<PAGE>
As filed with the Securities and Exchange Commission on September 14, 1999
Registration No. 333-83015
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WORLD MONITOR TRUST II -- SERIES E
(Exact Name of Registrant as Specified in its Charter)
Delaware 6799 13-4058319
(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)
Eleanor M. Thomas, Executive Vice President
Prudential Securities Futures Management Inc.
One New York Plaza, 13th Floor
New York, New York 10292-2013
(212) 214-1000
(Name, address and telephone number of agent for service)
Copies to:
Fred M. Santo, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
(212) 940-8800
Approximate date of commencement of proposed sale
to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /x/
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the
following box and list the Securities Act
registration statement number of the earlier
effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act
registration statement number of the earlier
effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act,
check the following box and list the Securities Act
registration statement number of the earlier
effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the
following box. / /
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------
Title of Each Proposed Maximum Amount of Registration
Class of Aggregate Offering Fee
Securities to Price
be Registered
- ------------------------------------------------------------------------------
Series D Interests $50,000,000.00 $13,900.00
inclusive of exchanges
of Interests from other
Series
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.
WORLD MONITOR TRUST II - SERIES E
Cross Reference Sheet Pursuant to Item 501(b) of
Regulation S-K Showing Location in
Prospectus of Items Required in Form S-1
Form S-1 Item Location in Prospectus
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages; Additional
Information
3. Summary Information, Risk Factors Summary of the Prospectus
and Ratio of Earnings to Fixed Risk Factors
Charges
4. Use of Proceeds The Series Segregated Accounts
5. Determination of Offering Price The Offering
6. Dilution N/A
7. Selling Security Holders N/A
8. Plan of Distribution How to Subscribe
The Offering
9. Description of Securities to Be Summary of Agreements-
Registered Trust Agreement
10. Interests of Named Experts and Counsel Experts
11. Information with Respect to the Registrant Structure of the Trust
Financial Statements
12. Disclosure of Commission Position on Summary of Agreements-Trust
Indemnification for Securities Act Agreement-Indemnification
Liabilities
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WORLD MONITOR TRUST II
Series D ($50 million), Series E ($50 million) and Series F ($50 million)
Minimum Initial Purchase $5,000 or $2,000 (for IRAs only)
in one or more series
Minimum Per Series $1,000
Minimum Additional Purchases $100 per series
Each series will trade speculatively in a
diversified portfolio of futures, forward
(including interbank foreign currencies) and/or
options contracts. Interests in each series will
be separately offered. The assets of each series
will be segregated from the other series. Each
series will be separately valued and independently
managed. Once trading begins, each week you will
be able to purchase additional interests, exchange
your interests in one series for interests in
another series or redeem your interests. Interests
will be priced at their net asset value as of the
end of each week.
Series Trading Advisor Minimum to Break Escrow
D Bridgewater Associates, Inc. $5 million
E Graham Capital Management,L.P. $5 million
F Campbell & Company, Inc. $5 million
- --These are speculative securities. Before you
decide whether to invest, read this entire
prospectus carefully and consider the "RISK
FACTORS" section that begins on page 17. In
particular, you should be aware that:
- - Futures, forward and options trading is
speculative, 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 for taxable income
from a series will exceed distributions to you.
- - If you redeem an interest in any series during
the first 12 full months following the effective
date of your purchase of that interest, you will be
charged a redemption fee except in defined
circumstances.
- - The fixed expenses of each series will require
estimated gains of 5.53% per annum (Series D),
5.63% per annum (Series E) and 5.32% per annum
(Series F) to break even. These break even amounts
increase if you have to pay redemption fees.
- - Transfers will be restricted, the interests
will not be exchange listed and no other secondary
market will exist for the interests.
- --You are required to make representations and
warranties in connection with this investment. You
are encouraged to discuss this investment with your
individual financial, legal and tax advisors.
- --Your liability for any series will not exceed your
investment in that series.
- --Subscription funds will be held in escrow at The
Chase Manhattan Bank, New York, New York during the
initial offering period and will not be subject to
fees or other deductions.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION (THE
"CFTC") HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THE TRUST NOR HAS THE CFTC PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
PRUDENTIAL SECURITIES PRUDENTIAL SECURITIES FUTURES
INCORPORATED MANAGEMENT INC.
Selling Agent and Managing Owner and Sponsor
Clearing Broker
The date of this prospectus is September 15, 1999
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
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 83 TO 87
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY
TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF
YOUR INITIAL INVESTMENT, AT PAGE 15.
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 PAGES 17 TO 23.
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
(all of which legally form a part of the
prospectus). We have not authorized anyone to
provide you with information that is different.
- --There is no guarantee that information in this
prospectus is correct as of any time after the date
appearing on the cover.
- --This prospectus must be accompanied by a recent
monthly report of the Trust.
- --Prudential Securities Incorporated (referred to as
Prudential Securities) and any additional sellers
must deliver any supplemented or amended prospectus
issued by the Trust.
- --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.
- --World Monitor Trust II (referred to as the 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.
- --You should not invest more than 10% of your
"liquid" net worth (exclusive of home, 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.
- --If you are an Individual Retirement Account
(referred to as an IRA), 401(k) or ERISA plan, you
should not invest more than 10% of your assets in
the Trust.
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TABLE OF CONTENTS
CFTC RISK DISCLOSURE STATEMENT 2
SUMMARY OF THE PROSPECTUS 5
Summary Of Fees And Expenses 14
Projected Twelve-Month Break-Even Analyses 15
RISK FACTORS 17
Trading And Performance Risks 17
Trading Advisor Risks 20
Trust And Offering Risks 21
Tax Risks 22
Regulatory Risks 23
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST 24
STRUCTURE OF THE TRUST 26
SERIES D 27
Bridgewater Associates And Its Principals 27
Bridgewater Associates' Trading Strategy 28
Bridgewater Associates' Past Performance For
All Of Its Clients 30
SERIES E 36
Graham Capital And Its Principals 36
Graham Capital's Trading Strategy 38
Graham Capital's Past Performance For All Of
Its Clients 42
SERIES F 48
Campbell & Company And Its Principals 48
Campbell & Company's Trading Strategy 50
Campbell & Company's Past Performance For All
of Its Clients 53
TRADING LIMITATIONS AND POLICIES 59
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING OWNER
AND AFFILIATES 61
DUTIES AND COMMITMENTS OF THE MANAGING OWNER 71
FIDUCIARY RESPONSIBILITIES 73
THE OFFERING 74
WHO MAY SUBSCRIBE 79
HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS 82
FEES AND EXPENSES 85
Charges To Be Paid By The Trust 85
Charges To Be Paid By Prudential Securities Or
Its Affiliates 89
Charges To Be Paid By Limited Owners 89
Projected Twelve-Month Break-Even Analysis 89
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SUMMARY OF AGREEMENTS 90
Advisory Agreements 90
Brokerage Agreement 91
Trust Agreement 92
THE FUTURES MARKETS 101
HOW MANAGED FUTURES FIT INTO A PORTFOLIO 105
U.S. FEDERAL INCOME TAX CONSEQUENCES 108
LEGAL MATTERS 111
ADDITIONAL INFORMATION 111
EXPERTS 111
GLOSSARY OF TERMS 112
INDEX TO CERTAIN FINANCIAL INFORMATION 117
FINANCIAL STATEMENTS 118
World Monitor Trust II -- Series D, Series E and
Series F 118
Managing Owner 124
Diversified Futures Trust I 129
EXHIBIT A -- FORM OF TRUST AGREEMENT A-1
EXHIBIT B -- FORM OF REDEMPTION REQUEST B-1
EXHIBIT C -- FORM OF EXCHANGE REQUEST C-1
EXHIBIT D -- FORM OF SUBSCRIPTION AGREEMENT D-1
State Suitability Requirements D-13
4
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SUMMARY OF THE PROSPECTUS
This summary outlines certain important aspects of
an investment in Series D, Series E and/or Series
F. You are referred to the Glossary beginning on
page 112 for the definition of any term you may not
understand.
