree
that this provision will survive the termination of this
Agreement, whether terminated in a Bankruptcy or Insolvency
Action or otherwise.
j. This Agreement has been made and executed by and
on behalf of the Trust and the Managing Owner and the
obligations of the Trust and/or the Managing Owner set forth
herein are not binding upon any of the Limited Owners
individually but are binding only upon the assets and property
identified above and no resort shall be had to the assets of
other Series issued by the Trust or the Limited Owners'
personal property for the satisfaction of any obligation or
claim hereunder.
k. Prudential Securities agrees that, to the extent
applicable, it will comply with the Rule 2300 Series of the
Conduct Rules of the NASD in connection with its sale of
Interests, including, without limitation, Rule 2310 thereof
which impose on Prudential Securities, among other things, the
following requirements:
(1) That it have reasonable grounds to believe,
on the basis of information obtained from each
prospective subscriber concerning his financial situation
and needs, his tax status, his investment objectives,
other investments, and any other information known by
Prudential Securities that:
(i) The subscriber is or will be in a
financial position appropriate to enable him to
realize to a significant extent the benefits
described in the Prospectus;
(ii) The subscriber has a fair market
net worth sufficient to sustain the risks inherent
in the program, including loss of investment and
lack of liquidity; and
(iii) The program is otherwise suitable for
the subscriber.
(2) That Prudential Securities maintain in its
files documents disclosing the basis upon which the
determination of suitability was reached as to each
subscriber.
(3) That notwithstanding the requirements of (1)
and (2) above, Prudential Securities will not execute any
transaction in connection with the sale, resale or
transfer of Interests in any discretionary account
without prior written approval of the transaction by the
customer.
(4) That Prudential Securities has reasonable
grounds to believe, based on information made available
to it by the Managing Owner through the Prospectus, that
all material facts are adequately and accurately
disclosed therein and provide a basis for evaluating the
program.
(5) That in determining the adequacy of
disclosed facts pursuant to (4) above, Prudential
Securities obtain information on all material facts
relating, at a minimum, to the following, if relevant:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience
of the Managing Owner;
(v) the Trust's conflicts and risk
factors; and
(vi) all pertinent reports.
(6) That prior to executing a transaction for
the purchase of Interests, Prudential Securities will
inform any prospective subscriber of all pertinent facts
relating to the liquidity and marketability of the
Interests during the term of the investment.
3. The Trust and Managing Owner each agree with
Prudential Securities:
a. To advise Prudential Securities, promptly after
it receives notice thereof, of the time when each Registration
Statement becomes effective or any Prospectus has been filed
with the SEC, the CFTC, the NASD, the NFA or any other
federal, state or other governmental or regulatory or self-
regulatory agency or body, of the issuance by the SEC, the
CFTC, the NASD, the NFA or any other federal, state or other
governmental or regulatory or self-regulatory agency or body
of any stop order or of any order to prevent or suspend the
use of the Prospectus, or the initiation or threat of any
proceeding for any such purpose or any request by the SEC, the
CFTC, the NASD, the NFA or any other federal, state or other
governmental or regulatory or self-regulatory agency or body
to amend or supplement the Registration Statements or
Prospectus, or for additional information; and in the event of
the issuance of any stop order or of any order preventing or
suspending the use of the Prospectus or suspending any such
qualification, promptly to use its best efforts to obtain its
withdrawal;
b. To furnish Prudential Securities with copies of
the Prospectus in such quantities as Prudential Securities may
from time to time reasonably request, and if delivery of a
Prospectus is required at any time prior to the expiration of
nine (9) months after the date of any Prospectus and in such
time any event shall have occurred as a result of which such
Prospectus would include an untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made
when such Prospectus was delivered to Prudential Securities,
not misleading, or if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to
comply with the 1933 Act, the CE Act, or any other law, rule
or regulation of any federal, state or other governmental,
regulatory or self-regulatory agency or body, including, but
not limited to, such amendments and supplements as may be
required because of the selection of any Other Advisor, to
notify Prudential Securities and upon Prudential Securities'
request to prepare and furnish, without charge to Prudential
Securities, as many copies as Prudential Securities may from
time to time reasonably request of an amended Prospectus or a
supplement to such Prospectus which will correct such
misstatement or omission or effect such compliance;
c. Promptly from time to time to take such action
as Prudential Securities may reasonably request to use its
best efforts to qualify the Interests for offering and sale
under the securities or Blue Sky laws of such jurisdictions as
Prudential Securities may request and to comply with such laws
so as to permit the continuance of sales in such jurisdictions
for so long as may be necessary to complete the distribution
thereof;
d. To make generally available to its security
holders as soon as practicable, but in any event not later
than the 15th month following the month in which the Initial
Closing Date occurs, an earnings statement of the Trust (which
need not be audited) complying with Section 11(a) of the 1933
Act and covering a period of at least twelve (12) consecutive
months beginning after the effective date of the applicable
Registration Statements;
e. To furnish Prudential Securities with copies of
all reports or other communications (financial or other)
furnished to the Limited Owners, and to deliver to Prudential
Securities, as soon as they are available, copies of any
reports and financial statements furnished to or filed with
the SEC, the CFTC, the NASD, the NFA and any other federal,
state or other governmental or regulatory or self-regulatory
agency or body; and
f. To furnish, without charge to Prudential
Securities, two (2) signed copies of each Registration
Statements, including all financial statements and Exhibits
thereto, and such number of conformed copies of each
Registration Statements, including all financial statements,
as Prudential Securities may reasonably request.
4. Prudential Securities covenants and agrees with the
Managing Owner that Prudential Securities or an Affiliate will
pay or cause to be paid all Organization and Offering expenses
(as defined in Section 4.7 of the Trust Agreement), and all
other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically
provided for in this Section 4, subject to the terms,
conditions and limitations described in the Prospectus.
5. The obligations of Prudential Securities hereunder
shall be subject, in its discretion, to the condition that all
representations, warranties, covenants and other statements of
the Trust and the Managing Owner herein are, at and as of the
time of effectiveness of each Registration Statement, true and
correct, the condition that each of the Trust and the Managing
Owner shall have performed all of its and their obligations
hereunder theretofore to be performed, and the following
additional conditions:
a. The Registration Statements shall have become
effective, and Prudential Securities shall have received
notice thereof; no stop order suspending the effectiveness of
the Registration Statements shall have been issued and no
proceeding for that or any similar purpose shall have been
initiated or threatened by the SEC, the CFTC, the NASD or the
NFA; and all requests for additional information on the part
of the SEC, the NASD, the NFA and/or the CFTC shall have been
complied with to the reasonable satisfaction of Prudential
Securities and its counsel.
b. Prudential Securities shall have received a
certificate of the Managing Owner, dated the Initial Closing
Date with respect to each Series, and thereafter, only if
Prudential Securities specifically requests such certificate
as of any Subsequent Closing Date with respect to a Series, to
the effect that:
(1) The representations and warranties of the
Trust and the Managing Owner contained herein are true
and correct at and as of the Initial Closing Date, or as
of a Subsequent Closing Date, as the case may be, and
each of the Trust and the Managing Owner have complied
with all the agreements and satisfied all the conditions
on its or their part to be performed or satisfied at or
prior to the Initial Closing Date or thereafter, at or
prior to any Subsequent Closing Date, as the case may be;
(2) No stop order suspending the effectiveness
of the Registration Statements has been issued and no
proceedings for that or any similar purpose have been
instituted or are pending, or, to the best of its
knowledge, are contemplated or threatened under the 1933
Act. No order preventing or suspending the use of the
Prospectus has been issued by the SEC, the NASD, the
CFTC, the NFA, and no proceedings for that purpose have
been instituted or are pending or, to the best of the
knowledge of the Managing Owner, are contemplated or
threatened under the 1933 Act or the CE Act or under any
law, rule or regulation of any federal, state or other
governmental, regulatory or self-regulatory agency or
body.
(3) The Registration Statement and the
Prospectus contain all statements and information
required to be included therein. Neither the
Registration Statement nor the Prospectus contains an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary
to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they
were made) not misleading and, since the effective date
of the Registration Statement, no event has occurred or
has been discovered which is required to be set forth in
the Registration Statement or Prospectus which has not
been so set forth in an amendment to the Registration
Statements or an amendment or supplement to the
Prospectus; provided, however, that this certification
shall not apply to any statements or omissions made in
reliance upon and in conformity with information
furnished in writing to the Trust or the Managing Owner
by Prudential Securities or by any Trading Advisors or
any Other Advisor specifically for use therein.
(4) The Managing Owner has made the capital
contribution to the Trust and has met the Net Worth
standard required of it by the Trust Agreement.
c. Rosenman & Colin LLP shall have furnished
Prudential Securities with its written opinion, dated the
Initial Closing Date for each Series, or as soon thereafter as
reasonably practicable; such written opinion will be
furnished to Prudential Securities thereafter, as of any
Subsequent Closing Date, upon Prudential Securities' specific
request, to the effect that:
(1) The Trust is (A) a duly created and validly
existing trust in good standing under the Delaware Act,
with requisite power and authority under the Delaware
Act, the Trust Certificate and the Trust Agreement as it
shall have been amended and/or restated at the time of
such opinion, to carry out its obligations under this
Agreement, the Trust Certificate and the Trust Agreement,
and to own properties and conduct business as described
in the Trust Agreement; and (B) validly existing, in good
standing and qualified to do business in each other
jurisdiction in which the nature or conduct of its
business requires such qualification and in which the
failure to be duly qualified would materially adversely
affect the Trust's ability to perform its obligations
hereunder.
(2) The Trust's authorized capitalization is as
set forth in the Prospectus, the Interests conform in all
material respects to the descriptions thereof contained
in the Prospectus, and the offer and sale of the
Interests have been duly and validly authorized by the
Trust under the Trust Agreement and the Delaware Act;
(3) The Managing Owner is a duly incorporated
and validly existing corporation in good standing under
the laws of the State of Delaware with requisite
corporate power and authority under its Certificate of
Incorporation, By-Laws, and the General Corporation Law
of the State of Delaware to carry out its obligations
under this Agreement, the Trust Certificate and the Trust
Agreement and to conduct its business as described in the
Prospectus, and it is duly qualified to conduct business
as a foreign corporation in good standing in the State of
New York.
(4) The various agreements referred to in the
Prospectus, the Trust Certificate, the Trust Agreement
and this Agreement have been duly and validly authorized
or ratified, executed and delivered, and each constitutes
the legal, valid and binding obligation of the Trust, and
is enforceable in accordance with its terms, except as
the same may be limited by bankruptcy or insolvency,
reorganization, moratorium or similar laws at the time in
effect affecting creditors rights generally, or by
applicable principles of equity, whether in an action at
law or equity, and except that the enforceability of the
indemnification provisions may be limited under
applicable federal or state securities, commodities or
other laws or by public policy;
(5) Assuming (A) that after the issuance of
Interests under the Prospectus and the Trust Agreement,
the number of Interests reserved for issuance and issued
by the Trust will not exceed the maximum number of
Interests which may be issued by the Trust under the
Prospectus and the Trust Agreement, (B) that the Trust
Agreement constitutes the entire agreement among the
parties thereto with respect to the subject matter
thereof including with respect to the admission of
Limited Owners to, and the creation, operation and
termination of, the Trust, and that the Trust Agreement
(including all amendments thereto) and the Trust
Certificate are in full force and effect, have not been
amended subsequent to the date hereof and no amendment of
the Trust Agreement or the Trust Certificate is pending
or has been proposed, (C) that the Managing Owner has
taken all corporate action required to be taken by it to
authorize the issuance and sale of the Interests to each
Subscriber for Interests who is to be admitted to the
Trust as a Limited Owner and to authorize the admission
to the Trust of the Subscribers as Limited Owners of the
Trust, (D) the due authorization, execution and delivery
of a Subscription Agreement by each Subscriber, (E) that
the Managing Owner has duly accepted a Subscription
Agreement from each Subscriber and the admission of the
Subscribers as Limited Owners to the Trust at least five
(5) business days following each Subscriber's receipt of
a Prospectus, (F) the payment by each Subscriber of the
full consideration due from it for the number of
Interests subscribed for by it, (G) the due
authorization, execution and delivery by all parties
thereto of the Trust Agreement, (H) that the books and
records of the Trust set forth all information required
by the Trust Agreement and the Delaware Act, including
all information with respect to all persons and entities
to be admitted as Limited Owners and their capital
contributions and (I) the Interests are offered and sold
as described in the Prospectus and the Trust Agreement,
the Subscribers will be Limited Owners of the Trust
entitled to all of the benefits of beneficial owners of
a Delaware business trust to the extent permitted under
the Delaware Act.
(6) Subject to the assumptions set forth in
paragraph (5) above, the Interests sold pursuant to the
Registration Statement will, when issued to the
Subscriber, be legally issued, fully paid and non-
assessable in conformity with the description thereof in
the Prospectus.
(7) The offer and sale of the Interests and the
compliance by the Trust with all of the provisions of
this Agreement do not conflict with or result in a breach
of any of the terms or provisions of, or constitute a
default under, the Trust Certificate or Trust Agreement,
or to the extent of such counsel's knowledge, any
indenture, mortgage, deed of trust, loan agreement or
other instrument or agreement to which the Trust is a
party or by which it is bound, or to the extent of such
counsel's knowledge, any statute, order, rule, or
regulation applicable to the Trust of any court or
governmental or regulatory authority, agency or body
having jurisdiction over the Trust;
(8) The Registration Statement has become
effective under the 1933 Act and was filed with the CFTC,
the NFA and the NASD as required by Part 4 of the
regulations under the CE Act, NFA Compliance Rule 2-13,
and the Filing Requirements set forth in the
Interpretation of the Board of Governors-Review of
Corporate Financing with respect to Article III, Section
I of the NASD's Rules of Fair Practice, respectively, and
to the extent of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration
Statement has been issued nor has any proceeding for the
issuance of such an order or any similar purpose been
initiated or threatened by the SEC, the CFTC, the NFA,
the NASD or any state in which offers and sales of
Interests are contemplated;
(9) To the best of such counsel's knowledge,
after due inquiry and subject to paragraph (10) below,
all authorizations, consents or orders of any court or
any federal, state or other governmental or regulatory
agency or body required for the valid authorization,
issuance, offer and sale of the Interests have been
obtained, including such as may be required under the
1933 Act and the CE Act, including the rules and
regulations, respectively, thereunder, the rules and
regulations of the NASD and the NFA and the securities or
Blue Sky laws of any state in which offers and sales of
Interests are contemplated, and subject to the
qualifications set forth in paragraph (13) below;
(10) The Trust is not required to be
registered as an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, in
order to act as described in the Registration Statement
and the Prospectus, subject to such conditions and
limitations as may be noted in the opinion;
(11) To the best of such counsel's
knowledge, after due inquiry, the Trust and the Managing
Owner have each obtained all required governmental and
regulatory licenses, registrations and approvals required
by law as may be necessary in order for the Trust and the
Managing Owner to act as described in the Registration
Statement and the Prospectus (including, without
limitation, the Managing Owner's registration as a
commodity pool operator under the CE Act and membership
as a commodity pool operator with the NFA), and such
licenses, registrations and other authorizations have
not, to the best of such counsel's knowledge, after due
inquiry, been rescinded, revoked or otherwise removed;
(12) The statements in the Prospectus under
the caption "Income Tax Consequences" have been reviewed
by such counsel and such statements are correct in all
material respects as to matters of law and legal
conclusions and it has rendered the opinion therein
referred to;
(13) The Interests have been registered or
otherwise approved for sale under the Blue Sky securities
laws of certain states and jurisdictions itemized on an
exhibit attached to the opinion required by this Section
5(c) of this Agreement and, to the best of such counsel's
knowledge, after due inquiry, may lawfully be offered and
sold to residents thereof or from places of business
therein in the amounts specified and subject to such
conditions and limitations as may be noted in the
opinion.
(14) Subject to such conditions and
limitations as may be noted in the opinion, the
Registration Statement and Prospectus appear on their
faces to be appropriately responsive in all material
respects to the requirements of the 1933 Act and the CE
Act, including the rules and regulations under each such
act, and the rules and regulations of the NFA, and
nothing has come to the attention of such counsel that
leads it to believe that either the Registration
Statement (at the time it initially became effective or
at the time that any post-effective amendment to the
Registration Statement became effective) or the
Prospectus (if and as required to be filed pursuant to
Rule 424(b) and 424(c) of the 1933 Act or as of the date
hereof) contains any untrue statement of a material fact
or omits to state a material fact required to be stated
therein or which is necessary to make the statements
therein (with respect to the Prospectus, in light of the
circumstances in which they were made) not misleading,
except that such counsel is not required to express any
opinion as to (A) the financial statements or other
financial or statistical data, past performance, pro
forma and/or historical performance tables and notes
thereto, or other past performance, pro forma and/or
historical information contained in the Registration
Statement or the Prospectus, or (B) any statements or
omissions made in reliance on or in conformity with
information furnished by or on behalf of the Trading
Advisors (or, if applicable, any Other Advisor) or
Prudential Securities, or any controlling persons,
shareholders, directors, officers or employees of any of
the foregoing, including, without limitation, all
references to the Trading Advisors (and, if applicable,
any Other Advisor), Prudential Securities and their
affiliates, controlling persons, shareholders, directors,
officers and employees, as well as all past performance
information on the Trading Advisors (or, if applicable,
any Other Advisor) and prior Prudential Securities-
sponsored funds.
(15) Such counsel does not know of any
pending or threatened action, suit or proceeding before
any court or other governmental or regulatory agency,
authority or body, involving the Trust or the Managing
Owner, of a character required to be disclosed in the
Registration Statement, which is not adequately described
in the Prospectus, nor of any contracts or other
documents of a character required to be described in or
filed as an Exhibit to the Registration Statement or the
Prospectus, which is not described and filed as required.
In rendering such opinion, Rosenman & Colin
LLP may rely upon other opinions of counsel of firms
qualified to render such opinions, as to matters of law
of the State of Delaware and any other jurisdiction where
an opinion is required to be given, and Rosenman & Colin
LLP shall state that they believe Prudential Securities
may rely on them.
d. Price Waterhouse LLP, independent public
accountants to the Trust and the Managing Owner, will have
furnished to Prudential Securities a letter, dated the Initial
Closing Date for each Series, and if requested by Prudential
Securities, a letter dated as of any Subsequent Closing Date,
and in form and substance satisfactory to Prudential
Securities, to the effect that:
(1) Such accountant is an independent certified
public accountant within the meaning of the 1933 Act, the
CE Act, and the rules and regulations under such Acts
with respect to the Trust and the Managing Owner, and the
answer to Item 10 of Form S-1 set forth in the
Registration Statements are correct insofar as they
relate to such firm.
(2) In such firm's opinion, the statements of
financial condition of the Trust and the Managing Owner
and the notes thereto included in the Prospectus and
examined by it comply as to form in all material respects
with the applicable accounting requirements of the 1933
Act, the CE Act, and the rules and regulations under such
Acts.
(3) On the basis of limited procedures not
constituting an audit, including inquiries of officials
of the Managing Owner having responsibility for financial
and accounting matters pertaining to the Trust and such
other inquiries and procedures as may be specified in
such letter, nothing has come to such accountant's
attention which causes it to believe that, as of a
specified date not more than five business days prior to
the Initial Closing Date of each Series, or a Subsequent
Closing Date, as the case may be, there has been any
decrease in the Net Assets of the Trust as compared to
Net Assets set forth in the statement of financial
condition of the Trust included in the Prospectus, except
as may be disclosed in such letter.
(4) On the basis of limited procedures, not
constituting an audit, including a reading of the latest
available financial statements of the Managing Owner,
inspection of the minute book of the Managing Owner since
the date of the latest audited financial statements of
the Managing Owner, inquiries of officials of the
Managing Owner having responsibility for financial and
accounting matters, and such other inquiries and
procedures as may be specified in such letter, nothing
has come to such accountant's attention that causes it to
believe that, as of a specified date not more than five
business days prior to the Initial Closing Date of each
Series, or a Subsequent Closing Date, as the case may be,
there has been any decrease in the Managing Owner's
stockholder's equity as compared to stockholder's equity
set forth in the statement of financial condition of the
Managing Owner included in the Prospectus, except as may
be disclosed in such letter.
e. All documents, certificates and opinions of
counsel required to be delivered to Prudential Securities on
the Initial Closing Date of a Series, or on the appropriate
Subsequent Closing Date, as the case may be, by the Trading
Advisor to each Series of the Trust disclosed in the
Prospectus, pursuant to an agreement entered into by
Prudential Securities, the Trust and the Managing Owner with
the Trading Advisors entitled "Representation Agreement
Concerning the Registration Statement and the Prospectus",
such agreement being dated on or about the date of the initial
Prospectus, shall have been delivered in form and substance
satisfactory to Prudential Securities and its counsel; and
there shall have been no material changes in the Registration
Statement or the Prospectus concerning the applicable Trading
Advisor subsequent to the date hereto to which the applicable
Trading Advisor shall not have agreed.
6. a. This Agreement shall be terminated at the
conclusion of the Continuous Offering Period with respect to
each Series.
b. Until such time as this Agreement shall
terminate with respect to each Series pursuant to subsection
(a) of this Section 6, this Agreement may be terminated by
Prudential Securities, at Prudential Securities' option, by
giving notice to the Trust and the Managing Owner, if:
(1) there shall have been, since the respective
dates as of which information is given in the
Registration Statements, any material adverse change in
the condition, financial or otherwise, of the Trust or
the Managing Owner which change, in the judgment of
Prudential Securities, shall render it inadvisable to
proceed with the offer and sale of the Interests; or
(2) the Registration Statements and/or the
Prospectus is not amended promptly after written request
by Prudential Securities for it to be so amended because
an event has occurred which, in the opinion of counsel
for Prudential Securities, should be set forth in the
Registration Statements or the Prospectus in order to
make the statements therein not misleading; or
(3) any of the conditions specified in Section
5 hereof shall not have been fulfilled when and as
required by this Agreement to be fulfilled; or
(4) there shall have been an outbreak of
hostilities between the United States and any foreign
sovereign, there shall have occurred any insurrection or
other armed conflict involving the United States which,
in the opinion of Prudential Securities, makes it
impractical or inadvisable to offer or sell the
Interests; or
(5) there shall have been (A) a general
suspension of, or a general limitation on prices for,
trading in (i) commodity futures or option contracts on
commodity exchanges in the United States, or (ii) other
commodities instruments, or (B) any other national or
international calamity or crisis in the financial markets
of the United States to the extent that it is determined
by Prudential Securities, in its discretion, that such
limitations would materially impede the Trust's trading
activities or make the offering or delivery of the
Interests impossible or impractical; or
(6) there shall have been a declaration of a
banking moratorium by federal, New York or Delaware
authorities.
c. In addition to subsection (b) of this Section 6,
this Agreement may be terminated with respect to a Series by
written agreement among the parties hereto. The termination
of this Agreement for any reason set forth in this Section 6
shall not affect the obligations of the Trust contained in
Sections 4 or 7 hereof; nor shall the termination of This
Agreement with respect to one Series for any reason affect the
obligations of the parties with respect to any other Series.
d. The Initial Closing Date with respect to a
Series shall be a date selected by Prudential Securities on
written notice to the Managing Owner, not less than five (5)
and not more than fifteen (15) business days following the
termination of the Initial Offering Period with respect to
that Series referred to in Section 2(a) above. Each
Subsequent Closing Date with respect to a Series shall be the
date of the first business day of any calendar week during the
Continuous Offering Period with respect to that Series
referred to in Section 2(a) above. Notwithstanding anything
to the contrary herein, each Closing with respect to a Series
shall be held on such date, at such time and at such place as
the Managing Owner and Prudential Securities may agree upon.
