<PAGE>
As filed with the Securities and Exchange Commission on
March 23, 1998
Registration No. 333-43041
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
PRE-EFFECTIVE AMENDMENT NO. 2
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 13-3985041
(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.
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
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Aggregate
Securities to be Registered Offering Price Amount of Registration Fee
<S> <C> <C>
Series B Interests $33,000,000 $9,735
</TABLE>
__________________________
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>
WORLD MONITOR TRUST
Minimum Purchase $5000 or $2000 (IRAs) in one or
any combination of Series A,
Series B or Series C Beneficial
Interests, $1000 minimum per Series
Additional Purchases $100 increments
______________________________________________________________________
-- Each Series of World Monitor Trust (the "Trust") will engage
in the speculative trading of a diversified portfolio of
futures, forward (including interbank foreign currencies) and
options contracts. Beneficial Interests of each Series (the
"Interests") are being separately offered, and the assets of
each Series will be segregated from the other Series,
separately valued, and independently managed. You may make
Minimum and Additional Purchases in one or more of the Series:
<TABLE>
<CAPTION>
Minimum to
Series Trading Advisor Program(s) Break Escrow
<C> <S> <C> <C>
A Eagle Trading Systems, Inc. ("Eagle") Eagle-FX and Global Systems $4,000,000
B Eclipse Capital Management, Inc. ("Eclipse") Global Monetary Program $3,000,000
C Hyman Beck & Company, Inc. ("HB & Co.") Asset Allocation Portfolio $3,000,000
</TABLE>
-- Once trading commences, you may purchase additional Interests,
exchange Interests in one Series for Interests in another
Series, or redeem Interests on a weekly basis by submitting, as
appropriate, forms attached as Exhibits B, C and D. Interests
will be priced at the Net Asset Value ("NAV") as of the end of
each week, which may fluctuate between the submission date and
the actual purchase date.
-- THE INTERESTS ARE SPECULATIVE SECURITIES, AND THEIR PURCHASE
INVOLVES A HIGH DEGREE OF RISK. SEE THE RISK FACTORS AT PAGE 17.
-- Futures, forward and options trading is volatile and
highly leveraged
-- You could lose a substantial portion, or even all, of
your investment
-- Past performance is not necessarily indicative of future
results
-- Each Series will rely on its trading advisor for success
-- 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 ("Prudential Securities")
-- Each Series will incur substantial charges; each Series must
generate net trading profits (plus interest income) of 4.15%
per annum in order to offset fees, and of approximately 7.15%
to offset the 3% redemption charge as of the end of the 12th
month following the effective date of purchase
-- Transfers are restricted; Interests will not be listed
on an exchange, and no market exists or is expected to
exist for the Interests
-- Your liability as a Limited Owner in one or more Series
will be limited to your investment in that Series. The
Managing Owner is responsible for the liabilities of each
Series in excess of the net assets of that Series.
-- If you are seeking to diversify your investment portfolio, you
may benefit from an investment in the Interests of one or more
Series.
<TABLE>
<CAPTION>
Price to the Public Per Interest Selling Commissions Proceeds to the Trust*
<S> <C> <C> <C>
Series A. . . . $100 during Initial Offering
$34,000,000 Maximum Period, and NAV as of the
end of each week thereafter None 100%
Series B . . . $100 During Initial Offering
$33,000,000 Maximum Period, and Net Asset Value
Thereafter None 100%
Series C . . . $100 During Initial
$33,000,000 Maximum Offering Period, and NAV as
of the end of each week
thereafter None 100%
</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
or returned promptly to subscribers in the event a Series does
not commence trading. Funds held in escrow will not be subject
to fees, or other deductions.
______________________________________________________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS
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.
______________________________________________________________________<PAGE>
PRUDENTIAL SECURITIES INCORPORATED PRUDENTIAL SECURITIES FUTURES
MANAGEMENT, INC.
Selling Agent and Clearing Broker Managing Owner and Sponsor
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 90-94 AND A STATEMENT OF THE PERCENTAGE
RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT
OF YOUR INITIAL INVESTMENT AT PAGE 16.
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 17.
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
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
CFTC Risk Disclosure Statement . . . . . . . . . . . . . . . . . . . . . . . 2
Summary of the Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Performance Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Past Performance Is Not Necessarily
Indicative of Future Performance. . . . . . . . . . . . . . . . . . . .17
There Is No Protection Against the
Loss of Your Principal. . . . . . . . . . . . . . . . . . . . . . . . .17
Performance Is Not Correlated To the
Debt or Equity Markets. . . . . . . . . . . . . . . . . . . . . . . . .17
The Series Have No Operating Histories. . . . . . . . . . . . . . . . . .18
Trading Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Futures, Forward and Options
Trading Is Volatile and Highly Leveraged . . . . . . . . . . . . . . .18
Options Trading Can Be More Volatile
Than Futures Trading. . . . . . . . . . . . . . . . . . . . . . . . . .18
Single-Advisor Funds Are More Volatile
Than Multi-Advisor Funds. . . . . . . . . . . . . . . . . . . . . . . .18
Futures, Forward and Options Trading
May Be Illiquid . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Technical Trading Systems Require Trending
Markets and Sustained Price Moves
To Be Profitable. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
The Large Number of Existing Technical
Traders Could Adversely Affect Each
Series. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Discretionary Decision-Making May Result
in Missed Opportunities or Losses. . . . . . . . . . . . . . . . . . .19
Trading on Exchanges Outside the United
May Be Riskier Than Trading on U.S.
Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
The Unregulated Nature of the Forward
Markets Creates Counter-Party Risks
That Do Not Exist on U.S. Futures
Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Each Series' Start-Up Period Entails
Increased Investment Risks. . . . . . . . . . . . . . . . . . . . . . .19
Trading Advisor Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Each Series Relies on Its Trading Advisor
For Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
We Cannot Assure You That the Trading
Advisors or Their Trading Strategies
Will Continually Serve the Series . . . . . . . . . . . . . . . . . . .20
Each Trading Advisor's Past Performance
Record Is Inconsistent. . . . . . . . . . . . . . . . . . . . . . . . .20
Other Clients of Each Trading Advisor
May Compete With Each Series . . . . . . .. . . . . . . . . . . . . . .20
Possible Adverse Effects of Increasing
the Assets Under Each Trading Advisor's
Discretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
The Trading Approach for Series C Has Not
Previously Been Used. . . . . . . . . . . . . . . . . . . . . . . . . .20
The Use of Multiple Strategies for
Series C Interests May Affect
Series C Profits or Losses . . . . . . . . . . . . . . . . . . . . . .20
Trust and Offering Risks . . . . . . . . . . . . . . . . . . . . . . . . . . .20
You Will Have a Limited Ability to
Transfer Your Interests, and Your
Ability to Liquidate Your Interests
May Be Impeded. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Each Series Will Have to Overcome
Substantial Fees and Commissions in
Order to Break Even Each Year . . . . . . . . . . . . . . . . . . . . .21
The Payment of Quarterly Incentive
Fees Does Not Assure Profits. . . . . . . . . . . . . . . . . . . . . .21
The Trust Is Subject to Conflicts of
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
You Have Limited Rights . . . . . . . . . . . . . . . . . . . . . . . . .21
There Was No Independent Investigation
of the Terms of the Offering or the
Trust's Structure . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Tax Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Your Tax Liability Is Anticipated
to Exceed Distributions to You . . . .. . . . . . . . . . . . . . . . .22
Partnership Treatment Is Not Assured. . . . . . . . . . . . . . . . . . .22
There Is the Possibility of a Tax Audit . . . . . . . . . . . . . . . . .22
Regulatory Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
The Clearing Broker's Regulatory and
Other Legal Problems. . . . . . . . . . . . . . . . . . . . . . . . . .23
Government Regulations May Change . . . . . . . . . . . . . . . . . . . .23
Failure of the Trust's Clearing Broker
or Other Counterparties . . . . . . . . . . . . . . . . . . . . . . . .23
CFTC Registrations Could Be Terminated . . . . . . . . . . . . . . . . .23
Actual and Potential Conflicts
of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Structure of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Eagle and Its Principals. . . . . . . . . . . . . . . . . . . . . . . . 27
Eagle's Trading Systems . . . . . . . . . . . . . . . . . . . . . . . . 28
Eagle's Past Performance. . . . . . . . . . . . . . . . . . . . . . . . 31
Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Eclipse Capital and Its Principals . . . . . . . . . . . . . . . . . . 39
Eclipse Capital's Trading Systems. . . . . . . . . . . . . . . . . . . 39
3
<PAGE>
Eclipse Capital's Past Performance. . . . . . . . . . . . . . . . . . . 42
Series C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
HB & Co. and Its Principals . . . . . . . . . . . . . . . . . . . . . . 50
HB & Co.'s Trading Systems. . . . . . . . . . . . . . . . . . . . . . . 51
HB & Co.' Past Performance. . . . . . . . . . . . . . . . . . . . . . . 55
Trading Limitations and Policies . . . . . . . . . . . . . . . . . . . . . . 65
Description of the Trust, Trustee,
Managing Owner and Affiliates . . . . . . . . . . . . . . . . . . . . 66
Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Prudential Securities
Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
The Managing Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Directors and Officers
of the Managing Owner . . . . . . . . . . . . . . . . . . . . . . . . 68
Past Performance of Other Pools
Sponsored by the
Managing Owner and
Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Prudential Securities
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Duties of the Managing
Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Fiduciary Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . 77
Managing Owner's
Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Who May Subscribe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Minimum Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Net Worth and Income
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Fundamental Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 84
Ineligible Investors. . . . . . . . . . . . . . . . . . . . . . . . . . 85
Employee Benefit Plan
Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Publicly Offered Security . . . . . . . . . . . . . . . . . . . . . . . 85
How To Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Ways to Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
How To Exchange Interests. . . . . . . . . . . . . . . . . . . . . . . . . . .87
When a Subscription or Exchange
Becomes Final . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
How to Redeem Interests. . . . . . . . . . . . . . . . . . . . . . . . . . .88
Segregated Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Summary of Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Advisory Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Brokerage Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Management Responsibilities
of the Managing Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Transfer of Interests. . . . . . . . . . . . . . . . . . . . . . . 97
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . 98
Redemption of Interests. . . . . . . . . . . . . . . . . . . . . . 98
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Reports and Accounting . . . . . . . . . . . . . . . . . . . . . . 99
Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 101
Sharing of Profits
and Losses . . . . . . . . . . . . . . . . . . . . . . . . . 101
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Election or Removal of
Managing Owner . . . . . . . . . . . . . . . . . . . . . . . 104
Exercise of Rights by
Limited Owners . . . . . . . . . . . . . . . . . . . . . . . 104
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 104
Amendments and Meetings. . . . . . . . . . . . . . . . . . . . . 105
Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 106
The Futures Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Federal Income Tax
Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Index to Certain Financial
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Financial Statements
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Managing Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Diversified Futures Trust I . . . . . . . . . . . . . . . . . . . . . 141
Diversified Futures Trust II. . . . . . . . . . . . . . . . . . . . . 147
Willowbridge Strategic Trust. . . . . . . . . . . . . . . . . . . . . 153
Comparative Performance and Correlation Charts . . . . . . . . . . . . . . 159
Notes to Comparative Performance and Correlation Charts . . . . . . . . . 165
Managed Futures Charts . . . . . . . . . . . . . . . . . . . . . . . . . 166
Exhibit A - Form of Second Amended and
Restated 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-10
4
<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. The definitions of any capitalized terms
not found in this Summary can be found in the Glossary on page
124. 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, 2047 (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 January 31, 1998, Eagle had
approximately $304 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 A
will trade a diversified portfolio with a
a foreign exchange focus, assuming
sufficient market opportunities in the
fx markets exist.
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 January 31, 1998, Eclipse
Capital had approximately $320
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. Series B will trade a
diversified portfolio with a financial
investment focus, assuming sufficient
market opportunities in the financial
markets exist. See "The Series -
Series B."
5
<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
January 31, 1998, HB & Co. had
approximately $284 million in
investor funds under management.
HB & Co. will be allocated 100%
of Series C assets, which will be
traded according to a modified
and up-leveraged version of its
Asset Allocation Program, which
constitutes a new trading
approach for which there is no
past performance record. Series C
will trade a diversified portfolio
among several markets. See
"The Series - Series C."
Summary Risk Factors 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
THE FOLLOWING RISKS,
LISTED IN DESCENDING
ORDER OF SIGNIFICANCE,
APPLY TO EACH SERIES:
- Futures, forward and options
trading is speculative,
volatile and highly
leveraged - you could lose a
substantial portion or even
all of your investment
- The trading advisors'
programs may not perform for
each Series as they have
performed in the past - you
should not rely on past
performance to predict the
results of an investment in
a Series. This is
especially true for Series
C, as HB & Co. will utilize
a new trading approach for
which there is no past
performance record
- Each of the Trust's Series
relies on its trading
advisor for success - if an
advisor does not trade well,
the Series will not be
profitable
- Each Series is traded by a
single advisor,
concentrating the risk in a
single advisor's trading
decisions, rather than
dispersing the risk among
several advisors
- 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
6
<PAGE>
- 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
- Actual and potential
conflicts of interest exist
among Prudential Securities,
the Managing Owner and the
Trading Advisors. Conflicts
related to, for example, the
brokerage fee and effecting
transactions or trading for
their own accounts and other
accounts may create an
incentive for Prudential
Securities, the Managing
Owner and the Trading
Advisors to benefit
themselves rather than
Limited Owners
- You will have limited voting
rights and no control over
the Trust's business
- Although the Trust offers
weekly purchase, exchange
and redemption rights,
liquidity is limited because
of transfer restrictions and
the absence of any exchange
listing or trading market
for the Interests of any
Series
- Although an investment in
the Series is designed to
diversify your portfolio, we
cannot assure you that
diversification will
create profits for you
The Trustee Wilmington Trust Company, a
Delaware banking corporation, is
the Trust's sole Trustee (the
"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
Commitment." 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
7
<PAGE>
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
Rosenman & Colin LLP,
counsel to the Trust, and
Richards, Layton & Finger,
P.A., special Delaware
counsel to the Trust and the
Trustee, 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.
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."
8
<PAGE>
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;
- 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. Each Series will,
however, pay Brokerage Fees
of 7.75% per annum and
Management Fees of 2% per
annum. See the "Projected
Twelve-Month Break-Even
Analysis" in this Summary
and "Fees and Expenses."
How to Subscribe To subscribe for any Series'
Interests:
- You must complete and sign a
Subscription Agreement
(Exhibit D);
- 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;
- We will accept subscriptions
in cash only.
You may revoke your subscription only
within five (5) Business Days (as
defined in the Glossary) after you
submit a Subscription Agreement to
Prudential Securities (or an
Additional Seller), and may not revoke
9
<PAGE>
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 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 that must be
accepted before each
Series will break escrow
and commence trading are
as follows:
- Series A - $4,000,000
- Series B - $3,000,000
- Series C - $3,000,000
If any Series does not sell its
Subscription Minimum and have 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 During the Initial Offering
Period, Prudential Securities or
an Additional Seller will debit
your account for the full amount
of your subscription within two
(2) Business Days of receipt and
acceptance of your final
subscription documents.
Subscription funds for each
Series received during the
Initial Offering Period will then
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. Funds held in
escrow will not be subject to any
fees or other deductions. 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 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,
Interests in each Series
will be sold once each week
until each Series'
"Subscription Maximum" - the
total amount of Interests
registered for sale with the
Securities and Exchange
Commission - has been issued
(the "Continuous Offering
Period"), either though sale
or exchange (see "Exchange
of Interests" below). For
purposes of describing the
purchase, exchange and
redemption of
10
<PAGE>
Interests during the Continuous
Offering Period, the
following terms will be used:
"Dealing Day" means the first Business
Day of each week.
"Valuation Point" means the close of
business on Friday of each week.
The sale price, or Net Asset Value per
Interest, is set at a Valuation Point,
and subscriptions for new Interests
become effective on a Dealing Day.
Generally, therefore, Interests are
priced at the close of business on a
Friday, and new purchases become
effective on the following Monday at
that price. To purchase Interests,
you must submit your Subscription
Agreement (Exhibit D) at least five
(5) Business Days (or two (2) Business
Days if you are purchasing additional
Interests as described below) before
any given Dealing Day, and additional
time may be required before your
subscription is approved by the
Managing Owner. Because of this
waiting period, the purchase price of
your Interests will not be fixed on
the date you submit your subscription
but will be finalized on the Valuation
Point immediately preceding the
Dealing Day on which your purchase is
eligible to become effective. There
may be a considerable difference
between the Net Asset Value of an
Interest on the date you submit your
subscription and the Dealing Day on
which your purchase becomes effective.
Purchases of Additional
Interests in a Series If you are a Limited Owner
of Interests in a particular
Series and wish to purchase
additional Interests in that
same Series, you must submit
your Subscription Agreement
(Exhibit D) at least two (2)
Business Days before any
given Dealing Day, and your
subscription for additional
Interests must be approved
by the Managing Owner.
Additional Interests will be
sold at their Net Asset
Value on the Valuation Point
immediately preceding the
Dealing Day on which your
purchase of additional
Interests is eligible to
become effective. Purchases
of additional Interests are
subject to changes in Net
Asset Value between the date
you submit your subscription
and the Dealing Day on which
you purchase becomes
effective.
Exchange of Interests Once trading commences,
Interests you own in one
Series may be exchanged for
Interests of one or more
other Series for as long as
the Interests in the Series
for which exchange is being
made are offered for sale
(an "Exchange"). To make an
Exchange, you must complete
an Exchange Request (Exhibit
C). You must submit your
Exchange Request at least
five (5) Business Days
before any given Dealing
Day, and the Exchange must
be approved by the Managing
Owner. Exchanges will be
made at the applicable
Series' then-current Net
Asset Values per Interest
(which include, among other
things, accrued but unpaid
incentive fees due to those
Series' Trading Advisors) at
the Valuation Point
immediately preceding the
Dealing Day on which your
Exchange is eligible to
become effective.
Exchanges, like
subscriptions, are subject
to changes in Net Asset
Value per Interest between
the date you submit an
Exchange Request and the
Dealing Day on which your
Exchange becomes effective.
The Exchange of Interests
will be treated
11
<PAGE>
as a redemption of Interests in
one Series (with the related
tax consequences) and the
simultaneous purchase of
Interests in the Series you
exchange into. See "Federal
Income Tax Consequences."
No "exchange" charges will
be imposed. See "Exchange
of Interests" under "The
Offering."
Subscription and Exchange
Effective Dates
During Continuous
Offering Period The effective date of
accepted subscriptions
and Exchanges during the
Continuous Offering
Period is the first
Dealing Day to occur at
least five (5) Business
Days after you have
submitted your
subscription or Exchange
Request and it has been
approved. If you are an
existing Limited Owner
in a Series who is
purchasing additional
Interests in the same
Series, the effective
date of your accepted
subscription will be the
first Dealing Day to
occur at least two (2)
Business Days after you
have submitted your
subscription and it has
been approved.
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," "The Offering" 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.
Redemption of Interests Once trading commences,
Interests you own in a
Series may be redeemed,
in whole or in part.
Redemptions are made
each week at the
beginning of the Dealing
Day. To redeem your
Interests, you must
deliver your Redemption
Request at least two (2)
Business Days prior to a
given Dealing Day.
Redemptions are made at
the 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
immediately preceding
the Dealing Day on which
your redemption is
eligible to become
effective (the
"Redemption Price").
Redemptions are subject
to changes in Net Asset
Value between the date
you deliver your
Redemption Request and
the Dealing Day on which
your redemption becomes
effective. If you
redeem your Interests on
or before the end of six
full months following
purchase of the effective date of the
12
<PAGE>
Interests being
redeemed, you will be
charged a redemption fee
of 4% of the
Redemption Price; if you
redeem your Interests
after six months, but on
or before the end of
twelve full months
following the purchase of
the effective
date of the Interest
being redeemed, you will
be charged a 3%
redemption fee on the
Redemption Price. The effective
date of purchase will be the
date on which the applicable
Series break(s) escrow for
subscriptions made during the
Initial Offering Period, and for
subscriptions during the
Continuous Offering Period will
be the applicable Dealing Day.
Redemption fees will be
paid to the Managing
Owner. See "
Redemption of Interests"
under "The Offering" and
"Actual and Potential
Conflicts of Interest -
Prudential Securities'
Advising on
Redemptions."
Redemption fees will not
be charged if you
effect an Exchange 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 Rosenman & Colin LLP
to the effect that, based on
the facts set forth in this
prospectus, the Managing
Owner's representations, and
under current federal income
tax law, each Series in the
Trust will be treated as a
partnership .
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
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. A Limited
Owner may deduct his share of any
losses in the Series in which he has
an interest (whether ordinary or
capital) only up to the amount of his
adjusted basis in his Interests.
Additionally, the excess of a Series'
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).
Furthermore, special tax risks will
apply to tax-exempt Limited Owners and
to non-United States investors. For
a more complete discussion of tax
risks relating to this investment, see
"Risk Factors - Tax 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.
13
<PAGE>
Fiscal Year December 31.
Financial Information The Trust has only recently
been organized and has no
financial history.
Financial information
concerning the Trust and the
Managing Owner 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.
14
<PAGE>
SUMMARY OF FEES AND EXPENSES
- - Brokerage Fee - an
annual percentage of
each Series' Net Asset
Value:
Series A: 7.75%
Series B: 7.75%
Series C: 7.75%
which equates to an
estimated amount per
round-turn transaction:
Series A: $67
Series B: $34
Series C: $48
Prudential Securities will
receive this amount for
brokerage services it
renders, out-of-pocket
trading costs it incurs, as
well as for assisting the
Managing Owner in managing
non-commodities assets. The
brokerage fee is
determined at the close of
business each Friday, and
the sum of the amounts
determined weekly will be
paid monthly.
Differences in amounts per
round-turn reflect estimated differences
in frequency of trading, not
higher per trade costs.
- - Management Fee - an annual percentage of
each Series' Net Asset Value:
Series A: 2%
Series B: 2%
Series C: 2%
Each Trading Advisor will
receive a management fee for
its trading advisory
services. The management
fee is determined at the
close of business each
Friday, and the sum of the
amounts determined weekly
will be paid monthly.
- - Incentive Fee - a
percentage of each
Series' New High Net
Trading Profits:
Series A: 23%
Series B: 20%
Series C: 23%
Each Trading Advisor can
receive an incentive fee for
the profit (realized and
unrealized) it achieves for
a Series. The incentive fee
is determined as of 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 for each week.
FEES PAID BY THE INVESTORS
- - Redemption Fee - 4% or 3% of the Net
Asset Value of an Interest:
Redemptions made during first
6-month period following purchase
- 4% Redemption Fee
Redemptions made during second
6-month period following purchase
- 3% Redemption Fee
The Managing Owner will
receive 4% and 3%,
respectively, of the
Redemption Price of
Interests redeemed during
the first and second
successive six-month periods
following the effective date
of their purchase. This
redemption fee will not be
charged if you effect an
Exchange or invest your
redemption proceeds in
another futures fund
sponsored by Prudential
Securities.
The above fees constitute all fees to be paid, either
directly or indirectly, to Prudential Securities and/or its
affiliates or to the Trading Advisors.
FEES PAID BY PRUDENTIAL SECURITIES OR ITS AFFILIATES:
- - Organization and Offering
Expenses Approximately $250,000 per Series
Include legal, accounting, filing fees and printing costs
- - Routine Operational/Administrative Expenses Approximately
$80,000 per Series per year
Include filing, accounting, photocopying, postage and
computer services costs
- - Routine Legal, Auditing and Other Expenses
Approximately $60,000 per Series per year
Include expenses of third party service providers,
including the Trustee
15
<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
Description of Dollar Percentage Dollar Percentage Dollar Percentage
Charges Break-Even Break-Even Break-Even Break-Even Break-Even Break-Even
<S> <C> <C> <C> <C> <C> <C>
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
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 effect an
Exchange or if you invest your redemption proceeds concurrently in another
futures fund sponsored by Prudential Securities.
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<PAGE>
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
advice and only if your financial condition will permit you to bear
the risk of a total loss of your 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."
PERFORMANCE RISKS
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. Additionally, the trading approach to be
utilized by the Trading Advisor of the Series C Interests will
represent a new trading approach for which there is no past
performance record on which you may rely.
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, HB & Co., the Trading
Advisor for Series C, will utilize a new trading approach for which
there is no past performance record.
There Is No Protection Against the Loss of Your Principal
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
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
17
<PAGE>
similar to more traditional portfolio holdings, providing few, if any,
diversification benefits. See "The Futures Markets."
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 and Highly
Leveraged.
A principal risk in futures, forward and options trading is
volatile performance; i.e., potentially wide variations in daily,
weekly and monthly contract values. This volatility can lead to
wide swings in the value of your investment. This risk is
increased by the low margin normally required in futures, forward
and options trading, which 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" and "Trust Agreement - Liabilities."
Options Trading Can Be More Volatile 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. Successful options trading requires a trader to
assess accurately near-term market volatility, because that
volatility is directly reflected in the price of outstanding
options. Correct assessment of market volatility can therefore be
of much greater significance in trading options than it is in many
long-term futures strategies where volatility does not have so
great an effect on the price of a futures contract.
See "Series A," "Series B" and "Series C" and "The Futures Markets."
Single-Advisor Funds are More Volatile Than Multi-Advisor Funds
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). To the extent
a single advisor concentrates trading in one or only a few markets,
volatility and risk will increase further. See "Series A," "Series
B" and "Series C" and "The Futures Markets."