The Trust The Trust was formed as a Delaware
Business Trust on April 22, 1999, with separate
series of interests. The principal offices of the
Trust and of Prudential Securities Futures
Management Inc. (referred to as the managing owner)
are located at One New York Plaza, 13th Floor, New
York, New York 10292-2013; phone (212) 778-7866.
The Series Currently, the Trust's interests
will be offered in three separate and distinct
series: Series D, Series E and Series F. Each
series will:
--Engage in the speculative trading of
a diversified portfolio of futures, forward
(including interbank foreign currencies) and/or
options contracts and may, from time to time,
engage in cash and spot transactions.
--Have a one-year renewable contract
with its own independent
professional trading advisor that will manage 100%
of that series' assets and that will make the
trading decisions for that series.
--Trade and account for its assets separately from the other
series and the other Trust assets.
--Segregate its assets from the other
series and maintain separate
and distinct records.
--Calculate the net asset
value (sometimes referred to as the NAV) of its
interests separately from the net asset value of
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 D Trading for Series D
will be directed by Bridgewater Associates, Inc.
(referred to as Bridgewater Associates).
Bridgewater Associates has been operating its
trading systems since April 1985. As of July 31,
1999, Bridgewater Associates had approximately $20
billion in investor funds under management.
Bridgewater Associates will direct trading for 100%
of Series D's assets pursuant to its Aggressive
Pure Alpha Futures Only System. Series D will
trade a portfolio of financial related instruments.
Series E Trading for Series E will be directed by
Graham Capital Management, L.P. (referred to as
Graham Capital). Graham Capital has been operating
its trading systems on behalf of clients since
February 1995. As of July 31, 1999, Graham Capital
had approximately $553 million in investor funds
under management. Graham Capital will direct
trading for 100% of Series E's assets according to
its Global Diversified Program. Series E will
trade a diversified portfolio including
approximately 80 global markets.
5
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Series F Trading for Series F will be directed by Campbell
& Company, Inc. (referred to as Campbell &
Company). Campbell & Company has been operating
its trading systems since April 1978 and is a
successor to a partnership originally organized in
January 1974. As of July 31, 1999, Campbell &
Company had approximately $1.645 billion in
investor funds under management. Campbell &
Company will direct trading for 100% of Series' F's
assets initially pursuant to The Financial, Metal &
Energy Small Portfolio (referred to as its the FME
Small Portfolio) which invests in a
broadly diversified futures portfolio of currency,
interest rate, stock index, metal and energy
contracts.
Risk Factors
To Consider 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 contracts trading is
speculative, volatile and highly leveraged, and 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, and you should not rely on
past performance to predict the results of an
investment in a series.
--Each series will be
traded by a single advisor rather than by
dispersing the risk among several advisors, and if
that advisor does not trade well, that series will
not be profitable. There is no guarantee that any
series will meet its intended objective.
--Your annual tax liability for any taxable income from a
series will exceed cash distributions to you from
the Trust.
--If you redeem an interest in any
series during the first 12 months following the
effective date of your purchase, you will be
charged redemption fees (4% in the first 6-month
period, 3% in the second 6-month period), except in
defined circumstances.
--Each series will have
large fixed expenses. Assuming a net asset value
of $5 million and interest income equal to 4.68%
annually, we estimate that the series' gains from
trading must be 5.53% per annum (Series D), 5.63%
per annum (Series E) and 5.32% per annum (Series F)
in order to break even. These break even amounts
increase if you have to pay redemption
fees.
--Although the Trust will offer weekly
purchase, exchange and redemption rights, liquidity
will be limited because of transfer restrictions
and because of the absence of any exchange listing
or secondary trading market for the
interests.
6
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Risk Factors
To Consider
(Continued) --Actual and potential conflicts of
interest will exist among Prudential Securities,
the managing owner and the trading advisors. For
example, conflicts related to 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 you, the investor.
--You will have limited
voting rights and no control over the Trust's
business.
--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 (referred to as the trustee). The trustee
has delegated to the managing owner all of the
power and authority to manage the business and
affairs of the Trust and has only nominal duties
and liabilities to the Trust.
The Managing
Owner The managing owner is a wholly-owned
subsidiary of Prudential Securities, and as the
managing owner it will:
--Administer the business and affairs of each series
(excluding commodity trading decisions, except in
certain limited, and essentially emergency,
situations).
--Make a contribution to each series in order to
maintain at least a 1% interest in the profits and
losses of each series at all times.
--Accept responsibility for the obligations of any
series whose liabilities exceed its
assets.
Prudential
Securities Prudential Securities, the parent company of the managing
owner, will be the Trust's selling agent and
clearing broker.
Its affiliates will also
indirectly engage in foreign currency forward
transactions with the various series for a profit.
Because of Prudential Securities' affiliation with
the managing owner, these arrangements have not
been negotiated at arm's length.
--All compensation
to Prudential Securities and its affiliates will be
within the limits of applicable regulatory
guidelines.
Limitation
Of
Liabilities The debts, liabilities, obligations, claims, and expenses of a
particular series will be charged against the
assets of that series only and not against the
assets of the Trust generally or against the assets
of any other series.
7
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Liabilities
You
Assume You cannot lose more than your investment in any
series, and you will not be subject to the losses
or liabilities of any series in which you have not
invested. We will receive opinions of Rosenman &
Colin LLP, counsel to the Trust, and Richards,
Layton & Finger, P.A., special Delaware counsel to
the Trust and the trustee. These opinions will
provide 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 and not to the assets of any other
series, provided that certain requirements are met.