7. Each of the Managing Owner and Prudential Securities
agrees and consents (the "Consent") to look solely to each
Series that is being offered pursuant to this Agreement (the
"Contracting Series") and the assets (the "Contracting Series
Assets") of the Contracting Series and to the Managing Owner
and its assets for payment. The Contracting Series Assets
include only those funds and other assets that are paid, held
or distributed to the Trust on account of and for the benefit
of the Contracting Series, including, without limitation,
funds delivered to the Trust for the purchase of interests in
a Series. In furtherance of the Consent, each of the Managing
Owner and Prudential Securities agrees that (i) any debts,
liabilities, obligations, indebtedness, expenses and claims of
any nature and of all kinds and descriptions (collectively,
"Claims") incurred, contracted for or otherwise existing
arising from, related to or in connection with the Trust and
its assets and the Contracting Series and the Contracting
Series Assets, shall be subject to the following limitations:
a. Subordination of certain claims and rights. (i)
except as set forth below, the Claims, if any, of the Managing
Owner or Prudential Securities (the "Subordinated Claims")
shall be expressly subordinate and junior in right of payment
to any and all other Claims against the Trust and any Series
thereof, and any of their respective assets, which may arise
as a matter of law or pursuant to any contract; provided,
however, that the Claims of each of the Managing Owner and
Prudential Securities (if any) against the Contracting Series
shall not be considered Subordinated Claims with respect to
enforcement against and distribution and repayment from the
Contracting Series, the Contracting Series Assets and the
Managing Owner and its assets; and provided further that the
valid Claims of either the Managing Owner or Prudential
Securities, if any, against the Contracting Series shall be
pari passu and equal in right of repayment and distribution
with all other valid Claims against the Contracting Series
and (ii) the Managing Owner and Prudential Securities will not
take, demand or receive from any Series or the Trust or any of
their respective assets (other than the Contracting Series,
the Contracting Series Assets and the Managing Owner and its
assets) any payment for the Subordinated Claims;
b. the Claims of each of the Managing Owner and
Prudential Securities with respect to the Contracting Series
shall only be asserted and enforceable against the Contracting
Series, the Contracting Series Assets and the Managing Owner
and its assets; and such Claims shall not be asserted or
enforceable for any reason whatsoever against any other
Series, the Trust generally or any of their respective assets;
c. if the Claims of the Managing Owner or
Prudential Securities against the Contracting Series or the
Trust are secured in whole or in part, each of the Managing
Owner and Prudential Securities hereby waives (under section
1111(b) of the Bankruptcy Code (11 U.S.C. S 1111(b)) any right
to have any deficiency Claims (which deficiency Claims may
arise in the event such security is inadequate to satisfy such
Claims) treated as unsecured Claims against the Trust or any
Series (other than the Contracting Series), as the case may
be;
d. in furtherance of the foregoing, if and to the
extent that the Managing Owner and Prudential Securities
receives monies in connection with the Subordinated Claims
from a Series or the Trust (or their respective assets), other
than the Contracting Series, the Contracting Series Assets and
the Managing Owner and its assets, the Managing Owner and
Prudential Securities shall be deemed to hold such monies in
trust and shall promptly remit such monies to the Series or
the Trust that paid such amounts for distribution by the
Series or the Trust in accordance with the terms hereof; and
e. the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied, and
notwithstanding that the agreements in respect of such Claims
are terminated, rescinded or canceled.
8. a. All representations, warranties, covenants and
agreements contained in this Agreement shall remain operative
and in full force and effect regardless of (i) any
investigations made by or on behalf of Prudential Securities,
the Trustee, the Trust or the Managing Owner, (ii) delivery of
any payment for the Interests or (iii) termination of this
Agreement.
b. This Agreement is made solely for the benefit
of, and shall be binding upon, Prudential Securities, the
Trust and the Managing Owner and the respective successors and
assigns of each of them, and no other person shall have any
right or obligation under this Agreement. The terms
"successors" and "assigns" shall not include any purchasers,
as such, of Interests from the Trust.
c. This Agreement may not be assigned by any party
hereto without the prior express written consent of all other
parties. This Agreement may not be amended except by the
express written consent of all parties hereto.
d. All notices required or desired to be given
under the provisions of this Agreement must be in writing and
will be effective when given personally on the date delivered
or, when given by mail, on the date of receipt, addressed as
follows (or to such other address as the party entitled to
notice hereafter designates in accordance with the terms
hereof): (i) if to Prudential Securities, at One New York
Plaza, 13th Floor, New York, New York 10292, Attention: Guy
Scarpaci, with a copy to Fred M. Santo, Esq., Rosenman & Colin
LLP, 575 Madison Avenue, New York, New York 10022; and (ii) if
to the Trust or the Managing Owner, c/o Prudential Securities
Futures Management Inc., One New York Plaza, 13th floor, New
York, New York 10292, Attention: Eleanor L. Thomas, Esq. with
a copy to Fred M. Santo, Esq., Rosenman & Colin LLP, 575
Madison Avenue, New York, New York 10022.
e. Prudential Securities is not authorized by the
Trust to give any information or to make any representation in
connection with the offering of Interests other than those
contained in the Prospectus and such sales literature the use
of which has been authorized in writing by the Trust.
f. This Agreement has been made and executed by and
on behalf of the Trust and the Managing Owner and the
obligations of the Trust and/or the Managing Owner set forth
herein are not binding upon any of the Limited Owners
individually but are binding upon the assets and property of
each Series of the Trust individually and exclusively to the
extent that the obligations apply to such Series and, to the
extent provided herein, upon the assets and property of the
Managing Owner, and no resort shall be had to the assets of
any Series to which such obligation has no relationship or to
the Limited Owners' personal property for the satisfaction of
any obligation or claim herein.
g. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to
contracts made and to be performed in that State, without
giving effect to the principles of conflict of laws thereof.
<PAGE>
Very truly yours,
WORLD MONITOR TRUST
By Prudential Securities Futures
Management Inc., its Managing Owner
By:
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.
By:_____________________________
Accepted as of the date of this
Agreement first above written:
PRUDENTIAL SECURITIES INCORPORATED
By _______________________________
<PAGE>
EXHIBIT 10.1
ESCROW AGREEMENT
Escrow Agreement entered into as of _________________,
1998, by and among World Monitor Trust (the "Trust"), a
business trust organized under Chapter 38 of Title 12 of the
Delaware Code (the "Delaware Act"), Prudential Securities
Futures Management Inc., a Delaware corporation (the "Managing
Owner"), The Bank of New York, a New York banking corporation
(the "Escrow Agent"), and Prudential Securities Incorporated,
a Delaware corporation (the "Placement Agent"). All
capitalized words will have the meaning ascribed to it in the
Registration Statement, unless otherwise defined herein.
W I T N E S S E T H :
WHEREAS, the Trust intends to offer limited interests
("Interests") in the various Series ("Series") of the Trust as
described in the Trust's Prospectus through Prudential
Securities Incorporated pursuant to an Underwriting Agreement
(the form of which is attached hereto); and
WHEREAS, the Escrow Agent has consented to act as escrow
agent for the Trust pursuant to the conditions and
requirements hereinafter set forth;
NOW, THEREFORE, in consideration of the provisions
hereinafter set forth, the parties agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1. As used in this Agreement, the following
terms shall have the following meanings unless the context
otherwise requires:
"Interests" means the beneficial interest of each
interestholder in the profits, losses, distributions, capital
and assets of each separate Series in the Trust. Interests
need not be represented by certificates.
"Limited Owner" means any person or entity who becomes a
holder of Interests and who is listed as such on the books and
records of the Trust, and may include the Managing Owner with
respect to the Interests purchased by it.
"Prospectus" means the final prospectus and disclosure
document of the Trust, constituting a part of the Registration
Statement for each Series of Interests, as filed with the
Securities and Exchange 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.
"Registration Statement" means the registration statement
on Form S-1, as amended, filed by the Trust with the
Securities and Exchange Commission for each Series pursuant to
which the Trust registered the Interests for each Series, as
the same may at any time and from time to time be further
amended or supplemented.
"Series" means an identified group of Interests which has
a common investment objective, whose trading decisions are
made by a specified trading advisor and which share the same
assets, liabilities, profits and losses to the exclusion of
any other Interests.
"Continuous Offering Period" means the period immediately
following the Initial Offering Period for that Series and
continuing until the offering is terminated or all of the
Interests for that Series have been sold.
"Initial Offering Period" means the period commencing
with the initial effective date of the Registration Statement
for that Series and terminating no later than the one hundred
eightieth (180th) day following such date.
"Net Asset Value" means the total assets in the Trust
Estate for a Series, including, but not limited to, all cash
and cash equivalents of a Series (valued at cost plus accrued
interest and amortization of original issue discount) less the
total liabilities of that Series, each determined on the basis
of generally accepted accounting principals in the United
States consistently applied under the accrual method of
accounting ("GAAP").
"Trust Estate" means any cash, commodity futures, forward
and option contracts, all funds on deposit in the Trust's
accounts for a Series, and any other property held by a Series
of the Trust, and all proceeds therefrom, including any rights
of a Series of the Trust pursuant to any agreements to which
the Trust is a party.
ARTICLE II. APPOINTMENT OF ESCROW AGENT
Section 2.1. The parties hereby appoint the Escrow Agent
as escrow agent in accordance with the terms and conditions
set forth herein, and the Escrow Agent hereby accepts such
appointment.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
OF THE TRUST
Section 3.1. The Managing Owner, individually and on
behalf of the Trust, represents and warrants to the Escrow
Agent and agrees with the Escrow Agent for the benefit of the
Escrow Agent that the Trust is and will be on the Initial
Closing Date for each Series (as defined below in Section 5.1
and such date will be scheduled by the Managing Owner and the
Placement Agent) a business trust duly organized under the
laws of the State of Delaware, with the power and authority to
conduct its business. The Managing Owner hereby further
represents and warrants, individually and on behalf of the
Trust, that this Agreement has been duly authorized, executed
and delivered on its behalf and constitutes the legal, valid
and binding obligation of the Managing Owner and the Trust.
ARTICLE IV. TRANSMITTAL AND COLLECTION
Section 4.1. The Placement Agent shall deposit all the
proceeds of subscriptions from the sale of each Series (the
"Proceeds") during the Initial Offering Period for that Series
into the Escrow Account described in Section 6.1 for that
Series. The Proceeds shall be transferred to the Escrow
Account by direct transfer of immediately available funds from
each Subscriber's account with the Placement Agent, which
Proceeds must be in the Subscriber's account at the time of
subscription. The Placement Agent will provide the Escrow
Agent with a memorandum of transmittal showing the name,
address and social security or tax identification number of
each Subscriber, along with the number of Interests in that
Series purchased, and the amount of payment being made to the
Escrow Agent. The Placement Agent will also advise the Escrow
Agent that the Placement Agent has on file a certification
from each Subscriber in compliance with the Interest and
Dividend Tax Compliance Act of 1983.
ARTICLE V. PROCEDURE FOR DISPOSITION OF PROCEEDS
Section 5.1. (a) On the fifth business day before the
closing date with respect to the initial offering of a Series
("Initial Closing Date"), the Managing Owner shall notify the
Escrow Agent of that portion of the Proceeds in such Series'
Account which represents subscriptions to be accepted by the
Managing Owner for that Series.
(b) If subscriptions for at least the minimum amount
specified on Schedule 2 for a Series (without taking into
account the Managing Owner's contribution for General
Interests) have been accepted during the Initial Offering
Period for that Series and there are at least 150 Subscribers
for each Series, the Escrow Agent shall as soon as practicable
deliver all Proceeds for such Series deposited in its Escrow
Account (including all interest earned on the Proceeds for
such Series) to the Trust for that Series upon written
notification by the Managing Owner that subscriptions
aggregating the requisite amount(s) have been received and
accepted for that Series. Such notification shall include
appropriate information with respect to the bank account
referenced in Subparagraph (d) of this Section 5.1.
(c) Any interest earned on the escrowed Proceeds for
such Series will be contributed to such Series for each
Subscriber in proportion to their respective subscriptions
(taking into account both the amount and date of deposit).
Accordingly, if the escrowed Proceeds are delivered to a
Series, the interest earned on the Proceeds will be
contributed to the Series along with the escrowed Proceeds and
not individually delivered to the Subscribers.
(d) If the notification described above in
Subparagraph (b) of this Section 5.1 has not been received
during the Initial Offering Period for a Series, the Escrow
Agent shall remit, within ten (10) business days following the
conclusion of the Initial Offering Period for that Series, or
as soon thereafter as may be practicable in the event payment
cannot be made within that ten (10) day period, the escrowed
Proceeds, excluding any interest earned thereon, to the
Subscribers by payment to the Placement Agent for credit to
the Subscribers' respective accounts with the Placement Agent
(in amounts shown on the memorandum of transmittal described
in Section 4.1), and without deductions of any kind or
character. In addition, the Escrow Agent shall pay any
interest earned on the Proceeds to the Subscribers by
delivering a check in the amount equal to the interest
allocable to each Subscriber (taking into account both the
amount and date of deposit), it being understood that payment
of interest usually is made by the Escrow Agent on the first
or second business day of each month, and the Escrow Agent
shall provide to the Placement Agent an itemized list of all
such sums due and owing to each Subscriber, except that in the
case of Individual Retirement Accounts, the Escrow Agent shall
deliver the check for interest to the Placement Agent for
deposit into the Subscriber's securities account at the
Placement Agent.
(e) The delivery of such Proceeds in accordance with
Subparagraph (b) of this Section 5.1 shall be accomplished by
depositing such Proceeds in a separate bank account for each
Series maintained by the Managing Owner on behalf of the
Trust.
(f) Upon distribution of all the Proceeds, including
all interest thereon, the Escrow Agent shall be discharged
from all obligations under this Agreement and shall have no
further duties or responsibilities in connection herewith.
Section 5.2. (a) Prior to the termination of the Escrow
Account, the Managing Owner may notify the Escrow Agent in
writing of a subscription for Interests of a Subscriber that
has been rejected in whole or in part by the Managing Owner
for whatever reason, or has been rescinded by the Subscriber
and may direct the Escrow Agent to return by wire transfer any
Proceeds held in escrow, excluding any interest thereon, to
the Placement Agent for credit to the Subscriber's respective
account, and the Escrow Agent will forward any interest on the
Proceeds to the Subscriber in the manner described in Section
5.1, in each case, as soon thereafter as may be practicable.
(b) If the Trust determines that the Proceeds
includes an amount greater than the amount representing
payment in respect of Interests sold to accepted Subscribers,
the Trust will instruct the Escrow Agent in writing as to the
disposition of said excess Proceeds.
Section 5.3. Prior to the delivery of the escrowed
Proceeds to the Trust as described above in Section 5.1, the
Trust shall have no title to the Proceeds on deposit in the
Escrow Account, and such Proceeds shall under no circumstances
be subject to the liabilities or indebtedness of the Trust.
ARTICLE VI. ESCROW ACCOUNT
Section 6.1. The Escrow Agent shall cause to be opened
a separate escrow account for the Proceeds of each separate
Series (each, an "Escrow Account"). The Escrow Agent shall
cause Proceeds received from the Placement Agent pursuant to
Section 4.1 to be deposited in the Escrow Account at the
Escrow Agent's Corporate Trust and Agency Group, or any agent
designated by the Escrow Agent. Proceeds deposited in the
Escrow Account shall be invested by the Escrow Agent in
accordance with the specific written directions furnished by
the Managing Owner. The Managing Owner intends to instruct
the Escrow Agent to invest the Proceeds in U.S. Treasury
Obligations or any other investment specified by the Managing
Owner which is consistent with the provisions of NASD Notice
to Members 84-7 (January 30, 1984) and the provisions of Rule
15c2-4 of the Securities Exchange Act of 1934, as amended. In
the absence of specific written directions from the Managing
Owner, the Escrow Agent is authorized to deposit the Proceeds
in The Bank of New York Deposit Reserve. The Escrow Agent
shall present for redemption any obligation so purchased or
sell any such obligation, in every case upon the written
direction of the Managing Owner. Obligations so purchased as
an investment of monies in the Escrow Account shall be deemed
at all times to be a part of such Escrow Account, and the
interest accruing thereon shall be credited to such Escrow
Account.
Section 6.2. Interest earned by the Escrow Account for
the period commencing on the date on which Proceeds are
received by the Escrow Agent until the conclusion of the
Initial Offering Period for each Series (as defined in Section
1.1 above), shall be held by the Escrow Agent in trust for the
Subscribers and distributed to the Subscribers in accordance
with ARTICLE V hereof.
ARTICLE VII. MAINTENANCE OF RECORDS
Section 7.1. The Escrow Agent shall maintain accurate
records of all transactions hereunder. As soon as practicable
after the termination of the Escrow Account, or as may
reasonably be requested by the Trust before such termination,
but no more frequently than monthly, the Escrow Agent shall
provide the Trust with a complete copy of such records,
certified by the Escrow Agent to be a complete and accurate
account of all such transactions. The authorized
representatives of the Trust shall also have access to such
books and records at all reasonable times during normal
business hours upon reasonable notice to the Escrow Agent.
The Escrow Agent is authorized and instructed to complete Form
1099 in respect of interest payable to any Subscribers who
receive escrow interest payments pursuant to Section 5.1 and
to the Placement Agent for credits received pursuant to
Section 5.1 in compliance with the applicable sections of the
Internal Revenue Code.
ARTICLE VIII. EXCULPATION AND INDEMNIFICATION
Section 8.1. (a) Notwithstanding anything to the
contrary contained in this Agreement, the Escrow Agent shall
not be liable for any of the following, except in the event of
gross negligence or willful misconduct on the part of the
Escrow Agent or in the absence of its good faith: (i) the
failure of any of the conditions of this Agreement or damage
caused by the exercise of its discretion in any particular
manner, or for any reason (including, without limitation, the
liquidation of investments of the Proceeds), for any mistake
of fact or law, for any error of judgment, or for any action
taken or omitted by it, or any action suffered by it to be
taken or omitted, or (ii) the failure to ascertain the terms
or conditions, or to comply with any of the provisions, of any
agreement, contract or other document delivered to the Escrow
Agent hereunder, or for forgeries or false impersonation.
(b) If any controversy arises among the parties
hereto or with any third party with respect to the subject
matter of this Agreement, its terms or conditions, the Escrow
Agent shall not be required to determine the same or take any
action in the premises, but the Escrow Agent may await the
settlement of any such controversy by final appropriate legal
proceedings, mutual agreement or otherwise as the Escrow Agent
may require, notwithstanding anything in this Agreement to the
contrary, and in such event the Escrow Agent shall not be
liable for interest or damages prior to such settlement.
(c) The Escrow Agent's duties hereunder shall be
only such as are herein specifically provided, being purely
ministerial in nature, and the Escrow Agent shall incur no
liability except for willful misconduct or gross negligence so
long as the Escrow Agent has acted in good faith.
Specifically and without limiting the foregoing, the Escrow
Agent shall in no event have any liability in connection with
its investment, reinvestment or liquidation, in good faith and
in accordance with the terms hereof, of any Proceeds held by
it hereunder, including without limitation any liability for
any delay not resulting from gross negligence or willful
misconduct in such investment, reinvestment or liquidation, or
for any loss of income incident to any such delay. The Escrow
Agent is not a party to, and is not bound by, any agreement or
other document out of which this Agreement may arise or any
other agreement or other document in connection with the
Trust. Except as may be provided by law, the Escrow Agent
shall not be deemed to owe any fiduciary duty to the other
parties hereto or to the Subscribers.
(d) The Escrow Agent shall not be required to
institute legal proceedings of any kind or to defend any
lawsuit brought in connection with the escrowed funds;
provided that the Escrow Agent shall cooperate with the Trust
with respect to the institution or defense of any such legal
proceeding brought by or against the Trust, as the case may
be. In the event of its participation in any such legal
proceeding, the Escrow Agent shall be reasonably compensated
for its services and expenses as provided in Section 9.1(b).
The Escrow Agent shall have no responsibility for the
genuineness or validity of any document or other items
deposited with it, and the Escrow Agent shall be fully
protected in acting in accordance with any written instruction
given to it hereunder and believed by it to have been signed
or given by the proper parties. The Managing Owner and
Placement Agent shall provide the Escrow Agent with a list of
officers and employees who shall be authorized to deliver
instructions hereunder. The Escrow Agent shall not be liable
for any action taken or omitted by the Escrow Agent pursuant
to the instructions contained or expressly provided herein,
provided that such omission was in good faith.
(e) The Escrow Agent may consult with its legal
counsel in the event of any dispute or question as to the
construction of the terms of this Agreement, and the Escrow
Agent shall incur no liability and shall be fully protected in
acting in good faith in accordance with the opinion and
instructions of such counsel. The Managing Owner shall
reimburse the Escrow Agent for reasonable legal expenses
actually paid by the Escrow Agent as a result of any such
consultation with counsel.
(f) In the absence of willful misconduct or gross
negligence on the part of the Escrow Agent, the Escrow Agent
may rely conclusively and shall be protected in acting upon
any order, notice, demand, certificate, statement, instrument,
report or other document (not only as to its due execution and
the validity and effectiveness of its provisions, but also as
to the truth, completeness and acceptability of any
information therein contained) which is reasonably believed by
the Escrow Agent to be genuine and to be signed or presented
by the proper person or persons.
(g) At any time the Escrow Agent may request in
writing an instruction in writing from the Managing Owner, and
may at its own option include in such request the course of
action it proposes to take and the date on which it proposes
to act, regarding any matter arising in connection with its
duties and obligations hereunder. The Escrow Agent shall not
be liable for acting without the Managing Owner's consent in
accordance with such a proposal on or after the date specified
therein, provided that the specified date shall be at least
two (2) business days after the Managing Agent receives the
Escrow Agent's request for instructions and its proposed
course of action, and provided further that, prior to so
acting, the Escrow Agent has not received the written
instructions requested.
(h) The Escrow Agent shall be indemnified and held
harmless by the Trust and the Managing Owner from and against
any expenses, including reasonable counsel fees and
disbursements, or loss suffered by the Escrow Agent in
connection with any action, suit or other proceeding involving
any claim or in connection with any claim or demand, which in
any way, directly or indirectly, arises out of or relates to
this Escrow Agreement, the services of the Escrow Agent
hereunder, the Proceeds held by the Escrow Agent hereunder or
any income earned from the investment of such Proceeds, except
for any such expenses or loss caused by the willful misconduct
or gross negligence of the Escrow Agent or in the absence of
its good faith.
(i) The Escrow Agent agrees and acknowledges that in
seeking to enforce its rights hereunder against a particular
Series, it will look solely to the assets of that Series and
the Managing Owner, and not to the assets of the Trust
generally or any other Series.
(j) The Escrow Agent agrees and consents (the
"Consent") to look solely to each Series for which brokerage
and clearing services are being performed (the "Contracting
Series") and assets (the "Contracting Series Assets") of the
Contracting Series and to the Managing Owner and its assets
for payment. The Contracting Series Assets include only those
funds and other assets that are paid, held or distributed to
the Trust on account of and for the benefit of the Contracting
Series, including, without limitation, funds delivered to the
Trust for the purchase of interests in a Series. In
furtherance of the Consent, the Escrow Agent agrees that (i)
any debts, liabilities, obligations, indebtedness, expenses
and claims of any nature and of all kinds and descriptions
(collectively, "Claims") incurred, contracted for or otherwise
existing arising from, related to or in connection with the
Trust and its assets and the Contracting Series and the
Contracting Series Assets, shall be subject to the following
limitations:
(1) Subordination of certain claims and rights.