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. See "The Futures Markets."
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"-either upward, downward, level-in some
commodities that the system can track 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
18
<PAGE>
likelihood that any commodity trading advisor's
technical systems will be profitable. Although there is no
pending legislation likely to affect the markets in which the
Series will trade, a number of markets, in particular the
stock market, currency and interest-rate markets, are
likely targets for governmental intervention because
of their fundamental importance to the world economy and the
financial markets as a whole. See "The Futures Markets."
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.
See "The Futures Markets."
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 may be
subject to regulations different from those to which U.S. exchanges
are subject and that provide less protection to investors than U.S.
regulations. Therefore, trading on non U.S. exchanges may involve
more risks than similar trading on U.S. exchanges. See the CFTC
Risk Disclosure Statement at page 2.
The Unregulated Nature of the Forward Markets Creates Counter-Party
Risks That Do Not Exist In Futures Trading.
Forward contracts are privately negotiated, non-exchange
traded contracts that function just like futures
contracts, but are not subject to the exchange regulations
that futures contracts are subject to. Futures contracts
are subject to regulations setting, for example,
the quantity and, in some cases, the grade of a given commodity, as
well as the settlement method and time for delivery. Forward
contracts are entered into between private parties off an exchange
and are thus free from exchange regulations as to quantity, method
of settlement, time for delivery, etc. 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. See "Series A,"
"Series B" and "Series C."
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."
19
<PAGE>
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 during which it is becoming
fully invested, and a Series may encounter similar start-up periods
following subsequent closings during the Continuous Offering
Period. During such start-up periods, each Series will be more
likely to suffer losses on its initial trades, because no Series
can develop a fully diversified portfolio instantly upon the
commencement of trading, and the possibility of losses is greater
the more concentrated the trading is. 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. See "The
Offering."
TRADING ADVISOR RISKS
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. See "Series A," "Series B" and
"Series C."
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. See "Advisory Agreements."
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. If a Trading Advisor accepts more
equity than it has "capacity" for, the Trading Advisor's strategies
may not function to create profit. "Capacity" is the amount that
a Trading Advisor can trade effectively without exceeding its
trading and risk management capabilities.
The Trading Approach for Series C Has Not Previously Been Used.
HB & Co. will utilize a new trading approach that has been not
previously been used to trade client accounts. This trading
approach has been tailored to Series C but is being traded at 1.5
times normal leverage for an HB & Co. account. To the extent that
losses occur, you can expect losses to increase proportionately to
the amount of leverage used. The same is true, however, with
respect to profits.
20
<PAGE>
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.
See "HB & Co.'s Trading System."
TRUST AND OFFERING RISKS
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 payments to you beyond the period
specified in the Trust Agreement. See "Redemption of Interests"
under "The Offering."
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 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."
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<PAGE>
The Trust Is Subject to Conflicts of Interest.
A number of actual and potential conflicts of interest exist
among the Managing Owner, Prudential Securities, PSGI and the
Trading Advisors. Conflicts involving (i) the brokerage fee, (ii)
effecting transactions or trading for their own accounts and other
accounts, (iii) Prudential Securities' advising on redemptions,
(iv) other commodity funds sponsored by Prudential Securities, (v)
management of other accounts by the Trading Advisors, and (vi)
engaging in forward transactions, may each create an incentive for
Prudential Securities and its affiliates, the Managing Owner and
the Trading Advisors to benefit themselves rather than the Limited
Owners. However, no specific policies regarding conflicts of interest
have been adopted by the Trust or Series. 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. See "Description of the Trust,
Trustee, Managing Owner and Affiliates" and "Actual and Potential
Conflicts of Interest."
TAX 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 "Distributions" and
"Sharing of Profits and Losses" under "Trust Agreement."
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
22
<PAGE>
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."
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."
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. See "The Futures Markets."
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. See "Liabilities"
under "The Trust Agreement."
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.
See "Regulation of Markets" under "The Futures Markets."
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.
23
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<PAGE>
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
While the Managing Owner, Prudential Securities and its
affiliates, and the Trading Advisors will seek to avoid conflicts
of interest to the extent feasible, and to resolve all conflicts
that may arise equitably and in a manner consistent with their
responsibilities to the Trust and the various Series, no specific
policies regarding conflicts of interest have been adopted by the
Trust or any Series. The following actual and potential conflicts
of interest do exist.
Affiliation of the Managing Owner, Prudential Securities and PSGI
Prudential Securities Futures Management, Inc. (the "Managing
Owner") is a wholly-owned subsidiary of Prudential Securities
Incorporated ("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 Prudential Securities Group Inc. ("PSGI"), and the
Managing Owner and Prudential Securities are each affiliates of
PSGI. Prudential-Bache Global Markets Inc. ("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."
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, and Limited Owners may not be
able to verify that the fixed fee to Prudential Securities is comparable
to the fee Prudential would receive if the fee were negotiated
with an unrelated party. Furthermore, other customers of Prudential
Securities may pay commissions that are effectively 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, the Managing Owner, in accordance with its obligation
under the NASAA guidelines to seek the best price and services
available for commodity brokerage transactions, believes that
Limited Owners receive additional administrative benefits through
the Series' brokerage arrangements with Prudential Securities, as
well as 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 to Limited Owners
in order to maximize the fee to Prudential Securities. Consequently,
this may conflict with Limited Owners' interests in receiving
redemptions. 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.
Because Prudential Securities will receive the same fee regardless of how
many transactions are effected for a Series, the Managing Owner
may have an incentive to select trading advisors that do not trade
frequently, rather than trading advisors with better track records
who do trade frequently. 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
The Trust, acting through its commodity trading advisor(s),
may execute over-the counter, spot, forward and option foreign
exchange transactions with Prudential Securities. Prudential
Securities will then engage in back-to-back trading with an
affiliate, Prudential-Bache Global Markets Inc. ("PBGM"). Because
PBGM, Prudential Securities and the Managing Owner are wholly
owned subsidiaries of PSGI, the Managing Owner has an incentive to
utilize Prudential Securities and PBGM as the Trust's foreign
exchange dealer and counterparty, even though other entities may
offer better terms. However, as the Managing Owner has a
fiduciary obligation to the Trust, the Managing Owner will
not utilize affiliated entities for foreign exchange trading if
the Managing Owner determines that it would not be in the best
interest of the Trust to do so.
24
<PAGE>
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 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
25
<PAGE>
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. 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, 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."
<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 "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 "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.
26
<PAGE>
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.
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
27
<PAGE>
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.
<PAGE>
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 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.
Eagle-Global Futures and Forward Contracts and Markets
Softs
World Sugar #1 CSC
Energy
Crude Oil NYM
Heating Oil NYM
Natural Gas NYM
Grains
Corn CBT
Wheat CBT
Soybeans CBT
Foreign Financial Instruments
German Bund LIFFE
Short Sterling LIFFE
Long Gilt LIFFE
Notional MATIF
Pibor MATIF
JGB TSE & SIMEX
Euroyen TIFFE
28
<PAGE>
Metals
Gold CMX
Silver CMX
Copper LME
Aluminum LME
Currencies
British Pound IMM
Canadian Dollar IMM
German Mark IMM
Japanese Yen IMM
Swiss Franc IMM
Stock and Stock Indexes
S&P 500 IMM
FTSE LIFFE
NIKKEI SIMEX
DAX DTB
U.S. Financial Instruments
Treasury Bonds CBT
Treasury Notes CBT
Eurodollars CBT
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
Australian 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.
The entire portion, of Series A assets traded according to
the Eagle-Global system will be invested in futures markets;
hence, margin-to-equity ratio will tend to fluctuate from 10%
to 55%, most commonly being in the range of 25% - 30%.
The entire portion of the Eagle FX system is invested in
interbank currencies, which use credit lines in the interbank
market. The use of such lines can fluctuate between a
leverage of 0 to 9 times the account's equity. Most commonly
used is in the average of 3 times account equity.
29
<PAGE>
In both cases however, the major determinant of risk in
the accounts is a pre-determined allowable loss for any new
trade. See "Futures, Forward and Options Trading Is Volatile
and Highly Leveraged" under "Risk Factors".
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 and trading opportunities
change, and there is every likelihood that these weightings
will be different for Series A during future periods, but
not so different as to alter the focus on the financial
markets unless sufficient market opportunities in the financial
markets do not exist.
Volume of Trading for the Period January 1, 1997 to December
31, 1997:
Foreign Exchange 44.6% (less than sign) (Represents FX System)
Imm Currencies 8.7%
Financials 29.2%
Stock Indices 0.5%
Grains 4.7%
Energy 6.6%
Metals 3.6%
Softs 2.0%
------
100.0%
(GRAPH)
30
<PAGE>
The domestic and non-US exchanges on which the above commodities
currently are traded are:
Domestic Exchanges CBOT, CME, CSC, NYC, COMEX, NYM, and IMM.
Non-US Exchanges DTB, LIFFE, LME, MATIF, SIMEX, TSE and TIFFE.
EAGLE'S PAST PERFORMANCE
Capsule summaries A(1A) through A(3) contain actual performance
information for the periods indicated.
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 December 31, 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: 12 (Eagle-Global System)
Aggregate $$:
All Programs: $ 291,218,945 (Eagle Total Assets
including Notional)
$ 275,083,204 (Eagle Total Assets
excluding Notional)
$$ in This Program: $ 97,907,386 (Eagle-Global System Total
Assets including Notional)
$ 89,441,498 (Eagle-Global System Total
Assets excluding, Notional)
Largest monthly
draw-down: (14.29)% August 1995
"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.
Largest peak-to-valley
draw-down: (27.59)% February 1996 to July 1996
"Largest 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.
Closed accounts; Eagle-Global Profitable = 1
Unprofitable = 1
31
<PAGE>
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%
* "30-60% Funding Level" means that each account was
funded at a level less than the standard account size - in
the case of Capsule A(1A), at an average range of between
30% - 60% of the standard account size. This method of
funding is commonly referred to as "nominal funding." For
example, if the funding level was 30% and the standard
account size was $1 million, the account had $300,000 in
actual funds. When an account is funded at less than the
standard account size, the rate of return, whether positive
or negative, will be greater than the rate of return of a
fully funded account.
The performance in Capsule A(1A) is provided to show the
entire performance in the Eagle-Global System from its
inception. Because no account in the Eagle-Global System
from August 1995 to October 1995 was fully funded, return
is shown on a nominal funding basis.
As of December 31, 1997 the composite funding level (i.e.
the average range of funding levels) for the accounts in
Capsule A(1A) was approximately 54%. See the conversion
chart for capsule A(1A), below to determine what the rate of
return for the accounts in Capsule A(1A) would have been on
a "fully funded" basis - i.e., at 100% funding.
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 1.94 5.78
May (4.23) (10.04)
Jun 0.88 1.34
Jul 16.95 (12.73)
Aug (5.57) 5.14
Sep 10.72 18.64
Oct (7.33) 27.67 0.55%
Nov 1.05 8.14 2.36
Dec 9.17 (7.71) (2.44)
ANNUAL 20.23% 25.34% 0.41%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
** The Fully-Funded Subset refers to the subset of accounts
included in the applicable composite which is funded
entirely by actual funds. A CFTC Advisory on use of the
Fully Funded Subset method for calculating rate of return
requires that certain computations be made in order to
arrive at the Fully-Funded Subset and that
32
<PAGE>
the accounts for which performance is so reported meet two tests
designed to provide assurance that the Fully-Funded Subset and the
resultant rates of return are representative of the trading
program. Eagle has performed these computations.
CONVERSION CHART FOR CAPSULE A(1A)
The following chart shows the correlation between the Rates
of Return for the partially funded accounts in Capsule A
(1A) and the Rates of Return that these accounts would have
achieved if they were fully funded. To use the chart,
follow these steps: (1) in the far left column headed
"ACTUAL ROR PARTIAL FUNDING," find the Rate of Return for a
month that is closest to the Rate of Return in the Capsule
and (2) find the Rate of Return that corresponds to the Rate
of Return in step (1) under the column heading that reflects
the approximate level of funding in an account (in the case
of Capsule A(1A), 54%). The Rate of Return in step (2)
reflects the approximate Rate of Return that an account
would have experienced if it had been fully funded instead
of being funded at the level in step (2). For example, the
Rate of Return in Capsule A(1A) for October 1995 is 21.71%
(e.g., 20% is the closest Rate of Return in the column
"ACTUAL FOR PARTIAL FUNDING"). If an account was 54%
funded, the Rate of Return under the "54%" column in the
chart shows that a fully funded account would have achieved
a Rate of Return of approximately 10.80% in that month.
<TABLE>
<CAPTION>
ACTUAL FOR ROR ON A FULLY
PARTIAL FUNDING FUNDED BASIS FOR
A/C'S FUNDED AT: 60% 54% 50% 40% 30% 20%
<S> <C> <C> <C> <C> <C> <C> <C>
40% 24.00% 21.60% 20.00% 16.00% 12.00% 8.00%
35% 21.00% 18.90% 17.50% 14.00% 10.50% 7.00%
30% 18.00% 16.20% 15.00% 12.00% 9.00% 6.00%
25% 15.00% 13.50% 12.50% 10.00% 7.50% 5.00%
20% 12.00% 10.80% 10.00% 8.00% 6.00% 4.00%
15% 9.00% 8.10% 7.50% 6.00% 4.50% 3.00%
10% 6.00% 5.40% 5.00% 4.00% 3.00% 2.00%
5% 3.00% 2.70% 2.50% 2.00% 1.50% 1.00%
(0%) (0.00%) (0.00%) (0.00%) (0.00%) (0.00%) (0.00%)
(5%) (3.00%) (2.70%) (2.50%) (2.00%) (1.50%) (1.00%)
(10%) (6.00%) (5.40%) (5.00%) (4.00%) (3.00%) (2.00%)
(15%) (9.00%) (8.10%) (7.50%) (6.00%) (4.50%) (3.00%)
(20%) (12.00%) (10.80%) (10.00%) (8.00%) (6.00%) (4.00%)
(25%) (15.00%) (13.50%) (12.50%)(10.00%) (7.50%) (5.00%)
</TABLE>
33
<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 December 31, 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: 8
Aggregate $$:
All Programs: $ 291,218,945 (Eagle Total Assets
including Notional)
$ 275,083,204 (Eagle Total Assets excluding
Notional)
$$ in This Program. $ 63,780,073 (Eagle-FX System Total
Assets including Notional)
$ 56,110,219 (Eagle-FX System Total Assets
excluding Notional)
Largest monthly draw-down: (16.13)% August 1994
"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.
Largest peak-to-valley
draw-down: (24.68)% May 1995 to September 1996
"Largest 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.
Closed accounts; Eagle-FX Profitable = 0
Unprofitable = 0
CAPSULE A(2) - EAGLE-FX MONTHLY/ANNUAL RATES OF RETURN
MONTH 1997 1996 1995 1994 1993
Jan 8.69% 10.94% (0.58)% (8.62)% (2.51)%
Feb 10.93 (5.10) 15.48 (6.15) 3.29
Mar (0.67) 13.26 17.30 (0.37) (4.47)
Apr 4.49 4.75 2.08 1.08 (1.77)
May 0.32 (3.57) (10.96) (3.65) 2.35
Jun (0.93) (1.22) (1.93) 11.48 1.81
Jul 15.45 (3.63) (2.16) 4.02 0.23
Aug (2.53) (0.92) 1.40 (16.13) 1.23
Sep (1.72) 11.75 (0.96) 1.57 2.79
Oct (2.38) 5.99 (0.30) 10.33 (0.86)
Nov (0.61) 2.78 (2.54) (12.92) 1.59
Dec 1.41 2.24 (9.66) 1.09 (3.38)
ANNUAL 35.34% 41.40% 3.54% (20.16)% (0.08)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS<PAGE>
34
<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 December 31, 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 $$:
All Programs: $ 291,218,945 (Eagle Total Assets including
Notional)
$ 275,083,204 (Eagle Total Assets excluding
Notional)
$$ in This Program: $ 129,531,486 (Eagle System Total Assets
including Notional)
$ 129,531,486 (Eagle System Total Assets
excluding Notional)
Largest monthly draw-down: (19.42)% February 96
"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.
Largest peak-to-valley
draw-down: (28.09)% February 1996 - September 1996
"Largest 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.
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
ANNUAL 26.59% 17.88% 72.74% 29.13% 56.05%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
35
<PAGE>
Eagle-FX System/Eagle-Global System Proforma
Set forth in Capsule A(4) 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 December 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
and are traded under a fee structure identical to the fee structure of
Series A, which includes brokerage fees of 7.75%, advisory management
fees of 2%, incentive fees of 23%, and an interest income credit of
approximately 5.60%. 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]
36
<PAGE>
<PAGE>
As of December 31, 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: 8 (Eagle-FX System)
12 (Eagle-Global System)
Aggregate:
All Programs: $291,218,945 (All Proforma Total
Assets including Notional)
$275,083,204 (All Proforma Total Assets
excluding Notional)
$$ in This Program $ 63,780,073 (Eagle-FX System
including Notional)
$ 56,110,219 (Eagle-FX System excluding
Notional)
$ 97,907,386 (Eagle-Global System including
Notional)
$ 89,441,498 (Eagle-Global System excluding
Notional)
Proforma largest monthly
draw-down: October 1995
to December 1997: (9.58)% February 1996
Year-to-Date 1997 (6.51%) March 1997
"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.
Proforma largest peak-to-valley
draw-down: October 1995 to
December 1997: (14.77)% May 1996 to July 1996
Year-to-Date 1997 (6.51)% March 1997
"Largest 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.
Rate of Return is net performance for the
month, in general, divided by beginning
net asset value for the month.
[THIS SPACE LEFT BLANK INTENTIONALLY]
37
<PAGE>
<PAGE>
CAPSULE A(4) - EAGLE PROFORMA PERFORMANCE
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 (2.21) (6.83)
Jun (0.31) (0.35)
Jul 16.02 (8.19)
Aug (4.12) 1.70
Sep 3.44 15.44
Oct (5.24) 16.34 (0.11)%
Nov (0.30) 5.52 (0.19)
Dec 4.69 (3.16) (5.95)
ANNUAL 23.73% 31.05% (6.23)%
(3 Months)
Average Monthly Return Annualized: +21.69%
Average Monthly Return: +1.81%
Monthly Standard Deviation*: +/-7.24%
Largest Peak-to-Valley Draw-down: -14.77% 1996
Recovery Time: 5 Months
Average Positive Monthly Return +7.84%
Average Negative Monthly Return: -3.79%
# of Months with a Positive Return: 13
# of Months with a Negative Return: 14
*Standard Deviation measures volatility of returns. It is a
statistical measure of risk that represents the variability of returns
around the mean (average) return. The lower the standard deviation,
the closer the returns are to the mean (average) value. Conversely,
the higher the standard deviation, the more widely dispersed the
returns are around the mean (average).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
38
<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 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." A market
can be characterized as being "sideways" when, over a certain
period of time, it is trending neither upward or downward.
When viewed in a price/time chart, this type of market will
appear to be moving sideways along the time horizon with
relatively small upside and
39
<PAGE>
downside moves. Such markets
typically occur when investor sentiment towards the market is
mixed, meaning neither bullish nor bearish. 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) 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.
A "spread" typically refers to the actual position taken by a
trader who is simultaneously long one futures position and
short another in the same or a related futures product. In
the futures markets, the terms "spread" and "straddle" are
interchangeable. When trading options on futures, a straddle
generally occurs when a trader employs a combination of either
(i) buying a call (the right to purchase a specific futures
contract at a specified price and date) and a put (the right
to sell a specific futures contract at a specified price and
date) or (ii) selling both a call and a put of the same strike
price and month. 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.
Series B assets, traded pursuant to the Global Monetary
Program, will be invested in futures markets utilizing
leverage, or margin. The margin-to-equity ratio will tend to
fluctuate between 5-25%, typically being in the range of 10-
15%. See "Futures, Forward and Options Trading Is Volatile
and Highly Leveraged" under "Risk Factors".
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
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
Australian Dollar
British Pound
Canadian Dollar
French Franc
German Mark
Japanese Yen
Swiss Franc
40
<PAGE>
LIFFE Euromark
LIFFE Eurolira
LIFFE German Bund
LIFFE Italian Bond
LIFFE Short Sterling
LIFFE Long Gift
LIFFE Euroswiss
SOFFEX Swiss
Government Bond
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
British Pound/German Mark
British Pound/Japanese Yen
British Pound/Swiss Franc
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.
Set forth below is a bar graph showing the sectors that
are traded by Eclipse Capital. Investor funds will be exposed
to these sectors in approximately the percentage allocation
stated. The stated percentages represent the expected
initial allocation to each sector. Actual trading will
change as market conditions and trading opportunities
change, and there is every likelihood that the targeted risk
allocations may vary for Series B during future periods, although
it is anticipated that the focus will remain on the financial
instruments markets.
Global Monetary Program Allocation:
Interest rate instruments: 45%
Currencies: 30%
Stock Indices: 5%
Precious & Base Metals: 10%
Energy Products 10%
(GRAPH)
41
<PAGE>
ECLIPSE CAPITAL'S PAST PERFORMANCE
Capsule summaries B(1) through B(4) contain actual performance
for the periods indicated.
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 December 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 $$: $298,732,346 (All Programs excluding Notional)
All Programs $302,742,346 (All Programs including Notional)
$$ in this Program $296,605,851 (Global Monetary Program excluding Notional)
$300,615,851 (Global Monetary Program including Notional)
Largest monthly draw-
down: (14.62)% July 1994
"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.
Largest peak-to-
valley draw-down: (26.97)% March 1994 to September 1994
"Largest 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.
Closed Accounts: Profitable = 14
Unprofitable = 4
[THIS SPACE LEFT BLANK INTENTIONALLY]
42
<PAGE>
<PAGE>
CAPSULE B(1) - ECLIPSE CAPITAL GLOBAL MONETARY PROGRAM
MONTHLY/ANNUAL RATES OF RETURN
MONTH 1997 1996 1995 1994 1993
Jan 2.07% 5.45% (2.28)% 1.34% 4.23%
Feb (0.41) (0.07) 1.19 3.00 9.34
Mar 1.67 (0.30) 4.52 6.09 (2.11)
Apr (4.93) 5.58 0.84 (3.43) 1.42
May 4.01 1.96 8.09 (2.91) (1.02)
Jun 0.34 0.11 (2.34) 0.28 3.03
Jul 8.80 0.58 1.04 (11.70) 3.09
Aug (2.21) 3.04 6.80 (5.12) 0.81
Sep 5.00 2.77 (0.57) (1.42) 3.61
Oct (0.78) 3.51 0.34 0.90 2.06
Nov (1.63) 7.03 2.16 4.50 (0.03)
Dec 3.66 (2.19) (0.64) (2.24) 2.84
ANNUAL 15.93% 30.68% 20.21% -11.37% 30.37%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
43
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<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 December 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: $298,732,346 (All Programs excluding Notional)
$302,742,346 (All Programs including Notional)
$$ in this Program: $2,126,492 (Global Yield Program)
Largest monthly
draw-down: (14.41)% July 1994
"Largest monthly draw-down" means the
greatest decline in month-end net
asset value due to losses sustained
by a trading portfolio on a composite
basis or an individual account for
any particular month.
Largest peak-to valley
draw-down: (26.10)% May 1994 to January 1995
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end net
asset value due to losses sustained
by a trading portfolio on a composite
basis or an individual account during
any period in which the initial
month-end net asset value is not
equaled or exceeded by a subsequent
month-end asset value.
Closed Accounts: Profitable = 6
Unprofitable = 7
CAPSULE B(2) - GLOBAL YIELD PROGRAM ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993
ANNUAL 7.26% 15.21% 14.02% 0.02% 32.40%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
44
PAGE
<PAGE>
Foreign Exchange Program
(Not open to new investment)
Name of CTA: Eclipse Capital Management, Inc.
Program: Foreign Exchange Program
Start Date: April 1986 (Inception of trading by CTA)
March 1992 (Inception of trading in program)
No. Accounts: 0
Aggregate $$: $298,732,346 (All Programs excluding Notional)
All Programs: $302,742,346 (All Programs including Notional)
$$ in this Program: $0 (Foreign Exchange Program)
Largest monthly draw-down: (20.86)% September 1992
"Largest monthly draw-down"
means the greatest decline
in month-end net asset
value due to losses
sustained by a trading
portfolio on a composite
basis or an individual
account for any particular month.
Largest peak-to-valley
draw-down: (20.86)% August 1992 to September 1992
"Largest peak-to-valley
draw-down" means the
greatest cumulative
percentage decline in month-
end net asset value due to
losses sustained by a
trading portfolio on a
composite basis or an
individual account during
any period in which the
initial month-end net
asset value is not equaled
or exceeded by a subsequent
month-end asset value.
Closed Accounts: Profitable = 3
Unprofitable = 2
CAPSULE B(3) - FOREIGN EXCHANGE PROGRAM ANNUAL RATES OF RETURN
1995 1994 1993 1992
ANNUAL 10.20% (4.93)% 6.35% 13.18%
(3 Months) (10 Months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
[THIS SPACE LEFT BLANK INTENTIONALLY]
45
PAGE
<PAGE>
Financial Futures Account
(Not open to new investment)
Name of CTA: Eclipse Capital Management, Inc.