These requirements include treating each series as
separate and distinct from the other series. See
the "Liabilities" section in the trust agreement
for a more complete explanation.
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 the
section in the subscription agreement (Exhibit D)
entitled "State Suitability Requirements.
--"You may not invest more than 10% of your liquid net
worth in any series or combination of
series.
--IRAs, 401(k) accounts and other employee
benefit plans are subject to special suitability
requirements.
--If your aggregate interests in all series, when
added to your aggregate interests in the various
series of World Monitor Trust, another public
futures fund sponsored by the managing owner, total
at least $5 million, you may receive a discount on
the purchase price of an interest and/or have any
applicable redemption fees waived.
What You
Must
Understand
Before You
Subscribe You should not subscribe for
interests unless you understand:
--The fundamental risks and possible financial hazards of this
investment.
--The trading strategy or strategies to be followed
in the series you invest in.
--The tax consequences of your investment in the series.
--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.
8
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Your Minimum
Subscription
And Interest
Pricing Minimum required subscriptions
and interest prices are as follows:
--Your minimum initial purchase is $5,000, unless you are
investing in an IRA in which case your minimum
initial investment is $2,000.
--You may purchase
interests in all or any combination of the series
so long as your total minimum subscription amount
is satisfied, but your minimum initial purchase in
any one series must be at least $1,000.
--Once a series commences trading, that series' interests
will be offered and sold at their weekly net asset
value; if you are an existing limited owner, you
may purchase additional interests in increments of
$100.
--No front-end sales charges or selling
commissions will be charged. A series' net asset
value will not be diluted by the Trust's
organization and offering expenses because
Prudential Securities or an affiliate will be
responsible for payment of those expenses.
How To
Subscribe To subscribe for and be permitted to
purchase any series' interests:
--You must complete
and sign a subscription agreement (Exhibit
D).
--You are required to have a securities account
with Prudential Securities (or with another
brokerage firm, which is referred to as an
additional seller) and to have funds in that
account equal to the amount of your purchase at the
time you subscribe.
--You must subscribe in cash.
--You must meet the established application
time deadlines.
You may revoke your subscription
within five business days after you submit a
subscription agreement to Prudential Securities or
to an additional seller. You may not revoke it
after that time. The managing owner may reject any
subscription in whole or in part for any
reason.
Initial
Offering Interests in each series
will be offered for an initial offering period of
up to 120 days from the date of this prospectus.
This 120 day period may be extended. The initial
offering period will be the same for all series
unless the managing owner decides
otherwise.
Series
Subscription
Minimums The subscription minimums that must be accepted before
each series will break escrow and commence trading
are as follows:
Series D - $5 million
Series E - $5 million
Series F - $5 million
If any series does not sell its subscription
minimum and have a minimum of 150 subscribers by
the expiration of the initial offering period, all
of that series' subscription funds, along with any
interest earned thereon, will be returned within
ten business days after the initial offering period
ends or as soon as practicable thereafter.
9
<PAGE>
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 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 Chase Manhattan Bank, New York, New York and
held there until the funds are either released for
trading or returned to you. Funds held in escrow
will not be subject to any fees or other
deductions. You will earn interest on your
escrowed subscription funds, and if the
subscription minimum for that series is not met,
your subscription funds and the earned interest
will be distributed to you within ten business days
after the close of the initial offering period or
as soon as practicable thereafter. If the
subscription minimum for a series is met, the
interest earned on your escrowed subscription funds
will be contributed to that series on your behalf,
and you will receive a commensurate number of
additional interests.
How The
Offering
Works After trading commences, interests in each series will be
sold once each week until the total amount of
interests registered for sale with the SEC for each
series is issued, either through sale or exchange.
For purposes of describing the purchase, exchange
and redemption of interests, the following terms
are 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, will
be set at a valuation point, and subscriptions for
new interests will become effective on a dealing
day. Generally, interests will be priced at the
close of business on a Friday, and new purchases
will become effective at that price on the
following Monday. To purchase interests, you must
submit your subscription agreement (Exhibit D) at
least five business days (or two business days if
you are an existing investor purchasing additional
interests of a series you currently own) before any
given dealing day. Additional time may be required
before your subscription is approved by the
managing owner. Due to this waiting period, the
purchase price of your interests is not fixed on
the date you submit your subscription but is
instead 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 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 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 the applicable series' then-current net asset
value per interest at 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
per interest between the date you submit a
subscription agreement (Exhibit D) and the dealing
day on which your purchase becomes
effective.
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Exchange Of
Interests 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. To make an exchange, you must
complete an exchange request (Exhibit C). You must
submit your exchange request at least five business
days before any given dealing day, and the exchange
must be approved by the managing owner. Exchanges
are made at the applicable series' then-current net
asset values per interest 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 as a
redemption of interests in one series and the
simultaneous purchase of interests in the series
you exchange into. Tax consequences will result.
No exchange charges will be imposed.
Segregated
Accounts/
Interest
Income The proceeds of the offering for
each series will be deposited in cash in separate
segregated trading accounts maintained for each
series at Prudential Securities in accordance with
CFTC regulatory requirements. These funds will be
maintained in segregation unless they are (i)
secured amounts used as margin for trading on
foreign exchanges or (ii) used as margin to
maintain a series' forward currency contract
positions or a position on a non-U.S. exchange. It
is anticipated that funds will be maintained in
cash. On the last day of each month, each series
will receive interest income on 100% of its average
daily equity maintained in cash in the series'
account with Prudential Securities during that
month at a 13-week (91-day) Treasury bill rate.
This rate will be determined weekly by Prudential
Securities and will be the rate awarded to all
bidders during that week based on the results of
that week's auction of 13-week (91-day) Treasury
bills. The weekly interest rate may be found on
the Internet at www.publicdebt.treas.gov. While it
is anticipated that funds will be maintained in
cash, in the event that funds are maintained in
Treasury bills instead of cash, the series will
receive the interest income paid on such Treasury
bills.
If you redeem or purchase interests of a series on
a day other than the last day of a month, the
interest income will be pro rated through the date
of purchase or redemption for purposes of
determining net asset value.
Use Of
Proceeds One hundred percent of each series' offering proceeds
will be used for that series' trading
activities.
Organization
And
Offering
Expenses Prudential Securities or an
affiliate will be responsible for the payment of
all of the expenses associated with the
organization of the Trust and the offering of each
series' interests. No series will be required to
reimburse Prudential Securities or its affiliate
for these expenses.
Transfer Of
Interests The trust agreement will restrict 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.