(i) except as set forth below, the Claims, if any, of the
Escrow Agent (the "Subordinated Claims") shall be
expressly subordinate and junior in right of payment to
any and all other Claims against the Trust and any Series
thereof, and any of their respective assets, which may
arise as a matter of law or pursuant to any contract;
provided, however, that the Escrow Agent's Claims (if
any) against the Contracting Series shall not be
considered Subordinated Claims with respect to
enforcement against and distribution and repayment from
the Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets; and provided
further that the Escrow Agent's valid Claims, if any,
against the Contracting Series shall be pari passu and
equal in right of repayment and distribution with all
other valid Claims against the Contracting Series and
(ii) the Escrow Agent will not take, demand or receive
from any Series or the Trust or any of their respective
assets (other than the Contracting Series, the
Contracting Series Assets and the Managing Owner and its
assets) any payment for the Subordinated Claims;
(2) the Claims of the Escrow Agent with respect
to the Contracting Series shall only be asserted and
enforceable against the Contracting Series, the
Contracting Series Assets and the Managing Owner and its
assets; and such Claims shall not be asserted or
enforceable for any reason whatsoever against any other
Series, the Trust generally or any of their respective
assets;
(3) if the Claims of the Escrow Agent against
the Contracting Series or the Trust are secured in whole
or in part, the Escrow Agent hereby waives (under section
1111(b) of the Bankruptcy Code (11 U.S.C. S 1111(b)) any
right to have any deficiency Claims (which deficiency
Claims may arise in the event such security is inadequate
to satisfy such Claims) treated as unsecured Claims
against the Trust or any Series (other than the
Contracting Series), as the case may be;
(4) in furtherance of the foregoing, if and to
the extent that the Escrow Agent receives monies in
connection with the Subordinated Claims from a Series or
the Trust (or their respective assets), other than the
Contracting Series, the Contracting Series Assets and the
Managing Owner and its assets, the Escrow Agent shall be
deemed to hold such monies in trust and shall promptly
remit such monies to the Series or the Trust that paid
such amounts for distribution by the Series or the Trust
in accordance with the terms hereof; and
(5) the foregoing Consent shall apply at all
times notwithstanding that the Claims are satisfied, and
notwithstanding that the agreements in respect of such
Claims are terminated, rescinded or canceled.
(k) The Escrow Agent is authorized, in its sole
discretion, to disregard any and all notices or instructions
given by any of the parties hereto or by any other person,
firm, or corporation, except only such notices or instructions
as are hereunder provided for and orders or process of any
court entered or issued with or without jurisdiction. Upon
the receipt of any such notice, the Escrow Agent will
immediately cause a copy of such notice to be sent by
facsimile transmission to David Buchalter, Esq. (or his
successor) at (212) 214-6150 or at such other number as is
provided in writing to the Escrow Agent in the future. If the
Proceeds are, or any part thereof is, at any time attached,
garnished, or levied upon under any court order, or if
payment, assignment, transfer, conveyance, or delivery of the
Proceeds is stayed or enjoined by any court order, or in case
any order, judgment, or decree is made or entered by any court
affecting the Proceeds or any part thereof, then, and in any
such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ,
judgment, or decree that the Escrow Agent is advised is
binding upon it, by its legal counsel, and if the Escrow Agent
complies with any such order, writ, judgment, or decree it
shall not be liable to any of the Parties or to any other
person, firm, or corporation by reason of such compliance even
though such order, writ, judgment, or decree may be
subsequently reversed, modified, annulled, set aside, or
vacated.
(l) The Escrow Agent makes no representation as to
the validity, value, genuineness or collectability of any
security or other document or instrument held by or delivered
to it.
(m) The Escrow Agent shall not be called upon to
advise any party as to selling or retaining, or taking or
refraining from taking any action with respect to, any
securities or other property deposited hereunder.
(n) No provision of this Agreement shall require the
Escrow Agent to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its
duties hereunder.
(o) The provisions of Articles VIII and IX shall
survive termination of this Agreement and/or the resignation
or removal of the Escrow Agent.
ARTICLE IX. FEES
Section 9.1. (a) The Escrow Agent shall receive fees as
described in the attached Schedule 1.
(b) It is understood that the fees and usual charges
agreed upon for the Escrow Agent's services hereunder shall be
considered compensation for its ordinary services as
contemplated by this Agreement and in the event the conditions
of this Agreement are not promptly fulfilled or that the
Escrow Agent renders any service not provided for in this
Agreement, or that there is any modification hereof, or that
any controversy with any third party arises hereunder or that
the Escrow Agent is made a party to, or intervenes in, any
litigation with a third party pertaining to this Agreement or
the subject matter hereof, the Escrow Agent and its legal
counsel shall, provided that prior notification is given to
the Trust and the Managing Owner, be reasonably compensated
for such extraordinary services and reimbursed for all costs
and expenses occasioned by such default, delay, controversy or
litigation. The Managing Owner hereby promises to pay the
foregoing sums upon demand.
ARTICLE X. RESIGNATION AND DISCHARGE
Section 10.1. Notwithstanding anything to the contrary
contained in this Agreement, the Escrow Agent (i) may resign
from its duties under this Agreement by giving 30 days' prior
written notice of such resignation to the other parties hereto
and (ii) may be discharged from its duties under this
Agreement upon receipt from the other parties hereto of 30
days' prior written notice of such discharge. Upon the
effective date of such resignation or discharge of the Escrow
Agent, and upon payment to the Escrow Agent of all amounts
owed to it hereunder, the Proceeds held by the Escrow Agent
shall be returned to the Trust or paid over to a substitute
Escrow Agent that the Trust shall retain to perform the
functions theretofore performed by the Escrow Agent under this
Agreement, as the Trust shall direct the Escrow Agent in
writing or in accordance with the directions of a final order
or judgment or a court of competent jurisdiction, and the pro
rata portion of the Escrow Agent's fee up to the effective
date of resignation or discharge shall be paid by the
Placement Agent. If a successor Escrow Agent has not been
appointed or has not accepted such appointment within 30 days
of notice of resignation or removal, the Escrow Agent may
apply to a court of competent jurisdiction for the appointment
of a successor Escrow Agent, or for other appropriate relief
and the costs, expenses and reasonable attorney's fees and
expenses which the Escrow Agent incurs in connection with such
a proceeding shall be paid by the Managing Owner. In the
absence of such directions, the Escrow Agent may return the
Proceeds to the Trust.
ARTICLE XI. MISCELLANEOUS
Section 11.1. The Trust may assign, and grant a security
interest in, all sums payable to the Trust pursuant to this
Agreement, and the Escrow Agent agrees to accept and
acknowledge the instructions for the payment of the funds
within the Escrow Account in accordance with the provisions of
ARTICLE V hereof designating the disposition of Proceeds.
Once such instructions are given in accordance with this
Section 11.1, and subject to all of the rights of the Trust to
receive the Proceeds as set forth herein, such instructions
will be deemed to be final and attributable to all future
distributions of Proceeds as contemplated hereunder. It is
understood that in order for the parties hereto to amend this
Agreement to change such instructions, any party who has been
assigned or granted a security interest in such Proceeds shall
join in the execution of such amendment or shall otherwise
give its written consent to such amendment. All reasonable
expenses incurred by the Escrow Agent as a result of the
assignment or the granting of a security interest in the
Proceeds shall be paid by the Trust.
Section 11.2. Except as provided in Section 8.1(j), all
notices, communications and instructions required or desired
to be given under this Agreement shall be in writing and shall
be deemed to be duly given if hand delivered or sent by
express delivery service or by registered or certified mail,
return receipt requested, to the following addresses or to
such other address as may be furnished to the other parties as
herein provided:
To the Escrow Agent:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attn: Sharia Jones-Bey
Corporate Trust Trustee Administration/
Specialized Agency
To the Trust:
World Monitor Trust
c/o Prudential Securities Futures
Management Inc.
One New York Plaza, 13th floor
New York, New York 10292
Attn: Eleanor L. Thomas, Esq.
To the Managing Owner:
Prudential Securities Futures Management Inc.
One New York Plaza, 13th floor
New York, New York 10292
Attn: Eleanor L. Thomas, Esq.
In the case of the Trust and the Managing Owner, with a
copy to:
Prudential Securities Incorporated
One Seaport Plaza, 29th Floor
New York, New York 10292
Attn: David Buchalter, Esq.
and
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: Fred M. Santo, Esq.
To the Placement Agent:
Prudential Securities Incorporated
One New York Plaza, 13th Floor
New York, New York 10292
Attn: Guy Scarpaci
Section 11.3. (a) This Agreement shall not be
amended, modified or rescinded, except upon receipt by the
Escrow Agent of a written instrument signed by all the parties
including the Escrow Agent.
(b) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
Section 11.4. This Agreement, the rights and
obligations of the parties hereunder and all performance
hereunder shall be governed by and construed in accordance
with the laws of the State of New York without giving effect
to the choice of law provisions thereof.
Section 11.5. (a) The Escrow Agent agrees that it will
not take any of the following action against the Trust: (i)
seek a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Trust in an
involuntary case or proceeding under the Federal Bankruptcy
Code or any other federal or state bankruptcy, insolvency,
reorganization, rehabilitation, liquidation or similar law or
(B) adjudging the Trust a bankrupt or insolvent, or seeking
reorganization, rehabilitation, liquidation, arrangement,
adjustment or composition of or in respect of the Trust under
the Federal Bankruptcy Code or any other applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of
the Trust or of any substantial part of any of its properties,
or ordering the winding up or liquidation of any of its
affairs, or (ii) seek a petition for relief, reorganization or
to take advantage of any law referred to in the preceding
clause or (iii) file an involuntary petition for bankruptcy
(collectively "Bankruptcy or Insolvency Action").
(b) In addition, the Escrow Agent agrees that for
any obligations due and owing to it by a particular Series of
the Trust, the Escrow Agent will look solely and exclusively
to the assets of that Series or the Managing Owner, if it has
liability in its capacity as Managing Owner, to satisfy its
claims, and will not seek to attach or otherwise assert a
claim against the other assets of any other Series or the
Trust as a whole, whether there is a Bankruptcy or Insolvency
Action taken. The parties agree that this provision will
survive the termination of this Agreement, whether terminated
in a Bankruptcy or Insolvency Action or otherwise.
(c) This Escrow Agreement has been made and executed
by and on behalf of the Trust and the Managing Owner and the
obligations of the various Series of the Trust and/or the
Managing Owner set forth herein are not binding upon any of
the Limited Owners individually but are binding only upon the
assets and property identified above and no resort shall be
had to the assets of one Series for the obligations of another
Series, or the Limited Owners' personal property for the
satisfaction of any obligation or claim hereunder.
Section 11.6. Nothing in this Agreement, expressed
or implied, shall give or be construed to give any persons,
firm or corporation, other than the parties hereto and their
successors and assigns, any legal claim under any covenant,
condition or provision hereof, all the covenants, conditions
and provisions contained in this Agreement being for the sole
benefit of the parties hereto and their successors and
assigns. No party may assign any of its rights or obligations
under this Agreement without the written consent of all the
other parties, which consent may be withheld in the sole
discretion of the party whose consent is sought.
Section 11.7. No printed or other material in any
language, including notices, reports, and promotional material
which mentions any of the parties by name or the rights,
powers or duties of the Escrow Agent under this Agreement
shall be issued by any of the other parties hereto, or on such
party's behalf, without the prior written consent of such
party. The Managing Owner is given permission by the Escrow
Agent to mention The Bank of New York by name and the rights,
powers and duties of the Escrow Agent under this Agreement in
the Prospectus.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
WORLD MONITOR TRUST
By: Prudential Securities Futures
Management Inc., the Managing Owner
By:
---------------------------
Eleanor L. Thomas, Esq.
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC., as Managing Owner
By:
---------------------------
Eleanor L. Thomas, Esq.
THE BANK OF NEW YORK, as Escrow Agent
By: _______________________________
PRUDENTIAL SECURITIES INCORPORATED, as
Placement Agent
By: _______________________________
<PAGE>
<PAGE>
SCHEDULE 1
Acceptance Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waived
Annual Administration Fee . . . . . . . . . . . . . . . . . . . . . . $6,000.00
Each Subsequent Closing . . . . . . . . . . . . . . . . . . . . . . . $ 250.00
Preparation and Creation of Subscriber Accounts, each. . . . . . . . . $ 4.00
Creation of 1099's
Wire transfers, per wire . . . . . . . . . . . . . . . . . . . . . . . $ 15.00
Returned Checks, each. . . . . . . . . . . . . . . . . . . . . . . . . $ 25.00
Investments, each. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.00
"Bust Out," each . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.00
Administration Fee:
Our Administration Fee covers a period of one year or any portion
thereof and is not subject to proration.
Out-Of-Pocket Expenses:
Fees quoted do not include out-of-pocket expenses such as, but not
limited to, stationery, postage, telephone, telex, wire transfers,
original issue delivery costs and retention of records which will be
billed to the account. In the event the transaction terminates before
closing, all out-of-pocket expenses incurred, including our counsel
fees, if applicable, will be billed to the account. These expenses
will not exceed $3,000.
External Counsel Fees:
Fees quoted do not include external counsel fees. A bill for the
counsel fees incurred up to closing will be presented for payment on
the closing date.
Miscellaneous Services:
The charges for performing services not contemplated at the time
of the execution of the Agreement or not specifically covered elsewhere
in this schedule will be determined by appraisal in amounts
commensurate with the service.
<PAGE>
SCHEDULE 2
Minimum Amount of Interests
By Series Required
to be Sold
Series A $4,000,000
Series B $3,000,000
Series C $3,000,000
<PAGE>
EXHIBIT 10.2
WORLD MONITOR TRUST
BROKERAGE AGREEMENT
THIS BROKERAGE AGREEMENT, made as of the ______ day of
________, 1997, by and between WORLD MONITOR TRUST (the
"Trust"), a business trust organized under Chapter 38 of Title
12 of the Delaware Code (the "Delaware Act"), and PRUDENTIAL
SECURITIES INCORPORATED, a Delaware corporation (the
"Broker");
W I T N E S S E T H :
WHEREAS, Prudential Securities Futures Management Inc.
(the "Managing Owner"), a Delaware corporation, is acting as
the Managing Owner of the Trust; and
WHEREAS, the Trust has been organized to trade, buy,
sell, spread, or otherwise acquire, hold, or dispose of
commodity futures, forward and options contracts (collectively
"Commodity Interests"); and
WHEREAS, the Trust made a public offering of limited
liability beneficial interests (the "Interests") in Series A,
B and C (the "Series") of the Trust through the Broker, and in
connection therewith, the Trust filed with the United States
Securities and Exchange Commission (the "SEC"), pursuant to
the United States Securities Act of 1933, as amended (the
"Act"), registration statements on Form S-1, and as a part
thereof a prospectus, which registration statements, together
with all amendments thereto, shall be referred to herein as
the "Registration Statements" and which prospectus in final
form, included as part of the Registration Statements,
together with all amendments and supplements thereto, shall be
referred to herein as the "Prospectus"; and
WHEREAS, the assets of each Series of Interests in the
Trust will be managed by a different trading advisor and will
be separately valued; and
WHEREAS, the Trust desires to engage the Broker to
provide commodity brokerage and certain other types of
services for the Trust;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, it is agreed that:
1. Commodity Brokerage Services. The Trust hereby
authorizes the Broker, and the Broker hereby agrees, to act as
the Trust's commodity broker for all Commodity Interest
transactions effected for the benefit of each Series in
accordance with the authorized written or oral instructions of
each authorized commodity trading advisor (an "Advisor")
retained by the Trust for the various Series, in each instance
in accordance with the terms of the then current Advisory
Agreement by and among the Trust, the Managing Owner and each
such Advisor, and to act as the clearing broker for the
transactions effected for each Series. In this regard, the
Trust will each execute a copy of the Broker's Commodity
Customer's Agreement (and related documents), as appropriate,
substantially in the form attached hereto as Exhibit A (the
"Customer's Agreement"). This Brokerage Agreement and the
Customer's Agreement are hereinafter collectively referred to
as the "Brokerage Agreement".
The Broker agrees to establish a separate account for
each Series with sub-accounts, if requested by the Managing
Owner, for any Advisor's different trading approaches, and
maintain separate records for the trading activities of each
Series.
Notwithstanding any provisions of this Brokerage
Agreement to the contrary, the Broker shall assume financial
responsibility for any error committed by it in executing
orders for the purchase or sale of Commodity Interests for any
of the Trust's accounts. However, the Broker shall not be
responsible for errors committed by any Advisor and shall not
be responsible for any action of the Trust in following or
declining to follow any instruction, advice or recommendation
given by any Advisor.
2. Custodial Services. The Broker agrees to perform
certain custodial functions in connection with Series' assets
including, but not limited to, providing monthly accountings
of all dealings done and actions taken during the applicable
reporting period by the Broker with respect to the assets for
each Series, and providing each Series with an accounting of
all securities, commodities, funds, and other property held by
the Broker or its nominees for or on behalf of such Series.
3. Administrative Services. The Broker agrees to
perform certain administrative functions for each Series,
including, but 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
informational services to the holders of Interests (the
"Limited Owners"), keeping the Limited Owners apprised of
developments affecting the Series, communicating valuations of
the Series, providing information with respect to procedures
for redemptions, exchanges, transfers, and distributions, if
any, interpreting monthly and annual reports, providing tax
information to the Limited Owners, explaining developments in
the commodity markets in the United States and abroad, and
providing information to the Managing Owner, when requested,
regarding the status of each Series accounts. The Broker
further agrees to perform such additional recordkeeping
services on behalf of the Series as the Managing Owner shall
reasonably request, and to furnish to the Trust as soon as
practicable all such other information in its possession which
the Managing Owner is required to furnish to the Limited
Owners of the Trust pursuant to the Declaration of Trust and
Trust Agreement of __________________ Trust, dated as of
_________________, 1997 (the "Trust Agreement") as from time
to time in effect, or any applicable law, rules or
regulations.
4. General Services. As part of its general services to
the Trust, the Broker will assist the Managing Owner in
managing the holdings of the various Series, other than
commodities assets, as the Managing Owner may reasonably
request. The Broker agrees to perform such other services on
behalf of the Trust and each Series from time to time as the
Managing Owner may reasonably request.
5. Agreement Nonexclusive. The Broker shall be free to
render services of the nature to be rendered to the Trust
hereunder to other persons or entities in addition to the
Trust, and the parties acknowledge that the Broker may render
such services to additional entities similar in nature to the
Trust, including other trusts organized with the Managing
Owner as their managing owner, as well as limited partnerships
of which the Managing Owner acts as general partner. It is
expressly understood and agreed that this Brokerage Agreement
is nonexclusive and that the Trust has no obligation to
execute any or all of its trades for Commodity Interests
through the Broker, and the parties acknowledge that any
Series may execute trades for Commodity Interests through such
other broker or brokers as the Managing Owner may direct from
time to time. The Trust's utilization of an additional
commodity broker shall neither terminate this Brokerage
Agreement nor modify in any regard the respective rights and
obligations of the Trust and the Broker hereunder.
6. Compensation of the Broker. The Broker's
compensation for its services hereunder shall be limited to
the commodity brokerage fees charged to each Series in
accordance herewith. The Broker shall charge each Series a
separate brokerage fee for all services provided by the Broker
for such Series at an annualized rate of 7.75% of each Series'
Net Asset Value. The brokerage fee shall be determined at the
close of business each Friday based on the Series' then Net
Asset Value but before the deduction of (i) any fees,
including the brokerage fee, the management fee and the
incentive fee, if any and (ii) redemptions for such week. The
sum of the amounts determined weekly shall be paid monthly.
In the event a Series commences trading activities subsequent
to the first business day of a week or terminates prior to the
last business day of a week, the brokerage fee shall be
prorated for any such week on the basis of the number of
trading days in the week the services were provided by the
Broker as compared to the total number of trading days in that
week. In addition, the Broker shall be obligated to pay all
fees and expenses related to the execution of the each Series'
Commodity Interest trading (including, without limitation,
floor brokerage, any costs associated with taking delivery of
Commodity Interests and National Futures Association ("NFA"),
exchange and clearing fees). There will be no material change
related to the aforementioned monthly brokerage fee except
upon 20 business days' notice to Limited Owners of each
Series, and no increase in such fee shall take effect except
at the beginning of a quarter. The brokerage fee shall be
paid by each Series within 20 days of the end of each month.
7. Investment Discretion. The Broker shall have no
authority or responsibility to direct the Commodity Interests
to be purchased or sold for the account of any Series.
8. Standard of Liability. Subject to Section 1 hereof,
the Broker and its stockholders, directors, officers,
employees, and its or their respective successors or assigns
shall not be liable to the Trust, the Limited Owners of the
Trust, or any of its or their respective successors or
assigns, 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 such acts or
omissions were in the best interests of the Trust, or by
reason of any material breach of this Brokerage Agreement.
9. Limits on Claims. The Broker agrees that it will not
take any of the following action against the Trust: (i) seek
a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Trust in an
involuntary case or proceeding under the Federal Bankruptcy
Code or any other federal or state bankruptcy, insolvency,
reorganization, rehabilitation, liquidation or similar law or
(B) adjudging the Trust a bankrupt or insolvent, or seeking
reorganization, rehabilitation, liquidation, arrangement,
adjustment or composition of or in respect of the Trust under
the Federal Bankruptcy Code or any other applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of
the Trust or of any substantial part of any of its properties,
or ordering the winding up or liquidation of any of its
affairs, or (ii) seek a petition for relief, reorganization or
to take advantage of any law referred to in the preceding
clause or (iii) file an involuntary petition for bankruptcy
(collectively "Bankruptcy or Insolvency Action").
(b) In addition, the Broker agrees that for any
obligations due and owing to it by any Series, the Broker will
look solely and exclusively to the assets of such Series or
the Managing Owner, if it has liability in its capacity as
Managing Owner, to satisfy its claims and will not seek to
attach or otherwise assert a claim against the assets of any
other Series or the Trust as a whole, whether or not there is
a Bankruptcy or Insolvency Action taken. The parties agree
that this provision will survive the termination of this
Brokerage Agreement, whether terminated in a Bankruptcy or
Insolvency Action or otherwise.
(c) This Brokerage Agreement has been made and executed
by and on behalf of the Trust and the Managing Owner and the
obligations of the Trust and/or the Managing Owner set forth
herein are not binding upon any of the Limited Owners
individually but are binding only upon the assets and property
identified above and no resort shall be had to the assets of
other Series issued by the Trust or the Limited Owners'
personal property for the satisfaction of any obligation or
claim hereunder.
10. Term and Termination. This Brokerage Agreement
shall commence on the date hereof and shall be automatically
renewed for additional one year periods unless sooner
terminated by either party hereto. This Brokerage Agreement
may be terminated by either party hereto at any time, upon
sixty (60) days' prior written notice to the other party.
This Brokerage Agreement shall terminate automatically if the
Broker's registration as a futures commission merchant ("FCM")
under the Commodity Exchange Act, as amended, ("CE Act") or
membership as an FCM with the National Futures Association
("NFA") is revoked, suspended, terminated or not renewed.
11. Subordination Agreement. The Broker agrees and
consents (the "Consent") to look solely to each Series for
which brokerage and clearing services are being performed (the
"Contracting Series") and assets (the "Contracting Series
Assets") of the Contracting Series and to the Managing Owner
and its assets for payment. The Contracting Series Assets
include only those funds and other assets that are paid, held
or distributed to the Trust on account of and for the benefit
of the Contracting Series, including, without limitation,
funds delivered to the Trust for the purchase of interests in
a Series. In furtherance of the Consent, the Broker agrees
that (i) any debts, liabilities, obligations, indebtedness,
expenses and claims of any nature and of all kinds and
descriptions (collectively, "Claims") incurred, contracted for
or otherwise existing arising from, related to or in
connection with the Trust and its assets and the Contracting
Series and the Contracting Series Assets, shall be subject to
the following limitations:
(a) Subordination of certain claims and rights. (i)
except as set forth below, the Claims, if any, of
the Broker (the "Subordinated Claims") shall be
expressly subordinate and junior in right of payment
to any and all other Claims against the Trust and
any Series thereof, and any of their respective
assets, which may arise as a matter of law or
pursuant to any contract; provided, however, that
the Broker's Claims (if any) against the Contracting
Series shall not be considered Subordinated Claims
with respect to enforcement against and distribution
and repayment from the Contracting Series, the
Contracting Series Assets and the Managing Owner and
its assets; and provided further that the Broker's
valid Claims, if any, against the Contracting Series
shall be pari passu and equal in right of repayment
and distribution with all other valid Claims against
the Contracting Series and (ii) the Broker will not
take, demand or receive from any Series or the Trust
or any of their respective assets (other than the
Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets) any payment
for the Subordinated Claims;
(b) the Claims of the Broker with respect to the
Contracting Series shall only be asserted and
enforceable against the Contracting Series, the
Contracting Series Assets and the Managing Owner and
its assets; and such Claims shall not be asserted or
enforceable for any reason whatsoever against any
other Series, the Trust generally or any of their
respective assets;
(c) if the Claims of the Broker against the Contracting
Series or the Trust are secured in whole or in part,
the Broker hereby waives (under section 1111(b) of
the Bankruptcy Code (11 U.S.C. S 1111(b)) any right
to have any deficiency Claims (which deficiency
Claims may arise in the event such security is
inadequate to satisfy such Claims) treated as
unsecured Claims against the Trust or any Series
(other than the Contracting Series), as the case may
be;
(d) in furtherance of the foregoing, if and to the
extent that the Broker receives monies in connection
with the Subordinated Claims from a Series or the
Trust (or their respective assets), other than the
Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets, the Broker
shall be deemed to hold such monies in trust and
shall promptly remit such monies to the Series or
the Trust that paid such amounts for distribution by
the Series or the Trust in accordance with the terms
hereof; and
(e) the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied, and
notwithstanding that the agreements in respect of
such Claims are terminated, rescinded or canceled.