Program: Financial Futures Account
Start Date: April 1986 (Inception of trading by CTA)
April 1986 (Inception of trading in program)
No. Accounts: 0
Aggregate $$:
All programs: $298,732,346 (All programs excluding Notional)
$302,742,346 (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 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.
Largest peak-to-
valley draw-down: (69.20)% February 1989 to April 1992
"Largest 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.
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]
46
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<PAGE>
Notes to Eclipse Capital 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]
<PAGE>
47
<PAGE>
Eclipse Capital Global Monetary Program Proforma
Set forth in Capsule B(5) 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
identical to the fee structure of Series B, which includes
brokerage fees of 7.75%, advisory management fees of 2%,
incentive fees of 20%, and an interest income credit of
approximately 5.60%. 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 December 31, 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: $298,732,346 (Proforma Total Assets excluding Notional)
$302,742,346 (Proforma Total Assets including Notional)
$$ in This Program $296,605,851 (Global Monetary
Program excluding Notional)
$300,615,851 (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 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.
Proforma largest peak-to-
valley draw-down:
Prior Five Years (23.07)% April 1994 to September 1994
Year-To-Date 1997 (5.04)% April 1997
"Largest 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 .
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<PAGE>
Rate of Return is net performance
for the month, in general, divided
by beginning net asset value for
the month.
CAPSULE B(5) - ECLIPSE CAPITAL PROFORMA PERFORMANCE
RATE OF RETURN
(Computed on a compounded monthly basis)
Month 1997 1996 1995 1994 1993
Jan 2.00% 6.44% (2.25)% 1.04% 3.71%
Feb (0.46) (1.56) 1.05 2.57 9.60
Mar 1.26 (0.40) 4.51 5.71 (2.09)
Apr (5.40) 7.12 0.84 (3.70) 1.53
May 3.80 0.84 9.59 (3.05) (0.84)
Jun 0.08 (0.13) (3.25) 0.37 3.16
Jul 8.79 0.28 0.72 (12.03) 3.14
Aug (2.42) 2.58 7.49 (5.18) 0.77
Sep 4.94 2.62 (0.92) (1.56) 3.37
Oct (1.10) 3.87 (0.26) 0.76 1.96
Nov (1.96) 6.34 2.56 4.36 0.14
Dec 3.89 (2.33) (0.12) (2.37) 2.93
ANNUAL 13.38% 28.21% 20.98% (13.47)% 30.48%
Average Monthly Return Annualized: +14.67%
Average Monthly Return: +1.22%
Monthly Standard Deviation*: +/-3.84%
Largest Peak-to-Valley Draw-down: -23.07% 1994
Recovery Time: 22 Months
Average Positive Monthly Return +3.33%
Average Negative Monthly Return: -2.43%
# of Months with a Positive Return: 38
# of Months with a Negative Return: 22
*Standard Deviation measures volatility of returns. It is a
statistical measure of risk that represents the variability of returns
around the mean (average) return. The lower the standard deviation,
the closer the returns are to the mean (average) value. Conversely,
the higher the standard deviation, the more widely dispersed the
returns are around the mean (average).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
[THIS SPACE LEFT BLANK INTENTIONALLY]
49
<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 100 Campus
Drive, Florham Park, New Jersey 07932. 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.
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
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<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.
51
<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 markets which display
major price trends as well as trendless 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, or the
margin-to-equity ratio, 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. The margin-to-equity ratio
for the Asset Allocation Program will tend to fluctuate from
15% to 40%, typically being in the 15% to 25% range. For that
portion of the Asset Allocation Program invested in interbank
currencies, lines of credit in the interbank market can
fluctuate between 0 to 5 times equity, with the average being
3 times equity. See "Futures, Forward and Options Trading Is Volatile
and Highly Leveraged" under "Risk Factors". 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 the different HB &
Co. portfolios. 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 Portfolios 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,
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<PAGE>
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 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 Original Portfolio
was added to the Asset Allocation Portfolio in November 1996;
and, commencing in February 1998, all Asset Allocation
Portfolio accounts began trading the Short-Term Select
Portfolio in lieu of the Short-Term Original Portfolio.
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 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
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risk/reward characteristics of the Short-Term Select Portfolio will
not be materially different from those of its Short-Term Original
Portfolio.
HB & Co. will utilize a new trading approach for which
there is no past performance record. 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; and,
commencing in February 1998, all Asset Allocation Portfolio
Accounts began trading the Short-Term Select Portfolio in
lieu of the Short-Term Original Portfolio. 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 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 account in
the discretion of HB & Co. and other than on a pro rata basis.
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.
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
NYSE Composite (G,D) NYFE
S&P 500 (G,S,D) CME
FTSE (G,S) LIFFE
CAC-40 (G,S) MATIF
DAX (G,S) DTR
Nikkei (G,S) SIMEX
Australia All Ordinates (S) SFE
Hang Seng Index (S) HKFE
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)
54
<PAGE>
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
Energy
Crude oil (S,D) NYMEX
Heating oil (S,D) NYMEX
Unleaded gasoline (S,D) NYMEX
Natural gas (S,D) NYMEX
Gasoil (D) IPE
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, and is reflective
of the degree to which HB & Co. was diversified across
market sectors in 1997. This weighing will change
as market conditions and trading opportunities 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%
INSERT BAR GRAPH
HB & CO.'S PAST PERFORMANCE
Capsule summaries C(1) through C(6) contain actual
performance for the periods indicated.
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 December 1997 for 8 accounts ranging in size from
U.S. $630,000 to U.S. $17 million. Four open accounts were
profitable and no open accounts were unprofitable as of
December 31, 1997. Past performance is not necessarily
indicative of future results.
55
<PAGE>
As of December 31, 1997
Name of CTA: HB & Co.
Program: Asset Allocation Portfolio1
Start Date: March 1991 (All trading by HB & Co.)
April 1992 (Asset Allocation Program)
No. of Accounts open: 4
Aggregate $$:
All programs: $ 250,313,698 (All Programs excluding Notional)
$ 281,023,773 (All Programs including Notional)
$$ in this Program: $ 14,173,217 (Asset Allocation Portfolio
excluding Notional)
$ 28,414,055 (Asset Allocation Portfolio
including Notional)
Largest monthly
draw-down: (9.38)% February 1996
"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.
Largest peak-to-valley
draw-down: (18.30)% August 1993 to January 1995
"Largest 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.
Closed Accounts: Profitable = 2
Unprofitable = 2
CAPSULE C(1) - ASSET ALLOCATION PORTFOLIO MONTHLY2/ANNUAL RATES OF RETURN
1 The Asset Allocation Portfolio represents accounts trading a combination
of each of the Global, FX, Diversified and/or Short-Term 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, and all Asset Allocation accounts commenced trading the
Short-Term Select Portfolio in lieu of the Short-Term Original
Portfolio in February 1998.
2 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. 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
(continued...)
56
<PAGE>
MONTH 1997 1996 1995 1994 1993
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
May 0.81 (2.62) 1.19 2.69 2.89
Jun 1.52 0.97 0.40 3.38 (1.12)
Jul 4.70 (0.51) (2.60) (4.03) 7.72
Aug (1.64) (4.53) 0.42 (2.97) (1.30)
Sep 2.11 0.35 (2.07) (0.02) 0.52
Oct (2.64) 11.94 (0.63) 5.52 (2.64)
Nov (0.87) 4.65 (0.62) (1.42) (0.55)
Dec 2.24 (6.45) 3.34 (0.13) 4.90
ANNUAL 20.91% 1.68% 33.35% (1.29)% 18.58%
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
[THIS SPACE LEFT BLANK INTENTIONALLY]
2(...continued)
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 materially distort the monthly rate
of return as calculated pursuant to the Fully Funded Subset method. To
qualify for the use of the Fully-Funded Subset method, the CFTC's 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.
57
<PAGE>
Global Portfolio
As of December 31, 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 $$:
All Programs: $ 250,313,698 (All Programs excluding Notional)
$ 281,023,773 (All Programs including Notional)
$$ in this Program: $ 195,080,590 (Global Program excluding Notional)
$ 203,553,947 (Global Program including Notional)
Largest monthly draw-down: (12.77)% December 1996
"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.
Largest peak-to-valley
draw-down: (13.90)% July 1994 to February 1995
"Largest 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.
Closed Accounts: Profitable = 26
Unprofitable = 17
CAPSULE C(2) - GLOBAL PORTFOLIO ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993
ANNUAL 24.38% 10.82% 29.12% 3.81% 14.63%
SERIES C ASSETS ARE NOT EXPECTED TO BE TRADED PURSUANT
TO THE FOREGOING
PROGRAM INDEPENDENTLY, BUT ONLY AS A
COMPONENT OF THE ASSET ALLOCATION PORTFOLIO
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]<PAGE>
58
<PAGE>
FX Portfolio
As of December 31, 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 $$:
All Programs: $ 250,313,698 (All Programs
excluding Notional)
$ 281,023,773 (All Programs
including Notional)
$$ in this Program: $ 7,404,771 (FX Portfolio
excluding Notional)
$ 11,429,583 (FX Portfolio
including Notional)
Largest monthly draw-down: (18.72)% November 1994
"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.
Largest peak-to-valley draw-down:
(52.49)% August 1993 - January 1995
"Largest 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.
Closed Accounts: Profitable = 7
Unprofitable = 31
CAPSULE C(3) FX PORTFOLIO ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993
ANNUAL 29.30% 6.65% 40.58% (20.63)% 0.86%
SERIES C ASSETS ARE NOT EXPECTED TO BE TRADED PURSUANT TO THE FOREGOING
PROGRAM INDEPENDENTLY, BUT ONLY AS A
COMPONENT OF THE ASSET ALLOCATION PORTFOLIO.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]
59
<PAGE>
Diversified Portfolio
As of December 31, 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: 4
Aggregate $$:
All Programs: $ 250,313,698 (All Programs
excluding Notional)
$ 281,023,773 (All Programs
including Notional)
$$ in this Program: $ 1,319,103 (Diversified
Portfolio excluding Notional)
$ 2,854,040 (Diversified
Portfolio including Notional)
Largest monthly draw-down: (15.90)% February 1994
"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.
Largest peak-to-valley draw-down:
(30.42)% August 1993 - December 1995
"Largest 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.
Closed Accounts: Profitable = 17
Unprofitable = 25
CAPSULE C(4) - DIVERSIFIED PORTFOLIO ANNUAL RATES OF RETURN
1997 1996 1995 1994 1993
ANNUAL 11.88% (8.33)% (4.14)% (7.07)% 13.96%
SERIES C ASSETS ARE NOT EXPECTED TO BE TRADED PURSUANT TO THE FOREGOING
PROGRAM INDEPENDENTLY, BUT ONLY AS A
COMPONENT OF THE ASSET ALLOCATION PORTFOLIO.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
60
<PAGE>
Short-Term Select Portfolio
As of December 31, 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: 3
Aggregate $$:
All Programs: $ 250,313,698 (All Programs
excluding Notional)
$ 281,023,773 (All Programs
including Notional)
$$ in this Program: $ 5,221,573 (Short-Term Select
excluding Notional)
$ 7,721,573 (Short-Term Select
including Notional)
Largest monthly draw-down: (2.19%) November 1997
"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.
Largest peak-to-valley draw-down:
(2.19%) November 1997
"Largest 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.
Closed Accounts: Profitable = 0
Unprofitable = 0
CAPSULE C(5) - SHORT-TERM SELECT PORTFOLIO ANNUAL RATES OF RETURN
1997
ANNUAL 0.73%
SERIES C ASSETS ARE NOT EXPECTED TO BE TRADED PURSUANT
TO THE FOREGOING PROGRAM INDEPENDENTLY, BUT ONLY AS A
COMPONENT OF THE ASSET ALLOCATION PORTFOLIO.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
[THIS SPACE LEFT BLANK INTENTIONALLY]<PAGE>
61
<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 December 31 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: 13
Aggregate $$:
All Programs: $ 250,313,698 (All Programs
excluding Notional)
$ 281,023,773 (All Programs
including Notional)
$$ in this Program: $ 41,287,661 (Short-Term
Original excluding Notional)
$ 55,464,630 (Short-Term
Original including Notional)
Largest monthly draw-down: (8.83)% August 1996
"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.
Largest peak-to-valley draw-down:
(12.47)% November 1996 - December 1996
"Largest 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.
Closed Accounts: Profitable = 5
Unprofitable = 1
CAPSULE C(6) - SHORT-TERM ORIGINAL PORTFOLIO ANNUAL RATES OF RETURN
1997 1996
ANNUAL 33.30% 0.58%
(9 months)
SERIES C ASSETS ARE NOT EXPECTED TO BE TRADED PURSUANT TO
THE FOREGOING PROGRAM
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
HB & Co. Asset Allocation Portfolio Proforma
Set forth in Capsule C(7) 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 identical to the fee
structure of Series C, which includes brokerage fees of 7.75%,
advisory management fees of 2%, incentive fees of 23%, and
interest income credit of approximately
62
<PAGE>
5.60%. 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
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL
TRADING RESULTS.
As of December 31, 1997
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: 4
Aggregate $$:
All Programs: $250,256,092 (Proforma Total
Assets excluding Notional)
$280,966,167 (Proforma Total
Assets including Notional)
$$ in This Program: $14,176,060 (Asset Allocation
Portfolio excluding Notional)
$28,416,898 (Asset Allocation
Portfolio including Notional)
Proforma largest monthly draw-down:
Prior Five-Years: (14.21)% January 19 Year-to-Date:
(3.51)% October 1997
"Largest monthly draw-down" means
the greatest decline in month-
end net asset value due to losses
sustained by a trading
portfolio on an composite basis
or an individual account for any
particular months.
Proforma largest peak-to-valley
draw-down:
Prior Five-Years: (22.84)% August 1993 to January 1995
Year-to-Date: (4.28)% October 1997 to
November 1997
"Largest monthly draw-down"
means the greatest decline in
month-end net asset value due
to losses sustained by a
trading portfolio on an composite
basis or an individual account
for any particular months.
63
<PAGE>
Rate of Return is net performance for the month in general
divided by beginning net asset value for the month.
CAPSULE C(7) HB & CO. PROFORMA PERFORMANCE
RATE OF RETURN
(Computed on a compounded monthly basis)
Month 1997 1996 1995 1994 1993
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
May 0.77 (3.97) 0.97 3.50 3.54
Jun 2.16 1.52 (0.02) 4.59 (1.87)
Jul 6.26 (0.68) (4.68) (6.63) 10.08
Aug (1.98) (6.82) (0.16) (5.09) (2.05)
Sep 3.07 0.49 (3.85) (0.64) 0.41
Oct (3.51) 18.26 (1.77) 7.55 (4.53)
Nov (0.79) 6.99 (1.12) (2.74) (1.37)
Dec 4.17 (10.24) 4.77 (1.07) 7.10
ANNUAL 31.35% 0.24% 32.40% (9.32)% 20.43%
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.
Average Monthly Return Annualized: +16.32%
Average Monthly Return: +1.36%
Monthly Standard Deviation*: +/-7.80%
Largest Peak-to-Valley Draw-down: -22.84% 1993
Recovery Time: 20 Months
Average Positive Monthly Return +6.52%
Average Negative Monthly Return: -4.16%
# of Months with a Positive Return: 31
# of Months with a Negative Return: 29
*Standard Deviation measures volatility of returns. It is a
statistical measure of risk that represents the variability of returns
around the mean (average) return. The lower the standard deviation,
the closer the returns are to the mean (average) value. Conversely,
the higher the standard deviation, the more widely dispersed the
returns are around the mean (average).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
64
<PAGE>
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.
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.
65
<PAGE>
(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
$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%
Managing Trustee
Prudential Securities Owner
Futures Management Inc. Trust
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
66
<PAGE>
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.
Prudential Securities Group Inc.
PSGI acts solely as a holding company . Its 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.
67
<PAGE>
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 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
68
<PAGE>
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 1993 through
December 1997 for the four publicly formed 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) 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]
69
<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)
LARGEST LARGEST
MONTHLY PEAK TO
PERCENT VALLEY
TYPE INCEPTION AGGREGATE CURRENT DRAW- DRAW-
OF OF SUBSCRIPTIONS TOTAL NAV DOWN DOWN
NAME OF POOL POOL TRADING ($ X 1,000) ($ X 1,000) [b] [c] 1993 1994 1995 1996 1997
<S> <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% 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 19,536 -18.37% -36.63% 31.49% -10.05% 33.95% 24.81% 9.03%
1/92 1/92-5/92
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND
L.P. (PBCRFF) 1a,3,5, 5/89 137,705 17,303 -5.26% -24.43% 12.33% -21.44% 23.98% 8.58% 7.93%
7,8,10 11/94 9/93-1/95
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND
2 L.P.
(PBCRFF2) 1a,3,5,7,8,9 10/89 100,000 31,248 -11.36% -24.24% 21.32% -8.07% 27.26% 19.10% 11.40%
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 17,521 -10.94% -17.84% 8.85% 10.41% 16.63% 16.79% -7.97%
1/91 9/90-6/91
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P.-OPTIMAX
(PBOFF) 3,5,7,8,10,11 4/96 69,603 15,586 -6.39% -11.32% - - - 11.68% 17.49%
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% 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% 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 8,124 -7.63% -7.91% - - - - -3.67%
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% 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% 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 1,819 -17.68% -25.96% 1.14% 16.00% 20.38% 6.65% -5.99%
9/93 9/93-1/94
PRUDENTIAL
SECURITIES
AGGRESSIVE
GROWTH
FUND L.P.
(PSAGF) 3,5a,7,8,9 8/93 20,335 6,293 -9.70% -32.68% -19.67% -13.51% 29.50% 7.89% -2.31%
9/93 8/93-1/95
DIVERSIFIED
FUTURES TRUST
I (DFT) 3,5a,6,8,9 1/95 65,908 67,512 -5.89% -8.36% - - 42.65% 23.49% 8.82%
2/96 2/97-5/97
DIVERSIFIED
FUTURES TRUST
II (DFTII) 2,4,6,8,9 3/97 38,425 39,623 -3.71% -5.26% - - - - 6.26%
5/97 4/97-6/97
SIGNET
PARTNERS
II, LP
(SPLP2) 2,4,7,8,9 2/96 1,531 1,041 -6.37% -6.37% - - - 9.70% 6.10%
8/97 8/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES FUND
A PLC (PBIFA) 2,4,6,9,13 6/96 26,487 18,872 -10.76% -18.11% - - - 12.30% -0.36%
8/97 8/97-10/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND B
PLC (PBIFB) 2,4,6,9,13 7/96 58,357 61,620 -8.84% -14.88% - - - 28.50% 13.77%
5/97 2/97-5/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND C
PLC (PBIFC) 2,4,6,9,13 6/96 21,035 11,290 -6.82% -20.08% - - - 22.70% -3.59%
8/97 12/96-4/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND D
PLC (PBIFD) 2,4,7,9,13 10/96 15,481 11,692 -6.50% -7.88% - - - -1.10% 14.36%
4/97 8/97-10/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND E PLC
(PBIFE) 2,4,6,9,13 1/97 9,163 6,725 -9.41% -9.41% - - - - 2.20%
8/97 8/97
PRUDENTIAL-BACHE
INTERNATIONAL
FUTURES
FUND F
PLC (PBIFF) 2,4,6,9,13 9/97 6,904 6,017 -9.50% -9.50% - - - - -13.17%
10/97 10/97
WILLOWBRIDGE
STRATEGIC
TRUST
(WILLO) 3,4,6,8,9 5/96 58,044 47,725 -10.01% -18.60% - - - 3.47% -0.49%
8/97 5/96-7/96
</TABLE>
70
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
December, 1997.
[b] "Largest 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] "Largest 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
71
<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
72
<PAGE>
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.
Prudential Securities Litigation and Settlements
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 that Prudential Securities did not adequately
supervise the retail sales practices of several registered
representations, 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.
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
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former SEC Commissioner. Prudential Securities also consented
to the establishment of a court-supervised expedited claims
resolution procedures with respect to such claims.
On December 17, 1993, Prudential Securities agreed to the
entry of a Consent Order issued by the State of Rhode Island,
Department of Business Regulation, Division of Securities.
The 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
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in a branch located in Missouri or any security sold by
such employees; (b) beginning 30 days from the
date of the Consent Order and continuing for a
period of three years, to include at least
one public service information piece selected by the
Commissioner of Securities in all of Prudential Securities'
new account packages mailed to Missouri residents; (c) for a
period of three years from the date of the Consent Order, to
annually provide a notice to Prudential Securities' Missouri
customers which details the procedures for filing a complaint
with Prudential Securities and the applicable regulatory
authorities. In addition, Prudential Securities agreed to pay
a fine in the amount of $175,000.
On June 8, 1994, the Business Conduct Committee of the New
York Mercantile Exchange ("NYMEX" or "Exchange") accepted an
Offer of Settlement submitted by Prudential Securities
concerning allegations that Prudential Securities violated
NYMEX rules regarding pre-arranged trades and wash trades.
Without admitting or denying the allegations, Prudential
Securities consented to a finding by the Exchange that it had
violated NYMEX Rule 8.55(A)(18) relating to conduct
substantially detrimental to the interest of the welfare of
the Exchange; agreed to cease and desist from future
violations of Rule 8.55; and agreed to pay a fine in the
amount of $20,000.
On September 19, 1994, Prudential Securities consented to
the entry of an Agreement and Order issued by the State of
Idaho, Department of Finance, Securities Bureau (the
"Department"). The allegations against Prudential 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.
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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 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.
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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 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 obligations to the Limited Owners of a Series,
a Limited Owner may, depending on the nature of the claim,
either seek legal relief for himself (or itself)
or, subject to the satisfaction of the requirements for
bringing a "derivative action" in a particular jurisdiction,
may seek on behalf of the holders of Interests of any
Series to recover damages from, or obtain other equitable
relief from, the Managing Owner, including an "accounting" - the
right to specific and/or complete financial information
concerning the Series. If a derivative action is brought in Delaware
Chancery Court because the Trust is a Delaware Business Trust,
Section 3816 of the Delaware Business Trust Statute would control.
Section 3816 generally requires that (i) a plaintiff must be a
Limited Owner at the time the action is brought and at the time of
the transaction at issue, or he must have acquired status, through
the operation of law or the Trust's governing instruments, as
a Limited Owner from a person who was a Limited Owner at the
time of the transaction; and (ii) the complaint must set forth,
with particularity, plaintiff's efforts to have the Managing
Owner bring the action, or, if no such efforts were made, why
they were not made. The foregoing is a general overview of
Delaware law, and different state or federal law requirements
for bringing a derivative or other action may apply,
depending on a plaintiff's choice of forum. 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.
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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 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 and the Trust Agreement contain
exculpatory and indemnity provisions (see "Advisory
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 136 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.
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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 after the Series sells its
Subscription Minimum and has at least 150 investors (see
"Who May Subscribe").
The Subscription Minimums that must be accepted before
each Series will break escrow and commence trading are as
follows:
- 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 of each Series
registered for sale with the Securities and Exchange
Commission (the "Subscription Maximum") are issued during
the Initial Offering Period, either through sale or exchange,
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 Seller 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 the 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
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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.
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).
If the Subscription Minimum for any Series is not sold
during the Initial Offering Period, then within 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
trading commences, Interests in each Series will be sold once
each week until each Series' Subscription Maximum has been
issued (the "Continuous Offering Period"), either through sale
or exchange. For the purposes of describing the offering of
Interests during the Continuous Offering Period, the "Dealing
Day" means the first Business Day of each week. The
"Valuation Point" means the close of business on Friday of
each week. Each Series' Interests will be sold at a price
that equals its Net Asset Value per Interest as of the
"Valuation Point" immediately preceding the Dealing Day on
which a subscription is eligible to become effective.
A Subscriber's Subscription Agreement (Exhibit D) must
be submitted to the Managing Owner at its principal office
at least five (5) Business Days before a given Dealing Day,
and sufficient funds must be in the subscriber's Prudential
Securities account on a timely basis. After the five (5)
Business Day waiting period (two (2) Business Days for Limited
Owners purchasing additional Interests, described below), and
the Managing Owner's approval of a subscription, the Net Asset
Value per Interest will be determined at the next occurring
Valuation Point, and the subscription price per Interest will
be finalized. A subscription will then become effective on
the immediately following Dealing Day. Because of this
waiting period, the purchase price of an Interest will not be
fixed on the date a subscription is submitted, and the Net
Asset Value of an Interest may fluctuate between the date of
submission and the Valuation Date on which the subscription
price is finalized.
Subscribers will be admitted as Limited Owners as of the
same Dealing Day on which their subscription becomes
effective, and confirmation of each accepted subscription will
be sent to subscribers. In the event that funds in the
subscriber's account are insufficient to cover the requested
subscription amount, or for any other reason in the Managing
Owner's sole discretion, the Managing Owner may reject the
subscription in whole or in part. 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.
Purchases of Additional Interests in a Series
Existing Limited Owners in a particular Series who wish to
purchase additional Interests in the same Series must submit
a Subscription Agreement (Exhibit A) at least two (2) Business
Days before any given Dealing Day, and the subscription for
additional Interests must be approved by the Managing Owner.
After the two (2) Business Day waiting period and the Managing
Owner's approval of the subscription for additional Interests,
the Net Asset Value per Interest will be determined at the
next occurring Valuation Point, and the subscription price per
Interest will be finalized. The subscription will then become
effective on the immediately following Dealing Day. Because
of this waiting period, the purchase price of additional
Interests will not be fixed on the date a subscription is
submitted, and the Net Asset Value of the Interests may
fluctuate between the date of submission and the Valuation
Date on which the subscription price is finalized.