11
<PAGE>
Redemption Of
Interests You may sell back to the
Trust, in whole or in part, interests you own in
any series. This sale will be referred to as a
redemption. Redemptions will be made each week at
the beginning of the dealing day. To redeem your
interests, you must deliver your redemption request
(Exhibit B) at least two business days prior to a
given dealing day. The redemption price will be
the net asset value per interest on the valuation
point immediately preceding the dealing day on
which your redemption is eligible to become
effective. Redemptions will be 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.
Redemption
Fees If you redeem interests in any
series on or before the end of 12 full months
following the effective date of purchase of the
interests being redeemed, you will be subject to
the following redemption fees:
Redemption Date Redemption Fee
up to six full months 4% of redemption price
from the effective date
of purchase
after the sixth month and 3% of redemption price
through the 12th month
from the effective date of
purchase
Redemption fees may be waived if:
--Your aggregate interests in all series, when added
to your aggregate interests in the various series
of World Monitor Trust, another public futures fund
sponsored by the managing owner, total at least $5
million.
Redemption fees will be waived if:
--The redemption proceeds are used to effect an
exchange for interests in another series.
--The redemption proceeds are used to purchase
interests in another fund sponsored by the managing
owner.
Distributions The managing owner does not
intend to make ongoing distributions.
12
<PAGE>
Income Tax
Consequences Based on the facts set forth in this
prospectus, the managing owner's representations
and current U.S. federal income tax law, we will
obtain an opinion of Rosenman & Colin LLP to the
effect that each series in the Trust will be
treated as a partnership provided that at least 90%
of each series' annual gross income consists of
"qualifying income" as defined in the Internal
Revenue Code. The managing owner believes it is
likely, but not certain, that each series will
satisfy this test.
As long as each series is
treated as a partnership for U.S. federal income
tax purposes, the Trust and each series in the
Trust will not be subject to any U.S. federal
income tax as an entity. Instead, as a limited
owner, your allocable share of annual trading
profits and other income generated from the series
in which you have purchased interests will be
taxable to you whether or not any cash is
distributed to you by the Trust. Your ability to
deduct any losses that may be incurred and the
expenses relating to the Trust's trading activities
may be subject to significant limitations. The
excess of a series' capital losses over capital
gains will be deductible by you if you are a non-
corporate limited owner only against your capital
gain income each year (and up to $3,000 per year
against your ordinary income). Furthermore,
special tax risks apply if you are a tax-exempt
limited owner or a non-U.S. investor.
Reports During the year, you will receive unaudited
monthly reports and an annual financial statement
audited by the Trust's independent accountants.
You also will be provided with appropriate
information to permit you to file your federal and
state income tax returns.
Fiscal Year The Trust's fiscal year will run from January 1 through
December 31.
Financial
Information Financial information concerning the Trust and the managing
owner is set forth in this prospectus under the
section entitled "FINANCIAL STATEMENTS."
13
<PAGE>
Summary Of Fees And Expenses
Fees To Be Paid By The Trust
Brokerage Fee -- 6% of each series' net asset value. This fee, plus
trading transaction costs, equates to an estimated
amount per round-turn transaction of:
Series D: $23
Series E: $38
Series F: $72
Prudential Securities will
receive this brokerage fee for brokerage services
it renders and for assisting the managing owner.
In addition, the series will pay all trading
transaction costs as set out in the break-even
analyses on the following page. The brokerage fee
will be determined at the close of business each
Friday, and the sum of the amounts determined each
week will be paid monthly. Differences in amounts
estimated 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 D: 1.25%
Series E: 2%
Series F: 2%
Each trading advisor will receive a monthly management fee for its trading
advisory services. The management fee will be determined at the close
of business each Friday, and the sum of the amounts
determined each week will be paid monthly.
Incentive Fee
Series D: 22%
Series E: 22%
Series F: 22%
Each trading advisor will receive a quarterly incentive fee for the profit
(realized and unrealized) it achieves for a series.
The incentive fee for each series will be
determined as of the close of business on the last
Friday of each calendar quarter.
Routine Operating Expenses -- the lesser of the actual amount of
expenses incurred or 1.50% annually of each series'
net asset value. If the actual expenses exceed
1.50% of a Series' net asset value (or if such
expenses, excluding legal and audit charges, exceed
0.5% of Series E's or Series F's, and 1.25% of
Series D's, net asset value), the excess will be
paid by Prudential Securities.
Routine operating expenses include legal,
auditing, cash management, accounting, postage,
printing, photocopying and similar expenses
incurred on behalf of the Trust.
Extraordinary Expenses
Extraordinary expenses, including expenses
associated with litigation or other extraordinary
events, will be paid if, and as, they are incurred.
Fees To Be Paid By The Investors
Redemption Fees
4% or 3%, if applicable
The managing owner will receive these fees. See
"Redemption Fees" on page 12 for details.
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 To Be Paid By Prudential Securities Or Its Affiliates:
Initial Organization And Offering Expenses
Approximately $250,000 per series and then approximately $75,000
per series each year during the continuous offering.
These expenses include legal, accounting, filing, and printing expenses
for the initial and continuous offering of interests.
14
<PAGE>
Projected Twelve-Month Break-Even Analyses
A. $5 million. The following is the projected
twelve-month break-even analysis for each series
assuming each series is operating at the minimum $5
million net asset value required to commence
trading. The projection takes into account all
fees and expenses other than advisory incentive
fees and extraordinary expenses which are
impossible to predict. This analysis is expressed
both as a dollar amount and as a percentage of a
$5,000 initial investment:
<TABLE>
SERIES D SERIES E SERIES F
<CAPTION>
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 $ 300.00 6.00% $ 300.00 6.00% $ 300.00 6.00%
Trading Transaction
Costs (1) 73.00 1.46 40.50 0.81 25.00 0.50
Advisory Management Fees 62.50 1.25 100.00 2.00 100.00 2.00
Advisory IncentiveFees (2) -- -- -- -- -- --
Routine Operating
Expenses (3) 75.00 1.50 75.00 1.50 75.00 1.50
Total 510.50 10.21 515.50 10.31 500.00 10.00
Less Estimated
Interest Income (4) (234.00) (4.68) (234.00) (4.68) (234.00) (4.68)
Estimated 12-Month Break-Even
Level Without Redemption
Charges (4)(6)(7)(8) 276.50 5.53 281.50 5.63 266.00 5.32
Redemption Charges (5) 150.00 3.00 150.00 3.00 150.00 3.00
Estimated 12-Month Break-
Even Level After
Redemption Charges
(6)(7)(8) $426.50 8.53% $431.50 8.63% 416.00 8.32%
</TABLE>
(Footnotes appear on next page.)