12. Complete Agreement. This Agreement and the
Customer's Agreement constitutes the entire agreement between
the parties with respect to the matters referred to herein and
therein (provided that if there are any inconsistencies
between the text of this Agreement and the Customer's
Agreement, this Agreement shall control), and no other
agreement, verbal or otherwise, shall be binding as between
the parties unless in writing and signed by the party against
whom enforcement is sought.
13. Assignment; Binding Effect. This Brokerage
Agreement may not be assigned by either party without the
express written consent of the other party. This Brokerage
Agreement shall be binding on and inure to the benefit of the
parties hereto and the respective successors and permitted
assigns of each of them, and no other person shall have any
right or obligation under this Brokerage Agreement. The terms
"successors" and "assigns" shall not include any purchasers,
as such, of Interests.
14. Amendment. This Brokerage Agreement may not be
amended except by the written consent of the parties.
15. Notices. All notices required or desired to be
delivered under this Brokerage Agreement shall be in writing
and shall be effective when delivered personally on the day
delivered, or when given by registered or certified mail,
postage prepaid, return receipt requested, on the day of
receipt, addressed as follows (or to such other address as the
party entitled to notice shall hereafter designate in
accordance with the terms hereof):
if to the Trust:
WORLD MONITOR TRUST
Prudential Securities Futures Management Inc.
One New York Plaza, 13th Floor
New York, New York 10292
Attn: Eleanor L. Thomas, Esq.
if to the Broker:
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza, 13th Floor
New York, New York 10292
Attn: Eleanor L. Thomas, Esq.
16. Survival. The provisions of this Brokerage
Agreement. shall survive the termination of this Agreement
with respect to any matter arising while this Agreement was in
effect.
17. Severability. Whenever any statute shall be enacted
which shall affect in any manner or be inconsistent with any
of the provisions of this Brokerage Agreement, or whenever any
rule or regulation shall be prescribed or promulgated by any
government agency having jurisdiction which shall affect in
any manner or be inconsistent with any of the provisions of
this Brokerage Agreement, the provisions of this Brokerage
Agreement so affected shall be deemed modified or superseded,
as the case may be, by such statute, rule or regulation, and
all other provisions of this Brokerage Agreement and the
provisions so modified or superseded, shall in all respects
continue and be in full force and effect.
18. Headings. Headings of sections herein are for the
convenience of the parties only and are not intended to be a
part of, or to affect the meaning or interpretation of, this
Brokerage Agreement.
19. Definitions. All capitalized terms used herein and
not defined shall have the meaning ascribed to such terms in
the Trust Agreement and the Prospectus.
20. Governing Law. This Brokerage Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be
performed in that State, without giving effect to the
principles of conflicts of laws thereof.
21. Representations and Warranties of the Broker.
The Broker hereby represents and warrants to the Trust that:
a. On the date hereof the Broker is, and at all
times during the term of this Brokerage Agreement will
be, a duly formed and validly existing corporation in
good standing under the laws of the state of its
organization, and at all times during the term of this
Brokerage Agreement will be in good standing and
qualified to do business in each jurisdiction in which
the nature or conduct of its business requires such
qualifications and the failure to be so qualified
materially adversely would affect its ability to perform
its obligations under this Brokerage Agreement and to
operate as described in the Prospectus, and has full
capacity and authority to conduct its business and to
perform its obligations under this Brokerage Agreement,
and to act as described in the Registration Statements as
of its effective date and the Prospectus as of the
Closing Date.
b. This Brokerage Agreement has been duly and
validly authorized, executed and delivered on behalf of
the Broker, is a valid and binding agreement of the
Broker, and is enforceable in accordance with its terms.
The performance of the Broker's obligations under this
Brokerage Agreement, and the consummation of the
transactions set forth in this Brokerage Agreement, and
in the Registration Statements as of its effective date
and Prospectus as of the Closing Date are not contrary to
the provisions of the Broker's Certificate of
Incorporation or By-Laws, or to the best of its
knowledge, after due inquiry, any applicable law, rule or
regulation of any federal, state or other governmental
regulatory or self-regulatory agency or body and will not
result in any violation, breach or default under any term
or provision of any undertaking, contract, agreement or
order, to which the Broker is a party or by which the
Broker is bound.
c. The Broker has obtained all required
governmental and regulatory licenses, registrations and
approvals required by law as may be necessary to perform
their obligations under this Brokerage Agreement and to
act as described in the Registration Statements as of its
effective date and the Prospectus as of the Closing Date
(including, without limitation, the Broker's registration
as a futures commission merchant under the CE Act and
membership as a futures commission merchant with the NFA)
and will maintain and renew any required licenses,
registrations, approvals and memberships required during
the term of this Brokerage Agreement.
IN WITNESS WHEREOF, this Brokerage Agreement has been
executed for and on behalf of the undersigned as of the day
and year first above written.
WORLD MONITOR TRUST PRUDENTIAL SECURITIES
INCORPORATED
By: Prudential Securities
Futures Management Inc.,
its Managing Owner By:___________________________
By:
Eleanor L. Thomas, Esq.
<PAGE>
EXHIBIT 10.3
WORLD MONITOR TRUST
ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of the
___ day of _____________, 1998, by and among World Monitor
Trust - Series B, a Delaware business trust (the "Trust"),
Prudential Securities Futures Management Inc., a Delaware
corporation (the "Managing Owner") and Eclipse Capital
Management, Inc., a Kentucky corporation (the "Advisor").
W I T N E S S E T H :
WHEREAS, the Trust and Series B has been organized
primarily for the purpose of trading, buying, selling,
spreading or otherwise acquiring, holding or disposing of
futures, forward and options contracts. Other transactions
also may be effected from time to time, including among
others, those as more fully identified in Exhibit A hereto.
The foregoing commodities and other transactions are
collectively referred to as "Commodities"; and
WHEREAS, the Managing Owner is authorized to utilize
the services of one or more professional commodity trading
advisors in connection with the Commodities trading
activities of the various Series (as defined below) of the
Trust; and
WHEREAS, the Trust proposes to make an initial public
offering (the "Offering") of limited liability beneficial
interests in the Trust (the "Interests") evidenced by
different series of Interests (each, a "Series") through
Prudential Securities Incorporated ("Prudential
Securities"), an affiliate of the Managing Owner, and in
connection
<PAGE>
therewith, the Trust intends to file with the United States
Securities and Exchange Commission (the "SEC"), pursuant to
the United States Securities Act of 1933, as amended (the
"1933 Act"), a registration statement on Form S-1 to register
the Interests, and as part thereof a prospectus (which
registration statement, together with all amendments thereto,
shall be referred to herein as the "Registration Statement"
and which prospectus, in final form, shall be referred to
herein as the "Prospectus"); and
WHEREAS, the Trust will prepare and file applications for
registration of the Interests under the securities or Blue Sky
laws of such jurisdictions as the Managing Owner deems
appropriate; and
WHEREAS, the Advisor's present business includes the
management of Commodities accounts for its clients; and
WHEREAS, the Advisor is registered as a commodity trading
advisor under the United States Commodity Exchange Act, as
amended (the "CE Act"), and is a member of the National
Futures Association (the "NFA") as a commodity trading advisor
and will maintain such registration and membership for the
term of this Agreement; and
WHEREAS, the Trust and the Advisor desire to enter into
this Agreement in order to set forth the terms and conditions
upon which the Advisor will render and implement commodity
advisory services on behalf of the Trust during the term of
this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Duties of the Advisor.
(a) Appointment. The Trust hereby appoints the
Advisor, and the Advisor hereby accepts appointment, as its
limited attorney-in-fact to exercise discretion to invest
-2-
<PAGE>
and reinvest in Commodities during the term of this Agreement the
portion of the Trust's Net Asset Value (as defined in the
Prospectus) which is comprised of the assets attributable to
the Trust's Series B Interests allocated to the Advisor (the
"Series B Allocated Assets") on the terms and conditions and
for the purposes set forth herein. This limited power-of-
attorney is a continuing power and shall continue in effect
with respect to the Advisor until terminated hereunder. The
Advisor shall have sole authority and responsibility for
independently directing the investment and reinvestment in
Commodities of the Series B Allocated Assets for the term of
this Agreement pursuant to the trading programs, methods,
systems, strategies described in Exhibit A hereto, which the
Trust and the Managing Owner have selected to be utilized by
the Advisor in trading the Series B Allocated Assets
(collectively referred to as the Advisor's "Trading
Approach"), subject to the trading policies and limitations as
set forth in the Prospectus and attached hereto as Exhibit B
(the "Trading Policies and Limitations"), as the same may be
modified from time to time and provided in writing to the
Advisor. The portion of the Series B Allocated Assets to be
allocated by the Advisor at any point in time to one or more
of the various trading strategies comprising the Advisor's
Trading Approach will be determined as set forth in Exhibit A
hereto, as it may be amended from time to time, with the
consent of the parties, it being understood that trading gains
and losses automatically will alter the agreed upon
allocations. Upon receipt of a new allocation, the Advisor
will determine and, if required, adjust its trading in light
of the new allocation.
(b) Allocation of Responsibilities. The Managing
Owner will have the responsibility for the management of any
portion of the Series B Allocated Assets that are
-3-
<PAGE>
not invested in Commodities. The Advisor will use its good
faith best efforts in determining the investment and reinvestment
in Commodities of the Series B Allocated Assets in compliance
with the Trading Policies and Limitations, and in accordance
with the Advisor's Trading Approach. In the event that the
Managing Owner shall, in its sole discretion, determine in
good faith following consultation appropriate under the
circumstances with the Advisor that any trading instruction
issued by the Advisor violates the Trust's Trading Policies
and Limitations, then the Managing Owner, following reasonable
notice to the Advisor appropriate under the circumstances, may
override such trading instruction and shall be responsible
therefor. Nothing herein shall be construed to prevent the
Managing Owner from imposing any limitation(s) on the trading
activities of the Trust beyond those enumerated in the
Prospectus if the Managing Owner determines that such
limitation(s) are necessary or in the best interests of the
Trust, in which case the Advisor will adhere to such
limitations following written notification thereof.
(c) Trading Approach. The Advisor agrees that at
least 90% of the gains and income, if any, generated by its
Trading Approach for Series B will be from buying and selling
Commodities, as described on Exhibit A hereto.
(d) Modification of Trading Approach. In the event
the Advisor requests to use, or the Managing Owner requests
the Advisor to use, a trading program, system, method or
strategy other than or in addition to the trading programs,
systems, methods or strategies comprising the Trading Approach
in connection with trading for the Trust (including, without
limitation, the deletion or addition of an agreed upon trading
program, system, method or strategy to the then agreed upon
Trading Approach), either in whole or
-4-
<PAGE>
in part, the Advisor may not do so and/or shall not be required
to do so, as appropriate, unless both the Managing Owner and the
Advisor consent thereto in writing.
(e) Notification of Material Changes. The Advisor
also agrees to 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, it being understood that the Advisor shall be free to
institute non-material changes in its Trading Approach (as
applied to the Trust) without prior written notification.
Without limiting the generality of the foregoing, refinements
to the Advisor's Trading Approach, the deletion (but not the
addition) of commodities (other than the addition of
commodities then being traded (i) on organized domestic
commodities exchanges, (ii) on foreign commodities exchanges
recognized by the Commodity Futures Trading Commission as
providing customer protections comparable to those provided on
domestic exchanges, or (iii) in the interbank foreign currency
market) to or from the Advisor's Trading Approach, and
variations in the leverage principles and policies utilized by
the Advisor, shall not be deemed a material change in the
Advisor's Trading Approach, and prior approval of the Managing
Owner shall not be required therefor. The utilization of
forward markets in addition to those enumerated on page A-2 of
Exhibit A would be deemed a material change to the Advisor's
Trading Approach and prior approval shall be required
therefor.
Subject to adequate assurances of confidentiality,
the Advisor agrees that it will discuss with the Managing
Owner upon request any trading methods, programs, systems or
strategies used by it for trading customer accounts which
differ from the Trading
-5-
<PAGE>
Approach used for the Trust, provided,
that nothing contained in this Agreement shall require the
Advisor to disclose what it deems to be proprietary or
confidential information.
(f) Request for Information. The Advisor agrees to
provide the Trust with any reasonable information concerning
the Advisor that the Trust may reasonably request (other than
the identity of its customers or proprietary or confidential
information concerning the Trading Approach, subject to
receipt of adequate assurances of confidentiality by the
Trust, including, but not limited to, information regarding
any change in control, key personnel, Trading Approach and
financial condition which the Trust reasonably deems to be
material to the Trust; the Advisor also shall notify the Trust
of any such matters the Advisor, in its reasonable judgment,
believes may be material to the Trust relating to the Advisor
and its Trading Approach. During the term of this Agreement,
the Advisor agrees to provide the Trust with updated monthly
information related to the Advisor's performance results
within a reasonable period of time after the end of the month
to which it relates.
(g) Notice of Errors. The Advisor is responsible
for promptly reviewing all oral and written confirmations it
receives to determine that the Commodities trades were made in
accordance with the Advisor's instructions. If the Advisor
determines that an error was made in connection with a trade
or that a trade was made other than in accordance with the
Advisor's instructions, the Advisor shall promptly notify the
Managing Owner of this fact, and shall utilize its best
efforts to cause the error or discrepancy to be corrected.
(h) Liability. Neither the Advisor nor any
employee, director, officer or shareholder of the Advisor, nor
any person who controls the Advisor, shall be liable to the
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Managing Owner, its officers, directors, shareholders or
employees, or any person who controls the Managing Owner, or
the Trust or the owners of Series B Interests ("Limited
Owners"), or any of their respective successors or assigns
under this Agreement, except by reason of acts or omissions in
material breach of this Agreement or due to their misconduct
or negligence or by reason of their 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 the Advisor makes no guarantee of profit nor offers any
protection against loss, and that all purchases and sales of
Commodities shall be for the account and risk of the Trust,
and the Advisor shall incur no liability for trading profits
or losses resulting therefrom provided the Advisor would not
otherwise be liable to the Trust under the terms hereof.
(i) Initial Allocation, Additional Allocations, and
Reallocations. Initially, the Series B Allocated Assets will
equal an amount equal to the total assets of the Trust
allocable to the Series B Interests, including all cash and
cash equivalents held by the Trust in respect of such
Interests reduced by all liabilities of the Trust incurred
specifically in respect of the Series B Interests and further
reduced by a pro-rata share of the total liabilities of the
Trust which are not otherwise specifically allocable to
another Series of Interests, at the conclusion of the Trust's
Initial Offering Period. Thereafter, subject to Section 12(a)
below, the Trust may, based on the sale of additional
Interests or the exchange by Limited Owners of Interests of a
Series for Interests in another Series, (i) allocate capital
to the Advisor on a weekly basis with the Advisor's consent
during the Trust's Continuous Offering Period, as defined in
the Prospectus, (ii) reallocate the Series B Allocated Assets
away from the Advisor to another commodity trading advisor (an
"Other
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Advisor"), (iii) reallocate the Series B Allocated
Assets to the Advisor with the Advisor's consent away from an
Other Advisor, or (iv) allocate additional capital with
respect to the Series B Allocated Assets to an Other Advisor.
2. Indemnification.
(a) The Advisor. Subject to the provisions of
Section 3, the Advisor, and each officer, director,
shareholder and employee of the Advisor, and each person who
controls the Advisor, shall be indemnified, defended, and held
harmless by the Trust and the Managing Owner, from and against
any and all claims losses, judgments, liabilities, damages,
costs, expenses (including, without limitation, reasonable
investigatory and attorneys' fees) and amounts paid in
settlement of any claims in compliance with the conditions
specified below (collectively, "Losses") sustained by the
Advisor (i) in connection with any acts or omissions of the
Advisor, or any of its officers, directors or employees
relating to its management of the Series B Allocated Assets,
including in connection with this Agreement or otherwise as a
result of the Advisor's performance of services on behalf of
the Trust or its role as trading advisor to Series B and (ii)
as a result of a material breach of this 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 this Agreement on the part of the Advisor, and its
officers, directors, shareholders and employees, and each
person controlling the Advisor, (ii) the Advisor, and its
officers, directors, shareholders and employees, and each
person controlling the Advisor, acted 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
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from the Series B Allocated Assets and the assets of the
Managing Owner and not from any other assets of any other Series
of the Trust, provided further, that no indemnification shall be
permitted under this Section 2 for amounts paid in settlement if either
(A) the Advisor fails to notify the Trust of the terms of any
settlement proposed, at least fifteen (15) days before any
amounts are paid, or (B) the Trust does not approve the amount
of the settlement within fifteen (15) days (such approval not
to be withheld unreasonably). Notwithstanding the foregoing,
the Trust shall, at all times, have the right to offer to
settle any matter with the approval of the Advisor (which
approval shall not be withheld unreasonably) and if the Trust
successfully negotiates a settlement and tenders payment
therefor to the party claiming indemnification (the
"Indemnitee") the Indemnitee must either use its best efforts
to dispose of the matter in accordance with the terms and
conditions of the proposed settlement or the Indemnitee may
refuse to settle the matter and continue its defense in which
latter event the maximum liability of the Trust to the
Indemnitee shall be the amount of said proposed settlement.
Any indemnification under this Section 2, unless ordered by a
court, shall be made by the Trust only as authorized in the
specific case and only upon a determination by mutually
acceptable independent legal counsel in a written opinion that
indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set
forth hereunder.
(b) Default Judgments and Confessions of Judgment.
None of the foregoing provisions for indemnification shall be
applicable with respect to default judgments or confessions of
judgment entered into by the Indemnitee, with its knowledge,
without the prior consent of the Trust.
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(c) Procedure. In the event that an Indemnitee
under this Section 2 is made a party to an action, suit or
proceeding alleging both matters for which indemnification can
be made hereunder and matters for which indemnification may
not be made hereunder, such Indemnitee shall be indemnified
only for that portion of the Losses incurred in such action,
suit or proceeding which relates to the matters for which
indemnification can be made.
(d) Expenses. Expenses incurred in defending a
threatened or pending civil, administrative or criminal
action, suit or proceeding against an Indemnitee 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 pursuant to the terms of this Section 2, and
(ii) the Advisor undertakes to repay the advanced funds to the
Trust in cases in which the Indemnitee is not entitled to
indemnification pursuant to this Section 2, and (iii) in the
case of advancement of expenses by the Trust, the Indemnitee
obtains a written opinion of mutually acceptable independent
legal counsel that advancing such expenses is proper in the
circumstances.
3. Limits on Claims.
(a) Prohibited Acts. The Advisor agrees that it
will not take any of the following actions against the Trust:
(i) seek a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Trust in an
involuntary case or proceeding under the Federal Bankruptcy
Code or any other federal or state bankruptcy, insolvency,
reorganization, rehabilitation, liquidation or similar law or
(B) adjudging the Trust a bankrupt or insolvent, or seeking
reorganization, rehabilitation, liquidation, arrangement,
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adjustment or composition of or in respect of the Trust under
the Federal Bankruptcy Code or any other applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of
the Trust or of any substantial part of any of its properties,
or ordering the winding up or liquidation of any of its
affairs, or (ii) seek a petition for relief, reorganization or
to take advantage of any law referred to in the preceding
clause or (iii) file an involuntary petition for bankruptcy
(collectively, "Bankruptcy or Insolvency Action").
(b) Limited Assets Available. In addition, the
Advisor agrees that for any obligations due and owing to it by
the Trust, the Advisor will look solely and exclusively to
Series B Allocated Assets or to the assets of the Managing
Owner, if it has liability in its capacity as Managing Owner,
to satisfy its claims and will not seek to attach or otherwise
assert a claim against the other assets of the Trust, whether
there is a Bankruptcy or Insolvency Action taken or otherwise.
The parties agree that this provision will survive the
termination of this Agreement, whether terminated in a
Bankruptcy or Insolvency Action or otherwise.
(c) No Limited Owner Liability. This Agreement has
been made and executed by and on behalf of the Trust and the
Managing Owner for the benefit of the Series B Interests of
the Trust and the obligations of the Trust and/or the Managing
Owner set forth herein are not binding upon any of the Limited
Owners individually but are binding only upon the assets and
property identified above and no resort shall be had to the
assets of other Series issued by the Trust or the Limited
Owners' personal property for the satisfaction of any
obligation or claim hereunder.
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(d) Subordination Agreement. The Advisor agrees and
consents (the "Consent") to look solely to each Series for
which brokerage and clearing services are being performed (the
"Contracting Series") and assets (the "Contracting Series
Assets") of the Contracting Series and to the Managing Owner
and its assets for payment. The Contracting Series Assets
include only those funds and other assets that are paid, held
or distributed to the Trust on account of and for the benefit
of the Contracting Series, including, without limitation,
funds delivered to the Trust for the purchase of interests in
a Series. In furtherance of the Consent, the Advisor agrees
that (i) any debts, liabilities, obligations, indebtedness,
expenses and claims of any nature and of all kinds and
descriptions (collectively, "Claims") incurred, contracted for
or otherwise existing arising from, related to or in
connection with the Trust and its assets and the Contracting
Series and the Contracting Series Assets, shall be subject to
the following limitations:
(1) Subordination of certain claims and rights.
(i) except as set forth below, the Claims, if any, of the
Advisor (the "Subordinated Claims") shall be expressly
subordinate and junior in right of payment to any and all
other Claims against the Trust and any Series thereof,
and any of their respective assets, which may arise as a
matter of law or pursuant to any contract; provided,
however, that the Advisor's Claims (if any) against the
Contracting Series shall not be considered Subordinated
Claims with respect to enforcement against and
distribution and repayment from the Contracting Series,
the Contracting Series Assets and the Managing Owner and
its assets; and provided further that the Advisor's valid
Claims, if any, against the Contracting Series shall be
pari passu and equal in right of
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repayment and distribution with all other valid Claims against
the Contracting Series and (ii) the Advisor will not take,
demand or receive from any Series or the Trust or any of
their respective assets (other than the Contracting
Series, the Contracting Series Assets and the Managing
Owner and its assets) any payment for the Subordinated
Claims;
(2) the Claims of the Advisor with respect to
the Contracting Series shall only be asserted and
enforceable against the Contracting Series, the
Contracting Series Assets and the Managing Owner and its
assets; and such Claims shall not be asserted or
enforceable for any reason whatsoever against any other
Series, the Trust generally or any of their respective
assets;
(3) if the Claims of the Advisor against the
Contracting Series or the Trust are secured in whole or
in part, the Advisor hereby waives (under section 1111(b)
of the Bankruptcy Code (11 U.S.C. S 1111(b)) any right to
have any deficiency Claims (which deficiency Claims may
arise in the event such security is inadequate to satisfy
such Claims) treated as unsecured Claims against the
Trust or any Series (other than the Contracting Series),
as the case may be;
(4) in furtherance of the foregoing, if and to
the extent that the Advisor receives monies in connection
with the Subordinated Claims from a Series or the Trust
(or their respective assets), other than the Contracting
Series, the Contracting Series Assets and the Managing
Owner and its assets, the Advisor shall be deemed to hold
such monies in trust and shall promptly remit such monies
to the
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Series or the Trust that paid such amounts for
distribution by the Series or the Trust in accordance
with the terms hereof; and
(5) the foregoing Consent shall apply at all
times notwithstanding that the Claims are satisfied, and
notwithstanding that the agreements in respect of such
Claims are terminated, rescinded or canceled.
4. Obligations of the Trust, the Managing Owner and the
Advisor.