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Exchange of Interests
Interests in one Series may be exchanged, without
charge, for Interests of equivalent value of any other Series
for as long as the Interests of the Series for which exchange
is being made are offered for sale (an "Exchange"). An
Exchange Request (Exhibit C) must be submitted at least five
(5) Business Days before any given Dealing Day, and the
Exchange must be approved by the Managing Owner. After the
five (5) Business Day waiting period and the Managing Owner's
approval of the Exchange, the Net Asset Value per Interest for
each applicable Series (i.e., the Series being exchanged from
and the Series being exchanged into) will be determined at the
next occurring Valuation Point, and the prices per Interest
will be finalized. The Exchange will then become effective on
the immediately following Dealing Day. Because of the five
(5) Business Day waiting period, the Net Asset Value of the
Interests being exchanged will not be fixed on the date an
Exchange Request is submitted, and the Net Asset Value of the
Interests - of both the Series you are exchanging from and the
Series you are exchanging into - may fluctuate between the
date of submission and the Valuation Date on which the Net
Asset Value per Interest is finalized.
An Exchange will be treated as a redemption of Interests
in one Series (the Series you are exchanging from) and a
simultaneous purchase of Interests in another Series (the
Series you are exchanging into). Each Exchange is thus
subject to satisfaction of the conditions governing redemption
on the applicable Dealing Day (see "Redemption of Interests"
below), as well as the requirement that Interests of the
Series being exchanged into are then being offered for sale.
Although an Exchange is treated, in part, as a redemption, an
Exchange is not subject to any "exchange" or Redemption
Charges. An exchanging Limited Owner may, however, realize a
taxable gain or loss in connection with the Exchange. See
"Federal Income Tax Consequences - Transfers Between Series."
Effective Dates of Subscriptions and Exchanges
The effective date of accepted subscriptions during the
Initial Offering Period is the date on which the applicable Series
break(s) escrow. The effective date of accepted subscriptions and Exchanges
during the Continuous Offering Period is the first Dealing Day
to occur at least five (5) Business Days after a subscription
or Exchange Request is submitted and approved by the Managing
Owner. The effective date of subscriptions by Limited Owners
who purchase additional Interests in the same Series will be
the first Dealing Day to occur at least two (2) Business Days
after a subscription for additional Interests is submitted and
approved by the Managing Owner. The effective date of
redemptions of Interests will be the first Dealing Day to
occur at least two (2) Business Days after a Redemption
Request is received and approved by the Managing Owner.
Redemption of Interests
Interests or any portion thereof (including Interests
held by assignees) will be redeemed on the first Dealing Day
to occur at least two (2) Business Days after the date the
Managing Owner receives your Redemption Request in proper
order (the "Redemption Date"). Redemptions generally will
be made at the Net Asset Value per Interest determined as of
the Valuation Point immediately preceding the Redemption Date
(the "Redemption Price"). Redemptions are subject to changes
in Net Asset Value between the date you submit your Redemption
Request and the Valuation Point on which the Redemption Price
is finalized. Interests redeemed on or before the end of the
first and second successive six-month periods after the
effective date of purchase 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. The effective
date of purchase will be the date on which the applicable
Series break(s) escrow for subscriptions made during the
Initial Offering Period, and for subscriptions during the
Continuous Offering Period will be the applicable Dealing Day.
These redemption fees will be paid 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 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. Redemption Requests may be mailed or otherwise
delivered to the Managing Owner.
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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, which will
include instructions on the redemption of Interests.
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) Business
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 Trust 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.
The Trust 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).
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 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
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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 "The
Offering," Fees and Expenses" and "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.
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 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
- Minimum Initial Subscription
$5,000; $2,000 (IRAs); the initial
subscription for Interests may be in any one or a
combination of Series
- Minimum Per Series $1,000 for any Series
- Additional Purchases $100 increments
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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."
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 all Series
combined
Subscribers that are
"Individual Retirement
Funds" (IRAs or Keogh plans
covering no common law
employees) 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 stock
bonus plans and welfare
benefit plans, such as
group insurance plans, or
other fringe benefit
plans)) and "Non-ERISA
Plans" (employee benefit
plans not subject to ERISA
(for example, government
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
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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.
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.
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
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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
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 "Redemption of Interests" under "The
Offering."
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 or Individual Retirement Fund 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 or Individual Retirement Fund 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 or Individual Retirement Fund
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, you 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
- have cash in your Prudential Securities
account (or account with an Additional
Selling Agent) to cover the subscription
amount;
- send the Subscription Agreement 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.
HOW TO EXCHANGE INTERESTS
To Exchange Interests, you must:
- complete an Exchange Request (Exhibit C) if you are
exchanging Interests in one Series for Interests of
one or more other Series; and
- send the Subscription Agreement to a Prudential
Securities Financial Advisor (or Additional Selling
Agent) in a timely manner.
THE MANAGING OWNER MAY, AT ITS DISCRETION, REJECT ANY
SUBSCRIPTION IN WHOLE OR IN PART. 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
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earned thereon. All accepted subscribers will
receive written confirmation of acceptance into the applicable
Series of the Trust.
When a Subscription or an Exchange Becomes Final
- -New subscribers or a
subscribers exchanging Interests
Your commitment to subscribe for
Interests or to Exchange Interests
will not be final or binding until at
least five (5) Business Days after
the date you submit your Subscription
Agreement or Exchange Request. A
subscriber may revoke a subscription
only within five (5) Business Days
after you submit a Subscription
Agreement to Prudential Securities
(or an Additional Seller). There-
after, all subscriptions will be
irrevocable by the subscriber.
- -Existing Limited
Owners in a Series
purchasing additional
Interests in that same
Series
Your subscription will not be final
or binding until at least two (2)
Business Days after the date you
submit your Subscription Agreement.
HOW TO REDEEM INTERESTS
To redeem Interests, you must:
- complete a Redemption Request (Exhibit B)
and
- Submit the Redemption Request to a Prudential
Securities Financial Advisor in a timely manner.
<PAGE>
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
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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 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
Prudential Securities employees who hold all
appropriate federal and state securities
registrations will be eligible for compensation of up
to 2.5% of the Net Asset Value per Interest upon the
sale of an Interest. Beginning 12 months after the
month in which the sale of an Interest is effective,
Prudential Securities employees who hold appropriate
federal and state registrations and who provide on-
going services to Limited Owners will be eligible for
compensation of up to 2% of the Net Asset Value of an
Interest. This compensation is paid by Prudential
Securities and is at no additional cost to the Trust.
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.
Any Series, acting through its commodity trading
advisor(s), may execute over-the-counter, spot, forward and
option foreign exchange transactions with Prudential
Securities. Prudential Securities will then engage in back-
to-back trading with an affiliate, PBGM. PBGM will attempt to
earn a profit on such transactions. PBGM will keep its
prices on foreign currency competitive with other interbank
currency trading desks. All over-the-counter currency
transactions are conducted between Prudential Securities and
each Series pursuant to a line of credit. Prudential
Securities may require that collateral be posted against the
marked-to-market position of any Series.
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 "Advisory Agreements." In no event will the
management and incentive fees to the Trading Advisor exceed
any limitations imposed by the NASAA Guidelines.
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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.
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
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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.
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.
Example of Incentive Fee
A simple numerical example with respect to the Net Asset
Value (the "NAV") of the Interests illustrates how the
quarterly incentive fee is calculated, as follows:
A. Assumptions
(1) A Series commences trading activities at the
beginning of a quarter with $10,000,000 in Interests
and the Trading Advisor is allocated 100% of that
amount.
(2) No redemptions are made during the quarter.
B. Quarterly Data
(1) Beginning
NAV $10,000,000
(2) Gross
Realized &
Unrealized
Trading
Profit
(Loss) 1,200,000 ($600,000 realized and $600,000 unrealized)
(3) Interest Income 125,000 (Assumes Annual Interest of
5% = 1.25% quarterly)
(4) NAV Subtotal 11,325,000
(5) Fees for
Brokerage
Services
and Related
Out-of-Pocket
Costs <219,422> (NAV Subtotal Less Brokerage
Fee: 7.75% Annually = 1.9375% quarterly)
(6) Advisory
Management
Fee <55,528> (Less the Management Fee:
2% Annually = .5% quarterly)
(7) Ending NAV $11,050,050 (Item (4) less Items (5) and
(6), before computation of
advisory incentive fee)
(8) Net Trading
Profit (Loss) $ 925,050 (Gross Profits in Item (2)
minus the sum of Brokerage
Fees in Item (5) and
Advisory Management Fees in
Item (6))
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C. Incentive Fee Calculation
The incentive fee is paid on Net Trading Profit (loss)
only, which is calculated by deducting Brokerage
commissions and Advisory Management Fees from Gross
Trading Profit (Loss). See Item (8) above. Thus, using
Series A as an example, Series A's incentive fees would
be determined as follows:
$925,050 [Item (8)] 23% = $212,762
If in the next quarter, the Trading Advisor experienced
Net Trading Losses computed on both a realized and
unrealized basis, it would not receive another incentive
fee until it recouped its losses and achieved New High Net
Trading Profits (both realized and unrealized). For
example, if the Net Trading Losses equal $500,000, the
Trading Advisor must achieve Net Trading Profits in excess
of $500,000, and will then be paid an incentive fee only
on the excess - that is, on the New High Net Trading
Profits.
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
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"Exchange of Interests" under "The Offering." 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 16 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.
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
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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; (vii) any assets of the Series traded by a
Trading Advisor are allocated to a new trading advisor for
that Series; or (viii) other good cause is shown and the
written consent of the Managing Owner is obtained (which shall
not unreasonably be withheld).
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
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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 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).
Each Trading Advisor has also represented to the Managing
Owner that there will be no material interruption in their
provision of advisory services due to the advent of the "Year
2000." The Managing Owner has made the same representation to
each Trading Advisor that there will be no material
interruption in carrying out its obligations under the
Advisory Agreements due to the advent of the Year 2000. The
"Year 2000" is a potential computer calculation problem caused
by software that processes years as only two digits, rather
than four. A computer program that has time-sensitive
software may recognize a date ending in "00" as the year 1900
rather than 2000, resulting in miscalculations and
interruption of service.
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.
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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."
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.
Prudential Securities has represented to the Trust that
there will be no material interruption in their provision of
brokerage services due to the advent of the "Year 2000. "The
"Year 2000" is a potential computer calculation problem caused
by software that processes years as only two digits, rather
than four. A computer program that has time-sensitive
software may recognize a date ending in "00" as the year 1900
rather than 2000, resulting in miscalculations and
interruptions of service.
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.
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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 such persons, including
Affiliates of the Managing Owner, as it deems necessary for
the efficient operation of the Trust.
Notice of Material Changes
The Managing Owner is obligated to notify a Series'
Limited Owner within 7 days from the date of any material
change (a) in the Series' Advisory Agreement, (b) in the
calculation of the incentive fee paid to the Series' Trading
Advisor, and (c) affecting the compensation of any party
compensated by the Series.
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
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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.
Exchange Privilege
See "Exchange of Interests" and "How to Exchange" under
"The Offering."
Redemption of Interests
See "Redemption of Interests" and "How to Redeem" under
"The Offering."
Termination
Unless earlier dissolved, the term of each Series in the
Trust shall expire on December 31, 2047. 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
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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;
(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
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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. Because the Valuation Point for
the purposes of calculating Net Asset Value, fees,
subscriptions, redemptions and exchanges is the Friday of each
week, each Series will make its unaudited monthly report for
a four- or five-week period ending on the last Friday of each
calendar month.
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.
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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 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
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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 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
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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 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.
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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.
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
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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.
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,
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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.
THE FUTURES MARKETS
To understand the nature of the investments each Series
will make, subscribers should familiarize themselves with the
following information.
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.
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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.
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.
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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.
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
How Managed Futures Fit Into A Portfolio
Managed Futures is a sector of the futures industry made up
of professionals, or Commodity Trading Advisors ("CTAs") who on behalf
of their clients manage portfolios made up of futures and forward
contracts traded on exchanges around the world. Utilizing extensive
resources, markets can be accessed and monitored around the world,
24 hours a day. For over 20 years institutions and individuals has
grown to nearly $35 billion in assets under management.1 As the industry
has grown, so has the number, liquidity and efficiency of the futures
markets globally. Because Managed Futures encompass over 50 markets
worldwide, investors can gain global market exposure in their portfolios
as well as add non-financial investments. Thus, investing in a managed
futures fund can be an effective way to globally diversify a
portfolio.
A Managed Futures fund provides three benefits to an investor's
overall portfolio:
-Potential for both reduced volatility and enhanced returns
-Profit potential in any market environment
-Access to global and non-financial commodity markets
Potential for both reduced volatility and enhanced returns. Futures
and forwards exhibit more risk than stocks or bonds. However, adding a
Managed Futures fund has the potential to reduce overall portfolio
volatility and enhance returns. This potential benefit was chiefly
demonstrated in two key academic works. First Modern Portfolio Theory,
developed by the Nobel Prize Laureate economists Drs. Harry M. Markowitz
and William Sharpe, asserts that a portfolio of investments which
have positive returns and low to non-correlation with each other can
improve the risk/reward characteristics of the combined holdings.
In other words, a portfolio comprised of different investments,
which exhibit returns that are independent of each other (i.e.
non-correlated), can improve the risk profile of an investor's entire
portfolio.
Second, in his landmark study, Dr. John Lintner of Harvard University
was the first of many to specifically demonstrate that adding a Managed
Futures component to a portfolio can potentially enhance returns. Dr.
Lintner concluded that a portfolio of judicious investments which
include stocks, bonds, and Managed Futures "... show substantially
less risk at every possible level of expected return than portfolios
of stocks (or stocks and bonds) alone."2
This diversification effect of Managed Futures is demonstrated by
looking at the performance of Managed Futures compared to that of
U.S. bonds and international stocks during a major decline. When measured
against a decline in the stock and bond markets, the graph below shows
how Managed Futures would have provided the benefits of portfolio
diversification due to its non-correlation, or independent
performance, to stocks and bonds. However, this does not mean that the
returns of Managed Futures are negatively correlated (i.e. perform
opposite) to that of stocks and bonds, but that Managed Futures
is not correlated (i.e. performs independently) to stocks and bonds.
1As of December 31, 1997, Managed Accounts Reports.
2Lintner, John, "The Potential Role of Managed Commodity Financial
Futures Accounts (and/or Funds) in Portfolios of Stocks and Bonds."
Annual Conference of Financial Analysis Federation, May 1983.
Managed Futures Performance
Versus the Worst Declines of Stocks and Bonds Since 1985
(The Prospectus will show a bar chart with the top bars representing
the data for Managed Futures versus the same time period for the
other asset classes shown below.)
<TABLE>
<CAPTION>
U.S. Stocks U.S. Bonds Int'l. Stocks Managed Futures
<S> <C> <C> <C> <C>
Sept. '87 - Nov. '87 -29.58% 8.46%
Jun. '90 - Oct. '90 -14.69% 19.43%
Mar. '87 - Sep. '87 -5.27% 16.24%
Feb. '94 - Jun. '94 -5.76% 5.59%
Sep. '87 - Oct. '87 -15.33% -0.56%
Jan. '90 - Sep. '90 -30.58% 25.15%
</TABLE>
INVESTORS SHOULD BE AWARE THAT STOCKS, BONDS AND MANAGED FUTURES ARE VERY
DIFFERENT TYPES OF INVESTMENTS, EACH INVOLVING DIFFERENT INVESTMENT
CONSIDERATIONS AND RISKS, INCLUDING BUT NOT LIMITED TO LIQUIDITY, SAFETY,
GUARANTEES, INSURANCE, FLUCTUATION OF PRINCIPAL AND/OR RETURN, TAX FEATURES,
LEVERAGE AND VOLATILITY. SEE "NOTES TO APPENDIX PERFORMANCE CHARTS."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
For a complete view of correlation of U.S. Stocks, U.S. bonds and
International stocks, including a comparison of each Series'
Hypothetical Performance Summary and Statistics in comparison to
U.S. Stocks, U.S. Bonds and International Stocks, see "Comparative
Performance and Correlation Charts."
"Correlation" is a statistical measure (the "Correlation
Co-efficient") of the degree to which two variables are related.
Correlation is expressed as a number between -1 and 1, with a
negative number implying the variables tend to move in
opposite directions, while a positive number implies that the
variables move in the same direction. "Perfect" correlation is where
the Correlation Co-efficient equals 1; perfect "negative"
correlation is where the Correlation Co-efficient equals -1;
and perfect non-correlation, that is, independent movement, is
where the Correlation Co-efficient equals 0. Consequently,
the closer the correlation is to 0, the more independent the
two variables.
Following is the correlation of each Series' Pro Forma Monthly
Returns to the S&P 500 Index:
Series A
October 1995 -
December 1997 0.57 correlation
Series B
January 1992 -
December 1997 0.10 correlation
Series C
April 1992 -
December 1997 0.15 correlation
When considering these correlations, keep in mind that:
-The degree of correlation will be affected by the length of the time
period measured.
-The correlation that an investor experiences will be a function of when
the investment was made and how long the investment was held.
Past performance is not necessarily indicative of future results.
Hypothetical or simulated performance has certain limitations, as it
is subject to the benefit of hindsight. See "Eagle-FX System/Eagle-
Global System Proforma" under "Series A"; Eclipse Capital Global
Monetary Program Proforma" under "Series B"; and "HB & Co. Asset
Allocation Portfolio Proforma" under "Series C."
Profit potential in any market environment: With stocks and bonds,
investors typically buy securities which they believe will increase
in value, and they may have no strategy for when markets fall. Futures
contracts, on the other hand, can be easily sold short on the prospect
that the market will go down. As a result, declining markets may
also represent opportunities for Managed Futures.
Access to global and non-financial markets: Finally, over the
years the futures markets have expanded globally to include
investments in stock and bond indices, currencies, precious and base
metals, agricultural products and so forth. Investors can gain
access to over 50 financial and non-financial markets around the
globe. See "Managed Futures Charts."
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.
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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.
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.
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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. The following may, however, be relied
upon by prospective investors. 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 are urged
to 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 income tax
treatment of the Trust and the Limited Owners is as discussed
under this heading in all material respects and, accordingly,
may be relied upon by prospective investors in the Trust.
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.
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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
ading 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 ( 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.
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 IRS 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.
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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.
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.
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(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 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
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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.
(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
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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 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.
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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.
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
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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.
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.
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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."
(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 income (which could
not be offset by passive losses) rather than as passive
income. Temporary Treasury Regulation S1.469-IT(e)(6)
provides that, whether or not such activity is a trade or
business for other purposes, trading in commodities, stocks,
securities, options and other similar instruments (other than
as a market-maker or dealer) is not to be treated as a passive
activity for purposes of the passive activity loss limitation.
Based on temporary Treasury Regulation S1.469- 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.
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(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.
(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.
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(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 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.
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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 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
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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.
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.
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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, P.A., 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. In addition, all of the Securities and
Exchange Commission's public filings, including the public
filings of each Series, are available at the Commissions's Web
Site at http://www.sec.gov.
EXPERTS
The statements of financial condition of Series A,
Series B and Series C of World Monitor Trust, Prudential
Securities Futures Management Inc., Diversified Futures Trust
I, Diversified Futures Trust II, and Willowbridge Strategic
Trust included in this Prospectus have 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 "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.
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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.
Aggregate $$: All programs excluding Notional. Means
the aggregate amount of actual assets under the management of
the Trading Advisor in all programs as of the end of the
period covered by the capsule. This number excludes Notional
Funds.
Aggregate $$: All programs including Notional. Means
the aggregate amount of total assets under the management of
the Trading Advisor in all programs as of the end of the
period covered by the capsule. This number includes Notional
Funds.
Aggregate $$: in this program excluding Notional. Means
the aggregate amount of actual assets under the management of
the Trading Advisor in the program shown as of the end of the
period covered by the capsule. This number excludes Notional
Funds.
Aggregate $$: in this program including Notional. Means
the aggregate amount of total assets under the management of
the Trading Advisor in the program shown as of the end of the
period covered by the capsule. This number includes Notional
Funds.
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 the Monthly Rates of Return.
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.
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Commodity Broker. Means, under the NASAA Guidelines, any
person who engages in the business of effecting transactions
in commodity contracts for the account of other or for his own
account.
Commodity Contract. Means a contract or option thereon
providing for the delivery or receipt at a future date of a
specified amount and grade of a traded commodity at a
specified price and delivery point.
Commodity Futures Trading Commission. An independent
regulatory commission of the United States Government
empowered to regulate commodity futures transactions and other
commodity transactions under the CE Act, as amended.
Continuous Offering. The period following the conclusion
of the Initial Offering Period 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.
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.
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
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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.
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.
Largest 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.
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.
Monthly Rate of Return. Means net performance for the
month, in general, divided by beginning Net Asset Value for
the month.
NASAA Guidelines. Means the guidelines for the
Registration of Commodity Pool Programs imposed by the North
American Securities Administrators Association, Inc.
("NASAA").
Notional Funds. The amount by which the nominal account
size exceeds the amount of actual funds. Performance
summaries set forth herein 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. To qualify for
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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.
Net Asset Value. See Section 1.1 of the Trust Agreement
attached as Exhibit A.
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) 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.
Pyramiding. A method of using all or part of an
unrealized profit in a commodity contract position to provide
margin for any additional commodity contracts of the same or
related commodities.
Redemption Date. Means the first Dealing Day to occur
at least two (2) Business Days after the date the Managing
Owner has received a Redemption Request in proper order.
Redemption Price. Means the Net Asset Value per Interest
on the Valuation Point immediately preceding the Dealing Day
on which a Redemption will become effective.
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.
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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.
Standard Deviation. Means a measure of volatility of
returns. A statistical measure of risk that represents the
variability of returns around the mean (average) return. The
lower the standard deviation, the more widely dispersed the
returns are around the mean (average).
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 "Eagle's Trading Systems" under
"Series A," "Eclipse Capital's Trading Systems" under "Series
B" and "HB & Co.'s Trading Systems" under "Series C."
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
Report of Independent Accountants. . . . . . . . . . . . . . . . . .130
Statement of Financial Condition as of December 31,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131
Notes to Statement of Financial Condition . . . . . . . . . . . . . 132
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants. . . . . . . . . . . . . . . . . .136
Statement of Financial Condition as of December 31,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Notes to Statement of Financial Condition . . . . . . . . . . . . . 138
DIVERSIFIED FUTURES TRUST I
Report of Independent Accountants. . . . . . . . . . . . . . . . . .141
Statement of Financial Condition as of December 31, 1997
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
Notes to Statement of Financial Condition. . . . . . . . . . . . . .143
DIVERSIFIED FUTURES TRUST II
Report of Independent Accountants. . . . . . . . . . . . . . . . . .147
Statement of Financial Condition as of December 31, 1997 . . . . . .148
Notes to Statement of Financial Condition. . . . . . . . . . . . . .149
WILLOWBRIDGE STRATEGIC TRUST
Report of Independent Accountants. . . . . . . . . . . . . . . . . .153
Statement of Financial Condition as of December 31, 1997 . . . . . .154
Notes to Statement of Financial Condition. . . . . . . . . . . . . .155
129
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
Price Waterhouse LLP (LOGO)
Report of Independent Accountants
January 26, 1998
To the Interest Holders of
Series A, Series B and Series C of
World Monitor Trust
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Series A,
Series B and Series C of World Monitor Trust at December 31, 1997,
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 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 the managing
owner, and evaluating the overall statement of financial
condition presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
New York, New York
130
<PAGE>
WORLD MONITOR TRUST
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
Series A Series B Series C
-------- -------- --------
<S> <C> <C> <C>
Cash................................................................ $ 1,000 $ 1,000 $ 1,000
-------- -------- --------
-------- -------- --------
<CAPTION>
TRUST CAPITAL
<S> <C> <C> <C>
General Interests (10 Interests issued and outstanding for each
Series A, B and C, respectively)..................................
$ 1,000 $ 1,000 $ 1,000
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
131
<PAGE>
WORLD MONITOR TRUST
(a Delaware Business Trust)
NOTES TO STATEMENT 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 17, 1997. The Trust has not yet commenced
operations. The Trust will terminate on December 31, 2047 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 in each Series.
The Managing Owner is required to maintain at least a one percent 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 one hundred percent 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 one hundred percent of additional
capital raised from that Series during the continuous offering of Interests.
132
<PAGE>
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 date 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 four percent and three
percent, 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
fifty percent or more since the Friday of the immediately preceding week, the
Managing Owner will give notice to the Limited Owners within seven 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 two percent 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 twenty-three percent for each of Series A and C and
twenty percent 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
133
<PAGE>
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
which will include but are not limited to: brokerage services, accounting and
financial management, 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.
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 as further discussed below, 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 one
hundred percent of the interest earned on the average net assets of each Series
on deposit at PSI.
Each Series, acting through its Trading Advisor, may execute
over-the-counter, spot, forward and option foreign exchange transactions with
PSI. PSI will then engage in back-to-back trading with an affiliate,
Prudential-Bache Global Markets Inc. ('PBGM'). PBGM will attempt to earn a
profit on such transactions. PBGM will keep its prices on foreign currency
competitive with other interbank currency trading desks. All over-the-counter
currency transactions will be conducted between PSI and each Series pursuant to
a line of credit. PSI may require that collateral be posted against the
market-to-market position of each Series.