B. $50 million. The following is the projected twelve-
month break-even analysis for each series assuming
each series is operating at a $50 million net asset
value, the maximum amount each series will be able
to accept from subscribers. The projection takes
into account all fees and expenses other than
advisory incentive fees and extraordinary expenses
which are impossible to predict. This analysis is
expressed both as a dollar amount and as a
percentage of a $5,000 initial investment:
<TABLE>
SERIES D SERIES E SERIES F
<CAPTION>
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 $ 300.00 6.00% $ 300.00 6.00% $ 300.00 6.00%
Trading Transaction
Costs (1) 73.00 1.46 40.50 0.81 25.00 0.50
Advisory Management
Fees 62.50 1.25 100.00 2.00 100.00 2.00
Advisory Incentive
Fees (2) -- -- -- -- -- --
Routine Operating
Expenses (3) 23.00 0.46 23.00 0.46 23.00 0.46
Total 458.50 9.17 463.50 9.27 448.00 8.96
Less Estimated
Interest Income (4) (234.00) (4.68) (234.00) (4.68) (234.00) (4.68)
Estimated 12-Month
Break-Even Level
Without Redemption
Charges (4)(6)(7)(8) 224.50 4.49 229.50 4.59 214.00 4.28
Redemption Charges (5) 150.00 3.00 150.00 3.00 150.00 3.00
Estimated 12-Month
Break-Even Level
After Redemption
Charges (6)(7)(8) $374.50 7.49% $379.50 7.59% $364.00 7.28%
</TABLE>
(Footnotes appear on next page.)
15
<PAGE>
The following footnotes apply to the break-even
analyses on the previous page.
1 Trading transaction costs consist of floor
brokerage expenses and give-up charges, as well as
the National Futures Association fees, the exchange
fees and the clearing fees which will be incurred
in connection with each series' futures trading
activities.
2 Advisory incentive fees will only be paid on
new high net trading profits. New high net trading
profits will be determined after deducting
brokerage fees, trading transaction costs, advisory
management fees, and routine operating expenses for
which a series is responsible and extraordinary
expenses related to that series' trading advisor,
and will 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.
3 Routine operating expenses are anticipated to
be approximately $125,000 to $150,000 per series
during the initial 12 months of trading. However,
during each year, no series will pay more than the
amount that equals the lesser of the actual
expenses or 1.50% (with a maximum of 0.5%
attributable to non-legal and audit expenses for
Series E and Series F, and a maximum of 1.25%
attributable to non-legal and audit expenses for
Series D) of that series net asset value for that
year. (For example, if a series' net asset value
remained constant at $5 million during the initial
12 months of trading (i.e., the amount required to
break escrow), no series will pay more than $75,000
for that period, even if the actual expenses are
higher.) For each series, if the actual expenses
exceed 1.50% of a series' net asset value for the
year, Prudential Securities will pay the additional
amount. As each series' net asset value increases,
these expenses as a percentage of the series' net
asset value are expected to decrease.
4 It is anticipated that funds will be maintained
in cash. On the last day of each month, each
series will receive interest income on 100% of its
average daily equity maintained in cash in the
series' account with Prudential Securities during
that month at a 13-week (91-day) Treasury bill
rate. This rate will be determined weekly by
Prudential Securities and will be the rate awarded
to all bidders during that week based on the
results of that week's auction of 13-week (91-day)
Treasury bills. The weekly interest rate may be
found on the Internet at www.publicdebt.treas.gov.
While it is anticipated that funds will be
maintained in cash, in the event that funds are
maintained in Treasury bills instead of cash, the
series will receive the interest income paid on
such Treasury bills.
If you redeem or purchase interests of a series
on a day other than the last day of a month, the
interest income will be pro rated through the date
of purchase or redemption for purposes of
determining net asset value.
5 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
full month but on or before the end of the 12th
full month after its purchase. Redemption fees
will not be charged if you effect an exchange of
interests or if you invest your redemption proceeds
concurrently in another fund sponsored by the
managing owner, and they may be waived if your
aggregate interests in all series, when added to
your aggregate interests in the various series of
World Monitor Trust, another public futures fund
sponsored by the managing owner, total at least $5
million.
6 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.
7 If this break-even analysis was separately
computed for a $2,000 initial IRA account
investment, the break-even percentages would be
equally applicable to that investment.
8 Extraordinary expenses, which are impossible to
predict, are not included as part of these break-
even analyses.
16
<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 not make an
investment in any series before consulting with
independent, qualified sources of investment
advice. You should only make an investment if your
financial condition permits 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 in this prospectus in the section
captioned "THE FUTURES MARKETS."
Trading And Performance 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.
Options Trading Can Be More Volatile Than Futures Trading
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.
Single-Advisor Funds Are More Volatile Than Multi-Advisor Funds
Each series will function like a single-advisor
fund. In single-advisor funds, volatility may
increase as compared to a fund where more than one
advisor diversifies risk to a greater extent. To
the extent a single advisor concentrates trading in
one or only a few markets, volatility and risk
increases further.
There Is No Protection Against The Loss Of Your Principal
You will not be assured of any minimum return.
This means 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.
Past Performance Is Not Necessarily Indicative Of Future Performance
You must consider 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 past performance. In fact, as a
significant amount of academic study has shown,
futures funds more frequently than not underperform
the past performance records included in their
prospectuses.
Because you and other investors will acquire,
exchange and redeem interests at different times,
you may experience a loss on your interests even
though the series in which you have invested in is
profitable as a whole and even though other
investors who invest in that series experience a
profit. The past performance of any series may not
be representative of each investor's investment
experience in it.
17
<PAGE>
Likewise, you and other investors will invest in
different series managed by different trading
advisors. Each series' assets are:
- --Segregated from every other series' assets.
- --Traded separately from every other series.
- --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 should not consider the past
performance record of one series when deciding
whether to invest in another series.
Performance Is Not Correlated To The Debt Or Equity Markets
We anticipate that over time each series'
performance will not be similar to the performance
of the general financial markets for equity and
debt and will move up and down independently. For
example, the net asset value of a series may rise
or fall while general stock indices rise or while
stock indices fall. Non-correlation is not,
however, negative correlation. Negative
correlation would mean that there is an inverse and
opposite relationship between a series' performance
and the performance of the general financial
markets. Because of non-correlation, during
certain periods a given series may perform in a
manner very similar to or in a manner different
from a more traditional portfolio, providing few,
if any, diversification benefits.
The Series Have No Operating Histories
The series have not yet commenced trading and have
no performance histories.
Futures, Forward And Options Trading May Be Illiquid
Although each series generally will purchase and
sell actively traded contracts, we cannot assure
you that orders will be executed at or near the
desired price, particularly in thinly traded
markets, in markets that lack trading liquidity, or
because of applicable "daily price fluctuation
limits," "speculative position limits" or market
disruptions. Market illiquidity or disruptions
could cause major losses.