(a) The Registration Statement and Prospectus. Each
of the Trust and the Managing Owner agrees to cooperate and
use its good faith best efforts in connection with (i) the
preparation by the Trust of the Registration Statement and the
Prospectus (and any amendments or supplements thereto); (ii)
the filing of the Registration Statement and the Prospectus
(and any amendments or supplements thereto) with such
governmental and self-regulatory authorities as the Managing
Owner deems appropriate for the registration and sale of the
Interests and the taking of such other actions not
inconsistent with this Agreement as the Managing Owner may
determine to be necessary or advisable in order to make the
proposed offer and sale of Interests lawful in any
jurisdiction; and (iii) causing the Registration Statement
(and any amendment thereto) to become effective under the 1933
Act and the Blue Sky securities laws of such jurisdictions as
the Managing Owner may deem appropriate. The Advisor agrees
to make all necessary disclosures regarding itself, its
officers and principals, trading performance, Trading
Approach, customer accounts (other than the names of
customers, unless such disclosure is required by law or
regulation) and otherwise as may be required, in the
reasonable judgment of the Managing Owner, to be made in the
Registration Statement and Prospectus and in applications to
any such
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jurisdictions. No description of, or other
information relating to, the Advisor may be distributed by the
Managing Owner without the prior written consent of the
Advisor; provided that, distribution of performance
information relating to Series B's account shall not require
consent of the Advisor.
(b) Road Shows. The Advisor agrees to make
representatives of its marketing department available to
participate in "road show" and similar presentations in
connection with the offering of the Series B Interests to the
extent reasonably requested by the Managing Owner, on the
following conditions: (i) all expenses incurred by the Advisor
in the course of such participation will be shared between and
among the Advisor, the Managing Owner, and/or Prudential
Securities, in such amounts as shall be agreed among the
parties, (ii) the Advisor shall not be obligated to take any
action which might require registration as a broker-dealer or
investment adviser under any applicable federal or state law,
and (iii) the Advisor shall not be required to assist in "road
show" or similar presentations to the extent that it
reasonably believes that doing so would interfere with its
trading, marketing or other activities.
(c) Advisor Not A Promoter. The parties acknowledge
that the Advisor has not been, either alone or in conjunction
with Prudential Securities or its affiliates, an organizer or
promoter of the Trust.
(d) Filings. The Trust may at any time determine
not to file the Registration Statement with the SEC or
withdraw the Registration Statement from the SEC or any other
governmental or self-regulatory authority with which it is
filed or otherwise terminate the Registration Statement or the
offering of Interests. Upon any such withdrawal or
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termination, or if the "minimum" (i) aggregate number of
Interests or (ii) Series B Interests required to be sold
pursuant to the Prospectus is not sold, this Agreement shall
terminate and, except for the payment of expenses as set forth
in subparagraph 4(b) above and in paragraph 2, neither the
Trust nor the Managing Owner shall have any obligations to the
Advisor with respect to this Agreement; nor shall the Advisor
have any obligations to the Trust or the Managing Owner with
respect to this Agreement.
(e) Representation Agreement. On or prior to
commencement of the offering of Interests pursuant to the
Prospectus, the parties agree to execute a Representation
Agreement relating to the offering of the Interests (the
"Representation Agreement") substantially in the form attached
hereto as Exhibit C.
5. Advisor Independence.
(a) Independent Contractor. The Advisor shall for
all purposes herein be deemed to be an independent contractor
with respect to the Trust, the Managing Owner and each other
commodity trading advisor that may in the future provide
commodity trading advisory services to the Trust and
Prudential Securities, and shall, unless otherwise expressly
authorized, have no authority to act for or to represent the
Trust, the Managing Owner, any other commodity trading advisor
or Prudential Securities in any way or otherwise be deemed to
be a general agent, joint venturer or partner of the Trust,
the Managing Owner, any other commodity trading advisor or
Prudential Securities, or in any way be responsible for the
acts or omissions of the Trust, the Managing Owner, any other
commodity trading advisor or Prudential Securities as long as
it is acting independently of such persons.
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(b) Unauthorized Activities. Without limiting the
obligations of the Trust set forth under this Agreement,
nothing herein contained shall be deemed to require the Trust
to take any action contrary to its Trust Agreement or
Certificate of Trust or any applicable statute, regulation or
rule of any exchange or self-regulatory organization.
(c) Purchase of Interests. Any of the Advisor, its
principals, and employees may, in its discretion, purchase
Interests in the Trust.
(d) Confidentiality. The Trust and the Managing
Owner acknowledge that the Trading Approach of the Advisor is
the confidential property of the Advisor. Nothing in this
Agreement shall require the Advisor to disclose the
confidential or proprietary details of its Trading Approach.
The Trust and the Managing Owner further agree that they will
keep confidential and will not disseminate the Advisor's
trading advice to the Trust, except as, and to the extent
that, it may be determined by the Managing Owner to be (i)
necessary for the monitoring of the business of the Trust,
including the performance of brokerage services by the Trust's
commodity broker(s) or (ii) expressly required by law or
regulation.
6. Commodity Broker.
All Commodities trades for the account of the Trust shall
be made through such commodity broker or brokers as the
Managing Owner directs or otherwise as may be agreed upon in
accordance with such order execution procedures as are agreed
upon between the Advisor and the Managing Owner. The Advisor
shall not have any authority or responsibility in selecting or
supervising any broker for execution of Commodities trades of
the Trust or for negotiating commission rates to be charged
therefor. The Advisor shall
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not be responsible for determining that any such bank or broker
used in connection with any Commodities transactions meets the
financial requirements or standards imposed by the Trust's Trading
Policies and Limitations. At the present time it is
contemplated that the Trust will execute and clear all
Commodities trades through Prudential Securities. The Advisor
may, however, with the consent of the Managing Owner, execute
transactions at such other broker(s), and upon such terms and
conditions, as the Advisor and the Managing Owner agree if
such broker(s) agree to "give up" all such transactions to
Prudential Securities for clearance. To the extent that the
Trust determines to utilize a broker or brokers other than
Prudential Securities, it will consult with the Advisor prior
to directing it to utilize such broker(s), and will not retain
the services of such broker(s) over the reasonable objection
of the Advisor.
7. Fees.
In consideration of and in compensation for the
performance of the Advisor's services under this Agreement,
the Advisor shall receive from Series B a weekly management
fee (the "Management Fee") and an incentive fee (the
"Incentive Fee") based on Series B 's Allocated Assets, as
follows:
(a) A Management Fee equal to 0.167% of Series B 's
Allocated Assets determined as of the close of business each
Friday (an annual rate of 2%). The sum of the amounts
determined each Friday will be paid monthly. For purposes of
determining the Management Fee, any distributions,
redemptions, or reallocation of the Series B's assets made as
of the last Friday of a week shall be added back to Series B
's Allocated Assets and there shall be no reduction for (i)
the accrued Management Fees being calculated, or
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(ii) any accrued but unpaid incentive fees due the Advisor under
paragraph (b) below for the quarter in which such fees are
being computed, or (iii) any accrued but unpaid extraordinary
expenses (as defined in the Trust Agreement). The Management
Fee determined for any week in which an Advisor manages Series
B 's Allocated Assets for less than a full week shall be
prorated, such proration to be calculated on the basis of the
number of days in the week Series B Allocated Assets were
under the Advisor's management as compared to the total number
of days in such week, such proration to include appropriate
adjustments for any funds taken away from the Advisor's
management during the week for reasons other than
distributions or redemptions, including but not limited to the
reduction of Series B 's Allocated Assets allocated to the
Advisor's management resulting from the payment of
extraordinary expenses or distributions.
(b) An incentive fee of twenty percent (20%) (the
"Incentive Fee") of "New High Net Trading Profits" (as
hereinafter defined) generated on Series B 's Allocated
Assets, including realized and unrealized gains and losses
thereon, as of the close of business on the last Friday of
each calendar quarter (the "Incentive Measurement Date"). The
fee will accrue weekly.
New High Net Trading Profits (for purposes of
calculating the Advisor's Incentive Fee only) will be computed
as of the Incentive Measurement Date and will include such
profits (as outlined below) since the Incentive Measurement
Date of the most recent preceding calendar quarter for which
an incentive fee was earned (or, with respect to the first
Incentive Fee, as of the commencement of operations) (the
"Incentive Measurement Period"). New High Net Trading Profits
for any Incentive Measurement
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Period will be the net profits, if any, from Series B 's trading
during such period (including (i) realized trading profit (loss)
plus or minus (ii) the change in unrealized trading profit (loss)
on open positions) and will be calculated after the determination of
Series B 's fixed brokerage fee and the Advisor's Management Fee, but
before deduction of any Incentive Fees payable during the
Incentive Measurement Period. New High Net Trading Profits
will not include interest earned or credited on Series B 's
assets and will be adjusted (either increased or decreased, as
the case may be) to reflect extraordinary expenses (e.g.,
litigation, costs or damages) paid during an Incentive
Measurement Period. New High Net Trading Profits will be
generated only to the extent that the Advisor's cumulative New
High Net Trading Profits exceed the highest level of
cumulative New High Net Trading Profits achieved by the
Advisor as of a previous Incentive Measurement Date. Except
as set forth below, net losses from prior quarters must be
recouped before New High Net Trading Profits can again be
generated. If a withdrawal or distribution occurs at any date
that is not an Incentive Measurement Date, the date of the
date of the withdrawal or distribution will be treated as if
it were an Incentive Measurement Date, but any Incentive Fee
accrued in respect of the withdrawn assets on such date shall
not be paid to the Advisor until the next scheduled Incentive
Measurement Date. New High Net Trading Profits for an
Incentive Measurement Period shall exclude capital
contributions to Series B in an Incentive Measurement Period,
distributions or redemptions payable by Series B during an
Incentive Measurement Period, as well as losses, if any,
associated with redemptions during the Incentive Measurement
Period and prior to the Incentive Measurement Date. In
calculating New High Net Trading Profits, incentive fees paid
for a previous Incentive
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Measurement Period will not reduce cumulative New High Net Trading
Profits in subsequent periods.
(c) Timing of Payment. Management Fees and
Incentive Fees shall be paid within fifteen (15) business days
following the end of the period for which they are payable.
The first incentive fee which may be due and owing to the
Advisor in respect of any New Trading Profits will be due and
owing as of the last Friday of the first calendar quarter
during which the Trading Advisor managed the Allocated Assets
for at least forty five (45) days. If an Incentive Fee shall
have been paid by the Trust to the Advisor in respect of any
calendar quarter and the Advisor shall incur subsequent losses
on the Series B Allocated Assets the Advisor shall
nevertheless be entitled to retain amounts previously paid to
it in respect of New High Net Trading Profits.
(d) Fee Data. The Advisor will be provided by the
Managing Owner with the data used by the Managing Owner to
compute the foregoing fees within ten (10) business days of
the end of the relevant period.
(e) Third Party Payments. Neither the Advisor, nor
any of its officers, directors, employees or stockholders,
shall receive any commissions, compensation, remuneration or
payments whatsoever from any broker with which the Trust
carries an account for transactions executed in the Trust's
account. The parties acknowledge that a spouse of any of the
foregoing persons may receive floor brokerage commissions in
respect of trades effected pursuant to the Advisor's Trading
Approach on behalf of the Trust, which payment shall not
violate the preceding sentence.
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8. Term and Termination.
(a) Term. This Agreement shall commence on the date
hereof and, unless sooner terminated, shall continue in effect
until the close of business on the later of the last day of
the month ending twelve full months following the commencement
of the Trust's trading activities or December 31, 1998.
Thereafter, unless this Agreement is terminated pursuant to
paragraphs (b), (c) or (d) of this Section 8, this Agreement
shall be renewed automatically on the same terms and
conditions set forth herein for successive additional one-year
terms, each of which shall commence on the first day of the
month subsequent to the conclusion of the preceding twelve
(12) month term. The automatic renewal(s) set forth in the
preceding sentence hereof shall not be affected by (i) any
reallocation of the Series B Allocated Assets away from the
Advisor pursuant to this Agreement, or (ii) the retention of
Other Advisors following a reallocation, or otherwise.
(b) Automatic Termination. This Agreement shall
terminate automatically in the event that the Trust is
terminated. In addition, this Agreement shall terminate
automatically in the event that the Series B Allocated Assets
declines as of the end of any business day by 66 % from the
Series B Allocated Assets (i) as of the first day of this
Agreement, or (ii) as of the first day of any calendar year,
as adjusted on an ongoing basis by (A) any decline(s) in the
Series B Allocated Assets caused by distributions,
redemptions, permitted reallocations, and withdrawals, and (B)
additions to the Series B Allocated Assets caused by
additional allocations of the Trust Estate to the Advisor's
management based on sales of additional Series B Interests.
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(c) Optional Termination Right of Trust. This
Agreement may be terminated at any time at the election of the
Managing Owner in its sole discretion upon at least thirty
(30) days' prior written notice to the Advisor. The Managing
Owner will use its best efforts to cause any termination to
occur as of a month-end. This Agreement also may be
terminated upon prior written notice, appropriate under the
circumstances, to the Advisor in the event that: (A) the
Managing Owner determines in good faith following consultation
appropriate under the circumstances with the Advisor that the
Advisor is unable to use its agreed upon Trading Approach to
any material extent, as such Trading Approach may be refined
or modified in the future in accordance with the terms of this
Agreement for the benefit of the Trust; (B) the Advisor'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; (C) the
Managing Owner determines in good faith following consultation
appropriate under the circumstances with the Advisor that the
Advisor has failed to conform, and after receipt of written
notice, continues to fail to conform in any material respect,
to (i) any of the Trust's Trading Policies and Limitations, or
(ii) the Advisor's Trading Approach; (D) there is an
unauthorized assignment of this Agreement by the Advisor; (E)
the Advisor 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; (F) Name of applicable principal(s) is not in
control of the Advisor's trading activities for the Trust; (G)
the Advisor becomes bankrupt (admitted or decreed) or
insolvent, (H) for any other reason, the Managing
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Owner determines in good faith that such termination is essential
for the protection of the Trust and the Series B Interests,
including, without limitation a good faith determination by
the Managing Owner that the Advisor has breached a material
obligation to the Trust under this Agreement relating to the
trading of the Series B Allocated Assets.
(d) Optional Termination Right of Advisor. The
Advisor shall have the right to terminate this Agreement at
any time upon written notice to the Trust, appropriate under
the circumstances, in the event (i) of the receipt by the
Advisor of an opinion of independent counsel satisfactory to
the Advisor and the Trust that by reason of the Advisor's
activities with respect to the Trust, it is required to
register as an investment adviser under the Investment
Advisers Act of 1940 and it is not so registered; (ii) that
the registration of the Managing Owner as a commodity pool
operator under the CE Act, or its NFA membership as a
commodity pool operator is revoked, suspended, terminated or
not renewed; (iii) the Managing Owner imposes additional
trading limitation(s) pursuant to Section 1 of this Agreement
which the Advisor does not agree to follow in its management
of the Series B Allocated Assets, or the Managing Owner
overrides trading instructions of the Advisor or does not
consent to a material change to the Trading Approach requested
by the Advisor; (iv) if the amount of the Series B Allocated
Assets decreases to less than $3 million as the result of
redemptions, but not trading losses, as of the close of
business on any Friday; (v) the Managing Owner elects
(pursuant to Section 1 of this Agreement) to have the Advisor
use a different Trading Approach in the Advisor's management
of Trust assets from that which the Advisor is then using to
manage such assets and the Advisor objects to using such
different Trading Approach; (vi) there is an unauthorized
assignment
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of this Agreement by the Trust or the Managing
Owner; (vii) there is a material breach of this Agreement by
the Trust and/or the Managing Owner after giving written
notice to the Managing Owner which identifies such breach and
such material breach has not been cured within 10 days
following receipt of such notice by the Managing Owner; or
(viii) other good cause is shown and the written consent of
the Managing Owner is obtained (which shall not be withheld
unreasonably).
(e) Termination Fees. In the event that this
Agreement is terminated with respect to, or by, the Advisor
pursuant to this Section 8 or the Managing Owner allocates the
Trust's assets to Other Advisors, the Advisor shall be
entitled to, and the Trust shall pay, the Management Fee and
the Incentive Fee, if any, which shall be computed (i) with
respect to the Management Fee, on a pro rata basis, based upon
the portion of the month for which the Advisor had the Series
B Allocated Assets under management, and (ii) with respect to
the Incentive Fee, if any, as if the effective date of
termination was the last day of the then current calendar
quarter. The rights of the Advisor to fees earned through the
earlier to occur of the date of expiration or termination
shall survive this Agreement until satisfied.
(f) Termination and Open Positions. Once
terminated, the Advisor shall have no responsibility for
existing positions, including delivery issues, if any, which
may result from such positions.
9. Liquidation of Positions.
The Advisor agrees to liquidate open positions in the
amount that the Managing Owner informs the Advisor, in writing
via telecopy or other equivalent means, that the
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Managing Owner considers necessary or advisable to liquidate in order
to (i) effect any termination or reallocation pursuant to
Sections 1 or 8, respectively, or (ii) fund its pro rata share
of any redemption, distribution or Trust expense. The
Managing Owner shall not, however, have authority to instruct
the Advisor as to which specific open positions to liquidate,
except as provided in Section 1 hereof. The Managing Owner
shall provide the Advisor with such reasonable prior notice of
such liquidation as is practicable under the circumstances and
will endeavor to provide at least three (3) days' prior
notice. In the event that losses incurred by the Advisor
exceed the amount of the Series B Allocated Assets, the
Managing Owner agrees to cover such excess losses from its
assets, but in no event from the assets of the other Series
issued by the Trust.
10. Other Accounts of the Advisor.
(a) Management of Other Accounts. Subject to
paragraph (c) of this Section 10, the Advisor shall be free to
manage and trade accounts for other investors (including other
public and private commodity pools) during the term of this
Agreement and to use the same or other information and Trading
Approach utilized in the performance of services for the Trust
for such other accounts so long as the Advisor's ability to
carry out its obligations and duties to the Trust pursuant to
this Agreement is not materially impaired thereby. In
addition, the Advisor, and its shareholders, directors,
officers and employees, as applicable, also will be permitted
to trade in Commodities using the Trading Approach or
otherwise for their own accounts, so long as the Advisor's
ability to carry out its obligations and duties to the Trust
pursuant to this Agreement is not materially impaired thereby.
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(b) Acceptance of Additional Capital. Furthermore,
so long as the Advisor is performing services for the Trust,
it agrees that it will not accept additional capital for
management in the Commodities markets if doing so would have a
reasonable likelihood of resulting in the Advisor 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. Without
limiting the generality of the foregoing, it is understood
that this paragraph shall not prohibit the acceptance of
additional capital, which acceptance requires only routine
adjustments to trading patterns in order to comply with
speculative position limits or daily trading limits.
(c) Equitable Treatment of Accounts. The Advisor
agrees, in its management of accounts other than the account
of the Trust, that it will not knowingly or deliberately favor
any other account managed or controlled by it or any of its
principals or affiliates (in whole or in part) over the Trust.
The preceding sentence shall not be interpreted to preclude
(i) the Advisor from charging another client fees which differ
from the fees to be paid to it hereunder, or (ii) an
adjustment by the Advisor in the implementation of any agreed
upon Trading Approach in accordance with the procedures set
forth in Section 1 hereof which is undertaken by the Advisor
in good faith in order to accommodate additional accounts.
The Advisor, upon reasonable request and receipt of adequate
assurances of confidentiality, shall provide the Managing
Owner with an explanation of the differences, if any, in
performance between the Trust and any other similar account
pursuant to the same Trading Approach for which the Advisor or
any of its principals or affiliates acts as a commodity
trading advisor (in whole or in part).
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(d) Inspection of Records. Upon the reasonable
request of, and upon reasonable notice from, the Managing
Owner, the Advisor shall permit the Managing Owner to review
at the Advisor's offices during normal business hours such
trading records as it reasonably may request for the purpose
of confirming that the Trust has been treated equitably with
respect to advice rendered during the term of this Agreement
by the Advisor for other accounts managed by the Advisor,
which the parties acknowledge to mean that the Managing Owner
may inspect, subject to such restrictions as the Advisor may
reasonably deem necessary or advisable so as to preserve the
confidentiality of proprietary information and the identity of
its clients, all trading records of the Advisor as it
reasonably may request during normal business hours. The
Advisor may, in its discretion, withhold from any such report
or inspection the identity of the client for whom any such
account is maintained and in any event, the Trust and the
Managing Owner shall keep all such information obtained by
them from the Advisor confidential.
11. Speculative Position Limits.
If, at any time during the term of this Agreement, it
appears to the Advisor that it may be required to aggregate
the Trust's Commodities positions with the positions of any
other accounts it owns or controls for purposes of applying
the speculative position limits of the Commodity Futures
Trading Commission ("CFTC"), any exchange, self-regulatory
body, or governmental authority, the Advisor promptly will
notify the Managing Owner if the Trust's positions under its
management are included in an aggregate amount which equals or
exceeds the applicable speculative limit. The Advisor agrees
that, if its trading recommendations pursuant to its agreed
upon Trading Approach are altered because of the
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potential application of speculative position limits, the Advisor
will modify its trading instructions to the Trust and its other
accounts in a good faith effort to achieve an equitable
treatment of all accounts; to wit, the Advisor will liquidate
Commodities positions and/or limit the taking of new positions
in all accounts it manages, including the Trust, as nearly as
possible in proportion to the assets available for trading of
the respective accounts to the extent necessary to comply with
applicable speculative position limits. The Advisor presently
believes that its Trading Approach for the management of the
Trust's account, assuming that the allocation is not more than
$34,000,000, can be implemented for the benefit of the Trust
notwithstanding the possibility that, from time to time,
speculative position limits may become applicable.
12. Redemptions, Distributions, Reallocations and
Additional Allocations.
(a) Notice. The Managing Owner agrees to give the
Advisor at least one (1) business day prior notice of any pro-
posed redemptions, exchanges, distributions, reallocations,
additional allocations, or withdrawals.
(b) Allocations. Redemptions, exchanges,
withdrawals, and distributions of Series B Interests shall be
charged against Series B Allocated Assets.
13. Brokerage Confirmations and Reports.
The Managing Owner will instruct the Trust's commodity
broker or brokers to furnish the Advisor with copies of all
trade confirmations, daily equity runs, and monthly trading
statements relating to the Series B Allocated Assets. The
Advisor will maintain records and will monitor all open
positions relating thereto; provided, however, that the
Advisor shall not be responsible for any errors by the Trust's
brokers. The Managing
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<PAGE>
Owner also will furnish the Advisor with a copy of the form of all
reports, including but not limited to, monthly, quarterly and annual
reports, sent to the Limited Owners, and copies of all reports filed
with the SEC, the CFTC and the NFA. The Advisor shall, at the Managing
Owner's request, make a good faith effort to provide the
Managing Owner with copies of all trade confirmations (if the
broker is other than Prudential Securities), daily equity
runs, monthly trading reports or other reports sent to the
Advisor by the Trust's commodity broker regarding the Trust,
and in the Advisor's possession or control, as the Managing
Owner deems appropriate, if the Managing Owner cannot obtain
such copies on its own behalf. Upon request, the Managing
Owner will provide the Advisor with accurate information with
respect to the Series B Allocated Assets.