E. Credit and Market Risk
Since each Series' business will be to trade futures, forward (including
foreign exchange transactions) and options contracts, their 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 statement 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 statement 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 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 is not to
commingle such assets with other
134
<PAGE>
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.
135
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
Price Waterhouse LLP (LOGO)
Report of Independent Accountants
January 26, 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, 1997, 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
provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
New York, New York
136
<PAGE>
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
STATEMENT OF FINANCIAL CONDITION
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 3,498
Investments in partnerships 2,022,448
Receivable from partnerships 72,978
Other receivables 17,098
------------
Total assets $2,116,022
LIABILITIES & STOCKHOLDER'S EQUITY
Liabilities
Due to Parent and affiliates $2,049,214
Accounts payable and accrued expenses 34,634
------------
Total liabilities 2,083,848
------------
Commitments and Contingencies
Stockholder's Equity
Common stock (no par value,
2,000 shares authorized,
100 shares issued and outstanding) 100
Additional paid-in capital 9,600,000
Retained earnings 32,074
------------
9,632,174
Less: Noninterest-bearing demand notes due
from Prudential Securities Group Inc. (9,600,000)
------------
Total stockholder's equity 32,174
------------
Total liabilities and stockholder's equity $2,116,022
------------
</TABLE>
The accompanying notes are an integral part of this financial
statement.
Purchasers of Limited Interests have no interest in this company.
137
<PAGE>
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
NOTES TO STATEMENT OF FINANCIAL CONDITION
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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statement. Actual results could differ from those
estimates.
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.
At December 31, 1997, the Company's federal and state income tax
payables were $6,322 and $2,132, respectively, and were included in
Due to Parent and affiliates.
138
<PAGE>
C. Investments In Partnerships
The Company's investments in partnerships are carried at its share of
the underlying equity in the Partnerships' net assets. The Company's
investments in partnerships and its percentage ownership in those
partnerships are as follows:
Diversified Futures Trust I $ 675,170 1.0%
Willowbridge Strategic Trust 507,923 1.1
Diversified Futures Trust II 429,130 1.1
Prudential-Bache Capital Return
Futures Fund 2, L.P. 312,636 1.0
Prudential Securities Aggressive
Growth Fund L.P. 62,968 1.0
Prudential Securities Foreign
Financials Fund, L.P. 18,409 1.0
Signet Partners II, L.P. 11,640 1.1
Others 4,572 100.0
-----------
$2,022,448
------------
------------
The following represents combined condensed financial information for
the Partnerships in which the Company has an investment:
Assets $202,121,163
------------
------------
Liabilities $ 6,855,793
Partners' Capital 195,265,370
------------
Total $202,121,163
------------
------------
D. Related Parties
The Company has an interest-bearing loan payable to PSGI in the
amount of $1,961,818 at December 31, 1997 which bears interest at
PSGI's effective borrowing rate (7.0% at December 31, 1997) 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 $72,385 and is included in Due
to Parent and affiliates). The amount due from the Partnerships
related to these services ($25,365) is included in Receivable from
partnerships.
The Company's officers and directors are also officers of PSI.
139
<PAGE>
E. Stockholder's Equity
The Company maintains a net worth in accordance with the limited
partnership and trust agreements of the Partnerships.
The Company has noninterest-bearing demand notes receivable from PSGI
in the amount of $9,600,000 at December 31, 1997. These notes
receivable are classified as a reduction of Stockholder's Equity as
they represent capital subscribed but not funded. The demand notes
are partially collateralized by U.S. Government security reverse
repurchase agreements which contract amounts plus accrued interest
approximate $7,800,000 at December 31, 1997.
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.
140
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
Price Waterhouse LLP (LOGO)
Report of Independent Accountants
January 26, 1998
To the 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 at December 31, 1997, 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
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 the managing owner, and evaluating the overall
statement of financial condition presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
New York, New York
141
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Equity in commodity trading accounts:
Cash $65,565,864
Net unrealized gain on open commodity positions 4,447,026
-------------
Net equity 70,012,890
Other receivable 11,866
-------------
Total assets $70,024,756
-------------
-------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,973,508
Management fee payable 233,415
Incentive fee payable 305,704
-------------
Total liabilities 2,512,627
-------------
Commitments
Trust capital
Limited interests (348,652.217 interests outstanding) 66,836,959
General interests (3,522 interests outstanding) 675,170
-------------
Total trust capital 67,512,129
-------------
Total liabilities and trust capital $70,024,756
-------------
-------------
Net asset value per limited and general interests ('Interests') $ 191.70
-------------
-------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
Purchasers of Limited Interests have no interest in this Trust.
142
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
NOTES TO STATEMENT Of FINANCIAL CONDITION
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.
The Trading Manager determined that its Yen Financial Portfolio no longer met
its original investment objectives and therefore, terminated its Yen Financial
Portfolio effective March 31, 1997. Accordingly, 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%. 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
statement 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 passed
directly to the individual Interest holders. The Trust may be subject to other
state and local taxes in jurisdictions in which it operates.
143
<PAGE>
Profit and loss allocation, subscriptions, distributions and redemptions
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 month-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.
The Trust maintains its trading and cash accounts at PSI, the Trust's
commodity broker. Except for the portion of assets that is deposited as margin
to maintain forward currency contract positions as further discussed below, the
Trust's assets are maintained either on deposit with PSI or, for margin
purposes, with the various exchanges on which the Trust is permitted to trade.
PSI credits the Trust monthly with 100% of the interest it earns on the average
net assets in the accounts.
The Trust, acting through its Trading Manager, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and the Trust pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market position of the Trust.
144
<PAGE>
As of December 31, 1997, a non-U.S. affiliate of the Managing Owner owns
3,527.755 Limited Interests of the Trust.
E. Income Taxes
There are no differences between the tax basis and book basis of Interest
holders' capital for the year ended December 31, 1997.
F. 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 statement 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 statement 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 December 31, 1997, such segregated
assets totalled $32,697,304. 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 $36,591,632 at December 31, 1997. There are no segregation
requirements for assets related to forward trading.
As of December 31, 1997, the Trust's open forward and futures contracts
mature within one year.
145
<PAGE>
At December 31, 1997, gross contract amounts of open futures and forward
contracts are:
Financial Futures Contracts:
Commitments to purchase $323,162,224
Commitments to sell 164,238,663
Currency Forward Contracts:
Commitments to purchase 19,553,488
Commitments to sell 80,175,259
Other Futures Contracts:
Commitments to purchase 9,518,584
Commitments to sell 32,427,955
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 statement 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.
The following table presents the average fair value of futures and forward
contracts during the year ended December 31, 1997 and the related fair value at
December 31, 1997.
<TABLE>
<CAPTION>
Average Fair Value Fair Value
-------------------------------------- --------------------------------------
Assets Liabilities Assets Liabilities
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 559,707 $ 63,625 $ 436,575 $ --
Other 1,147,030 275,922 2,522,268 137,955
Foreign exchanges
Financial 1,917,123 296,742 1,204,856 371,572
Other 23,147 14,578 72,375 3,475
Forward Contracts:
Currencies 2,112,523 1,336,640 1,538,801 814,847
----------------- ----------------- ----------------- -----------------
$ 5,759,530 $ 1,987,507 $ 5,774,875 $ 1,327,849
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>
146
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
Price Waterhouse LLP (LOGO)
Report of Independent Accountants
January 26, 1998
To the Managing Owner and
Limited Owners of
Diversified Futures Trust II
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Diversified Futures
Trust II at December 31, 1997, 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
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 the managing owner, and evaluating the overall
statement of financial condition presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
New York, New York
147
<PAGE>
DIVERSIFIED FUTURES TRUST II
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Equity in commodity trading accounts:
Cash $37,579,053
Net unrealized gain on open commodity positions 3,021,016
------------
Total assets $40,600,069
------------
------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Incentive fee payable $ 479,939
Management fee payable 263,555
Commission payable 233,978
------------
Total liabilities 977,472
------------
Commitments
Trust capital
Limited owners (368,832.848 interests outstanding) 39,193,467
Managing owner (4,038.356 interests outstanding) 429,130
------------
Total trust capital 39,622,597
------------
Total liabilities and trust capital $40,600,069
------------
------------
Net asset value per interest $ 106.26
------------
------------
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
</TABLE>
Purchasers of Limited Interests have no interest in this Trust.
148
<PAGE>
DIVERSIFIED FUTURES TRUST II
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
A. General
Diversified Futures Trust II (the 'Trust'), a business trust organized under
the laws of Delaware on December 12, 1996, commenced operations on March 21,
1997 and will continue until December 31, 2016 unless terminated sooner as
provided in the Amended and Restated Declaration of Trust and Trust Agreement
('Trust Agreement'). The Trust was formed to engage primarily in the speculative
trading of a diversified portfolio of physical commodities, currencies, futures
contracts, options on futures contracts and on physical commodities, cash and
forward contracts, and other commodity-related 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. John W.
Henry & Company, Inc. (the 'Trading Advisor'), a professional trading manager,
makes the Trust's trading decisions.
Beneficial interests in the Trust ('Interests') are being privately offered
to accredited investors and a limited number of nonaccredited investors on a
continuous basis pursuant to Regulation D as adopted under Section 4(2) of the
Securities Act of 1933, as amended, up to a maximum of $75,000,000 of Interests.
On March 21, 1997, the Trust completed its initial offering with gross proceeds
of $20,411,273 from the sale of 204,112.726 Interests at $100 per Interest.
Additional Interests are being offered weekly at the then current net asset
value ('NAV') per Interest, with a minimum required capital contribution of
$25,000 for each new limited owner unless the Managing Owner, in its sole
discretion, approves a contribution of a lesser amount. Existing limited owners
are permitted to make additional purchases in $100 increments. The Managing
Owner may increase the maximum aggregate amount of Interests offered hereunder
with notice to the limited owners. As of December 31, 1997, $400,000 and
$38,445,278 has been contributed to the Trust by the Managing Owner and the
limited owners, respectively.
Redemptions are permitted on a weekly basis. Interests redeemed on or prior
to the end of the first and second successive six-month periods after their sale
will be subject to a redemption charge of four percent and three percent,
respectively, of the NAV at which they are redeemed. Redemption charges will be
paid to PSI. PSI will waive such charges if the Interests are being exchanged
for interests in another fund operated by the Managing Owner.
The Managing Owner shall contribute in cash to the capital of the Trust an
amount equal to 1.01% of the total limited owner capital raised during the
initial and continuous offering periods and is required to maintain at least a
one percent interest in the Trust as long as it is acting as the Managing Owner.
These requirements may be modified at the Managing Owner's discretion if the
Managing Owner is advised by tax counsel to the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes or otherwise adversely affect the
limited owners. The Managing Owner receives Interests in proportion to its
contribution.
Pursuant to the Trust Agreement, the Trust will cease trading and liquidate
all positions if the NAV of the Trust declines by more than fifty percent from
either the Trust's initial NAV or the Trust's NAV on the first day of the then
current calendar year, after adjusting, in each case for distributions,
redemptions and additional contributions to capital.
Beginning March 21, 1997, the Trading Advisor has managed one hundred percent
of the assets of the Trust pursuant to its Original Investment Program and its
Financial and Metals Portfolio. The Managing Owner retains the authority to
override trading instructions that violate the Trust's trading policies.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
149
<PAGE>
Commodity futures and forward transactions are reflected in the accompanying
statement of financial condition on trade date. The difference between the
original contract amount and market value of futures and forward contracts is
reflected as net unrealized gain or loss. Options transactions are reflected in
the statement of financial condition at market value, which is inclusive of the
net unrealized gain or loss. The market value of each contract is based upon the
closing quotation on the exchange, clearing firm or bank on, or through, which
the contract is traded.
Income taxes
The Trust is not required to provide for, or pay, any federal or state income
taxes. Income tax attributes that arise from its operations will be passed
directly to the individual limited owners. The Trust may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
The Trust allocates profits and losses for both financial and tax reporting
purposes to the 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. The Managing Owner does not intend to
make any distributions.
C. Fees
Organizational, offering, general and administrative costs
PSI or its affiliates pay the costs of organizing the Trust and offering its
Interests as well as administrative costs incurred by the Managing Owner or its
affiliates for services it performs for the Trust. These costs include, but are
not limited to, those discussed in Note D below. Routine legal, audit, postage
and other routine third party administrative costs also are paid by PSI or its
affiliates.
Management and incentive fees
The Trust pays the Trading Advisor a management fee at an annual rate of four
percent of the Trust's NAV allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts are paid monthly. The Trust
also pays the Trading Advisor an incentive fee equal to fifteen percent of such
Trading Advisor's 'New Trading Profits' (as defined in the advisory agreement
entered into between the Trading Advisor, the Managing Owner and the Trust) as
of the last Friday of each calendar quarter (the 'Incentive Measurement Date').
The incentive fee also accrues weekly. Additionally, an incentive fee with
respect to withdrawn assets, if any, is paid to the Trading Advisor upon a
withdrawal at any date which is not an Incentive Measurement Date, calculated as
if the withdrawal date were an Incentive Measurement Date.
Commissions
The Managing Owner and the Trust entered into a brokerage agreement (the
'Brokerage Agreement') with PSI to act as Commodity Broker whereby the Trust
pays a fixed fee for brokerage services rendered at an annual rate of 6.75% of
the Trust's NAV (before management and incentive fees). The fee is determined
weekly and the sum of such weekly amounts is paid monthly. From this fee, PSI
pays all of the Trust's 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 the Trust.
D. Related Parties
The Managing Owner or its affiliates perform services for the Trust, which
will include but are not limited to: brokerage services, accounting and
financial management, 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.
The Trust maintains its trading and cash accounts at PSI. Except for the
portion of assets that is deposited as margin to maintain forward currency
contract positions as further discussed below, the Trust's assets are maintained
either on deposit with PSI or, for margin purposes, with the various exchanges
on which the Trust is permitted to trade. PSI credits the Trust monthly with one
hundred percent of the interest it earns on the average net assets in the
accounts.
150
<PAGE>
The Trust, acting through its Trading Manager, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and the Trust pursuant to a line of credit. PSI may require that collateral
be posted against the market-to-market position of the Trust.
E. Income Taxes
There have been no differences between the tax basis and book basis of
partners' capital from the commencement of operations through December 31, 1997.
F. 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 statement of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts to be held by the Trust
as well as the liquidity of the markets in which the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Trust must rely solely on the credit of its broker (PSI) with
respect to forward transactions. The Trust presents unrealized gains and losses
on open forward positions as a net amount in the statement 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 Advisor to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI is the sole
counterparty or broker); limiting the amount of margin or premium required for
any one commodity or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the Trading Advisor as it, in good faith, deems
to be in the best interests of the 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 December 31, 1997, such segregated
assets totalled $20,727,101. Part 30.7 of the CFTC regulations also require PSI
to secure assets of the Trust related to foreign futures and options trading
which totalled $19,489,751 at December 31, 1997. There are no segregation
requirements for assets related to forward trading.
As of December 31, 1997, the Trust's open futures and forward contracts
mature within one year.
151
<PAGE>
At December 31, 1997, gross contract amounts of open futures and forward
contracts are:
Currency Forward Contracts:
Commitments to purchase $ 7,500,026
Commitments to sell 48,347,307
Financial Futures Contracts:
Commitments to purchase 203,563,601
Commitments to sell 102,596,777
Other Futures Contracts:
Commitments to purchase 10,290,938
Commitments to sell 23,779,092
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
Partnership 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 statement of financial condition. The market
risk associated with the Trust's commitments to purchase commodities is limited
to the gross contract amounts, 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.
The following table presents the average fair value of futures and forward
contracts during the year ended December 31, 1997 and the related fair value at
December 31, 1997.
<TABLE>
<CAPTION>
Average Fair Value Fair Value
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 328,267 $ (49,792) $ 272,581 $ --
Other 716,064 (267,456) 1,959,833 (228,362)
Foreign exchanges
Financial 1,280,646 (119,568) 798,443 (211,611)
Other 24,109 (10,432) 50,730 (3,815)
Forward Contracts:
Currencies 735,847 (514,295) 786,634 (403,417)
---------- ----------- ---------- -----------
$3,084,933 $(961,543) $3,868,221 $(847,205)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
152
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
Price Waterhouse LLP (LOGO)
Report of Independent Accountants
January 26, 1998
To the Managing Owner and
Limited Owners of
Willowbridge Strategic Trust
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Willowbridge
Strategic Trust at December 31, 1997, 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
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 the managing owner, and evaluating the overall
statement of financial condition presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
New York, New York
153
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Equity in commodity trading accounts:
Cash $46,416,620
Net unrealized gain on open commodity positions 2,451,210
Options, at market 362,402
-------------
Net equity 49,230,232
Other receivable 3,218
-------------
Total assets $49,233,450
-------------
-------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,385,332
Management fee payable 123,083
-------------
Total liabilities 1,508,415
-------------
Commitments
Trust capital
Limited interests (458,613.68 interests outstanding) 47,217,112
General interests (4,933.40 interests outstanding) 507,923
-------------
Total trust capital 47,725,035
-------------
Total liabilities and trust capital $49,233,450
-------------
-------------
Net asset value per limited and general interests ('Interests') $ 102.96
-------------
-------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
Purchasers of Limited Interests have no interest in this Trust.
154
<PAGE>
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
A. General
Willowbridge Strategic Trust (the 'Trust') was organized under the Delaware
Business Trust Statute on October 16, 1995 and commenced trading operations on
May 1, 1996. The Trust will terminate on December 31, 2015 unless terminated
sooner as provided in the Second Amended and Restated Declaration of Trust and
Trust Agreement (the 'Trust Agreement'). The Trust was formed to engage in the
speculative trading of commodity futures, forward and options contracts. The
Trustee of the Trust is Wilmington Trust Company. The managing owner is
Prudential Securities Futures Management Inc. (the 'Managing Owner'), a wholly
owned subsidiary of Prudential Securities Incorporated ('PSI'), which, in turn,
is a wholly owned subsidiary of Prudential Securities Group Inc. PSI is the
principal underwriter and selling agent for the Trust's interests (the
'Interests') as well as the commodity broker ('Commodity Broker') of the Trust.
The 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 $100,000,000 of limited
interests. On May 1, 1996, the Trust completed its initial offering with gross
proceeds of $12,686,200 from the sale of 125,352 limited interests and 1,510
general interests. Additional Interests are offered monthly at the then current
net asset value per Interest until January 31, 1998 (the 'Continuous Offering
Period'). Additional contributions raised during the Continuous Offering Period
through December 1997 resulted in additional proceeds to the Trust of
$45,856,400.
The Managing Owner, on behalf of the Trust, entered into an agreement (the
'Advisory Agreement') with Willowbridge Associates Inc., an independent
commodity trading manager (the 'Trading Manager') to make the Trust's
commodities trading decisions. The Managing Owner has made 100% of the Trust's
assets available for trading by the Trading Manager; however, the Managing Owner
retains the authority to override trading instructions that violate the Trust's
trading policies. The Managing Owner retains the right to retain additional or
substitute commodity trading managers at its discretion.
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
statement of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. Options transactions are reflected in the statement of financial condition
at market value, which is inclusive of the net unrealized gain or loss. The
market value of each contract is based upon the closing quotation on the
exchange, clearing firm or bank on, or through, which the contract is traded.
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 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
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 month-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.
155
<PAGE>
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 net asset value
per Interest until the Continuous Offering Period was terminated as discussed in
Note A.
Redemptions are permitted as of the last business day of each month, on at
least 10 days' prior written notice. Redemptions are at the then current net
asset value per Interest; however, Interests redeemed on or prior to the end of
the first and second successive six-month periods after their purchase are
subject to redemption charges of 4% and 3%, respectively, of the net asset value
at which they are redeemed. These redemption charges are paid to the Managing
Owner. Partial redemptions are permitted.
C. Fees
Organizational, offering and general and administrative costs
PSI or its affiliates pay the costs of organizing the Trust and offering its
Interests as well as administrative costs incurred by the Managing Owner or its
affiliates for services it performs for the Trust. These costs include, but are
not limited to, those discussed in Note D below. Routine legal, audit, postage
and other third party costs are also paid by PSI or its affiliates.
Management and incentive fees
The Trust pays the Trading Manager a monthly management fee of 1/4 of 1% (3%
per annum) of the Trust's net asset value as of the last day of each month and a
quarterly incentive fee of 20% of 'New High Net Trading Profits' (as defined in
the Advisory Agreement).
Commissions
The Managing Owner, on behalf of the Trust, entered into an agreement (the
'Brokerage Agreement') with PSI to act as Commodity Broker whereby the Trust
pays a fixed monthly fee for brokerage and other services rendered. The monthly
fee is equal to .64583 of 1% (7.75% per annum) of the Trust's net asset value as
of the first day of each month. From this fee, PSI pays all of the Trust's
execution (i.e., floor brokerage expenses, give-up charges and NFA, clearing and
exchange fees) and account maintenance costs, as well as compensation to
employees who sell Interests in the Trust.
D. Related Parties
The Managing Owner or its affiliates perform services for the Trust which
include but are not limited to: brokerage services, accounting and financial
management, registrar, transfer and assignment functions, investor
communications, printing and other administrative services. 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.
The Trust maintains its trading and cash accounts at PSI. Except for the
portion of assets that is deposited as margin to maintain forward currency
contract positions as further discussed below, the Trust's assets are maintained
either on deposit with PSI or, for margin purposes, with the various exchanges
on which the Trust is permitted to trade. PSI credits the Trust monthly with 80%
of the interest it earns on the average net assets in the accounts and retains
the remaining 20%.
The Trust, acting through its Trading Manager, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and the Trust pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market position of the Trust.
E. Income Taxes
There are no differences between the tax basis and book basis of Interest
holders' capital at December 31, 1997.
156
<PAGE>
F. 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 statement of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Trust must rely solely on the credit of its broker (PSI) with
respect to forward transactions. The Trust presents unrealized gains and losses
on open forward positions as a net amount in the statement 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 December 31, 1997, such segregated
assets totalled $42,384,065. 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 $6,852,627 at December 31, 1997. There are no segregation
requirements for assets related to forward trading.
As of December 31, 1997, all open futures, forward and options contracts
mature within one year.
As of December 31, 1997, gross contract amounts of open futures, forward and
options contracts are:
Financial Futures and Options Contracts:
Commitments to purchase $522,213,105
Commitments to sell 7,592,575
Currency Futures and Options
Contracts:
Commitments to purchase 101,737
Commitments to sell 74,270,062
Other Futures Contracts:
Commitments to purchase 29,375,203
Commitments to sell 1,551,520
Other Forward Contracts:
Commitments to purchase 939,873
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or options contract). The gross
157
<PAGE>
contract amounts significantly exceed the future cash requirements as the Trust
intends to close out open positions prior to settlement and thus is generally
subject only to the risk of loss arising from the change in the value of the
contracts. As such, the Trust considers the 'fair value' of its futures, forward
and options contracts to be the net unrealized gain or loss on the contracts
(plus premiums on options). Thus, the amount at risk associated with
counterparty nonperformance of all contracts is the net unrealized gain included
in the statement 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.
The following table presents the average fair value of futures, forward
and options contracts during the year ended December 31, 1997 and the related
fair value at December 31, 1997.
<TABLE>
<CAPTION>
Average Fair Value Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 451,587 $ 48,625 $ 792,100 $ 240,225
Currencies 1,062,719 235,250 624,975 89
Other 844,081 354,329 713,857 1,004,794
Foreign exchanges
Financial 458,503 138,751 1,621,656 46,687
Other 566,081 239,244 -- 3,123
Forward Contracts:
Other 8,777 19,953 -- 6,460
Options Contracts:
Domestic exchanges
Financial 24,081 -- 68,002 --
Currencies 47,927 294,400 --
Other 32,208 -- -- --
Foreign exchanges
Other 34,635 -- -- --
---------- ----------- ---------- -----------
$3,530,599 $ 1,036,152 $4,114,990 $ 1,301,378
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
158
<PAGE>
COMPARATIVE PERFORMANCE AND CORRELATION CHARTS
Series A
Trading Advisor: Eagle Trading Systems, Inc.
Program: Initial Allocation 50% Eagle-FX / 50% Eagle-Global
Focus: Diversified Portfolio with a Foreign Exchange Focus
Hypothetical Performance Summary
October 1995 through December 1997
Series A
U.S. U.S. Int'l. Hypothetical
Year Stocks1 Bonds2 Stocks3 Pro Forma4
1995 (Oct. - Dec.) 6% 5% 4% -6%
1996 23% 3% 6% 31%
1997 33% 10% 2% 24%
Summary Performance Statistics
October 1995 through December 1997
Series A
U.S. U.S. Int'l. Hypothetical
Stocks1 Bonds2 Stocks3 Pro Forma4
Hypothetical Value of $1000 $1,738 $1,182 $1,130 $1,520
Average Annual Return (Ann.) 25.61% 7.54% 6.17% 21.69%
Standard Deviation (Ann.) +-12.82% +-4.32% +-12.05% +-25.09%
Maximum Drawdown -5.60% -3.78% -10.64% -14.77%
Months to Recovery 4 9 5+ 5
Correlation to U.S. Stocks 1.00 0.55 0.62 0.57
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HYPOTHETICAL OR SIMULATED PERFORMANCE HAS CERTAIN LIMITATIONS AS IT IS
SUBJECT TO THE BENEFIT OF HINDSIGHT. SEE "EAGLE-FX SYSTEM/EAGLE-GLOBAL SYSTEM
HYPOTHETICAL PRO FORMA" UNDER "SERIES A".