Technical Trading Systems Require Trending Markets
And Sustained Price Moves To Be Profitable
Graham Capital and Campbell & Company will use
primarily technical trading systems for many of
their trading decisions. For any technical trading
system to be profitable, there must be price moves
or "trends" -- either upward or downward -- in some
commodities that the system can track and those
trends must be 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 traders may modify and alter
their systems on a periodic basis. Any factor
(such as increased governmental control of, or
participation in, the markets traded) that lessens
the prospect of sustained price moves in the future
may reduce the likelihood that any commodity
trading advisor's technical systems will be
profitable.
The Large Number Of Existing Technical Traders
Could Adversely Affect Each Series
In recent years, there has been 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.
18
<PAGE>
Discretionary Decision-Making May Result In Missed
Opportunities Or Losses
Each of the trading advisors' strategies involves
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.
Trading On Exchanges Outside The U.S. May Be
Riskier Than Trading On U.S. Exchanges
Each series will trade on non-U.S. exchanges as a
component of its trading programs. Foreign
exchanges, whether or not linked to a U.S.
exchange, are not regulated by the CFTC or by any
other U.S. governmental agency or instrumentality
and may be subject to regulations (i) that are
different from those to which U.S. exchanges are
subject and (ii) that provide less protection to
investors than the U.S. regulations provide.
Therefore, trading on non-U.S. exchanges may
involve more risks than similar trading on U.S.
exchanges.
The Unregulated Nature Of The Forward Markets
Creates Counter-Party Risks That Do Not Exist In
Futures Trading
Unlike futures, forward contracts are entered into
between private parties off an exchange, and are
thus not subject to exchange regulations as to
quantity, method of settlement, time for delivery,
etc. Furthermore, forward contracts are not
regulated by the CFTC or by any other U.S.
government agency, and forward contracts are not
guaranteed by an exchange or its clearinghouse. If
a series were to take a position as a principal
with a counterparty that fails, a default would
most likely result, depriving that series of any
profit potential or forcing the series to cover its
commitments for resale, if any, at the then current
market price.
Because each series will execute its forward
trading exclusively with Prudential Securities (and
its affiliate, Prudential-Bache Global Markets
Inc.) 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.
Each Series' Start-Up Period Entails Increased Investment Risks
Following the close of its initial offering period,
each series will encounter a start-up period during
which it is becoming fully invested. Furthermore,
each series may encounter similar start-up periods
following subsequent closings during the continuous
offering period. During these start-up periods,
each series will be more likely to suffer losses on
its initial trades because (i) no series can
develop a fully diversified portfolio instantly
upon the commencement of trading and (ii) the more
concentrated the trading is, the greater the
possibility for losses. A decline in the initial
net asset value per interest of the interests of
any series could result from the level of
diversification in that series' trading activities
at the outset, which may be lower than the level of
diversification in a fully committed portfolio.
Effect Of The European Monetary Union
The January 1, 1999 conversion of most European
currencies to a single euro-currency, or market
reaction to that conversion or to any nation's
withdrawal from the European Monetary Union, may
adversely affect the trading advisors' trading and
investing opportunities. The conversion to a
single euro-currency is a very significant and
novel political and economic event, and there can
be no certainty about the direct or indirect future
effects on the European currency markets and, in
turn, the Trust.
19
<PAGE>
Potential Risk To Trading Or Reporting Of Results
Because Of Year 2000 Problems
Many computer systems in use today cannot recognize
the computer code for the year 2000 and therefore
may revert to the year 1900 or some other date.
This is commonly known as the "Year 2000 Problem"
or the "Y2K Problem." The Trust has engaged and in
the future may engage third parties to perform
primarily all of the services it needs.
Accordingly, the Trust's Year 2000 problems, if
any, are not its own but are those that center
around the ability of the trustee, the managing
owner, Prudential Securities, the trading advisors
and any other third party with whom the Trust has a
material relationship (any such third party is
referred to individually as a service provider, and
collectively such third parties are referred to as
the service providers) to address and correct
problems that may cause their systems not to
function as intended as a result of the Year 2000
Problem.
The Trust has received assurances from its managing
owner, Prudential Securities, and each of its
trading advisors that they anticipate being able to
continue their operations without any material
adverse impact from the Year 2000 Problem.
Although other service providers have not made
similar representations to the Trust, the Trust has
no reason to believe that these service providers
will not take steps necessary to avoid any material
adverse impact on the Trust, though there can be no
assurance that this will be the case. The costs or
consequences of incomplete or untimely resolution
of the Year 2000 Problem by the service providers,
or by governments, exchanges, clearing houses,
regulators, banks and other third parties, are
unknown to the Trust at this time, but could have a
material adverse impact on the operations of the
Trust. The managing owner will promptly notify you
if it determines that the Year 2000 Problem will
have a material adverse impact on the Trust's
operations.
If the Year 2000 Problems are systemic, for
example, if the federal government, the banking
system, the exchanges or the utilities are
materially adversely affected, there may be no
adequate contingency plan for the Trust to follow,
and the Trust may need to suspend operations. If
the Year 2000 Problems are related to one or more
of the other service providers selected by the
Trust, the Trust believes that each such service
provider is prepared to address any Year 2000
Problems which arises that could have a material
adverse impact on the Trust's operations.
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 largely will
depend on the judgment and ability of its trading
advisor. We cannot assure you that a trading
advisor's trading for any series will prove
successful under all or any market conditions.
We Cannot Assure You That The Trading Advisors Or
Their Trading Strategies Will Continually Serve The Series
We cannot assure you that: (i) a trading advisor
or the Trust will not exercise its rights to
terminate an advisory agreement for a series under
certain conditions, (ii) the advisory agreement
with a trading advisor will be renewed on the same
terms as the current advisory agreement for that
trading advisor once it expires 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'
current trading advisor or that the new advisor
will be required to recoup any losses sustained by
the prior advisor before the new advisor is
entitled to receive incentive fees.
Each Trading Advisor's Past Performance Record Is Inconsistent
The performance records of each trading advisor
reflect significant variations in profitability
from period to period.
Other Clients Of Each Trading Advisor May Compete With Each Series
Each trading advisor will manage large amounts of
other funds and will advise other clients at the
same time as it will manage series assets;
consequently, each series may experience increased
competition for the same positions.
20
<PAGE>
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.
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 expected to be any primary or
secondary market for the interests. In addition,
the trust agreement will restrict your ability to
transfer, assign, and redeem interests. You will
be charged a redemption fee, unless certain
conditions are met. 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 payment
period specified in the trust agreement .
Each Series Will Have To Overcome Substantial Fixed
Expenses In Order To Break Even Each Year
Each series will have substantial fixed overhead
expenses. We estimate that the series' gains from
trading must be 5.53% per annum (Series D), 5.63%
per annum (Series E) and ____% per annum (Series F)
in order to break even. This break even amount
will increase if redemption fees are imposed upon
you because you decide to redeem any interests held
by you for 12 months or less.