14. The Advisor's Representations and Warranties.
The Advisor represents and warrants that:
(a) it has full capacity and authority to enter into
this Agreement, and to provide the services required of it
hereunder;
(b) it will not by entering into this Agreement and
by acting as a commodity trading advisor to the Trust, (i) be
required to take any action contrary to its incorporating or
other formation documents or any applicable statute, law or
regulation of any jurisdiction or (ii) breach or cause to be
breached any undertaking, agreement, contract, statute, rule
or regulation to which it is a party or by which it is bound
which, in the case of (i) or (ii), would materially limit or
materially adversely affect its ability to perform its duties
under this Agreement;
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<PAGE>
(c) it is duly registered as a commodity trading
advisor under the CE Act and is a member of the NFA as a com-
modity trading advisor and it will maintain and renew such
registration and membership during the term of this Agreement;
(d) a copy of its most recent Commodity Trading
Advisor Disclosure Document as required by Part 4 of the
CFTC's regulations has been provided to the Managing Owner on
behalf of the Trust in the form of Exhibit D hereto (and the
Managing Owner acknowledges receipt of such Disclosure
Document on behalf of the Trust) and, except as disclosed in
such Disclosure Document, all information in such Disclosure
Document (including, but not limited to, background,
performance, trading methods and trading systems) is true,
complete and accurate in all material respects and is in
conformity in all material respects with the provisions of the
CE Act, as amended, including the rules and regulations
thereunder;
(e) assuming that the Series B Allocated Assets
equal not more than $33,000,000 as of the commencement of
trading, the amount of such assets should not, in the
reasonable judgment of the Advisor, result in the Advisor
being required to alter its Trading Approach to a degree which
would be expected to have a material adverse effect on the
Trust; and
(f) neither the Advisor, nor its stockholders,
directors, officers, employees, agents, principals,
affiliates, nor any of its or their respective successors or
assigns: (i) shall knowingly use or distribute for any purpose
whatsoever any list containing the names and/or residence
addresses of, and/or other information about, the Limited
Owners of the Trust; nor (ii) shall solicit any person it or
they know is a Limited Owner of the Trust for
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the purpose of soliciting commodity business from such Limited Owner,
unless such Limited Owner shall have first contacted the Advisor or
is already a client of the Advisor or a prospective client
with which the Advisor has commenced discussions or is
introduced or referred to the Advisor by an unaffiliated agent
other than in violation of clause (i).
The within representations and warranties shall be
continuing during the term of this Agreement, and, if at any
time, any event has occurred which would make or tend to make
any of the foregoing not true in any material respect with
respect to the Advisor, the Advisor promptly will notify the
Trust in writing thereof.
15. The Managing Owner's Representations and Warranties.
The Managing Owner represents and warrants on behalf of
the Trust and itself that:
(a) each has the full capacity and authority to
enter into this Agreement and to perform its obligations
hereunder;
(b) it will not, by acting as managing owner to the
Trust or by entering into this Agreement, and the Trust will
not (i) be required to take any action contrary to its
incorporating or other formation documents or any applicable
statute, law or regulation of any jurisdiction, or (ii) breach
or cause to be breached (A) any undertaking, agreement,
contract, statute, rule or regulation to which it or the Trust
is a party or by which it or the Trust is bound, or (B) any
order of any court or governmental or regulatory agency having
jurisdiction over it or the Trust, which in the case of (i) or
(ii) would materially limit or materially adversely affect the
performance of its or the Trust's duties under this Agreement;
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<PAGE>
(c) it is registered as a commodity pool operator
under the CE Act and is a commodity pool operator member of
the NFA, and it will maintain and renew such registration and
membership during the term of this Agreement;
(d) this Agreement has been duly and validly
authorized, executed and delivered, and is a valid and binding
agreement, enforceable against each of them, in accordance
with its terms; and
(e) on the date hereof, it is, and during the term
of this Agreement, it will be (i) in the case of the Trust, a
duly formed and validly existing Delaware Business Trust, and
(ii) in the case of the Managing Owner, a duly formed and
validly existing corporation, in each case, in good standing
under the laws of the State of Delaware, and in good standing
and qualified to do business in each jurisdiction in which the
nature and conduct of its business requires such qualification
and where the failure to be so qualified would materially
adversely affect its ability to perform its obligations under
this Agreement.
The within representations and warranties shall be
continuing during the term of this Agreement, and, if at any
time, any event has occurred which would make or tend to make
any of the foregoing not true in any material respect, the
Managing Owner promptly will notify the Advisor in writing.
16. Assignment.
This Agreement may not be assigned by any of the parties
hereto without the express prior written consent of the other
parties hereto, except that the Advisor need not obtain the
consent of any Other Advisor.
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17. Successors.
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and permitted
assigns of each of them, and no other person (except as
otherwise provided herein) shall have any right or obligation
under this Agreement. The terms "successors" and "assigns"
shall not include any purchasers, as such, of Interests.
18. Amendment or Modification or Waiver.
This Agreement may not be amended or modified, nor may
any of its provisions be waived, except upon the prior written
consent of the parties hereto, except that an amendment to, a
modification of, or a waiver of any provision of the Agreement
as to the Advisor need not be consented to by any Other
Advisor.
19. Notices.
Except as otherwise provided herein, all notices required
to be delivered under this Agreement shall be effective only
if in writing and shall be deemed given by the party required
to provide notice when received by the party to whom notice is
required to be given and shall be delivered personally or by
registered mail, postage prepaid, return receipt requested, or
by telecopy, as follows (or to such other address as the party
entitled to notice shall hereafter designate by written notice
to the other parties):
If to the Managing Owner: If to the Trust:
Prudential Securities Futures World Monitor Trust - Series B
Management Inc. c/o Prudential Securities Futures
One New York Plaza, 13th floor Management Inc.
New York, New York 10292-2013 One New York Plaza, 13th floor
Attention: Eleanor L. Thomas New York, New York 10292-2013
Facsimile: (212) 778-3694 Attention: Eleanor L. Thomas
Facsimile: (212) 778-3694
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<PAGE>
and in either case with a copy to:
Rosenman & Colin LLP and Prudential Securities Incorporated
575 Madison Avenue One New York Plaza, 13th Floor
New York, New York 10022 New York, New York 10292-2013
Attention: Fred M. Santo, Esq. Attention: Thomas M. Lane
Facsimile: (212) 940-7079 Facsimile: (212) 214-7867
If to the Advisor: with a copy to:
Eclipse Capital Management, Inc. Sidley & Austin
12400 Olive Boulevard, Ste. 408 One First National Plaza
St. Louis, Missouri 63141 Chicago, Illinois 60603
Attention: Thomas W. Moller Attention: Jodie Nedeau, Esq.
Facsimile: (314) 579-0525 Facsimile: (312) 853-7036
20. Governing Law.
Each party agrees that this Agreement shall be governed
by and construed in accordance with the laws of the State of
New York without regard to conflict of laws principles.
21. Survival.
The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter
arising while this Agreement was in effect.
22. Disclosure Document Modifications.
The Advisor shall promptly furnish the Managing Owner
with a copy of all modifications to its Disclosure Document
when available for distribution. Upon receipt of any modified
Disclosure Document by the Managing Owner, the Managing Owner
will provide the Advisor with an acknowledgement of receipt
thereof.
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23. Promotional Literature.
Each party agrees that prior to using any promotional
literature in which reference to the other parties hereto is
made, they shall furnish a copy of such information to the
other parties and will not make use of any promotional litera-
ture containing references to such other parties to which such
other parties object, except as otherwise required by law or
regulation.
24. No Waiver.
No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise
of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right,
power or remedy. Any waiver granted hereunder must be in
writing and shall be valid only in the specific instance in
which given.
25. No Liability of Limited Owners.
This Agreement has been made and executed by and on
behalf of the Trust, and the obligations of the Trust and/or
the Managing Owner set forth herein are not binding upon any
of the Limited Owners individually, but rather, are binding
only upon the assets and property of the Trust, and, to the
extent provided herein, upon the assets and property of the
Managing Owner.
26. Headings.
Headings to Sections herein are for the convenience of
the parties only, and are not intended to be or to affect the
meaning or interpretation of this Agreement.
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27. Complete Agreement.
Except as otherwise provided herein, this Agreement and
the Representation Agreement constitute the entire agreement
between the parties with respect to the matters referred to
herein, and no other agreement, verbal or otherwise, shall be
binding upon the parties hereto.
28. Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and
all of which, when taken together, shall constitute one
original instrument.
29. Arbitration, Remedies.
Each party hereto agrees that any dispute relating to the
subject matter of this Agreement shall be settled and
determined by arbitration in the City of New York pursuant to
the rules of NFA or, if NFA should refuse to accept the
matter, the American Arbitration Association.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed for
and on behalf of the undersigned as of the day and year first
above written.
WORLD MONITOR TRUST - SERIES B PRUDENTIAL SECURITIES
FUTURES MANAGEMENT, INC.
By: PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC.,
Its: Managing Owner By:---------------------
Eleanor L. Thomas
Vice-President
By:--------------------
Eleanor L. Thomas
Vice-President
ECLIPSE CAPITAL MANAGEMENT, INC.
By:--------------------
Thomas W. Moller
President
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EXHIBIT A
SERIES B TRADING SYSTEM
TRADING SYSTEM OF ECLIPSE CAPITAL MANAGEMENT, INC.
The Advisor's will make its trading decisions for Series
B according to its Global Monetary Program. The Global
Monetary Program incorporates quantitative trend analysis and
technical trading principles.
The Global Monetary Program is systematic and trend-
following in nature, with the objective of capitalizing on
intermediate and long-term price trends. The Advisor makes
all trading decisions pursuant to its proprietary trend
identification, capital allocation, and risk management
models, using multiple models to accentuate overall
diversification. Trend identification models use various
technical and statistical analysis techniques to identify and
evaluate price trends. Capital allocation models determine
the percentage of trading capital allocated to various markets
and trading models.
The Advisor's risk management models were developed with
the objective of limiting losses, capturing profits, and
conserving capital in choppy, "sideways markets". The risk
management principles that the Advisor employs include: (1)
using stop orders to exit trades when markets are moving
against an established position; (2) diversifying positions
among several different futures and/or futures groups to limit
exposure in any one area; (3) using multiple entry and exit
points; (4) limiting the assets committed as margin, generally
within a range of 5% to 25% of assets managed, at minimum
exchange margin requirements, but possibly above or below that
range at certain times; and (5) prohibiting the use of
unrealized profits in a particular futures contract as margin
for additional contracts in the same or a related futures
contract.
Decisions whether to trade a particular futures contract
are based upon various factors, including liquidity,
significance in terms of desired degrees of concentration,
diversification and profit potential, both historical and at a
given time. These decisions are based upon output generated
by a proprietary risk management program but require the
exercise of judgment by principals of the Advisor. The
specific contracts traded have been selected based on
liquidity, historical volatility, and the degree of past
directional movement. The actual number of contracts held at
any particular point depends on a number of factors, including
evaluation of market volatility and potential risk versus
return. There are occasions when a trading model may indicate
that no position is appropriate in a particular contract or
contract group.
In addition to technical trading in futures contracts,
the Advisor also may employ trading techniques such as spreads
and straddles, and buy or sell futures options. The Advisor
may make non-material alterations to its trading programs
without approval from the Managing
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Owner if the Advisor
determines that such changes are in the best interest of the
Series Limited Owners.
The Global Monetary Program
The Global Monetary Program is a financial, metals and
energy program that trades a global portfolio of futures,
options on futures and exchanges-of-futures-for-physical
("EFP") contracts on interest rate instruments, currencies,
stock indices, precious and base metals, and energy products.
The foreign currency portion of the portfolio may be traded in
the interbank foreign exchange market. A key component of
this program is the extensive diversification achieved by
applying multiple trading models to a wide variety of
financial markets located throughout the world.
Set forth below for calendar year 1997 is a bar graph
showing, on a weighted average basis, the volume of trades
effected by the Advisor in the foregoing commodities using
the trading strategy to be used for Series B. This weighting
will change as market conditions change, and there is every
likelihood that these weightings will be different for Series
B during future periods.
Global Monetary Program Contracts And Markets
<TABLE>
<S> <C> <C>
SFE Australian Bank Bills DTB German 5-Year Bond Australian Dollar
SFE Australian 3-Year Bond MATIF Pibor British Pound
SFE Australian Ten Year Bond MATIF Notional Bond Canadian Dollar
SIMEX Euroyen CME Eurodollar French Franc
SIMEX Nikkei CBOT US Bond German Mark
SIMEX Japanese Bond CBOT US 5-Year Japanese Yen
Tokyo Japanese Bond MONT Canadian Bond Swiss Franc
MONT Canadian Bank Bills
LIFFE Euromark MEFF Spanish Bond British Pound/German
LIFFE Eurolira London Metals Exchange 3 Mark
LIFFE German Bund Month Copper German Mark/French
LIFFE Italian Bond London Metals Exchange 3 Franc
LIFFE Short Sterling Month Aluminum German Mark/Italian
LIFFE Long Gift London Metals Exchange 3 Lira
LIFFE Euroswiss Month Zinc German Mark/Japanese
SOFFEX Swiss COMEX Gold Yen
Government Bond COMEX Silver German Mark/Swiss
NYMEX Crude Oil Franc
NYMEX Natural Gas
</TABLE>
* All currencies are executed in the interbank cash market
and then exchanged for physical (EPP) to the CME or FINEX
for actual futures contracts.
A-2
<PAGE>
Global Monetary Program Volume of Trading:
<TABLE>
<S> <C>
Interest rate instruments: 45%
Currencies: 30%
Stock Indices: 5%
Precious & Base Metals: 10%
Energy Products 10%
</TABLE>
(CHART)
A-3
<PAGE>
<PAGE>
EXHIBIT B
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable
to assets representing the Series B Allocated Assets of the
Trust as a whole and at the outset to the Advisor
individually; since the Advisor initially will manage 100%
of the Trust's Series B Allocated Assets, such application
of the limitations and policies is identical initially for
the Series B Allocated Assets of the Trust and the Advisor.
The Advisor sometimes may be prohibited from taking
positions for the Series B Allocated Assets which it would
otherwise acquire due to the need to comply with these
limitations and policies. The Managing Owner will monitor
compliance with the trading limitations and policies set
forth below, and it may impose additional restrictions
(through modification of such limitations and policies) upon
the trading activities of the Advisor, as it, in good faith,
deems appropriate in the best interests of the Series B
Interests of the Trust, subject to the terms of the Advisory
Agreement.
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 Series B Interests. The
Managing Owner may, however, impose additional trading
limitations on the trading activities of the Series B
Interests of the Trust without obtaining such approval if
the Managing Owner determines such additional limitations to
be necessary in the best interests of the Series B Interests
of the Trust.
Trading Limitations
The Series B Interests of 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 commodities
positions or obtaining lines of credit for the trading of
forward currency contracts; provided, however, that the
Series B Interests of 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
Advisor to share in any portion of the commodity brokerage
fees paid by the Series B Interests of the Trust;
(v) commingle its assets, except as permitted by law; or
(vi) permit the churning of its commodity accounts.
The Series B Interests of 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 Advisor has
agreed to abide by the trading policies of the Series B
Interests of the Trust, which currently are as follows:
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<PAGE>
(1) Series B Allocated Assets will generally be
invested in contracts which are traded in sufficient volume
which, at the time such trades are initiated, are reasonably
expected to permit entering and liquidating positions.
(2) Stop or limit orders may, in the Advisor's
discretion, be given with respect to initiating or
liquidating positions in order to attempt 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 Series B Interests of 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 Series B Interests of the Trust may
occasionally make or accept delivery of a commodity
including, without limitation, currencies. The Series B
Interests of the Trust also may engage in EFP transactions
involving currencies and metals and other commodities.
(5) The Series B Interests of the Trust may, from time
to time, employ trading techniques such as spreads,
straddles and conversions.
(6) The Series B Interests of the Trust will not
initiate open futures or option 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 Series B Allocated Assets for any one commodity, or
in excess of 66 % of the Trust's Series B Allocated Assets
for all commodities combined. Under certain market
conditions, such as an inability to liquidate open
commodities positions because of daily price fluctuations,
the Managing Owner may be required to commit Allocated
Assets as margin in excess of the foregoing limits and in
such case the Managing Owner will cause the Advisor to
reduce its open futures and option positions to comply to
these limits before initiating new commodities positions.
(7) To the extent the Series B Interests of the Trust
engages in transactions in forward currency contracts other
than with or through Prudential Securities and/or PBFI, the
Series B Interests of 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.<PAGE>
B-2
<PAGE>
EXHIBIT C
[REPRESENTATION AGREEMENT]
C-1
<PAGE>
EXHIBIT D
[ATTACH LATEST DISCLOSURE DOCUMENT]
D-1
<PAGE>
EXHIBIT 10.4
EXHIBIT C
REPRESENTATION AGREEMENT CONCERNING THE
REGISTRATION STATEMENT AND THE PROSPECTUS
AGREEMENT dated as of the ___ day of _________, 1998,
by and among World Monitor Trust - Series B (the "Trust"), a
business trust organized under Chapter 38 of Title 12 of the
Delaware Code (the "Delaware Act"), Prudential Securities
Incorporated, a Delaware corporation ("Prudential
Securities"), Prudential Securities Futures Management Inc.,
a Delaware corporation (the "Managing Owner"), Wilmington
Trust Company, a Delaware corporation (the "Trustee") and
Eclipse Capital Management, Inc., a Kentucky corporation
(the "Advisor").
W I T N E S S E T H :
WHEREAS, the Trust proposes to make an initial public
offering (the "Offering") of limited liability interests in
the Trust (the "Interests") issuable in multiple series (the
"Series"), each separately managed by a different
professional commodity trading advisor through Prudential
Securities Incorporated ("Prudential Securities"), an
affiliate of the Managing Owner and in connection therewith,
the Trust intends to file with the United States Securities
and Exchange Commission (the "SEC"), pursuant to the United
States Securities Act of 1933, as amended (the "1933 Act"),
a registration statement on Form S-1 to register the
Interests in Series B, and as a part thereof a prospectus
(which registration statement, together with all amendments
thereto, shall be referred to herein as the "Registration
Statement" and which prospectus in final form, together with
all amendments and supplements thereto, shall be referred to
herein as the "Prospectus"); and
<PAGE>
WHEREAS, the Trust and the Managing Owner entered into
an agreement with the Advisor, dated as of ________________,
1998 (the "Advisory Agreement"), pursuant to which the
Advisor has agreed to act as a commodity trading advisor to
the Trust with respect to the portion of the Trust Estate
represented by Series B Interests; and
WHEREAS, the parties hereto wish to set forth their
duties and obligations to each other with respect to the
Registration Statement as of its effective date and the
Prospectus as of the date(s) on which subscribers' funds are
transferred to the portion of the Trust Estate represented
by Series B Interests ("Closing dates(s)").
NOW, THEREFORE, the parties agree as follows:
1. Representations and Warranties of the Advisor. The
Advisor hereby represents and warrants to Prudential
Securities, the Trust, the Trustee and the Managing Owner
that:
a. All references in the Registration Statement
as of its effective date and the Prospectus as of the
Closing Date to (i) the Advisor and its affiliates and
the controlling persons, shareholders, directors,
officers and employees of any of the foregoing, (ii)
the Advisor's Trading Approach (as defined in the
Advisory Agreement) and (iii) the actual past
performance of discretionary accounts directed by the
Advisor or any principal thereof, including the notes
to the tables reflecting such actual past performance
(hereinafter referred to as the Advisor's "Past
Performance History") are complete and accurate in all
material respects, and as to such persons, the
Advisor's Trading Approach and the Advisor's Past
Performance History, the Registration Statement as of
its effective date and Prospectus as of each Closing Date
2
<PAGE>
contain all information required to be included
therein by the Commodity Exchange Act, as amended (the
"CE Act"), and the regulations (including
interpretations thereof) thereunder, and do not contain
an untrue statement of a material fact or omit to state
a material fact required to be stated therein or
necessary to make the statements therein (with respect
to the Prospectus, in light of the circumstances in
which they were made) not misleading. The Advisor also
represents and warrants as to the accuracy and
completeness in all material respects of the underlying
data made available by the Advisor to the Trust and the
Managing Owner for purposes of preparing the Pro Forma
Performance tables, it being understood that no
representation or warranty is being made with respect
to the Pro Forma Performance tables or notes thereto.
The term "principal" in this Agreement shall have the
same meaning as that term in Commodity Futures Trading
Commission (the "CFTC") Regulation S 4.10(e) under the
CE Act.
b. The Advisor will not distribute the
Registration Statement, the Prospectus and/or the
selling materials related thereto.
c. This Agreement and the Advisory Agreement have
been duly and validly authorized, executed and
delivered on behalf of the Advisor and each is a valid
and binding agreement enforceable in accordance with
its terms. The performance of the Advisor's
obligations under this Agreement and the consummation
of the transactions set forth in this Agreement, in the
Advisory Agreement and in the Registration Statement as
of its effective date and Prospectus as of the Closing
Date are not contrary to the provisions of the
Advisor's formation documents, or to the best of its
knowledge, any applicable statute, law or regulation of
any jurisdiction, and will
3
<PAGE>
not result in any violation,
breach or default under any term or provision of any
undertaking, contract, agreement or order to which the
Advisor is a party or by which the Advisor is bound.
d. The Advisor has all governmental and
regulatory licenses, registrations and approvals
required by law as may be necessary to perform its
obligations under the Advisory Agreement and this
Agreement and to act as described in the Registration
Statement as of its effective date and the Prospectus
as of the Closing Date including, without limitation,
registration as a commodity trading advisor under the
CE Act and membership as a commodity trading advisor
with the National Futures Association (the "NFA") and
it will maintain and renew any required licenses,
registrations, approvals or memberships during the term
of the Advisory Agreement.
e. On the date hereof the Advisor is, and at all
times during the term of this Agreement will be, a
corporation duly formed and validly existing and in
good standing under the laws of its jurisdiction of
incorporation and in good standing and qualified to do
business in each jurisdiction in which the nature or
conduct of its business requires such qualifications
and the failure to be so qualified would materially
adversely affect the Advisor's ability to perform its
obligations hereunder or under the Advisory Agreement.
The Advisor has full capacity and authority to conduct
its business and to perform its obligations under this
Agreement, and to act as described in the Registration
Statement as of its effective date and the Prospectus
as of the Closing Date.
f. Subject to adequate assurances of
confidentiality, the Advisor has supplied to or made
available for review by the Managing Owner and
Prudential
4
<PAGE>
Securities (and if requested by the Managing
Owner and Prudential Securities to its designated
auditor) all documents, statements, agreements and
workpapers requested by them relating to all accounts
covered by the Advisor's Past Performance History in
the Registration Statement as of its effective date and
the Prospectus as of the Closing Date which are in the
Advisor's possession or to which it has access.
g. Without limiting the generality of paragraph
a. of this Section 1, neither the Advisor nor any of
its principals has managed, controlled or directed, on
an overall discretionary basis, the trading for any
commodity account which is required by CFTC regulations
and the rules and regulations under the 1933 Act to be
disclosed in the Registration Statement as of its
effective date and the Prospectus as of the Closing
Date which is not set forth in the Registration
Statement as of its effective date and Prospectus as of
the Closing Date as required.
h. The Advisor does not provide any services to
any persons or conduct any business involving advice
with respect to investments other than Commodities (as
defined in the Advisory Agreement), except as has been
disclosed in writing to the Managing Owner. The
Advisor is not required to be registered as an
investment adviser under the United States Investment
Advisers Act of 1940, as amended (the "Advisers Act"),
but voluntarily may so register in the future.
i. As of the date hereof, there has been no
material adverse change in the Advisor's Past
Performance History as set forth in the Registration
Statement or in the Prospectus under the caption "Past
Performance Information -- The Series" which has not
been communicated in writing to and received by the
Managing Owner and Prudential Securities or their
counsel.
5
<PAGE>
j. Except for subsequent performance, as to which
no representation is made, since the date of the
Advisory Agreement, (i) there has not been any material
adverse change in the condition, financial or
otherwise, of the Advisor or in the earnings, affairs
or business prospects of the Advisor, whether or not
arising in the ordinary course of business, and (ii)
there have not been any material transactions entered
into by the Advisor other than those in the ordinary
course of its business.
k. Except as disclosed in the Registration
Statement and in the Prospectus, there is no pending,
or to the best of its knowledge, threatened or
contemplated action, suit or proceeding before or by
any court, governmental, administrative or self-
regulatory body or arbitration panel to which the
Advisor or its principals is a party, or to which any
of the assets of the Advisor is subject which
reasonably might be expected to result in any material
adverse change in the condition (financial or
otherwise), business or prospects of the Advisor or
reasonably might be expected to materially adversely
affect any of the material assets of the Advisor or
which reasonably might be expected to (A) impair
materially the Advisor's ability to discharge its
obligations to the Trust, or (B) result in a matter
which would require disclosure in the Registration
Statement and/or Prospectus; and the Advisor has not
received any notice of an investigation by (i) the NFA
regarding non-compliance with its rules or the CE Act,
(ii) the CFTC regarding non-compliance with the CE Act,
or the rules and regulations thereunder, or (iii) any
exchange regarding non-compliance with its rules of
such exchange which investigation reasonably might be
expected to materially impair its ability to discharge
its obligations under this Agreement or the Advisory
Agreement.