1U.S. Stocks* - Standard & Poor's 500 Stock Index (dividends reinvested)
an unmanaged weighted index of 500 stocks
2U.S. Bonds* - Lehman Brothers' Government/Corporate Bond Index (coupons
reinvested)
3International Stocks* - Morgan Stanley's EAFE Index (dividends reinvested)
4Series A Pro Forma - Hypothetical composite of the actual
results obtained by utilizing Eagle Trading Systems Inc.'s Eagle-FX
and Eagle-Global Systems under the proposed fees structure, as detailed
in Capsule A(4).
*These indices are representative of equity and debt securities and are
not to be construed as an actively managed portfolio.
Sources: Standard & Poor's, Lehman Brothers, Lipper Analytical
Associates and Managed Accounts Report
159
<PAGE>
Series B
Trading Advisor: Eclipse Capital Management, Inc.
Program: Global Monetary Program
Focus: Diversified Portfolio with a Financial Focus
Hypothetical Performance Summary
January 1993 through December 1997
Series B
U.S. U.S. Int'l. Hypothetical
Stocks1 Bonds2 Stocks3 Pro Forma4
1993 10% 11% 33% 30%
1994 1% -4% 8% -13%
1995 38% 19% 12% 21%
1996 23% 3% 6% 28%
1997 33% 10% 2% 13%
Summary Performance Statistics
January 1993 through December 1997
Series B
U.S. U.S. Int'l. Hypothetical
Stocks1 Bonds2 Stocks3 Pro Forma4
Hypothetical Value of $1000 $2,515 $1,443 $1,740 $1,986
Average Annual Return (Ann.) 19.15% 7.46% 12.04% 14.67%
Standard Deviation (Ann.) +-10.67% +-4.59% +-13.69% +-13.31%
Maximum Drawdown -6.95% -5.76% -10.64% -23.07%
Months to Recovery 7 15 5+ 22
Correlation to U.S. Stocks 1.00 0.55 0.45 0.09
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HYPOTHETICAL OR SIMULATED PERFORMANCE HAS CERTAIN LIMITATIONS AS IT IS
SUBJECT TO THE BENEFIT OF HINDSIGHT. SEE "GLOBAL MONETARY PROGRAM PRO
FORMA" UNDER "SERIES B."
1U.S. Stocks* - Standard & Poor's 500 Stock Index (dividends reinvested)
an unmanaged weighted index of 500 stocks
2U.S. Bonds* - Lehman Brothers' Government/Corporate Bond Index (coupons
reinvested)
3International Stocks* - Morgan Stanley's EAFE Index (dividends reinvested)
4Series B Pro Forma - Hypothetical composite of the actual results obtained
by utilizing Eclipse Capital Management, Inc.'s Global Monetary Program
under the proposed fees structure, as detailed in Capsule B(5).
*These indices are representative of equity and debt securities and
are not to be construed as an actively managed portfolio.
Sources: Standard & Poor's, Lehman Brothers, Lipper Analytical
Associates and Managed Accounts Report
160
<PAGE>
Series C
Trading Advisor: Hyman Beck & Company, Inc.
Program: Asset Allocation Portfolio (1.5 leverage)
Focus: Asset Allocation Among Diversified Markets
Hypothetical Performance Summary
January 1993 through December 1997
Series C
U.S. U.S. Int'l. Hypothetical
Stocks1 Bonds2 Stocks3 Pro Forma4
1993 10% 11% 33% 20%
1994 1% -4% 8% -9%
1995 38% 19% 12% 32%
1996 23% 3% 6% 0%
1997 33% 10% 2% 31%
Summary Performance Statistics
January 1993 through December 1997
Series C
U.S. U.S. Int'l. Hypothetical
Stocks1 Bonds2 Stocks3 Pro Forma4
Hypothetical Value of $1000 $2,515 $1,443 $1,740 $1,904
Average Annual Return (Ann.) 19.15% 7.46% 12.04% 16.32%
Standard Deviation (Ann.) +-10.67% +-4.59% +-13.69% +-27.01%
Maximum Drawdown -6.95 -5.76% -10.64% -22.84%
Months to Recovery 7 15 5+ 20
Correlation to U.S. Stocks 1.00 0.55 0.45 0.15
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HYPOTHETICAL OR SIMULATED PERFORMANCE HAS CERTAIN LIMITATIONS AS IT IS
SUBJECT TO THE BENEFIT OF HINDSIGHT. SEE "THE ASSET ALLOCATION PORTFOLIO
PRO FORMA" UNDER "SERIES C."
1U.S. Stocks* - Standard & Poor's 500 Stock Index (dividends reinvested)
an unmanaged weighted index of 500 stocks
2U.S. Bonds* - Lehman Brothers' Government/Corporate Bond Index
(coupons reinvested)
3International Stocks* - Morgan Stanley's EAFE Index (dividends reinvested)
4Series B Pro Forma - Hypothetical composite of the actual results obtained
by utilizing Eclipse Capital Management, Inc.'s Global Monetary Program
under the proposed fees structure, as detailed in Capsule B(5).
*These indices are representative of equity and debt securities and are
not to be construed as an actively managed portfolio.
Sources: Standard & Poor's, Lehman Brothers, Lipper Analytical Associates
and Managed Accounts Reports
161
<PAGE>
Hypothetical Value of $1,000 Investment in Various Financial Indices:
January 1980 through December 1997
(The Prospectus will show a line chart which depicts the value of
$1000 compounded from January 1980 to December 1997 for each of
the four indices listed in the table below. For
demonstrative purposes, the values for each year end are listed.)
Managed
Futures* U.S. Stocks* U.S. Bonds* Int'l. Stocks*
$1,000 $1,000 $1,000 $1,000
Dec 1980 $1,530 $1,325 $1,031 $1,244
Dec 1981 $1,547 $1,260 $1,106 $1,231
Dec 1982 $1,626 $1,532 $1,449 $1,221
Dec 1983 $1,630 $1,877 $1,565 $1,521
Dec 1984 $1,925 $1,994 $1,801 $1,641
Dec 1985 $2,446 $2,627 $2,184 $2,572
Dec 1986 $2,522 $3,118 $2,525 $4,370
Dec 1987 $3,979 $3,282 $2,583 $5,460
Dec 1988 $4,561 $3,826 $2,779 $7,021
Dec 1989 $4,891 $5,038 $3,175 $7,779
Dec 1990 $6,226 $4,882 $3,437 $5,975
Dec 1991 $7,273 $6,369 $3,991 $6,722
Dec 1992 $7,994 $6,857 $4,293 $5,925
Dec 1993 $9,581 $7,547 $4,768 $7,877
Dec 1994 $9,514 $7,646 $4,600 $8,512
Dec 1995 $10,954 $10,519 $5,486 $9,495
Dec 1996 $12,571 $12,934 $5,645 $10,101
Dec 1997 $13,835 $17,247 $6,195 $10,308
INVESTORS SHOULD BE AWARE THAT STOCKS, BONDS AND MANAGED
FUTURES ARE VERY DIFFERENT TYPES OF INVESTMENTS, EACH INVOLVING
DIFFERENT INVESTMENT CONSIDERATIONS AND RISKS, INCLUDING BUT NOT
LIMITED TO LIQUIDITY, SAFETY, GUARANTEES, INSURANCE, FLUCTUATION
OF PRINCIPAL AND/OR RETURN, TAX FEATURES, LEVERAGE AND
VOLATILITY. SEE "NOTES TO APPENDIX PERFORMANCE CHARTS."
*SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
162
<PAGE>
Comparative Performance
Managed
Futures* U.S. Stocks* U.S. Bonds* Int'l. Stocks*
1980 53% 32% 3% 24%
1981 1% -5% 7% -1%
1982 5% 22% 31% -1%
1983 0% 23% 8% 25%
1984 18% 6% 15% 8%
1985 27% 32% 21% 57%
1986 3% 19% 16% 70%
1987 58% 5% 2% 25%
1988 15% 17% 8% 29%
1989 7% 32% 14% 11%
1990 27% -3% 8% -23%
1991 17% 30% 16% 12%
1992 10% 8% 8% -12%
1993 20% 10% 11% 33%
1994 -1% 1% -4% 8%
1995 15% 38% 19% 12%
1996 15% 23% 3% 6%
1997 10% 33% 10% 2%
INVESTORS SHOULD BE AWARE THAT STOCKS, BONDS AND MANAGED FUTURES ARE VERY
DIFFERENT TYPES OF INVESTMENTS, EACH INVOLVING DIFFERENT INVESTMENT
CONSIDERATIONS AND RISKS, INCLUDING BUT NOT LIMITED TO LIQUIDITY, SAFETY,
GUARANTEES, INSURANCE, FLUCTUATION OF PRINCIPAL AND/OR RETURN, TAX FEATURES,
LEVERAGE AND VOLATILITY. SEE "NOTES TO APPENDIX PERFORMANCE CHARTS."
*SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
163
<PAGE>
Correlations of Monthly Returns of Various Asset Classes 1980-1997
U.S. Stocks* U.S. Bonds* Int'l. Stocks* Managed Futures*
U.S. Stocks* 1.00
U.S. Bonds* 0.34 1.00
Int'l. Stocks* 0.46 0.23 1.00
Managed Futures* 0.03 0.06 -0.05 1.00
Correlation: is a statistical measure of the degree to which two
variables are related. It is expressed as a number between -1 and
1, with a negative number implying the variables tend to
move in opposite direction, while a positive number implies the
variables move in the same direction.
INVESTORS SHOULD BE AWARE THAT STOCKS, BONDS AND MANAGED FUTURES ARE VERY
DIFFERENT TYPES OF INVESTMENTS, EACH INVOLVING DIFFERENT INVESTMENT
CONSIDERATIONS AND RISKS, INCLUDING BUT NOT LIMITED TO LIQUIDITY, SAFETY,
GUARANTEES, INSURANCE, FLUCTUATION OF PRINCIPAL AND/OR RETURN, TAX FEATURES,
LEVERAGE AND VOLATILITY. SEE "NOTES TO APPENDIX PERFORMANCE CHARTS."
*SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
164
<PAGE>
Comparative Performance and Correlation:
Worst Peak-to-Valley Loss from 1980 through 1997
(The Prospectus will show a four bar chart with the values given below.)
Worst Peak-to-Valley Loss from 1980 through December 1997
Drawdown Start Trough
Managed Futures* -20.39% Oct. '82 July '83
U.S. Stocks* -29.58% Sep. '87 Nov. '87
Int'l. Stocks* -30.58% Jan. '90 Sep. '90
U.S. Bonds* -8.51% Jan. '80 Feb. '80
INVESTORS SHOULD BE AWARE THAT STOCKS, BONDS AND MANAGED FUTURES ARE VERY
DIFFERENT TYPES OF INVESTMENTS, EACH INVOLVING DIFFERENT INVESTMENT
CONSIDERATIONS AND RISKS, INCLUDING BUT NOT LIMITED TO LIQUIDITY, SAFETY,
GUARANTEES, INSURANCE, FLUCTUATION OF PRINCIPAL AND/OR RETURN, TAX FEATURES,
LEVERAGE AND VOLATILITY. SEE "NOTES TO APPENDIX PERFORMANCE CHARTS."
*SEE "NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
NOTES TO COMPARATIVE PERFORMANCE AND CORRELATION CHARTS
U.S. Stocks* - Standard & Poor's 500 Stock Index (dividends reinvested)
an unmanaged weighted index of 500 stocks.
International Stocks* - Morgan Stanley's EAFE Index (dividends
reinvested).
U.S. Bonds* - Lehman Brothers' Government/Corporate Bond Index
(coupons reinvested).
Managed Futures* - MAR Trading Advisor Qualified Universe Index is
the dollar-weighted, total return of approximately 307 commodity
traders tracked by Managed Account Reports as of December 31, 1997.
*These indices are representative of equity and debt securities and
are not to be construed as an actively managed portfolio.
Sources: Standard & Poor's, Lehman Brothers, Lipper Analytical
Associates and Managed Account Reports
Investors should be aware that stocks, bonds and managed futures are
very different types of investments, each involving different investment
considerations and risks, including but not limited to liquidity, safety,
guarantees, insurance, fluctuation of principal and/or return, tax
features, leverage and volatility. For example, trading in futures,
forward and options may involve a greater degree of risk than
investing in stocks and bonds due to, among other things, a greater
degree of leverage and volatility. Also, U.S. government bonds are
guaranteed by the U.S. government and, if held to maturity, offer both
a fixed rate of interest and return of principal.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
165
<PAGE>
MANAGED FUTURES CHARTS
Benefits of Managed Futures
Since 1974 U.S. futures have grown from consisting primarily of
agricultural contracts to include financial contracts, providing
greater diversification and flexibility.
(The Prospectus will show two pie charts one for 1974 and one
for 1997 with the categories and values listed below.)
Sector 1974* 1997*
Currencies 2% 6%
Agriculturals 82% 17%
Metals 15% 4%
Lumber & Energies 1% 12%
Interest Rates -- 55%
Stock Indices -- 6%
* Represented by the percentage of the number of contracts traded per year.
Source: Futures Industry Association, Washington, DC
166
<PAGE>
Determinants of Portfolio Performance
(The Prospectus will show a pie chart with the information given below.)
Market Timing 2%
Security Selection 6%
Asset Allocation 92%
Asset allocation is one of the most important factors in a portfolio's
performance.
Source: Used with permission. (c)1997 Ibbotson Associates, Inc. All
rights reserved. Data was provided by a study entitled "Determinants
of Portfolio Performance" by Gary Brinson, Financial Analysts
Journal, May/June 1991.
167
<PAGE>
EXHIBIT A
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST
Dated as of March 17, 1998
By and Among
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.,
WILMINGTON TRUST COMPANY
and
THE INTERESTHOLDERS
from time to time hereunder
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; THE TRUST . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . 1
SECTION 1.2 Name . . . . . . . . . . . . . . . . . . 7
SECTION 1.3 Delaware Trustee; Business Offices . . . 7
SECTION 1.4 Declaration of Trust . . . . . . . . . . 7
SECTION 1.5 Purposes and Powers. . . . . . . . . . . 8
SECTION 1.6 Tax Treatment. . . . . . . . . . . . . . 8
SECTION 1.7 General Liability of the Managing Owner. 9
SECTION 1.8 Legal Title. . . . . . . . . . . . . . . 9
SECTION 1.9 Series Trust. . . . . . . . . . . . . . 9
ARTICLE II
THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.1 Term; Resignation. . . . . . . . . . . . 10
SECTION 2.2 Powers . . . . . . . . . . . . . . . . . 10
SECTION 2.3 Compensation and Expenses of the Trustee 10
SECTION 2.4 Indemnification . . . . . . . . . . . . 11
SECTION 2.5 Successor Trustee. . . . . . . . . . . . 11
SECTION 2.6 Liability of Trustee . . . . . . . . . . 11
SECTION 2.7 Reliance; Advice of Counsel. . . . . . . 12
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS . . . . . . . . . . . 13
SECTION 3.1 General. . . . . . . . . . . . . . . . 13
SECTION 3.2 Limited Interests. . . . . . . . . . . 15
SECTION 3.3 Establishment of Series of Interests.. 23
SECTION 3.4 Establishment of Classes. . . . . . . 24
SECTION 3.5 Assets of Series. . . . . . . . . . . 24
SECTION 3.6 Liabilities of Series. . . . . . . . . 24
SECTION 3.7 Dividends and Distributions. . . . . . . 26
SECTION 3.8 Voting Rights. . . . . . . . . . . . . . 27
SECTION 3.9 Equality . . . . . . . . . . . . . . . . 27
SECTION 3.10 Exchange of Interests . . . . . . . . . 27
(i)
<PAGE>
ARTICLE IV
THE MANAGING OWNER . . . . . . . . . . . . . . . . . . 27
SECTION 4.1 Management of the Trust. . . . . . . . 27
SECTION 4.2 Authority of Managing Owner. . . . . . 28
SECTION 4.3 Obligations of the Managing Owner. . . 30
SECTION 4.4 General Prohibitions . . . . . . . . . 33
SECTION 4.5 Liability of Covered Persons . . . . . 34
SECTION 4.6 Indemnification of the Managing Owner. 34
SECTION 4.7 Expenses . . . . . . . . . . . . . . . 36
SECTION 4.8 Compensation to the Managing Owner . . 37
SECTION 4.9 Other Business of Interestholders. . . 37
SECTION 4.10 Voluntary Withdrawal of the Managing
Owner. . . . . . . . . . . . . . . . . . . 37
SECTION 4.11 Authorization of Registration Statement37
SECTION 4.12 Litigation. . . . . . . . . . . . . . 38
ARTICLE V
TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . 38
SECTION 5.1 General Prohibition. . . . . . . . . . 38
SECTION 5.2 Transfer of Managing Owner's General
Interests. . . . . . . . . . . . . . . . . 38
SECTION 5.3 Transfer of Limited Interests. . . . . 39
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS . . . . . . . . . . . . . 43
SECTION 6.1 Capital Accounts . . . . . . . . . . . 43
SECTION 6.2 Weekly Allocations . . . . . . . . .. 43
SECTION 6.3 Allocation of Profit and Loss for United
States Federal Income
Tax Purposes. . . . . . . . . . . . . . . 44
SECTION 6.4 Allocation of Distributions. . . . . . 44
SECTION 6.5 Admissions of Interestholders; Transfers44
SECTION 6.6 Liability for State and Local and Other
Taxes. . . . . . . . . . . . . . . . . . . 44
ARTICLE VII
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.1 Redemption of Interests. . . . . . . . 46
SECTION 7.2 Redemption by the Managing Owner . .. 48
SECTION 7.3 Redemption Fee . . . . . . . . . . . 48
SECTION 7.4 Exchange of Interests. . . . . . . . 48
(ii)
<PAGE>
ARTICLE VIII
THE LIMITED OWNERS . . . . . . . . . . . . . . . . . . 48
SECTION 8.1 No Management or Control; Limited
Liability. . . . . . . . . . . . . . . . . 48
SECTION 8.2 Rights and Duties. . . . . . . . . . . 49
SECTION 8.3 Limitation on Liability. . . . . . . . 50
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS . . . . . . . . . . . . . 51
SECTION 9.1 Books of Account . . . . . . . . . . . 51
SECTION 9.2 Annual Reports and Monthly Statements. 51
SECTION 9.3 Tax Information. . . . . . . . . . . . 51
SECTION 9.4 Calculation of Net Asset Value of a
Series . . . . . . . . . . . . . . . . . 51
SECTION 9.5 Other Reports. . . . . . . . . . . . . 52
SECTION 9.6 Maintenance of Records . . . . . . . . 52
SECTION 9.7 Certificate of Trust . . . . . . . . . 52
SECTION 9.8 Registration of Interests. . . . . . . 52
ARTICLE X
FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.1 Fiscal Year . . . . . . . . . . . . . 53
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS . . . . . . . . 53
SECTION 11.1 Amendments to the Trust Agreement . . 53
SECTION 11.2 Meetings of the Trust . . . . . . . . 55
SECTION 11.3 Action Without a Meeting. . . . . . . 55
ARTICLE XII
TERM . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 12.1 Term. . . . . . . . . . . . . . . . . 56
ARTICLE XIII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. . . . . . . . . . . . 56
SECTION 13.2 Distributions on Dissolution. . . . . 58
SECTION 13.3 Termination; Certificate of
Cancellation . . . . . . . . . . . . . . 58
(iii)
<PAGE>
ARTICLE XIV
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 59
SECTION 14.1 Power of Attorney Executed Concurrently59
SECTION 14.2 Effect of Power of Attorney . . . . . 60
SECTION 14.3 Limitation on Power of Attorney . . . 60
ARTICLE XV
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 60
SECTION 15.1 Governing Law . . . . . . . . . . . . . 60
SECTION 15.2 Provisions In Conflict With Law or
Regulations. . . . . . . . . . . . . . . . 61
SECTION 15.3 Construction. . . . . . . . . . . . . 61
SECTION 15.4 Notices . . . . . . . . . . . . . . . 61
SECTION 15.5 Counterparts. . . . . . . . . . . . . 62
SECTION 15.6 Binding Nature of Trust Agreement . . 62
SECTION 15.7 No Legal Title to Trust Estate. . . . 62
SECTION 15.8 Creditors . . . . . . . . . . . . . . 62
SECTION 15.9 Integration . . . . . . . . . . . . . 62
EXHIBIT A
CERTIFICATE OF TRUST
OF WORLD MONITOR TRUST. . . . . . . . . . . . . . . . 64
(iv)
<PAGE>
WORLD MONITOR TRUST
SECOND AMENDED AND RESTATED DECLARATION OF TRUST AND TRUST
AGREEMENT
This SECOND AMENDED AND RESTATED DECLARATION OF TRUST AND
TRUST AGREEMENT of WORLD MONITOR TRUST ("Trust Agreement")
is made and entered into as of the 17th day of March
1998, 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 entered into a Declaration
of Trust and Trust Agreement dated December 17, 1997 (the
"Initial Trust Agreement");
WHEREAS, the parties entered into an Amended and
Restated Declaration of Trust and Trust Agreement on
February 25, 1998 (the "Amended and Restated Trust
Agreement"); and
WHEREAS, the parties hereto desire to amend
certain provisions of the Amended and Restated Trust Agreement
related to the governance of the Trust and to restate 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
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.
<PAGE>
"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
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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 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.
"Incentive Fee" shall have the meaning set forth in
the Prospectus.
"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.
"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
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<PAGE>
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.
"Management Fee" shall have the meaning set forth in
the Prospectus.
"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 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
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<PAGE>
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.
"New High Net Trading Profits" shall have the meaning
set forth in the Prospectus.
"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.
"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).
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<PAGE>
"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, 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.
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<PAGE>
"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.
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 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
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<PAGE>
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 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
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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 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
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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 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
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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. 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
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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 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
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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 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
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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 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 Valuation Point of the week in which such
contributions were made.
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(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.
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
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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 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.
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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 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.
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(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 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
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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 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
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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 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
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Managing Owner up
to $500,000), the Managing Owner will admit all
accepted subscribers pursuant to the Prospectus into
the Trust as Series C 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,
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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 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 bearing escrow account at The Bank of New
York, in New York, N.Y. until the
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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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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
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other undertaking made or 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, demand 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
whatsoever against any other Series, the Trust
generally, or any of their respective assets;
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<PAGE>
(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.
(b) The Interests in a Series or a class of the
Trust shall represent beneficial interests in the Trust
Estate belonging to such
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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.
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
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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, provided,
however, that in no event shall the fees payable by
the Trust for such services exceed 14% annually of
the average Net Asset Value of each Series, excluding
the Series' assets not directly related to trading
activity, which fees shall include fees related to
out-of-pocket brokerage expenses, in accordance with
limitations imposed by Section IV. of the NASAA Guidelines
on March 17, 1998; and provided further, to the extent
that such limitations are amended to become more restrictive,
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) (A) 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 Management Fees and Incentive
Fees payable by the Trust for such services exceed
6% of a Series' Net Asset Value and 15% of a Series'
New High Net Trading Profits, respectively, except that
for each 1% reduction in Management Fees below 6% of a Series'
Net Asset Value, Incentive Fees may be increased by an
additional 2% of Net High Net Trading Profits; and (B)
administrative services necessary to the prudent operation of
the Trust, provided, however, that in no event shall the fees
payable by the Trust for administrative services (which do
not include Management Fees, Incentive Fees, or commodity
brokerage services, legal and audit services or extraordinary
expenses), when combined with Management Fees, exceed 6% annually
of the Net Asset Value of each Series, each in accordance with the
limitations set forth in Section IV, of the NASAA Guidelines
on March 17, 1998; provided, however, that to the extent that
such limitations are amended to become more restrictive, 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
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<PAGE>
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 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
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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.
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;
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(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 (i) 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 a description of the
Limited Owners' redemption rights as set forth in Section
7.1 hereof, and (ii) consent of the 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). No increase in such fees
shall take effect except at the beginning of a Fiscal
Quarter following consent of the Limited Owners as provided
in this subparagraph (g).
(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 as provided for in
the Prospectus) in any manner except as and to the extent
permitted by the NASAA Guidelines for the 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
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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) of, and not take any affirmative action to
reduce its "net worth" below $1,000,000, or such
higher amount as may be required under the
NASAA Guidelines as they may be amended from time to time.
The NASAA Guidelines define "net worth" as the excess of total
assets over total liabilities as determined by generally
accepted accounting principles.
(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
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.
(m) Notify the Interestholders within seven (7)
days from the date of:
(i) any material change in contracts with
any Series' Trading Advisor;
(ii) any material modification made in the
calculation of the Incentive Fee paid
to any Trading Advisor; and
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(iii) any material change affecting the
compensation of any person compensated
by a Series.
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;
(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;
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(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 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
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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 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
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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.
(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
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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 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
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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.
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
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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.
(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.
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(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.
(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
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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 "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
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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 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.
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ARTICLE VI
DISTRIBUTION AND ALLOCATIONS
SECTION 6.1 Capital Accounts. A capital account
shall be established for each Interestholder on the books
of the 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 Weekly Allocations. As of the close of
business (as determined by the Managing Owner) on the
Valuation Point of each week 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
(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
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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.