The Payment Of Quarterly Incentive Fees Does Not Assure Profits
Each series also will pay 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 will 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 after payment of any quarter's
fees. Because incentive fees will be 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 due to 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.
The Trust Is Subject To Conflicts Of Interest
A number of actual and potential conflicts of
interest exist and will continue to exist among the
managing owner, Prudential Securities, Prudential
Securities Group Inc. 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 you. However, no specific policies
regarding conflicts of interest have been adopted
by the Trust or by any of the series.
You Have Limited Rights
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).
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<PAGE>
Failure Of The Trust's Clearing Broker Or Other Counterparties
You may lose some or all of your investment in the
event of the bankruptcy of Prudential Securities or
of any counterparty with whom it trades.
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
arms-length negotiation.
Tax Risks
Your Tax Liability Is Anticipated To Exceed Distributions To You
For U.S. 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 by the series during each 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. If you are an employee benefit plan or an
individual retirement account or other tax-exempt
limited owner, under certain circumstances, all or
part of such income may be taxable to you. Also,
the series in which you have an interest might
sustain losses after the end of a profitable 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. Accordingly, it is anticipated that
you will incur tax liabilities as a result of being
allocated taxable income from a series even though
you will not receive current cash distributions
with which to pay such taxes.
Deductions May be Limited
Your ability to claim current deductions for
certain expenses and losses, including capital
losses of the series in which you have interests,
is subject to various limitations.
Taxes And Economics May Not Match During A Calendar Year
The income tax effects of a series' transactions to
you may differ from the economic consequences of
those transactions to you during a calendar year.
Partnership Treatment Is Not Assured
The Trust will receive an opinion of counsel from
Rosenman & Colin LLP to the effect that, under
current U.S. federal income tax law, each series in
the Trust will be treated as a partnership for U.S.
federal income tax purposes, provided that (i) at
least 90% of each series' annual gross income
consists of "qualifying income" as defined in the
Internal Revenue Code and (ii) each series is
organized and operated in accordance with its
governing agreements and applicable law. The
managing owner believes it is likely, but not
certain, that each series will meet the income
test. An opinion of counsel is subject to any
changes in applicable tax laws and is not binding
on the Internal Revenue Service or the courts.
If a series of the Trust were to be treated as a
corporation instead of as a partnership for U.S.
federal income tax purposes, (i) the net income of
that series would be taxed at corporate income tax
rates, thereby substantially reducing that series'
profitability, (ii) you would not be allowed to
deduct your share of losses of that series and
(iii) 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.
22
<PAGE>
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.
You are strongly urged to consult your own tax
advisor and counsel about the possible federal,
state and local tax consequences to you of an
investment in the Trust. Tax consequences may
differ for different investors, and you could be
affected by future changes in the tax laws.
Regulatory Risks
Government Regulations May Change
Commodity pool regulations are constantly changing
and there is no way to predict the impact of future
changes on the Trust. In addition, future 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.
CFTC Registrations Could Be Terminated
If the Commodity Exchange Act registrations or
National Futures Association memberships of the
managing owner, any of the trading advisors or
Prudential Securities are no longer effective,
these entities would not be able to act for the
Trust.
The foregoing risk factors are not a complete
explanation of all the risks involved in purchasing
interests in a fund that invests in the highly
speculative, highly leveraged trading of futures,
forwards and options. You should read this entire
prospectus before determining to subscribe for
interests.
23
<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 any 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 or are intended to be adopted by
the Trust or by any of the series. The following
actual and potential conflicts of interest do and
may continue to exist.
Conflicts Related To The Payment Of The Brokerage
Fee To Prudential Securities
The Brokerage Fee May Not Be The Lowest Available
Fee Because the managing owner is an affiliate of
Prudential Securities, the fixed fee Prudential
Securities will receive will not be the result of
arm's-length negotiations, and the fixed fee may
not be comparable to the fee each series would be
charged 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, and/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 will receive additional administrative
benefits through the series' brokerage arrangements
with Prudential Securities, as well as several
other 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).
Selection Of Trading Advisors May Benefit
Prudential Securities The managing owner will be
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.
Prudential Securities Financial Advisors Have An
Incentive To Discourage Investor Redemptions Since
Prudential Securities financial advisors will
receive continuing compensation that will be paid
from the fixed fee that will be paid to Prudential
Securities, and since such compensation will be
paid by Prudential Securities in proportion to the
number of then outstanding interests for which each
financial advisor is providing ongoing services,
Prudential Securities financial advisors will have
a financial incentive to advise you not to redeem
interests in any series. However, Prudential
Securities' financial advisors will be expected to
act in your best interests, notwithstanding any
personal interests to the contrary.
The Trust's Foreign Exchange Dealer Will Not Be Independent
The Trust, acting through its trading advisors, may
execute over-the-counter, spot, forward and option
foreign exchange transactions with Prudential
Securities. Prudential Securities may then engage
in back-to-back trading with its affiliate,
Prudential-Bache Global Markets Inc. Because
Prudential-Bache Global Markets Inc., Prudential
Securities and the managing owner are wholly owned
subsidiaries of Prudential Securities Group Inc.,
the managing owner will have an incentive to
utilize Prudential Securities and Prudential-Bache
Global Markets Inc. as the Trust's foreign exchange
dealer and counterparty, even though other entities
may offer better terms. However, as the managing
owner will have 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>
Other Activities Of Prudential Securities And The Managing Owner
The officers, directors, and employees of the
managing owner and of Prudential Securities and the
agents and correspondents of Prudential Securities
from time to time may trade in commodities for
their own accounts and for the account of
Prudential Securities itself. In addition,
Prudential Securities is a futures commission
merchant, handling customer business in
commodities. Thus, Prudential Securities may
effect transactions 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. In
very illiquid markets, such activities could
adversely affect series transactions. Although you
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.
Management Of Other Accounts By The Trading Advisors
The trading advisors will be permitted 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. The trading records for these accounts
are not available for inspection by limited owners.
The trading advisors will continue to be free to
trade accounts for others, 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. However, various
conflicts may arise as a result.
Other Accounts Managed By The Trading Advisors May
Compete With The Series The trading advisors may
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. 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 may affect the priority of order
entry.
25
<PAGE>
STRUCTURE OF THE TRUST
The Trust was formed on April 22, 1999 as a
Delaware Business Trust with separate series,
pursuant to the requirements of the Delaware
Business Trust Act. The Trust's registered office
is c/o Wilmington Trust Company, Rodney Square
North, 1110 North Market Street, Wilmington,
Delaware 19890. The Delaware Business Trust Act
provides that, except as otherwise provided in the
trust agreement, interest-holders in a Delaware
Business Trust 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 will be liable for obligations of a series in
excess of that series' assets. Limited owners will
not have any such liability.