6
<PAGE>
2. Covenants of the Advisor. If, at any time during
the term of the Advisory Agreement, the Advisor discovers
any fact or omission, or any event or change of
circumstances has occurred which would make the Advisor's
representations and warranties in Section 1 inaccurate or
incomplete in any material respect, or which might render
the Registration Statement or Prospectus, with respect to
(i) the Advisor or its principals, (ii) the Advisor's
Trading Approach, or (iii) the Advisor's Past Performance
History, untrue or misleading in any material respect, the
Advisor will provide prompt written notification to the
Trust, the Managing Owner and Prudential Securities of any
such fact, omission, event or change of circumstance, and
the facts related thereto, and it is agreed that the failure
to provide such notification or the failure to continue to
be in compliance with the foregoing representations and
warranties during the term of the Advisory Agreement within
a reasonable time following such notification shall be cause
for the Trust and the Managing Owner to terminate the
Advisory Agreement with the Advisor on prior written notice
to the Advisor. The Advisor also agrees that, during the
term of the Advisory Agreement, from and after the Effective
Date of the Registration Statement and for so long as
Interests in the Trust are being offered, whether during the
Initial Offering Period or during any Subsequent Offering
Period (as those terms are defined in the Prospectus), it
will provide Prudential Securities, the Trust and the
Managing Owner with updated month-end information relating
to the Advisor's Past Performance History, as required to be
disclosed in the performance tables relating to the
performance of the Advisor in the Prospectus under the
caption "Past Performance Information - Series B " beyond
the periods disclosed therein. The Advisor shall use its
best efforts to provide such information within a reasonable
period of time after the end of the month to which such
updated information relates and the information is available
to it.
7
<PAGE>
3. Modification of Registration Statement or
Prospectus. If any event or circumstance occurs as a result
of which it becomes necessary, in the judgment of the
Managing Owner and Prudential Securities, to amend the
Registration Statement in order to make the Registration
Statement not materially misleading or to amend or to
supplement the Prospectus in order to make the Prospectus
not materially misleading in light of the circumstances
existing at the time it is delivered to a subscriber, or if
it is otherwise necessary in order to permit the Trust to
continue to offer its Interests subsequent to the Initial
Offering Period subject to the limitations set forth in the
Advisory Agreement, the Advisor will furnish such
information with respect to itself and its principals, as
well as its Trading Approach and Past Performance History as
the Managing Owner or Prudential Securities may reasonably
request, and will cooperate to the extent reasonably
necessary in the preparation of any required amendments or
supplements to the Registration Statement and/or the
Prospectus.
4. Advisor's Closing Obligations. On or prior to the
Closing Date with respect to the initial offering of Series
B Interests (the "Initial Closing Date"), and thereafter,
only if requested, on or prior to each closing date during
the continuous offering of Series B Interests (each a
"Subsequent Closing Date"), the Advisor shall deliver or
cause to be delivered, at the expense of the Advisor, to
Prudential Securities, the Trust and the Managing Owner, the
reports, certificates, documents and opinions described
below addressed to them and, except as may be set forth
below, dated the Initial Closing Date or the Subsequent
Closing Date, as appropriate (provided that the Advisor
shall not be obligated to provide an opinion of its counsel
more frequently than once per annum absent good cause
shown). Unless the context otherwise requires, the Initial
Closing Date and each Subsequent Closing Date shall each be
8
<PAGE>
referred to as a "Closing Date",
a. A report from the Advisor which shall present,
for the period from the date after the last day covered
by the Advisor's Past Performance History as set forth
under "Past Performance Information - Series B " in the
Prospectus to the latest practicable month-end before
the Closing Date, figures which shall show the actual
past performance of the Advisor (or, if such actual
past performance information is unavailable, then the
estimated past performance) for such period, and which
shall certify that, to the best of its knowledge, such
figures are complete and accurate in all material
respects.
b. A certificate of the Advisor in the form
proposed prior to the Closing Date by counsel to
Prudential Securities, the Trust and the Managing
Owner, with such changes in such form as are proposed
by the Advisor or its counsel and are acceptable to
Prudential Securities, the Trust and the Managing Owner
and their counsel so as to make such form mutually
acceptable to Prudential Securities, the Trust, the
Managing Owner, the Advisor, and their respective
counsel, to the effect that:
(i) The representations and warranties of the
Advisor in Section 1 above are true and correct in
all material respects on the date of the
certificate as though made on such date.
(ii) Nothing has come to the Advisor's
attention which would cause the Advisor to believe
that, at any time from the time the Registration
Statement initially became effective to the Closing
Date, the Registration Statement, as amended from
time to time, or the Prospectus, as amended or
supplemented from time to time, with respect to the
Advisor, or the affiliates,
9
<PAGE>
controlling persons, shareholders, directors, officers or
employees of any of the foregoing, or with respect to the
Advisor's Trading Approach or Past Performance
History, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make
the statements therein (with respect to the
Prospectus, in light of the circumstances in which
they were made) not misleading.
(iii) The Advisor has performed all covenants
and agreements herein contained to be performed on
its part at or prior to the Closing Date.
c. A certificate of the Advisor (together with
such supporting documents as are set forth in the
certificate), in the form proposed prior to the Closing
Date by counsel to Prudential Securities, the Trust and
the Managing Owner, with such changes in such form as
are proposed by the Advisor or its counsel and are
acceptable to Prudential Securities, the Trust and the
Managing Owner and their counsel so as to make such
form mutually acceptable to Prudential Securities, the
Trust, the Managing Owner, the Advisor, and their
respective counsel, with respect to, (i) the continued
effectiveness of the organizational documents of the
Advisor, (ii) the continued effectiveness of the
Advisor's registration as a commodity trading advisor
under the CE Act and membership as a commodity trading
advisor with the NFA and (iii) the incumbency and
genuine signature of the President and Secretary of the
Advisor.
d. A certificate from the state of formation of
the Advisor, to be dated at, on or around the Closing
Date, as to its formation and good standing.
e. An opinion of counsel, in form and substance
satisfactory to the Trust, the Managing Owner and
Prudential Securities and their counsel, dated the
Closing
10
<PAGE>
Date, to the following effect:
(i) The Advisor is a duly formed and validly
existing corporation in good standing under the
laws of the state of its formation and, if
different, the state where it conducts its primary
business activity. The Advisor has full corporate
power and authority under its Certificate of
Incorporation to perform its obligations under the
Advisory Agreement and this Agreement, and to act
as described in the Registration Statement as of
its effective date and the Prospectus as of the
Closing Date.
(ii) Each of the Advisory Agreement and
this Agreement have been duly and validly
authorized, executed and delivered on behalf of the
Advisor, and assuming the due execution and
delivery of each such Agreement by the Trust and
the Managing Owner, each such agreement constitutes
the legal, valid and binding obligations of the
Advisor, enforceable in accordance with their
respective terms, except as the same may be limited
by bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect
affecting creditors rights generally, or by
applicable principles of equity, whether in an
action at law or in equity, and except that the
enforceability of the indemnification provisions
may be limited under applicable federal or state
securities, commodities and other laws or by public
policy; and the execution and delivery of such
agreements and the incurrence of the obligations
thereunder and the consummation of the transactions
set forth in such agreements and in the Prospectus
will not violate or result in a breach of the
11
<PAGE>
Advisor's formation documents, and, to the best of
such counsel's knowledge, after due inquiry, will
not result in any violation, breach or default
under any term or provision of any undertaking,
contract, agreement or order to which the Advisor
is a party or by which the Advisor is bound.
(iii) Subject to subparagraph (iv) of this
Section 4e, to the best of such counsel's
knowledge, after due inquiry, the Advisor has
obtained all required governmental and regulatory
licenses, registrations and approvals required by
law as may be necessary in order to perform its
obligations under the Advisory Agreement and this
Agreement and to act as described in the
Registration Statement as of its effective date and
the Prospectus as of the Closing Date (including,
without limitation, registration as a commodity
trading advisor under the CE Act and membership as
a commodity trading advisor with the NFA) and such
licenses, registrations and approvals have not, to
the best of such counsel's knowledge, after due
inquiry, been rescinded, revoked or otherwise
removed.
(iv) Assuming that the Trust is operated
as described in the Prospectus, the Advisor is not
required to be licensed or registered as an
investment adviser under the Advisers Act (even if
it voluntarily is so registered), or to such
counsel's knowledge, without independent
investigation, as an investment adviser or
commodity trading advisor under the Blue Sky
securities laws of any state of the United States,
in order to perform its obligations under the
Advisory Agreement or this Agreement, or to act as
described in the Registration Statement as of its
effective date and the
12
<PAGE>
Prospectus as of the Closing Date. The foregoing opinion
may be qualified by the fact that such counsel is not
admitted to practice law in all jurisdictions, and that in
rendering its opinion such counsel has relied
solely upon an examination of the Blue Sky
securities laws and related rules and regulations,
if any, promulgated thereunder, of the various
jurisdictions as reported in customarily relied
upon standard compilations.
(v) To such counsel's knowledge without
independent investigation, except as described in
the Prospectus, or in a schedule delivered by
counsel to Prudential Securities and the Managing
Owner prior to the date hereof, there is no
pending, or threatened, suit or proceeding, known
to such counsel, before or by any court,
governmental or regulatory body or arbitration
panel to which the Advisor or any of the assets of
the Advisor or any of its principals is subject and
which reasonably might be expected to result in any
material adverse change in the condition (financial
or otherwise), business or prospects of the Advisor
or any of its principals or reasonably might be
expected materially adversely to affect any of the
assets of the Advisor or any of its principals or
which reasonably might be expected to (A) impair
materially the Advisor's ability to discharge its
obligations to the Trust or (B) result in a matter
which would require disclosure in the Registration
Statement or Prospectus; and, to the best of such
counsel's knowledge, neither the Advisor nor any of
its principals has received any notice of an
investigation by (i) the NFA regarding non-
compliance with its rules or the CE Act, (ii) the
CFTC regarding non-compliance with the CE Act or
(iii) any exchange, regarding non-compliance
13
<PAGE>
with its rules, which investigation reasonably might be
expected to (A) impair materially the Advisor's
ability to discharge its obligations to the Trust
or (B) result in a matter which would require
disclosure in the Registration Statement or
Prospectus.
(vi) With respect to the Advisor and the
affiliates, controlling persons, shareholders,
directors, officers and employees of any of the
foregoing, and with respect to the Advisor's
Trading Approach, nothing has come to the attention
of such counsel that leads such counsel to believe
that the Registration Statement (at the time it
initially became effective and at the time any
post-effective amendment thereto became effective)
or the Prospectus contains any untrue statement of
a material fact or omits to state a material fact
required to be stated therein or which is necessary
to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which
they are made) not misleading, except that such
counsel is not required to express any opinion or
belief as to the financial statements or other
financial or statistical data, past performance
tables and notes thereto or other past performance
information contained in the Registration Statement
or the Prospectus.
In rendering the foregoing opinions, such counsel may
rely, as to matters of law of states other than that in
which they are licensed to practice law, upon the opinions
of other counsel, in each case satisfactory in form and
substance to counsel to the Managing Owner and Prudential
Securities, and such counsel shall state that they believe
the Managing Owner and Prudential Securities may rely on
them.
14
<PAGE>
5. Advisor Acknowledgements. The Advisor acknowledges
that: (i) it may be a condition to each closing under the
Underwriting Agreement that Prudential Securities shall have
received, at no cost to the Advisor, letter(s) from
certified public accountants or other reputable
professionals selected by Prudential Securities with respect
to the Past Performance History of the Advisor as set forth
in the Underwriting Agreement, (ii) the Trust may at any
time withdraw the Registration Statement from the SEC or
otherwise terminate the Registration Statement or the
offering of Interests, and upon any such withdrawal or
termination or if the "minimum" number of Interests, as
described in the Prospectus, is not sold, this Agreement
shall terminate and none of the parties hereto shall have
any obligation to any other party pursuant to this
Agreement, except pursuant to Section 10 of this Agreement
to the extent that such section is applicable.
6. Representations and Warranties of the Trust and the
Managing Owner. The Managing Owner hereby represents and
warrants (on its own behalf and on behalf of the Trust, as
applicable) to the Advisor that:
a. On the date hereof the Trust is, and at all
times during the term of this Agreement and the
Advisory Agreement will be, a duly formed and validly
existing business trust in good standing under the laws
of the State of Delaware, and at all times during the
term of this Agreement and the Advisory Agreement will
be in good standing and qualified to do business in
each jurisdiction in which the nature or conduct of its
business requires such qualifications and the failure
to be so qualified materially adversely would affect
its ability to perform its obligations under this
Agreement and the Advisory Agreement and to operate as
described in the Prospectus,
15
<PAGE>
and the Managing Owner is, and at all times during the term
of this Agreement and the Advisory Agreement will be, a duly
formed and validly existing corporation in good standing under
the laws of the State of Delaware, and is, and at all times
during the term of this Agreement and the Advisory
Agreement will be, in good standing and qualified to do
business as a foreign corporation in the State of New
York and each other jurisdiction in which the nature or
conduct of its business requires such qualifications
and the failure to be so qualified materially adversely
would affect its ability to act as Managing Owner of
the Trust and perform its obligations hereunder and
under the Advisory Agreement, and each has full
capacity and authority to conduct its business and to
perform its obligations under this Agreement and the
Advisory Agreement, and to act as described in the
Registration Statement as of its effective date and the
Prospectus as of the Closing Date.
b. Each of this Agreement and the Advisory
Agreement has been duly and validly authorized,
executed and delivered on behalf of the Trust and the
Managing Owner, is a valid and binding agreement of the
Trust and the Managing Owner, and is enforceable in
accordance with its terms. The performance of the
Trust's and the Managing Owner's obligations under this
Agreement and the Advisory Agreement, and the
consummation of the transactions set forth in this
Agreement and the Advisory Agreement, and in the
Registration Statement as of its effective date and
Prospectus as of the Closing Date are not contrary to
the provisions of the Trust's Trust Agreement,
Certificate of Trust or the Managing Owner's
Certificate of Incorporation or By-Laws, respectively,
any applicable statute, law or regulation of any
jurisdiction and will not result in any violation,
breach or default under any term or provision of any
16
<PAGE>
undertaking, contract, agreement or order, to which the
Trust or the Managing Owner, is a party or by which the
Trust or the Managing Owner is bound.
c. Each of the Trust and the Managing Owner has
obtained all required governmental and regulatory
licenses, registrations and approvals required by law
as may be necessary to perform their obligations under
this Agreement and the Advisory Agreement and to act as
described in the Registration Statement as of its
effective date and the Prospectus as of the Closing
Date (including, without limitation, the Managing
Owner's registration as a commodity pool operator under
the CE Act and membership as a commodity pool operator
with the NFA) and will maintain and renew any required
licenses, registrations, approvals and memberships
required during the term of this Agreement and the
Advisory Agreement.
d. The Trust is not required to be registered as
an investment company under the United States
Investment Company Act of 1940, as amended (the
"Investment Company Act").
e. All authorizations, consents or orders of any
court, or of any federal, state or other governmental
or regulatory agency or body required for the valid
authorization, issuance, offer and sale of the
Interests have been obtained, and, no order preventing
or suspending the use of the Prospectus with respect to
the Interests has been issued by the SEC, the CFTC or
the NFA. The Registration Statement as of its
effective date and the Prospectus as of the Closing
Date contain all statements which are required to be
made therein, conform in all material respects with the
requirements of the 1933 Act and the CE Act, and the
rules and regulations of the SEC and the CFTC,
respectively thereunder, and with the rules of the NFA,
and do
17
<PAGE>
not contain an untrue statement of a material
fact or omit to state a material fact required to be
stated therein or necessary to make the statements
therein (with respect to the Prospectus, in light of
the circumstances in which they are made) not
misleading; and at all times subsequent hereto up to
and including the date of termination of the Initial
Offering Period and any Subsequent Offering Period, the
Registration Statement as of its effective date and the
Prospectus as of the Closing Date will contain all
statements required to be made therein and will conform
in all material respects with the requirements of the
1933 Act and the CE Act, and the rules and regulations
of the SEC and the CFTC, respectively thereunder, and
with the rules of the NFA and will not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein (with
respect to the Prospectus, in light of the
circumstances in which they are made) not misleading;
provided, however, that this representation and
warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with
information furnished to the Managing Owner, the Trust
or to Prudential Securities by or on behalf of the
Advisor for the express purpose of inclusion in the
Registration Statement or the Prospectus, including,
without limitation, references to the Advisor and its
affiliates, controlling persons, shareholders,
directors, officers and employees, as well as to the
Advisor's Trading Approach and Past Performance
History.
f. The Registration Statement as of its effective
date and the Prospectus as of the Closing Date have
been delivered to the Advisor.
g. There is no pending, or its knowledge,
threatened or contemplated action, suit or proceeding
before any court or arbitration panel, or before or by any
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governmental, administrative or self-regulatory
body, to which the Trust, the Managing Owner, or the
principals of either is a party, or to which any of the
assets of any of the foregoing persons is subject,
which might reasonably be expected to result in any
material adverse change in their condition (financial
or otherwise), business or prospects or reasonably
might be expected to affect adversely in any material
respect any of their assets or which reasonably might
be expected to materially impair their ability to
discharge their obligations under this Agreement or the
Advisory Agreement; and neither the Trust nor the
Managing Owner has received any notice of an
investigation by (i) the NFA regarding non-compliance
with NFA rules or the CE Act, (ii) the CFTC regarding
non-compliance with the CE Act, or the rules and
regulations thereunder, or (iii) any exchange regarding
non-compliance with the rules of such exchange which
investigation reasonably might be expected to
materially impair the ability of each of the Trust and
the Managing Owner to discharge its obligations under
this Agreement or the Advisory Agreement.
7. Covenants of the Managing Owner and the Trust. If,
at any time during the term of the Advisory Agreement, the
Managing Owner or the Trust discovers any fact or omission,
or any event or change of circumstance has occurred which
would make the Managing Owner's or the Trust's
representations and warranties in Section 6 of this
Agreement inaccurate or incomplete in any material respect,
the Trust or the Managing Owner, as appropriate, promptly
will provide written notification to the Advisor of such
event or change of circumstance and the facts related
thereto. The Managing Owner and the Trust shall provide the
Advisor with a copy of each amendment to the Registration
Statement and
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amendment or supplement to the Prospectus, and
no amendment to the Registration Statement or amendment or
supplement to the Prospectus which contains any statement or
information regarding the Advisor will be filed or used
unless the Advisor has received reasonable prior notice and
a copy thereof and has consented in writing to such
statement or information being filed and used.
8. Trust's and Managing Owner's Closing Obligations.
On or prior to the Initial Closing Date, and thereafter on
or prior to each Subsequent Closing Date, if the Trust and
the Managing Owner have requested that the Advisor provide
certificates, documents and opinions pursuant to Section 4
hereof, the Trust and the Managing Owner shall deliver or
cause to be delivered to the Advisor, the certificates,
documents and opinions described below addressed to the
Advisor and, except as may be set forth below, dated each
such Closing Date:
a. Certificates of the Trust and the Managing
Owner, addressed to the Advisor, in the form proposed
prior to the Closing Date by counsel to the Trust and
the Managing Owner with such changes in such form as
are proposed by the Advisor or its counsel and are
acceptable to the Trust, the Managing Owner and their
counsel so as to make such form mutually acceptable to
the Trust, the Managing Owner, the Advisor, and their
respective counsel, with respect to, as applicable, (i)
the continued effectiveness of the Trust Agreement and
the Certificate of Trust of the Trust and the
Certificate of Incorporation and By-Laws of the
Managing Owner, (ii) the continued effectiveness of the
registration of the Managing Owner as a commodity pool
operator under the CE Act and membership as a commodity
pool operator with the NFA and
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(iii) the incumbency and
genuine signature of the President and Secretary of the
Managing Owner.
b. Certificates from the States of Delaware and
New York with respect to each of the Trust and the
Managing Owner to be dated at, on or around the Closing
Date as to the formation and good standing of the Trust
and the Managing Owner.
c. Certificates of the Trust and the Managing
Owner in the form proposed prior to the Closing Date by
counsel to the Trust and the Managing Owner with such
changes in such form as are proposed by the Advisor or
its counsel and are acceptable to the Trust, the
Managing Owner and their counsel so as to make such
form mutually acceptable to the Trust, the Managing
Owner, the Advisor, and their respective counsel, to
the effect that:
(i) The representations and warranties in
Section 6 above are true and correct in all
material respects on the date of the certificates
as though made on such date, and
(ii) The Trust and the Managing Owner have
each performed all covenants and agreements herein
contained to be performed on their part at or prior
to the Closing Date.
d. An opinion letter of Rosenman & Colin LLP,
dated the Closing Date, as follows:
(i) The Trust is a duly created and validly
existing business trust in good standing under the
Delaware Act, with requisite power and authority
under the Delaware Act, its Trust Agreement and its
Certificate of Trust to
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perform its obligations under this Agreement and the
Advisory Agreement, and to act as described in the
Registration Statement as of its effective date and the
Prospectus as of the Closing Date.
(ii) The Managing Owner is a duly formed
and validly existing corporation in good standing
under the laws of the State of Delaware; and is
duly qualified to conduct business as a foreign
corporation in good standing in the State of New
York. The Managing Owner has full corporate power
and authority under its Certificate of
Incorporation, By-Laws and the General Corporation
Law of the State of Delaware to perform its
obligations under this Agreement and the Advisory
Agreement, and to act as described in the
Registration Statement as of its effective date and
the Prospectus as of the Closing Date.
(iii) Each of this Agreement and the Advisory
Agreement has been duly and validly authorized or
ratified, executed and delivered on behalf of each
of the Trust and the Managing Owner, and, assuming
due execution and delivery of each such Agreement
by the Advisor, each agreement constitutes the
legal, valid and binding obligations of the Trust
and the Managing Owner, respectively, enforceable
in accordance with their respective terms, except
as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar
laws at the time in effect affecting creditors
rights generally, or by applicable principles of
equity, whether in an action at law or in equity,
and except that the enforceability of the
indemnification provisions may be limited under
applicable federal or state securities, commodities
and other laws or by
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<PAGE>
public policy; and the execution and delivery of such
agreements and incurrence of the obligations thereunder
and the consummation of the transactions set forth in such
agreements and in the Prospectus will not violate
or result in a breach of their formation documents,
and, to the best of such counsel's knowledge, after
due inquiry, will not result in any violation,
breach or default under any term or provision of
any undertaking, contract, agreement or order to
which they are parties or by which they are bound.
(iv) The Trust is not required to be
registered as an investment company under the
Investment Company Act in order to act as described
in the Registration Statement as of its effective
date and the Prospectus as of the Closing Date or
to perform its obligations under this Agreement or
the Advisory Agreement.
(v) To the best of such counsel's knowledge,
after due inquiry, all authorizations, consents or
orders of any court or of any federal, state or
other governmental or regulatory agency or body
required for the valid authorization, issuance,
offer and sale of Interests have been obtained,
including such as may be required under the 1933
Act, including the rules and regulations
thereunder, the CE Act, including the rules and
regulations thereunder, the rules and regulations
of the NFA or the "Blue Sky" securities laws of any
state or of any jurisdiction in which offers and
sales were made, and, to the extent of such
counsel's knowledge, no order suspending the
effectiveness of the Registration Statement or the
use of the Prospectus has been issued by the SEC,
the CFTC, the NFA or any state in which offers and
sales of Interests were made nor has
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<PAGE>
any proceeding for the issuance of such an order been
instituted or threatened by the SEC, the CFTC, the NFA,
or any such state. The foregoing may be qualified by the
fact that such counsel is not admitted to practice
law in all jurisdictions, and that in rendering its
opinion such counsel shall rely solely upon an
examination of the "Blue Sky" securities laws and
related rules, regulations and administrative
determinations, if any, promulgated thereunder, of
the various jurisdictions as reported in
customarily relied upon standard compilations, and
upon such counsel's understanding of the various
conclusions expressed, formally or informally, by
administrative officials or other employees of the
various regulatory or other governmental agencies
or authorities concerned.