(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
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allocated to such Interestholders under Section 6.2 so as to
eliminate, to the extent possible, any disparity between an
Interestholder's book capital account and his tax capital
account, consistent with the principles set forth in
Sections 704(b) and (c)(2) of the Code.
(e) Notwithstanding this Section 6.3, if after
taking into account any distributions to be made with
respect to such Interest for the relevant period pursuant
to Section 6.4 herein, any allocation would produce a
deficit in the book capital account of an Interest, the
portion of such allocation that would create such a deficit
shall instead be allocated pro rata to the book capital
accounts of the other Interests held by the same
Interestholder (subject to the same limitation) and, as to
any balance, shall be allocated pro rata to the book
capital accounts of all the remaining Interestholders
(subject to the same limitation).
SECTION 6.4 Allocation of Distributions. Initially,
distributions shall be made by the Managing Owner, and the
Managing Owner shall have sole discretion in determining
the amount and frequency of distributions, other than
redemptions, which 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
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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 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
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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 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.
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(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).
(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 or portion 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, except
that an Exchange will be made on the first Dealing Day
following the date the Managing Owner is in receipt of an
Exchange Request for at least five (5) Business Days.
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 in Section
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8.3 hereof, each Limited Interest
owned by a Limited Owner shall be fully paid and no
assessment shall be made against any Limited Owner. No
salary shall be paid to any Limited Owner in his capacity
as a Limited Owner, nor shall any Limited Owner have a
drawing account or earn interest on his contribution.
SECTION 8.2 Rights and Duties. The Limited Owners
shall have the following rights, powers, privileges, duties
and liabilities:
(a) The Limited Owners shall have the right to
obtain information of all things affecting the Trust (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,
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(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
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 binding only
upon the assets and
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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 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
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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.
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
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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
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
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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 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
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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
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.
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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, 2047, 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 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.
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(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 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.
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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 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.
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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
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(c) This Trust Agreement and any documents which
may be required to effect an amendment to this Trust
Agreement approved under the terms of the Trust Agreement,
and the continuation of the Trust, the admission of the
signer of the Power of Attorney as a Limited Owner or of
others as additional or substituted Limited Owners, or the
termination of the Trust, provided such continuation,
admission or termination is in accordance with the terms of
this Trust Agreement.
SECTION 14.2 Effect of Power of Attorney. The Power
of Attorney concurrently granted by each Limited Owner to
the Managing Owner:
(a) Is a special, irrevocable Power of Attorney
coupled with an interest, and shall survive and not be
affected by the death, disability, dissolution,
liquidation, termination or incapacity of the Limited
Owner;
(b) May be exercised by the Managing Owner for
each Limited Owner by a facsimile signature of one of its
officers or by a single signature of one of its officers
acting as attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment
by a Limited Owner of the whole or any portion of his
Limited Interests; except that where the assignee thereof
has been approved by the Managing Owner for admission to
the Trust as a substituted Limited Owner, the Power of
Attorney of the assignor shall survive the delivery of such
assignment for the sole purpose of enabling the Managing
Owner to execute, acknowledge and file any instrument
necessary to effect such substitution.
Each Limited Owner agrees to be bound by any
representations made by the Managing Owner and by any
successor thereto, determined to be acting in good faith
pursuant to such Power of Attorney and not constituting
negligence or misconduct.
SECTION 14.3 Limitation on Power of Attorney. The
Power of Attorney concurrently granted by each Limited
Owner to the Managing Owner shall not authorize the
Managing Owner to act on behalf of Limited Owners in any
situation in which this Trust Agreement requires the
approval of Limited Owners unless such approval has been
obtained as required by this Trust Agreement. In the event
of any conflict between this Trust Agreement and any
instruments filed by the Managing Owner or any new Managing
Owner pursuant to this Power of Attorney, this Trust
Agreement shall control.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Governing Law. The validity and
construction of this Trust Agreement and all amendments
hereto shall be governed by the laws of the State of
Delaware, and the rights of all parties hereto and the
effect of every provision hereof shall be subject to and
construed according to the laws of the State of Delaware
without regard to the conflict of laws provisions thereof;
provided, however, that causes of action for violations of
federal or state securities laws shall not be governed by
this Section 15.1, and provided, further, that the parties
hereto intend that the provisions hereof shall control over
any contrary or limiting statutory or common law of the
State of Delaware (other than the Business Trust Statute)
and that, to the maximum extent permitted by applicable
law, there shall not be applicable to the Trust, the
Trustee, the Managing Owner, the Interestholders or this
Trust Agreement any provision of the laws (statutory or
common) of the State of Delaware (other than the Business
Trust Statute) pertaining to trusts which relate to or
regulate in a manner inconsistent with the terms hereof:
(a) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and
charges, (b) affirmative requirements to post bonds for
trustees, officers, agents, or employees of a trust, (c)
the necessity for obtaining court or other governmental
approval concerning the acquisition, holding or disposition
of real or personal property, (d) fees or other sums
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)
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the establishment of fiduciary or other standards or
responsibilities or limitations on the acts or powers of
trustees or managers that are inconsistent with the
limitations on liability or authorities and powers of the
Trustee or the Managing Owner set forth or referenced in
this Trust Agreement. Section 3540 of Title 12 of the
Delaware Code shall not apply to the Trust. The Trust
shall be of the type commonly called a "business trust,"
and without limiting the provisions hereof, the Trust may
exercise all powers that are ordinarily exercised by such
a trust under Delaware law. The Trust specifically
reserves the right to exercise any of the powers or
privileges afforded to business trusts and the absence of
a specific reference herein to any such power, privilege or
action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
SECTION 15.2 Provisions In Conflict With Law or
Regulations.
(a) The provisions of this Trust Agreement are
severable, and if the Managing Owner shall determine, with
the advice of counsel, that any one or more of such
provisions (the "Conflicting Provisions") are in conflict
with the Code, the Business Trust Statute or other
applicable federal or state laws, the Conflicting
Provisions shall be deemed never to have constituted a part
of this Trust Agreement, even without any amendment of this
Trust Agreement pursuant to this Trust Agreement; provided,
however, that such determination by the Managing Owner
shall not affect or impair any of the remaining provisions
of this Trust Agreement or render invalid or improper any
action taken or omitted prior to such determination. No
Managing Owner or Trustee shall be liable for making or
failing to make such a determination.
(b) If any provision of this Trust Agreement
shall be held invalid or unenforceable in any jurisdiction,
such holding shall not in any manner affect or render
invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Trust Agreement
in any jurisdiction.
SECTION 15.3 Construction. In this Trust Agreement,
unless the context otherwise requires, words used in the
singular or in the plural include both the plural and
singular and words denoting any gender include all genders.
The title and headings of different parts are inserted for
convenience and shall not affect the meaning, construction
or effect of this Trust Agreement.
SECTION 15.4 Notices. All notices or communications
under this Trust Agreement (other than requests for
redemption of Interests, notices of assignment, transfer,
pledge or encumbrance of Interests, and reports and notices
by the Managing Owner to the Limited Owners) shall be in
writing and shall be effective upon personal delivery, or
if sent by mail, postage prepaid, or if 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
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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.
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:
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PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:________________________
Name: Thomas M. Lane
Title: President
All Limited Owners now and
hereafter admitted as Limited
Owners of the Trust, pursuant
to powers of attorney now and
hereafter executed in favor
of, and granted and delivered
to, the Managing Owner
By:___________________________
Attorney-in fact
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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_______________________________
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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 two (2) 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 the effective date of purchase will pay a redemption
charge of 4% and 3% of the Series Net Asset Value at which they are
redeemed, respectively. I understand the effective date of purchase
means the date on which the applicable Series broke escrow if
subscription was made during the Initial Offering Period and for
subscriptions made during the Continuous Offering Period means the
applicable Dealing Day. 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>
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 TWO (2) BUSINESS DAYS' PRIOR TO THE DEALING
DAY ON WHICH YOUR REDEMPTION IS TO BECOME 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 two (2) 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, including all representations and warranties, 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
Totals in each column must be equal.
Series A $____________ or All Interests
Series B $____________ or All Interests
Series C $____________ or All Interests
C-1
<PAGE>
<PAGE>
Amount to be Purchased Upon Exchange
Series A $____________
Series B $____________
Series C $____________
<PAGE>
Total $_______________ Total $_______________
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
This Exchange Request is intended to be used for an even-value
exchange of Interests from one or more Series into one or more
different Series. This Exchange Request is not to be used to
redeem Interests or to purchase additional Interests of a
Series in which you are currently a Limited Owner.
C-2
<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)
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.
FOR USE BY PSI-FA ONLY
C-3
<PAGE>
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-4<PAGE>
<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 of Survivorship // Keogh Plan (no
(All tenants' Signatures required) common law employees)
// Tenants in Common (All tenants'
Signatures required)
// Community Property (Both Signatures // Other Employee Benefit
required) Plan (e.g.,
// Custodian // Pension, Profit Sharing,
Keogh plan
// Partnership with employees)
// Trust // Individual Retirement
Account (Non-PSI employees)
// UGMA or UTMA // INDIVIDUAL RETIREMENT
ACCOUNT (PSI employees)
5. Full Name of Account, Joint Owners, Trustee, if trust account,
Custodian, if custodian account or other Authorized Person, if
Partnership, Corporation or Institutional Trustee or Plan fiduciary
(No Initials).
__________________________________________________________________
Mailing Address. If trust or custodian account, address of
Trustee, Custodian or Plan Fiduciary.
__________________________________________________________________
City State Zip Code Country Business Telephone No.
or if none, Home No.
New Worth of Subscriber (exclusive of home, home furnishings and
automobiles): $______________
Annual Gross Income of Subscriber: $_______________
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 TELEPHONE NUMBER
FOR ALL ACCOUNTS
SUBSCRIBERS -- DO NOT SIGN WITHOUT READING THE "REPRESENTATIONS AND
WARRANTIES" AND "NOTICE OF RISKS TO SUBSCRIBERS" AND
"SUBSCRIBER(S) CONSENT AND SUBORDINATION AGREEMENT"
AT PARAGRAPH 12 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 in this
subscription agreement 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 (Print or Type Name of Signatory)
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 Date
Officer, Partner, Trustee
Custodian or Fiduciary)
--------------------------------------------------------------------
(Print or Type Name of Signatory)
D-5
<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.
____ (C) 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.
____ (D) 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.
____ (E) 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 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.
D-6
<PAGE>
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.
NOTICES TO SUBSCRIBERS
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
the effective date of purchase; (vi) Limited Owners will have limited
voting rights and no control over the Trust's business or 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, Interests are not listed on an exchange
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>
14. SUBSCRIPTIONS
The minimum subscription amount is $5,000 or $2,000 for trustees or
custodians of employee benefit plans, except in the case of certain
states (see State Suitability Requirements, attached). The purchase
price per Limited Interest is $100 during the Initial Offering Period
and is Series Net Asset Value during the Continuous Offering Period.
Incremental subscriptions in excess of the above minimums are permitted
in multiples of $100. 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'
Prospectus. 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 as set forth in the Prospectus.
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 SUBMITS 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.
15. SUITABILITY
If subscriber is an employee benefit plan, the investment in the
Limited Interests by such employee benefit plan is in compliance with
all federal laws relating to such plans. If the subscriber is a trust
under an employee benefit plan, none of the Trustee, the Managing Owner,
any Selling Agent or Additional Selling Agent, any of their respective
affiliates or any of their respective agents or employees: (i) has
investment discretion with respect to the investment of the assets of
such trust being used to purchase Limited Interests; (ii) has authority
or responsibility to give or regularly gives investment advice with
respect to such trust assets for a fee and pursuant to an agreement or
understanding that such advice will serve as the primary basis for
investment decisions with respect to such Plan or trust assets and that
such advice will be based on the particular investment needs of the
trust; or (iii) is an employer maintaining or contributing to the trust.
D-8
<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. I have authorized my selling agent to debit my
customer securities account in the amount of my subscription.
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 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.
D-9
<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-10
<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 $3,000.
Maine. . . . . . . (a)$225,000 NW, or (b) $100,000 NW and $100,000 AI.
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) $60,000 NW and $60,000
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) $250,000 NW, or (b) $125,000 NW and
$50,000 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-11
<PAGE>
WORLD MONITOR TRUST - SERIES B
The date of this Part II is March 23, 1998.
</R/
<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:
<TABLE>
<CAPTION>
Description Amount
<S> <C>
Securities and Exchange Commission filing
fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,735.00
NASD filing fee. . . . . . . . . . . . . . . . . . . . . . . . 3,800.00
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,159
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . 100,000
Accounting fees. . . . . . . . . . . . . . . . . . . . . . . . 10,000
Blue Sky registration fees and expenses . . . . . . . . . . . 40,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 9,306
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
</TABLE>
Item 14. Indemnification of Directors and Officers.
Reference is made to Section 4.6 of Article IV at pages
A-35 to A-36 of the Registrant's Second Amended and Restated
Declaration of Trust and Trust Agreement dated March 17,
1998, 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.
None other than those reported in the original
registration statement.
II-1
<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 Second Amended and Restated 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
II-2
* Previously filed
<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
23.2 The consent of Rosenman & Colin LLP
24.3 The consent of Richards, Layton & Finger
* Previously filed
(b) The following financial statements are included in
the Prospectus:
1. World Monitor Trust
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as
of December 31, 1997.
(iii) Notes to Audited Statement of
Financial Condition.
2. Prudential Securities Futures Management Inc.
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as
of December 31, 1997.
(iii) Notes to Audited Statement of
Financial Condition.
3. Diversified Futures Trust I
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as
of December 31, 1997.
(iii) Notes to Audited Statement of
Financial Condition.
II-3
<PAGE>
4. Diversified Futures Trust II
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as
of December 31, 1997.
(iii) Notes to Audited Statement of
Financial Condition.
5. Willowbridge Strategic Trust
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as
of December 31, 1997.
(iii) Notes to Audited Statement of
Financial Condition.
All schedules have been omitted as the required
information is inapplicable or is presented in the Statements
of Financial Condition or related notes.
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
20th day of March, 1998.
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 March 20, 1998
Thomas M. Lane Director
/s/ Eleanor L. Thomas Vice March 20, 1998
Eleanor L. Thomas President
Director
Laurence Norton, Jr.
/s/ Guy S. Scarpaci Director March 20, 1998
Guy S. Scarpaci
/s/ Barbara J. Brooks Chief Financial March 20, 1998
Barbara J. Brooks Officer and
Treasurer
/s/ Steven Carlino Chief Accounting March 20, 1998
Steven Carlino Officer and
Vice President
(Being the principal executive officer, the principal financial
officer, the principal accounting officer and a majority of the
directors of Prudential Securities Futures Management Inc.)
II-5
<PAGE>
As filed with the Securities and Exchange Commission on March 23, 1998
Registration No. 333-43041
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
EXHIBITS
FILED WITH
PRE-EFFECTIVE AMENDMENT NO. 2
TO
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 Second Amended and Restated
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. . . . . . . . . . . . . . . .
* Previously filed
<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 . . . . . . . . . . . . . .
23.2 The consent of Rosenman & Colin LLP . . . . . . . . . . . . . .
23.3 The consent of Richards, Layton & Finger. . . . . . . . . . . .
<PAGE>
* Previously filed
<PAGE>
EXHIBIT 5.1
[Letterhead of Rosenman & Colin LLP]
March 20, 1998
Prudential Securities Futures Management Inc.
Managing Owner
World Monitor Trust
One New York Plaza
New York, New York 10292-2013
Re: World Monitor Trust -
Series A, Series B, and Series C
Gentlemen:
We have acted as your counsel in connection with the
organization of World Monitor Trust, a Delaware business trust (the
"Trust"), and the preparation and filing with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Act"), of Registration Statements on Form S-1
(Registration Nos. 333-43033, 333-43041, and 333-43043,
respectively) filed with the SEC on December 22, 1997, as amended
(the Registration Statements") relating to the registration under
the Act of $34,000,000 of Series A Interests, $33,000,000 of Series
B Interests, and $33,000,000 of Series C Interests in the Trust
(individually, "Series A Interests," "Series B Interests," and
"Series C Interests," and collectively, the "Interests").
Capitalized terms used herein and not otherwise defined are used as
defined in, or by reference to, the Declaration of Trust and Trust
Agreement dated December 17, 1997 (the "Trust Agreement") by and
among Prudential Securities Futures Management, Inc., Wilmington
Trust Company, and the owners of the Interests.
In connection with the foregoing, we have examined originals
or copies, certified or otherwise identified to our satisfaction,
of such documents, records, certificates, agreements, and other
papers as we deemed necessary or appropriate to examine for the
purpose of this opinion, including the Registration Statements. In
such examinations, we have assumed, and not independently verified,
<PAGE>
the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to the
originals of all copies submitted to us as certified or conformed
or photostatic copies. As to any facts material to such opinion,
we have relied upon statements of representatives of the Trust.
In giving this opinion, we have relied as to all matters of Delaware
law exclusively on the opinion of even date of Messrs. Richards,
Layton & Finger, Delaware counsel to the Trust, and this opinion
is subject to the qualifications set forth therein.
Based upon and subject to the foregoing, it is our opinion
that the Interests to be offered for sale as described in the
Registration Statements, when sold in the manner and under the
conditions set forth therein, will be legally issued, fully paid,
and non-assessable.
This opinion speaks as of the date hereof, and we assume no
obligation to update this opinion as of any further date.
We hereby consent to the use of this opinion as an Exhibit to
the Registration Statements.
Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ Fred M. Santo
--------------------
Fred M. Santo
<PAGE>
EXHIBIT 5.2
[Letterhead of Richards, Layton & Finger, P.A.]
March 20, 1998
World Monitor Trust
c/o Prudential Securities Futures Management Inc.
One New York Plaza
New York, New York 10292
Prudential Securities Futures Management Inc.
One New York Plaza
New York, New York 10292
Re: World Monitor Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel to
World Monitor Trust, a Delaware business trust (the
"Trust"), in connection with the transactions
contemplated by the Declaration of Trust and Trust
Agreement, dated as of December 17, 1997 (the "Trust
Agreement"), by and among Prudential Securities Futures
Management Inc., a Delaware corporation (the "Managing
Owner"), Wilmington Trust Company, a Delaware banking
corporation (the "Trustee"), and the Interestholders from
time to time thereunder. This opinion is being delivered
to you at your request. Capitalized terms used herein
and not otherwise defined are used as defined in, or by
reference in, the Trust Agreement, except that reference
herein to any document shall mean such document as in
effect on the date hereof.
We have examined originals or copies of the
following documents:
(a) The Trust Agreement;
(b) A certified copy of the certificate of
trust of the Trust (the "Certificate of
Trust") which was filed with the Secretary
of State of the State of Delaware (the
"Secretary of State") on December 17, 1997;
<PAGE>
World Monitor Trust
Prudential Securities Futures Management Inc.
March 20, 1998
Page 2
(c) Each of the three registration statements
on Form S-1, filed by the Trust with the
Securities and Exchange Commission on
December 22, 1997 (collectively, the
"Registration Statements"), including a
preliminary prospectus (the "Prospectus")
relating to the Series A, Series B and
Series C beneficial interests in the Trust
(collectively, the "Limited Interests");
(d) A form of Subscription Agreement and Power
of Attorney, including a Subscription
Agreement and Power of Attorney Signature
Page of the Trust (the "Subscription
Agreement"), attached to the Prospectus as
Exhibit "D"; and
(e) A Certificate of Good Standing for the
Trust, dated February 26, 1998, obtained
from the Secretary of State.
We have not reviewed any documents other than the
foregoing documents for purposes of rendering our
opinions as expressed herein, and we have assumed that
there exists no provision of any such other document that
bears upon or is inconsistent with our opinions as
expressed herein. We have conducted no independent
factual investigation of our own but have relied solely
upon the foregoing documents, the statements and
information set forth therein and the additional matters
recited or assumed herein, all of which we have assumed
to be true, complete and accurate in all material
respects.
Based upon and subject to the foregoing and
subject to the assumptions, exceptions, qualifications
and limitations set forth hereinbelow, it is our opinion
that:
1. The Trust has been duly formed and is
validly existing as a business trust under the Delaware
Business Trust Act, 12 Del. C. S 3801 et seq. (the
"Act").
2. The provisions of the Trust Agreement will
be effective under the Act to establish the rights and
obligations of the Trustee, the Managing Owner and the
Limited Owners among themselves and with respect to the
Trust.
3. The Trust Agreement is the legal, valid and
binding obligation of the Trustee, the Managing Owner and
the Limited Owners, enforceable against the Trustee, the
Managing Owner and the Limited Owners, in accordance with
its terms.
4. Assuming that (i) separate and distinct
records are maintained for each Series of the Trust, (ii)
the assets associated with any such Series are held and
<PAGE>
World Monitor Trust
Prudential Securities Futures Management Inc.
March 20, 1998
Page 3
accounted for separately from the other assets of the
Trust, or any other Series thereof, (iii) the notice of
the limitation on liabilities of a Series provided in
Section 3804(a) of the DBTA is continuously set forth in
the Certificate of Trust, and (iv) the Trust Agreement
continuously provides for those matters described in (i),
(ii) and (iii) of this paragraph 4, under the DBTA and as
provided in the Trust Agreement, the debts, liabilities,
obligations, claims 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 not against the assets of the Trust generally
or any other Series.
5. The subordination provisions set forth
in the Subscription Agreement are valid and enforceable
against Limited Owners.
6. The Interests to be issued by the Trust
will be validly issued and, subject to the qualifications
set forth herein, will be fully paid and nonassessable
beneficial interests in the Trust, as to which the
Limited Owners, as beneficial owners of the Trust, will
be entitled to the same limitation of personal liability
extended to stockholders of private corporations for
profit under the General Corporation Law of the State of
Delaware, subject to the obligation of a Limited Owner to
make certain payments provided for in the Trust
Agreement.
The foregoing opinions are subject to the
following assumptions, exceptions, qualifications and
limitations:
A. We are admitted to practice law in the
State of Delaware, and we do not hold ourselves out as
being experts on the law of any other jurisdiction. The
foregoing opinions are limited to the laws of the State
of Delaware (excluding securities laws) currently in
effect. We have not considered and express no opinion on
the laws of any other state or jurisdiction, including
federal laws or rules and regulations thereunder.
B. We have assumed (i) that the Trust
Agreement constitutes the entire agreement among the
parties thereto with respect to the subject matter
thereof, including with respect to the creation,
operation, and termination of the Trust, and that the
Trust Agreement and the Certificate of Trust are in full
force and effect and have not been amended, (ii) except
to the extent set forth in paragraph 1 above, the due
creation, due formation or due organization, as the case
may be, and valid existence in good standing of each
party to the documents examined by us under the laws of
the jurisdiction governing its creation, formation or
organization, (iii) the legal capacity of each natural
person who is a party to the documents examined by us,
(iv) that each of the parties to the documents examined
by us has the power and authority to execute and deliver,
and to perform its obligations under, such documents, (v)
that each of the parties to the documents examined by us
has duly authorized, executed and delivered such
documents, (vi) that after the issuance and sale of the
Interests under the Registration
<PAGE>
World Monitor Trust
Prudential Securities Futures Management Inc.
March 20, 1998
Page 4
Statements and the Trust
Agreement, the dollar amount of the Interests issued by
the Trust will equal or exceed the minimum, and the
dollar amount of the Interests issued and reserved for
issuance by the Trust will not exceed the maximum, dollar
amount of Interests which may be issued by the Trust
under the Registration Statements and the Trust
Agreement; (vii) the due authorization, execution and
delivery to the Managing Owner of a Subscription
Agreement by each Limited Owner; (viii) the due
acceptance by the Managing Owner of each Subscription
Agreement and the due acceptance by the Managing Owner of
the admission of each Limited Owner as a beneficial owner
of the Trust; (ix) the payment by each Limited Owner to
the Trust of the full consideration due from it for the
Interests subscribed to by it; and (x) the Interests will
be offered and sold as described in the Registration
Statements and the Trust Agreement,
C. The opinions in paragraphs 2 and 3 above
are subject to (i) applicable bankruptcy, insolvency,
moratorium, receivership, reorganization, fraudulent
conveyance and similar laws relating to or affecting the
rights and remedies of creditors generally, (ii)
principles of equity, including applicable law relating
to fiduciary duties (regardless of whether considered
and applied in a proceeding in equity or at law) and
(iii) the effect of applicable public policy on the
enforceability of provisions relating to indemnification
or contribution.
D. We have assumed that all documents
submitted to us as originals are authentic, that all
documents submitted to us as copies conform with the
originals, that all signatures are genuine and that all
documents, in the forms submitted to us for our review,
have not been and will not be altered or amended in any
respect material to our opinions as stated herein.
E. The opinion expressed in paragraph 4 above
is subject to, and we express no opinion with respect to
(i) applicable avoidance actions, e.g., fraudulent
conveyance and preference laws (including S547 and S548
of the United States Bankruptcy Code), (ii) substantive
consolidation of a Series of the Trust with any other
Series or any other person, or (iii) principles of equity
(regardless of whether considered and applied in a
proceeding in equity or at law).
F. The opinion expressed in paragraph 5 above is
subject, as to enforcement, to the effect upon the Subscription
Agreement of (i) bankruptcy., insolvency, moratorium, receivership,
reorganization, liquidation, fraudulent transfer and other similar
laws relating to or affecting the rights and remedies of creditors
generally, and (ii) principles of equity, including applicable law
relating to fiduciary duties (regardless of whether considered
and applied in a proceeding in equity or at law).