(vi) To the best of such counsel's
knowledge, after due inquiry, each of the Trust and
the Managing Owner has obtained all required
governmental and regulatory licenses, registrations
and approvals required by law as may be necessary
in order for each of the Trust and the Managing
Owner to perform its obligations under this
Agreement and under the Advisory Agreement and to
act as described in the Registration Statement as
of its effective date and the Prospectus as of the
Closing Date (including, without limitation, the
Managing Owner's registration as a commodity pool
operator under the CE Act and membership as a
commodity pool operator with the NFA) and such
licenses, registrations and approvals have not, to
the best of such counsel's knowledge, after due
inquiry, been rescinded, revoked or otherwise
removed.
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<PAGE>
(vii) To such counsel's knowledge without
independent investigation, except as described in
the Prospectus, or in a schedule delivered by
counsel to Prudential Securities and the Managing
Owner prior to the date hereof, there is no
pending, or threatened, suit or proceeding, known
to such counsel, before or by any court,
governmental or regulatory body or arbitration
panel to which the Trust and the Managing Owner or
any of the assets of the Trust or the Managing
Owner or any of their principals is subject and
which reasonably might be expected to result in any
material adverse change in the condition (financial
or otherwise), business or prospects of the Trust
or Managing Owner or any of their principals or
reasonably might be expected materially adversely
to affect any of the assets of the Trust or
Managing Owner or any of their principals or which
reasonably might be expected to (A) impair
materially the Trust's or Managing Owner's ability
to discharge their obligations to the Advisor or
(B) result in a matter which would require
disclosure in the Registration Statement or
Prospectus which is not so disclosed; and, to the
extent of such counsel's knowledge, neither the
Trust or Managing Owner, nor any of their
principals has received any notice of an
investigation by (i) the NFA regarding non-
compliance with its rules or the CE Act, (ii) the
CFTC regarding non-compliance with the CE Act or
(iii) any exchange, regarding non-compliance with
its rules, which investigation reasonably might be
expected to (A) impair materially the Trust's or
Managing Owner's ability to discharge its
obligations to the Advisor or (B) result in a
matter which would require disclosure in the
Registration Statement or Prospectus which is not
so
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<PAGE>
disclosed.
(viii) The Registration Statement as of its
effective date and the Prospectus as of the Closing
Date are responsive in all material respects to the
requirements of the 1933 Act, including the rules
and regulations thereunder, the CE Act, including
the rules and regulations thereunder, and the rules
and regulations of the NFA, and nothing has come to
the attention of such counsel that leads it to
believe that either the Registration Statement (at
the time it initially became effective and at the
time any post-effective amendment thereto became
effective) or the Prospectus contains any untrue
statement of a material fact or omits to state a
material fact required to be stated therein or
which is necessary to make the statements therein
(with respect to the Prospectus, in light of the
circumstances in which they were made) not
misleading, except that such counsel is not
required to express any opinion or belief (A) as to
the financial statements or other financial or
statistical data, past performance tables and notes
thereto or other past performance information
contained in the Registration Statement or the
Prospectus, or (B) as to any statements or
omissions made in reliance on and in conformity
with information furnished by the Advisor for the
express purpose of inclusion in the Registration
Statement or the Prospectus, including, without
limitation, references to the Advisor and its
affiliates, controlling persons, shareholders,
directors, officers and employees, as well as to
the Advisor's Trading Approach and Past Performance
History.
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<PAGE>
In rendering such opinions, such counsel may rely, as
to matters of law of states other than that in which they
are licensed to practice law, upon the opinions of other
counsel, in each case satisfactory in form and substance to
the Advisor and its counsel, and such counsel shall state
that they believe the Advisor may rely on them.
9. Survival of Representations, Warranties and
Covenants. All representations, warranties and covenants in
this Agreement, or contained in certificates required to be
delivered hereunder, shall survive the delivery of any
payment for the Interests under the Underwriting Agreement
and the termination of the Advisory Agreement and this
Agreement, with respect to any matter arising while the
Advisory Agreement or this Agreement was in effect.
Furthermore, all representations, warranties and covenants
hereunder shall inure to the benefit of each of the parties
to this Agreement and their respective successors and
permitted assigns.
10. Indemnification.
a. In any action in which Prudential Securities,
the Trust, the Trustee or the Managing Owner, or the
controlling persons, shareholders, partners, directors,
officers and/or employees of any of the foregoing are
parties, the Advisor agrees (A) to indemnify and hold
harmless the foregoing persons against any loss, claim,
damage, charge, liability or expense (including,
without limitation, reasonable attorneys' and
accountants' fees) to which such persons may become
subject ("Losses"), insofar as such Losses arise out of
or are based exclusively upon (i) any misrepresentation
or material breach of any warranty, covenant or
agreement of the Advisor contained in this Agreement or
(ii) any untrue statement of any material fact
contained in the
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<PAGE>
Registration Statement or the Prospectus or the omission to
state in the Registration Statement or the Prospectus a material
fact required to be stated therein or necessary to make the
statements therein (with respect to the Prospectus, in light of
the circumstances in which they are made), not
misleading in each case under this subclause (ii) to
the extent, but only to the extent, that such untrue
statement or omission was made in reliance upon and in
material conformity with information furnished by the
Advisor to the Managing Owner for inclusion in the
Registration Statement or Prospectus, including,
without limitation, all information relating to the
Advisor and its affiliates, controlling persons,
shareholders, directors, officers and employees, as
well as to the Advisor's Trading Approach and Past
Performance History, and including, but not limited to,
any notification by the Advisor to any such person and
given under this Agreement, including liabilities under
the 1933 Act, the Exchange Act and the CE Act, and (B)
to reimburse each of the foregoing persons for any
legal or other fees or expenses reasonably incurred in
connection with investigating or defending any action
or claim arising out of or based upon any of the
foregoing.
b. In any action in which the Advisor, or the
controlling persons, shareholders, directors, officers
and/or employees of any of the foregoing (the "Advisor
Indemnified Parties") are parties, the Managing Owner
agrees (A) to indemnify and hold harmless the foregoing
persons against any loss, claim, damage, charge,
liability or expense (including, without limitation,
reasonable attorneys' and accountants' fees) to which
such persons may become subject ("Losses"), insofar as
such Losses arise out of or are based exclusively upon
(i) any misrepresentation or
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<PAGE>
material breach of any warranty, covenant or agreement of
the Trust or the Managing Owner contained in this Agreement,
(ii) any untrue statement of any material fact contained in the
Registration Statement or the Prospectus or the
omission to state in the Registration Statement or the
Prospectus a material fact required to be stated
therein or necessary to make the statements therein
(with respect to the Prospectus, in light of the
circumstances in which they are made), not misleading,
(iii) any failure to comply with any legal requirements
relating to the Offering of the Interests (including
without limitation, any noncompliance with the
requirements of the Exchange Act, and/or the 1933 Act,
and/or the CE Act, including the rules and regulations
thereunder, and or the rules and regulation of the NFA,
in each case with respect to the Offering of
Interests), or (iv) any claim relating to or involving
the Advisor that is not substantiated, resolved or
otherwise finally determined, in each case under
subclauses (ii), (iii) or (iv) hereof, except to the
extent that such untrue statement, omission or failure
was made in reliance upon and in material conformity
with information furnished by the Advisor to the
Managing Owner for inclusion in the Registration
Statement or the Prospectus including, without
limitation, all information relating to the Advisor and
its affiliates, controlling persons, shareholders,
directors, officers and employees, as well as to the
Advisor's Trading Approach and Past Performance
History, and including but not limited to, any
notification required and given under this Agreement,
including liabilities under the 1933 Act, the Exchange
Act and the CE Act, and (B) to reimburse each of the
Advisor Indemnified Parties for any legal or other fees
or expenses reasonably incurred in connection with
investigating or defending any action or claim arising
out of or based upon any of the foregoing. With
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<PAGE>
respect to subclause (iv) above only, the Advisor and
the Managing Owner agree to negotiate in good faith a
reduction, if any, in the indemnification amount
required to be paid to the Advisor based upon the
relative responsibility of the Advisor for
circumstances giving rise to the Losses for which
indemnification is sought (including, but not limited
to, the parties' assessment of the merits of the
claim), provided that in the event the Managing Owner
and the Advisor fail to agree on the amount of such
reductions, they shall submit the matter to arbitration
in accordance with Section 15 of this Agreement.
c. None of the indemnifications contained in this
Section 10 shall be applicable with respect to default
judgments or confessions of judgment, or to settlements
entered into by an indemnified party claiming
indemnification without the prior written consent of
the indemnifying party.
d. Promptly after receipt by an indemnified party
under this Section 10 of notice of any claim or dispute
or commencement of any action or litigation, such
indemnified party will, if a claim in respect thereof
is to be made against an indemnifying party under this
Section 10, notify the indemnifying party of the
commencement thereof; but the omission to notify the
indemnifying party will not relieve it from any
liability which it may have to any indemnified party
otherwise than under this Section 10 except to the
extent, if any, that such failure or delay prejudiced
the indemnifying party in defending against the claim.
In case any such claim, dispute, action or litigation
is brought or asserted against any indemnified party,
and it timely notifies the indemnifying party of the
commencement thereof, the indemnifying party will be
entitled to participate in the defense therein, and to
the extent that it may
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<PAGE>
wish, to assume such defense thereof, with counsel specifically
approved in writing by such indemnified party, such approval
not to be unreasonably withheld, following notice from the
indemnifying party to such indemnified party of its
election so to assume the defense thereof; in which
event, the indemnifying party will not be liable to
such indemnified party under this Section 10 for any
legal or other expenses subsequently incurred by such
indemnified party in connection with the defense
thereof, but shall continue to be liable to the
indemnified party in all other respects as heretofore
set forth in this Section 10. Notwithstanding any
other provisions of this Section 10, if, in any claim,
dispute, action or litigation as to which indemnity is
or may be available, any indemnified party reasonably
determines that its interests are or may be, in whole
or in part, adverse to the interests of the
indemnifying party, the indemnified party may retain
its own counsel in connection with such claim, dispute,
action or litigation and shall continue to be
indemnified by the indemnifying party for any legal or
any other expenses reasonably incurred in connection
with investigating or defending such claim, dispute,
action or litigation.
e. Expenses incurred by an indemnified party in
defending a threatened or asserted claim or a
threatened or pending action shall be paid by the
indemnifying party in advance of final disposition or
settlement of such matter, if and to the extent that
the person on whose behalf such expenses are paid shall
agree in writing to reimburse the indemnifying party in
the event indemnification is not permitted under this
Section 10 upon final disposition or settlement.
f. The parties hereto acknowledge and agree on
their own behalf that the indemnities provided in this
Agreement shall be inapplicable in the event of any loss,
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claim, damage, charge or liability arising out of
or based upon, but limited to the extent caused by, any
misrepresentation or breach of any warranty, covenant
or agreement of any indemnified party to any
indemnifying party contained in this Agreement.
11. Limits on Claims. The Advisor agrees that it will
not take any of the following actions against the Trust:
(i) seek a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Trust in an
involuntary case or proceeding under the Federal Bankruptcy
Code or any other federal or state bankruptcy, insolvency,
reorganization, rehabilitation, liquidation or similar law
or (B) adjudging the Trust a bankrupt or insolvent, or
seeking reorganization, rehabilitation, liquidation,
arrangement, adjustment or composition of or in respect of
the Trust under the Federal Bankruptcy Code or any other
applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Trust or of any substantial
part of any of its properties, or ordering the winding up or
liquidation of any of its affairs, or (ii) seek a petition
for relief, reorganization or to take advantage of any law
referred to in the preceding clause or (iii) file an
involuntary petition for bankruptcy (collectively
"Bankruptcy or Insolvency Action"). In addition, the
Advisor agrees that for any obligations due and owing to it
by the Trust, the Advisor will look solely and exclusively
to the assets of Series B or the Managing Owner, if it has
liability in its capacity as Managing Owner, to satisfy its
claims and will not seek to attach or otherwise assert a
claim against the assets of any other Series or the other
assets of the Trust, whether there is a Bankruptcy or
Insolvency Action taken. The parties agree that this
provision will survive the termination of this Agreement, whether
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<PAGE>
terminated in a Bankruptcy or Insolvency Action or
otherwise.
12. Subordination Agreement. Each of the Advisor, the
Managing Owner and the Trustee ("Potential Creditor(s)")
agrees and consents (the "Consent") to look solely to each
Series for which brokerage and clearing services are being
performed (the "Contracting Series") and assets (the
"Contracting Series Assets") of the Contracting Series and
to the Managing Owner and its assets for payment. The
Contracting Series Assets include only those funds and other
assets that are paid, held or distributed to the Trust on
account of and for the benefit of the Contracting Series,
including, without limitation, funds delivered to the Trust
for the purchase of interests in a Series. In furtherance
of the Consent, the Potential Creditors agree that (i) any
debts, liabilities, obligations, indebtedness, expenses and
claims of any nature and of all kinds and descriptions
(collectively, "Claims") incurred, contracted for or
otherwise existing arising from, related to or in connection
with the Trust and its assets and the Contracting Series and
the Contracting Series Assets, shall be subject to the
following limitations:
a. Subordination of certain claims and rights.
(i) except as set forth below, the Claims, if any, of
the Potential Creditors (the "Subordinated Claims")
shall be expressly subordinate and junior in right of
payment to any and all other Claims against the Trust
and any Series thereof, and any of their respective
assets, which may arise as a matter of law or pursuant
to any contract; provided, however, that the Potential
Creditors' Claims (if any) against the Contracting
Series shall not be considered Subordinated Claims with
respect to enforcement against and distribution and
repayment from the Contracting Series, the Contracting
Series Assets and the Managing Owner and its assets;
and provided further that the Potential Creditors'
valid
33
<PAGE>
Claims, if any, against the Contracting Series
shall be pari passu and equal in right of repayment and
distribution with all other valid Claims against the
Contracting Series and (ii) the Potential Creditors,
individually or collectively, will not take, demand or
receive from any Series or the Trust or any of their
respective assets (other than the Contracting Series,
the Contracting Series Assets and the Managing Owner
and its assets) any payment for the Subordinated
Claims;
b. the Claims of each of the Potential Creditors
with respect to the Contracting Series shall only be
asserted and enforceable against the Contracting
Series, the Contracting Series Assets and the Managing
Owner and its assets; and such Claims shall not be
asserted or enforceable for any reason whatsoever
against any other Series, the Trust generally or any of
their respective assets;
c. if the Claims of a Potential Creditor against
the Contracting Series or the Trust are secured in
whole or in part, each of the Potential Creditors
hereby waives (under section 1111(b) of the Bankruptcy
Code (11 U.S.C. S 1111(b)) any right to have any
deficiency Claims (which deficiency Claims may arise in
the event such security is inadequate to satisfy such
Claims) treated as unsecured Claims against the Trust
or any Series (other than the Contracting Series), as
the case may be;
d. in furtherance of the foregoing, if and to the
extent that the Potential Creditors receive monies in
connection with the Subordinated Claims from a Series
or the Trust (or their respective assets), other than
the Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets, the Potential
Creditors shall be deemed to hold such monies in trust
and shall promptly remit such monies to the Series or
the Trust that paid such amounts for distribution by
the Series or the Trust in accordance with the terms
hereof; and
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<PAGE>
e. the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied, and
notwithstanding that the agreements in respect of such
Claims are terminated, rescinded or canceled.
13. Notices. Any notices under this Agreement required
to be given shall be effective only if given or confirmed in
writing, shall be deemed given by the party providing notice
when received by the party to whom notice is being given,
and shall be sent certified mail, postage prepaid, or hand
delivered, to the following address, or to such other
address as a party may specify by written notice to each of
the other parties hereto:
If to Prudential Securities: If to the Trustee:
Prudential Securities Incorporated Wilmington Trust Company
One New York Plaza, 13th floor Rodney Square North
New York, New York 10292 1100 North Market Street
Attention: Eleanor L. Thomas, Esq. Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
If to the Trust: If to the Managing Owner:
World Monitor Trust Serie s B Prudential Securities Futures
c/o Prudential Securities Futures Management Inc.
Management Inc. One New York Plaza, 13th Fl.
One New York Plaza, 13th floor New York, New York 10292
New York, New York 10292
in either case with a copy to:
Fred M. Santo, Esq. and Eleanor L. Thomas, Esq.
Rosenman & Colin LLP Prudential Securities Inc.
575 Madison Avenue One New York Plaza, 13th Fl.
New York, New York 10022 New York, New York 10292
If to the Advisor: with a copy to:
Eclipse Capital Management, Inc. Sidley & Austin
12400 Olive Boulevard, Ste. 408 One First National Plaza
St. Louis, Missouri 63141 Chicago, Illinois 60603
Attention: Thomas W. Moller Attention: Jodie Nedeau, Esq.
Facsimile: (314) 579-0525 Facsimile: (312) 853-7036
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14. Governing Law. This Agreement shall be deemed to
be made under the laws of the State of New York applicable
to contracts made and to be performed in that State and
shall be governed by and construed in accordance with the
laws of that State, without regard to the conflict of laws
principles.
15. Arbitration, Remedies. Each party hereto agrees
that any dispute relating to the subject matter of this
Agreement shall be settled and determined by arbitration in
the City of New York pursuant to the rules of NFA or, if NFA
should refuse to accept the matter, the American Arbitration
Association.
16. Assignment. This Agreement may not be assigned by
any party without the express prior written consent of each
of the other parties hereto.
17. Amendment or Modification or Waiver. This
Agreement may not be amended or modified except by the
written consent of each of the parties hereto.
18. Successors. Except as set forth in Section 10,
this Agreement is made solely for the benefit of and shall
be binding upon the Trust, the Managing Owner, Prudential
Securities and the Advisor, and the respective successors
and permitted assigns of each of them, and no other person
shall have any right or obligation under this Agreement.
The terms "successors", and "assigns" shall not include any
purchasers, as such, of Interests.
19. Survival. The provisions of this Agreement shall
survive the termination of this Agreement with respect to
any matter arising while this Agreement was in effect.
<PAGE>
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<PAGE>
20. No Waiver. No failure or delay on the part of any
party hereto in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. Any waiver
granted hereunder must be in writing and shall be valid only
in the specific instance in which given.
21. No Liability of Limited Owners. This Agreement has
been made and executed by and on behalf of the Trust and the
Managing Owner, and the obligations of the Trust and/or the
Managing Owner set forth herein are not binding upon any of
the Limited Owners individually, but rather, are binding
only upon the assets and property of the Trust, and, to the
extent provided herein, upon the assets and property of the
Managing Owner.
22. Headings. Headings to Sections herein are for the
convenience of the parties only, and are not intended to be
or to affect the meaning or interpretation of this
Agreement.
23. Complete Agreement. Except as otherwise provided
herein, this Agreement and the Advisory Agreement constitute
the entire agreement among the parties with respect to the
matters referred to herein, and no other agreement, verbal
or otherwise, shall be binding upon the parties hereto.
24. Counterparts. This Agreement may be executed in
one or more counterparts, all of which, when taken together,
shall be deemed to constitute one original instrument.
37
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as
of the day and year first above written.
PRUDENTIAL SECURITIES
WORLD MONITOR TRUST FUTURES MANAGEMENT INC.
By: PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC., By:-----------------------
Its: Managing Owner Eleanor L. Thomas
Vice-President
By:-------------------------- WILMINGTON TRUST COMPANY
Eleanor L. Thomas
Vice-President
By:-----------------------
ECLIPSE CAPITAL MANAGEMENT, INC.
By:--------------------------
Thomas W. Moller
President<PAGE>
38
<PAGE>
The undersigned Advisor has reviewed the Prospectus dated
______________________, 1998 of World Monitor Trust with
respect to the information contained therein relating to the
Advisor and, in accordance with paragraph 2 of the Advisory
Agreement among us dated as of the _____ day of
____________, 1998, and hereby consents to its distribution.
ECLIPSE CAPITAL MANAGEMENT, INC.
By:--------------------------
Thomas W. Moller
President
39
<PAGE>
EXHIBIT 10.5
NET WORTH AGREEMENT
AGREEMENT made and entered into as of the ___ day
of______________, 1997 between PRUDENTIAL SECURITIES GROUP
INC. ("PSGI"), a Delaware corporation, and PRUDENTIAL
SECURITIES FUTURES MANAGEMENT INC. (the "Managing Owner"), a
Delaware corporation.
W I T N E S S E T H :
WHEREAS:
A. PSGI is the indirect parent of the Managing Owner.
B. Limited interests (the "Interests") in various series
("Series") of World Monitor Trust (the "Trust"), a business
trust organized under Chapter 38 of Title 12 of the Delaware
Code, of which the Managing Owner is the managing owner, are
registered with the Securities and Exchange Commission pur-
suant to registration statements on Form S-1, as amended (the
"Registration Statements"), and offered pursuant to a
prospectus ("Prospectus") contained in the Registration
Statements.
C. The Managing Owner has agreed in Article ___ of the
Declaration of Trust and Trust Agreement, dated as of
___________________, 1997 (the "Trust Agreement") that it will
have general liability for the liabilities of each Series of
the Trust in excess of the assets of each Series.
D. The Managing Owner also is required (i) to make
certain minimum purchases of general interests in the Trust
("General Interests") pursuant to Sections 3.1(b) and 3.2(e)
of Article III of the Trust Agreement, and (ii) to maintain a
minimum "net worth" pursuant to Section __ of Article __ of
the Trust Agreement as a precondition under the so-called
"NASAA Guidelines" (as defined in the "Trust Agreement") to
permit the Trust to sell its Interests in the various Series
in several states of the United States.
E. The parties hereto desire to make certain provisions
to permit the Managing Owner to meet its obligations to the
Trust as set forth above.
NOW, THEREFORE, the parties hereto agree, subject to the
provisions of Section ______ of Article __ and Sections 3.1(b)
and 3.2(e) of Article III of the Trust Agreement, as follows:
1. PSGI agrees that on and after the Initial Closing
Date with respect to each Series of the Trust (the term
"Initial Closing Date" is defined in the Underwriting
Agreement by and among the Trust, the Managing Owner and
Prudential Securities Incorporated dated as of the date hereof
(the "Underwriting Agreement")), provided that at least
$4,000,000 in Interests have been sold with respect to Series
A during the Initial Offering Period and at least $3,000,000
in Interests have been sold with respect to each of Series B
and C during the Initial Offering Period, and thereafter on
and after each Subsequent Closing Date with respect to the
continuous offering of Interests for such Series (the term
"Subsequent Closing Date" is defined in the Underwriting
Agreement), PSGI will provide the Managing Owner with the
necessary funds to enable the Managing Owner to purchase the
Interests it is required to purchase pursuant to Sections
3.1(b) and 3.2(e) of Article III of the Trust Agreement.
2. So long as the Managing Owner is the managing owner
of the Trust, the Managing Owner agrees that it will not, and
PSGI agrees that it will not, cause the Managing Owner to (i)
declare any dividend, or (ii) intentionally take any other
formal corporate action which would cause the Managing Owner's
"net worth" to fall below the level required to satisfy its
obligations under Section __ of the Trust Agreement;
3. The Managing Owner and PSGI agree that PSGI shall
have the absolute right to determine the form of any
contribution(s) that may be required to meet its obligations
hereunder.
4. This Agreement, which is intended solely for the
benefit of the parties hereto and the Interestholders of each
Series of the Trust, shall be binding upon and inure to the
benefit of the parties hereto and their respective successors
and permitted assigns.
5. This Agreement constitutes the entire understanding
between the parties hereto with respect to the matters referr-
ed to herein and no waiver or modification of the terms hereof
shall be valid unless in a writing signed by the party to be
charged and only to the extent herein set forth.
6. The obligations of the Managing Owner set forth
herein are not binding upon any of the Limited Owners of the
Trust individually but rather, are binding only upon the
assets and property of the Managing Owner, and no resort shall
be had to the Limited Owners' personal property for the
satisfaction of any obligation or claim hereunder.
7. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable
to contracts made and to be performed in that State.
IN WITNESS WHEREOF, each of the parties hereto has
executed this Agreement as of the day and year first above
written.
PRUDENTIAL SECURITIES GROUP INC.
By ______________________________
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.
By
_____________________________________
Eleanor L. Thomas, Vice-President