G. We have not participated in the preparation
of any offering materials with respect to the Interests
(including the Registration Statements) and assume no
responsibility for their contents.
<PAGE>
World Monitor Trust
Prudential Securities Futures Management Inc.
March 20, 1998
Page 5
This opinion is rendered for your
benefit and may be relied upon by you in connection with
the matters addressed herein. This opinion may also be
relied upon by Messrs. Rosenman & Colin LLP when
rendering its opinions in connection with the Trust's
Registration Statements and in connection with the offer
and sale of the Interests. Except as stated above,
without our prior written consent, this opinion may not
be furnished or quoted to, or relied upon by, any person
or entity for any purpose.
We hereby consent to the use of this opinion as
an exhibit to the opinion of Rosenman & Colin LLP to be
filed as an exhibit to the Registration Statements filed
with the Securities and Exchange Commission. 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 thereunder.
Very truly yours,
/s/Richards, Layton & Finger, P.A.
<PAGE>
[Letterhead of Rosenman]
March 20, 1998
World Monitor Trust
c/o Prudential Securities
Futures Management, Inc.
One New York Plaza
13th Floor
New York, New York 10292-2013
Re: World Monitor Trust -
Series A, Series B, and Series C
Gentlemen:
We have acted as your counsel in connection with the
organization of World Monitor Trust, a Delaware business
trust (the "Trust"), and the preparation and filing with the
Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "Act"), of
Registration Statements on Form S-1 (Registration Nos. 333-
43033, 333-43041, and 333-43043, respectively filed with
the SEC on December 22, 1997, as amended from time to
time (collectively, the "Registration Statements") relating
to the registration under the Act of $34,000,000 of
Series A Interests, $33,000,000 of Series B Interests, and
$33,000,000 of Series C Interests in the
Trust (the Series A Interests, Series B Interests and Series
C Interests are referred to collectively as, the
"Interests"). Capitalized terms used herein and not
otherwise defined are used as defined in, or by reference
to, the Amended and Restated Declaration of Trust and Trust
Agreement dated February 25, 1998 (the "Trust Agreement") by and
among Prudential Securities Futures Management, Inc. (the
"Managing Owner"), Wilmington Trust Company (the "Trustee"),
and the limited owners of the Interests (individually,
"Limited Owner" and, collectively, the "Limited Owners").
The Prospectus, Subscription Agreement, Registration
Statements and Trust Agreement, among other documents and
other Agreements (as defined below), provide, in relevant
part, that the debts, liabilities, obligations, claims and
expenses (collectively "Claims") incurred, contracted for or
otherwise existing solely with respect to a particular
Series (a "Contracting Series") shall be enforceable only
against the Contracting Series and the
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 2
assets of such Contracting Series (the "Contracting Series Assets"),
as well as against the Managing Owner and its assets, and not against
any other Series or the Trust generally or any of their
respective assets (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"). The
Contracting Series Assets 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 the Contracting Series,
including, without limitation, funds delivered to the Trust
for the purchase of Interests in a Series.
In connection with the preparation and submission of the
Registration Statements, you have requested our opinion with
respect to the issue (the "Trust Bankruptcy Issue") of
whether, in a case under Title 11 of the United States Code
(the "Bankruptcy Code") in which the Trust is the debtor, a
creditor or Limited Owner with respect to a particular
Series who has executed a Written Consent (as such term is
defined below) would have valid legal grounds to have a
court disregard the Inter-Series Limitation on Liability
such that the assets of the other Series or the Trust
generally become available to satisfy the Claims or
Interests of such creditor or Limited Owner.
With the exception of the Trust Bankruptcy Issue, and in
rendering our opinion with respect to the Trust Bankruptcy
Issue, we have relied, with your permission and without
independent investigation, on the opinion of Delaware
counsel to the Trust, Messrs. Richards, Layton & Finger,
dated the date hereof and
1 DBTA Section 3804 (a) 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. This opinion discusses Claims
against or Interests in a particular Series in accordance with
the Inter-Series Limitation on Liability and DBTA Section 3804(a).
For ease of understanding, this opinion makes reference to Claims
against, Interests in, or agreements with a Series and to assets
of a Series. As the Trust is the only legal entity involved in
the transaction, those references herein are actually references
to Claims against, Interests in and agreements with the Trust, where
the non-Trust party (i.e., a creditor or Interest Holder), by
agreement or operation of law, has limited recourse for such Claims
or Interests to specific assets of the Trust belonging or
attributable to a particular Series within the Trust.
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 3
delivered to you contemporaneously
herewith (the "Richards, Layton & Finger Opinion") and
described hereinbelow, as to all of the matters described
therein, including the validity and enforceability (other
than as may be affected by application of federal bankruptcy
law) of the Inter-Series Limitation on Liability. We do not
opine in any manner upon any of such matters or the other
matters referred to in the Richards, Layton & Finger
Opinion. Our opinion is limited solely to the Trust
Bankruptcy Issue.
As to factual matters material to our opinion, we have
relied upon the representations and covenants in the
Registration Statements and the Trust Agreement and in the
Certificate of Eleanor L. Thomas, a Vice President of the
Managing Owner, a copy of which Certificate is attached
hereto.
In rendering the opinions set forth herein, we have examined
executed originals, or certified or photostatic copies of
executed originals, of the Richards, Layton & Finger
Opinion, the Trust Agreement and the Registration
Statements. We have also examined such other records,
documents and instruments as we have deemed necessary or
appropriate to enable us to render the opinions contained
herein.
In our examination, we have assumed (i) the genuineness of
all signatures, (ii) the legal capacity and competency of
natural persons, (iii) the authenticity of all documents
submitted to us as originals, (iv) the conformity with the
original documents of all documents submitted to us as
certified or photostatic copies and (v) the authenticity and
completeness of the originals of such documents. In
rendering this opinion, we have also assumed that (a) the
Trust Agreement has been duly authorized, executed and
delivered by each party thereto, and is the legal, valid and
binding obligation of each party thereto and (b) all of the
actions and transactions contemplated by the Trust Agreement
and the Registration Statements to be taken and consummated
as of the date hereof will have in fact been taken and
consummated as of such date.
For purposes of this opinion, we have also assumed, with
your permission, that:
1. Each and every person and entity (including, without
limitation, each Limited Owner, creditor, the Trustee and
all persons or entities providing goods or services to the
Trust
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 4
generally,2 any Series or the Managing Owner on behalf
of the Trust or any Series) that enters into any agreement
of any type with the Trust generally, a Series or with the
Managing Owner on behalf of the Trust generally or any
Series, including, without limitation, any Subscription
Agreement relating to the purchase and sale of Interests,
brokerage agreement, escrow agreement, advisory agreement,
or underwriting agreement (the "Agreements"), will expressly
consent in writing (a "Written Consent") to (i) the Inter-
Series Limitation on Liability with respect to such person's
or entity's Claims or Interests, (ii) the subordination of
such person's or entity's Claims against or Interests in the
Trust generally or any Series or their respective assets --
other than (a) Interests in the Contracting Series that such
person or entity purchased pursuant to a Subscription
Agreement or similar agreement or (b) contractual Claims
against the Trust where recourse for the payment of such
Claims has by agreement been limited to the assets of a
Contracting Series -- to all other Claims against and
Interests in the Trust generally or any Series or their
respective assets, as the case may be, and (iii) if the
Claims of such person or entity against a Contracting Series
are secured in whole or in part, the waiver of any right to
have any deficiency Claims, in the event such security is
inadequate to satisfy such Claims, treated as an unsecured
Claim against the Trust generally or any other Series under
section 1111(b) of the Bankruptcy Code. Such Written
Consents may be contained within the agreement or contract
between the Trust and such creditor or Limited Owner. The
terms of the Written Consents are disclosed in the
Agreements and other operative documents relating to the
Trust, including, without limitation, the Prospectus, which
is a part of each of the Registration Statements, and the
Trust Agreement.
2. The Trust will observe and comply with the requirements
of Section 3804(a) of the DBTA so as to be entitled under
applicable state law to the Inter-Series Limitation on
Liability.
3. If the Trust and each of the Series were viewed as
separate legal entities, they would conduct their affairs in
such a manner that a court would not have valid legal
grounds to substantively consolidate the assets and
liabilities of the entities with one another. Substantive
consolidation is an equitable remedy whereby the assets of
and claims against two or more entities are
2 References herein to the "Trust generally" refer to
Claims against the Trust where the claimant has no direct
recourse to assets of any Series.
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 5
pooled together.
The assets and liabilities are then treated as if held and
incurred by one entity. Specifically: (i) the assets of
each Series and the Trust will be accounted for separately
and will not be commingled with the assets of another Series
or the Trust generally, as the case may be, (ii) each Series
and the Trust generally will maintain separate and distinct
books and records, (iii) the notice of the limitation on
liabilities of a Series provided in Section 3804(a) of the
DBTA is continuously set forth in the Certificate of Trust,
(iv) the Trust Agreement continuously provides for the
matters described in clauses (i), (ii) and (iii) of this
paragraph, (v) each Series and the Trust generally will
document their respective transactions with third parties,
including, without limitation, the Limited Owners, in a
manner which makes clear that only the specific Series or
the Trust generally, as the case may be, is liable for the
obligations incurred and is receiving the benefits with
respect to such transactions, provided that any person or
entity contracting with the Trust will agree by Written
Consent to look solely to the assets of a particular Series
for repayment of any Claims and not to the assets of the
Trust generally, (vi) shared overhead or other costs, if
any, will be allocated among the Series by the Trust fairly
and reasonably, (vii) each Series and the Trust generally
will use its own separate stationery and other business
forms, or if such stationery and forms used are those of the
Trust, they will make clear that they are being used on
behalf of a specific Series or the Trust generally, (viii)
when the Managing Owner communicates on behalf of a
particular Series or the Trust generally, the Managing Owner
will make clear in any such communication that it is
communicating on behalf of such specific Series or the Trust
generally and not on behalf of any other Series or the Trust
generally, as the case may be, (ix) when the Managing Owner
acts on behalf of a particular Series or the Trust
generally, the Managing Owner will act in the best interests
of such Series or the Trust generally and not in a manner
detrimental to any other Series or the Trust generally, as
the case may be, (x) each of the Series and the Trust
generally will be solvent and adequately capitalized upon
its formation and intends to remain adequately capitalized
during its respective existence, (xi) neither the assets nor
the creditworthiness of a specific Series or the Trust
generally will be held out as being available for the
payment of any liability of another Series or the Trust
generally, as the case may be, (xii) none of the Series or
the Trust generally will be contractually liable for the
obligations to a person or entity of another Series or the
Trust generally, provided that any person or entity
contracting with the Trust will agree by Written Consent to
look solely to the assets of a particular Series for
repayment of any Claims and not
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 6
to the assets of another
Series or the Trust generally, (xiii) each of the Series and
the Trust generally will not pledge its assets for the
benefit of another Series or the Trust generally, as the
case may be, and will not make loans or advances to another
Series or the Trust generally, as the case may be, (xiv)
each of the Series and the Trust generally will be able to
maintain its existence even if the other Series do not
exist, (xv) any known misunderstandings regarding the Inter-
Series Limitation on Liability and the separateness of the
assets and liabilities of each Series and the Trust
generally will be corrected, (xvi) each of the Series and
the Trust generally will not transact business with one
another and (xvii) any financial statements of the Trust
which consolidate the financial attributes of the Series
will disclose the existence of the Inter-Series Limitation
on Liability and disclose that the assets of one Series or
the Trust generally are not available to pay creditors or
the Limited Owners in another Series or the Trust generally,
as the case may be.
4. All natural persons involved in the transactions
contemplated herein have sufficient legal capacity to enter
into and perform their respective obligations under the
relevant documents, including, without limitation, the
Written Consents, and to carry out their roles in the
transactions.
5. Each party to the transactions contemplated herein has
satisfied all legal requirements that are applicable to it
to the extent necessary to make the documents to which it is
a party enforceable against it.
6. There has not been and will not be any fraud, duress or
undue influence affecting the transactions, or any other
legal ground, that would result in the unenforceability of
the Written Consents.
7. Creditors and Limited Owners with Claims against or
Interests in a Contracting Series, as the case may be, have
relied and will continue to rely on the Inter-Series
Limitation on Liability when providing goods and services to
or acquiring an Interest in such Contracting Series.
8. At any relevant point in time, there will be creditors
and Limited Owners with material Claims against or Interests
in a Contracting Series who would be prejudiced by the
disregard of the Inter-Series Limitation on Liability.
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 7
9. Any court ruling upon the issues which are the subject
of this opinion will fairly analyze existing case law after
hearing a competent presentation and argument of the
relevant facts and law.
Law and Conclusions
Unless Congress specifically declares otherwise by statute,
parties' rights against a debtor's bankruptcy estate are
governed by state law. In Butner v. United States, 440 U.S.
48 (1979), the Supreme Court noted that Congress has
generally left the determination of property rights in the
assets of a debtor's estate to state law. Accordingly,
property interests are created by and defined by state law.
Id. at 54-55.
The Written Consents will be set forth in the Agreements
that will be executed and delivered by all of the persons
and entities that enter into such Agreements with the Trust,
a Contracting Series or with the Managing Owner on behalf of
the Trust or any Series. Under the terms of the Written
Consents, such persons and entities will expressly consent
to (a) the Inter-Series Limitation on Liability, (b) the
subordination of such parties' Claims or Interests (other
than Claims against and Interests in the Trust, recourse
against which is limited to the assets of a Contracting
Series) (the "Subordination Clause") and (c) the waiver of
the right to have any deficiency Claim (i.e., the excess of
the amount of a Claim over the value of any security held
for that Claim) treated as an unsecured Claim against the
Trust or any Series (other than a Contracting Series) under
section 1111(b) of the Bankruptcy Code.
Based upon the Richards, Layton & Finger Opinion, the Subordination
Clause contained in the Written Consent would be enforceable and
would govern the rights of the parties under Delaware Law, and we
have assumed that the Subordination Clause contained in the Written
Consent would be enforceable and govern the rights of the
parties under other state laws generally. The
Subordination Clause subordinates the Claims and Interests
of creditors and the Limited Owners against the Series and
the Trust, as the case may be, in a manner that supports and
enforces the Inter-Series Limitation on Liability.
Enforcement of the Subordination Clause is tantamount to the
enforcement of the Inter-Series Limitation on Liability.
Section 510(a) of the Bankruptcy Code provides that a
"subordination agreement is enforceable in a case under this
title to the same extent that such agreement is enforceable
under applicable nonbankruptcy law." 11 U.S.C. S510(a). As
set forth in the legislative history, section 510(a)
requires the court to enforce subordination agreements.
House Report No. 95-595, 95th
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 8
Cong., 1st Sess. 359 (1977);
Senate Report No. 95-989, 95th Cong., 2d Sess. 74 (1978).
The courts have routinely upheld subordination agreements
generally. See, e.g., First Fidelity Bank, N.A., New Jersey
v. Midlantic National Bank (In re Ionosphere Clubs, Inc.),
134 B.R. 528, 533 (Bankr. S.D.N.Y. 1991) (since the
enactment of section 510(a), enforcement of subordination
provisions is no longer solely an application of the court's
equitable powers; it is mandated by statute); Mihalko v.
Continental Bank and Trust Co. (In re Mihalko), 87 B.R. 357,
364 (Bankr. E.D. Pa. 1988) ("prepetition subordination
agreements have long been enforceable in bankruptcy.").
The rights and obligations of the Limited Owners and the
creditors of the Trust arise from their respective written
agreements with the Trust and applicable state law. Such
agreements include the Agreements and the Written Consents
incorporated therein, which limit and govern the parties'
rights under state law, as discussed above. The Written
Consents also include the Subordination Clause. The
Subordination Clause appears consistent with section 510(a)
of the Bankruptcy Code and the case law interpreting that
section.
Absent some overriding public policy or contrary provision
of the Bankruptcy Code, under the circumstances described
herein (including, without limitation, the assumed
validity and enforceability of Section 3804(a) of
the DBTA), and assuming that each potential Limited Owner
and creditor of the Trust executes an Agreement that
contains a Written Consent, and recognizing no court
has passed on the Trust Bankruptcy Issue and, accordingly,
there is no controlling precedent that exists with respect
to the precise facts described herein, in our view,
a court having jurisdiction over the Trust's bankruptcy
would have the requisite authority to enforce the Written
Consents and the Inter-Series Limitation on Liability in
accordance with the parties' rights under state law and that
such enforcement would not be inequitable.
Opinion
Thus, relying on the facts, assurances, assumptions and
discussion set forth herein, and, in particular the
discussion in the immediately preceding paragraph, and on the
Certificate and subject to the limitations and qualifications
set forth herein, and based on the law as it currently exists,
recognizing that there is no reported case law (i.e., no
controlling precedent) on this point with respect to these
facts, although the matter cannot be free from doubt, we are of
the opinion that in a case under the Bankruptcy Code in
which the Trust is the debtor, a court would not disregard
the Inter-Series Limitation on Liability such that
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 9
the assets of the other Series or the Trust generally become
available to satisfy the Claims or Interests of creditors or
Limited Owners based on a request for that relief by a
creditor or Limited Owner with respect to a Contracting
Series who has executed and delivered a Written Consent.
The foregoing opinion is subject to the following
exceptions, qualifications and limitations:
In rendering the foregoing opinion, we have assumed that
enforcement of the Inter-Series Limitation on Liability does
not violate any provisions of any law or public policy of
any relevant jurisdiction, provided that for purposes of
this opinion we have opined, to the extent and based on the
facts and assumptions set forth herein, that a court would
not have valid legal grounds to conclude that enforcement of
the Inter-Series Limitation on Liability violates federal
bankruptcy law.
This opinion is limited solely to federal bankruptcy law and, to
the extent that we have relied on the Richards, Layton & Finger
Opinion, to the law of the State of Delaware. We express no
opinion as to any other laws or the laws of any other
jurisdiction.
This opinion should be interpreted in accordance with the
Special Report by the TriBar Opinion Committee, Opinions in
the Bankruptcy Context: Rating Agency, Structured Financing
and Chapter 11 Transactions, 46 Bus. Law 718 (1991).
This opinion is rendered for the benefit of the
Limited Owners, the Trust and the Managing Owner, provided
that each such party (except the Trust) has duly and validly
entered into all agreement required of them which are cited
and relied upon in this opinion. This opinion may not be relied
upon by any other person, firm or entity for any purpose.
This opinion may not be paraphrased, quoted or summarized,
nor may it be duplicated or reproduced, in whole or in part,
or otherwise referred to, nor may this opinion be filed with
or furnished to any governmental agency or other person or
entity, without our prior written consent; provided,
however, the Trust and the Managing Owner may include a
summary of this opinion acceptable to us in its Registration
Statements and we hereby consent to the use of this opinion
as an Exhibit to the Registration Statements.
<PAGE>
World Monitor Trust
c/o Prudential Securities Futures Management, Inc.
March 20, 1998
Page 10
<PAGE>
The opinions set forth herein are limited to laws as
currently in effect on the date hereof and to the facts as
they currently exist. We assume no obligation to revise or
supplement this opinion after the date hereof.
Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ Jeff J. Friedman
-----------------------
Jeff J. Friedman
<PAGE>
[Letterhead of Rosenman]
Tax Opinion
Exhibit 8.1
March 20, 1998
World Monitor Trust
c/o Prudential Securities Futures Management Inc.
One New York Plaza, 13th Floor
New York, New York 10292-2013
Re: World Monitor Trust - Series A, Series B, and
Series C
Gentlemen:
You have requested our opinion as to the status of
World Monitor Trust, a Delaware business trust (the
"Trust"), for federal income tax purposes, and as to certain
other matters.
In connection with your request, we have reviewed the
following documents: (a) the Declaration of Trust and Trust
Agreement of the Trust dated December 17, 1997, the
Amended and Restated Declaration of Trust and Trust
Agreement of the Trust dated February 25, 1998 and the
Second Amended and Restated Declaration of Trust and Trust
Agreement of the Trust dated March 17, 1998 (the "Trust
Agreement"), among Prudential Securities Futures Management
Inc., a Delaware corporation, as managing owner (the
"Managing Owner"), Wilmington Trust Company, a Delaware
banking company, as trustee, and those persons who execute
the Trust Agreement as owners of limited liability,
beneficial Interests of one of three separate and distinct
series: Series A, Series B, and Series C (each a "Series",
and collectively the "Interests", with the beneficial owners
of Interests in a Series being called an "Interestholder")
in the Trust; (b) the opinion letter of even date of
Richards, Layton & Finger, Delaware counsel to the Trust;
(c) the Form S-1 Registration Statements (including the
Prospectus contained in each Registration Statement) under
the Securities Act of 1933 with respect to the Trust as
filed with the Securities and Exchange Commission ("SEC") on
December 22, 1997, as amended (the "Registration
Statements"); (d) the exhibits to the Registration
Statements; and (e) such other documents as we have deemed
necessary or appropriate to review in rendering this
opinion. Capitalized terms used herein and not otherwise
defined are used as defined in, or by reference to, the
Trust Agreement.
<PAGE>
World Monitor Trust
March 20, 1998
Page 2
The Managing Owner has represented to us that:
(1) The Trust and each Series will be operated in
accordance with the Trust Agreement, the Prospectus and the
Delaware Business Trust Statute (as defined in the Trust
Agreement).
(2) The primary business and purpose of each Series of
the Trust is to engage in the speculative trading of
commodity futures, forward and option contracts. The
objective of the business of each Series of the Trust is the
appreciation of its assets on a long-term basis.
(3) Interests in the Trust will be offered in three
separate and distinct Series (Series A, Series B, and Series
C), up to an aggregate of $100,000,000 (Series A
$34,000,000; Series B $33,000,000; Series C $33,000,000).
The total minimum investment ("Subscription Minimum") which
is required for the commencement of the Trust's business in
a Series is as follows: Series A - $4,000,000; Series B -
$3,000,000; and Series C - $3,000,000.
(4) A principal activity of each Series of the Trust
will consist of buying and selling commodities not held as
inventory and futures, forwards and options with respect to
such commodities.
(5) None of the Series will make an election to be
taxed as a corporation under Treasury Regulation sections
301.7701-2 and 301.7701-3.
Under the terms of each Series' Advisory Agreement, the
Trading Advisor has agreed, that at least 90% of the gains
and income, if any, of each Series will be from buying and
selling commodities or futures, forwards and options on
commodities. In addition, the Managing Owner may impose
additional limitations on the trading activities of each
Series to assure that 90% of each Series income is
Qualifying Income.
In rendering this opinion, we have relied, without
independent investigation or verification, on the
Managing Owner's representations set forth above, and on
the facts and information set forth in the documents referred
to above, and on the opinion of even date of Messrs.
Richards, Layton & Finger, Delaware counsel to the Trust,
to the effect that: the Trust is duly organized and
validly existing as a business trust under Delaware law; the
provisions of the Trust Agreement will be effective under
<PAGE>
World Monitor Trust
March 20, 1998
Page 3
Delaware law to establish
the rights and obligations of the Limited Owners among
themselves and with respect to the Trust; and the Trust
Agreement is the legal, valid and binding obligation of the
trustee, the Managing Owner and the Limited Owners,
enforceable against them in accordance with its terms.
On the basis of our review of the aforementioned
documents, and the representations set forth above,
including those of the Managing Owner, the terms of the
Advisory Agreements which provide that at least 90% of each
Series' annual gross income will consist of interest income,
and income from buying and selling commodities or futures,
forwards and options on commodities, and the opinion of
Delaware counsel, and on the basis of federal income tax law
as currently in effect, including the Code, existing
judicial decisions and administrative regulations, rulings,
procedures and practice, it is our opinion that each Series
of the Trust will be classified as a separate partnership
and not as a corporation for federal income tax purposes,
and accordingly, the Limited Owners in each Series of the
Trust will be subject to federal income tax treatment
applicable to limited partners in a partnership.
In addition, we have reviewed the discussions relating
to tax matters under the heading "Risk Factors," under the
heading "Federal Income Tax Consequences" and elsewhere in
the Prospectus prepared in connection with the proposed offering
and sale of Interests. In our opinion, such discussions are accurate
as of the date hereof in all material respects insofar as it
relates to the federal income tax aspects of an investment
in a Series of the Trust.
We hereby consent to the use of this opinion as an
exhibit to the Registration Statements and to the use of
our name under the heading "Federal Income Tax Consequences".
Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ James A. Guadiana
------------------------
James A. Guadiana
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting
part of this Pre-Effective Amendment No. 2 to the Registration
Statements on Form S-1 (Nos. 333-43033, 333-43041, and 333-43043)
of our reports dated January 26, 1998 relating to the statements of
financial condition of Series A, Series B and Series C of World
Monitor Trust, Willowbridge Strategic Trust, Prudential Securities
Futures Management Inc., Diversified Futures Trust I, and
Diversified Futures Trust II, which appear in the Prospectus.
We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
New York, New York
March 20, 1998
<PAGE>
<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 "Federal Income Tax Consequences," "Legal
Matters" and "Experts".
New York, New York
March 20, 1998
/s/ Rosenman & Colin LLP
Rosenman & Colin LLP
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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 PA
Richards, Layton & Finger PA
Wilmington, Delaware
March 20, 1998