Overview Of The Series
Currently, the Trust's interests will be offered in
three separate and distinct series: Series D,
Series E and Series F. The investment objective of
each series is to increase the value of your
interests over the long term (capital appreciation)
while attempting to control risk and volatility. 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 (sometimes referred to simply as a trading
advisor or collectively as the trading advisors)
that will manage 100% of that series' assets and
that will 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, trading portfolio
and strategies complement and differ from that of
the other trading advisors. The managing owner
will be authorized under the advisory agreements,
however, to utilize the services of additional
trading advisors for any series. For each of
Series D, Series E and Series F, 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 Bridgewater Associates
does currently act as a commodity trading advisor
to another public fund 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. None of the
trading advisors nor any of their principals
currently have any beneficial interest in the
Trust, but some or all of such persons may acquire
such an interest in the future. For a summary of
the advisory agreements between each trading
advisor, the Trust, and the managing owner, see the
section in this prospectus "SUMMARY OF AGREEMENTS-
Advisory Agreements."
Description Of Sections To Follow
The pages that follow contain a description of each
series' trading advisor and its principals and a
general description of the trading strategies and
trading portfolios each trading advisor will employ
while trading on behalf of the Trust, along with
past performance capsule summaries of all other
accounts managed by the trading advisors for the
various periods shown. The trading advisor
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 general in nature.
Following the actual performance of the trading
system to be used to trade each series is a pro
forma presentation which substitutes the fees to be
charged to each series for the fees actually
charged to the account affected for the pro forma,
producing a rate of return which would have been
achieved had the account in the pro forma paid the
same fees as the ones to be paid by each series.
The pro forma presentations are not calculated on a
composite basis, but rather are based on the
performance of a single representative account for
each series.
26
<PAGE>
SERIES D
Bridgewater Associates will be allocated 100% of
Series D assets. In its trading, Bridgewater
Associates will utilize its Aggressive Pure Alpha
Futures Only System.
Bridgewater Associates And Its Principals
Bridgewater Associates is a member of a group of
entities (collectively referred to as the
Bridgewater Group). The initial Bridgewater Group
company was Bridgewater Management Inc., a
Connecticut (formerly New York) corporation formed
in April 1973. Bridgewater Management, Inc. has
changed its name to Bridgewater Associates, Inc.
Other affiliates in the Bridgewater Group include
(i) Bridgewater S.A., a Connecticut corporation
formed in March 1987, which has been a commodity
trading advisor and commodity pool operator
registered pursuant to the Commodity Exchange Act
since May 1992 and which is a member of the
National Futures Association, and (ii) BWF, Inc.,
an introducing broker which is registered under the
Commodity Exchange Act and which has been a member
of the National Futures Association since January
1991.
Bridgewater Associates has been registered as a
registered investment adviser with the SEC since
November 1989 and as a commodity trading advisor
registered with the CFTC since May 1992, and it is
a member of the National Futures Association. Its
executive offices are located at 1 Glendinning
Place, Westport, Connecticut 06880.
Raymond T. Dalio has been the president of
Bridgewater Associates since its founding in 1973,
and he is a principal of the firm. Mr. Dalio
received his M.B.A. in finance from Harvard
Business School in 1973. Mr. Dalio has been
involved in analyzing the world's major markets by
identifying the economic conditions that affect the
directions of markets. From May 1973 until January
1974, he was Director of Commodities at Dominick
and Dominick, a Wall Street-based brokerage house.
Mr. Dalio then joined Shearson-Hayden Stone (now
Salomon Smith Barney, Inc.) where he was in charge
of institutional futures business. In 1975, he
left Shearson-Hayden Stone to devote his full time
and efforts to trading his own account and
operating Bridgewater Associates Group entities.
Robert P. Prince, a vice president and principal of
Bridgewater Associates, is director of research and
trading. Mr. Prince became a C.P.A. in 1984, and
he received his M.B.A. from the University of Tulsa
in 1985. Prior to joining Bridgewater Associates
in August of 1986, he spent three years as the Vice
President and Manager of the Treasury Division of
the First National Bank of Tulsa. He gained
experience using interest rate futures, swaps, and
options in hedging and risk management.
Giselle F. Wagner is currently a vice president and
chief operating officer of Bridgewater Associates,
and she is a principal of the firm. Ms. Wagner
received her B.A. in Economics from Smith College
in 1976, her M.B.A. in Finance from Columbia in
1978, and her certified financial analyst status in
1992. From 1978 to 1984, she worked for Chemical
Bank (now Chase Manhattan Bank) as Vice President
in the Treasury Division. From 1984 to 1988, she
worked for Morgan Stanley (now Morgan Stanley Dean
Witter). In 1988, Ms. Wagner joined Bridgewater
Associates.
Peter R. La Tronica is a vice president and
controller of Bridgewater Associates, and he is a
principal of the firm. After graduating from
Northeastern University in 1979, Mr. La Tronica
joined Merrill Lynch & Co. During his tenure at
Merrill Lynch & Co. and certain of its affiliates,
he served in various capacities including assistant
director commodity compliance and operations
manager. From May of 1984 to August 1985, Mr. La
Tronica was assistant vice president and assistant
manager of the New York Institutional Futures
Office for Dean Witter Reynolds, Inc. From August
1985 to June 1987, he served as assistant Vice
President of Rudolf Wolff Futures Inc. (acquired in
1986 by Elders Finance Inc.) in charge of
Operations and Compliance. In June of 1987, Mr. La
Tronica joined Donaldson, Lufkin & Jenrette as Vice
President of Option and Arbitrage Operations in the
Equities Division. In March 1988, Mr. La Tronica
joined Benefit Concepts N.Y. Inc., an insurance
marketing firm, as associate in charge of product
development.
27
<PAGE>
All of the companies mentioned in the above
biographical information not otherwise identified
were or are futures commission merchants registered
under the Commodity Exchange Act and members of the
National Futures Association.
Bridgewater Associates' Trading Strategy
Series D will be traded pursuant to the Aggressive
Pure Alpha Futures Only System, a systematic
trading program, that is traded in accordance with
the policies described below.
Pure Alpha Trading System
Bridgewater Associates' trading strategy is both
fundamental and technical. Fundamental analysis
uses the theory that prices are primarily
determined by macro-economic, supply/demand
influences. Bridgewater Associates has developed
what it believes to be precise rules for
identifying shifts in the economic/market
environment as they affect the price structure of
investment assets. These rules express
quantitatively the net strength of the pressures of
fundamental influences on prices, based on the
leading relationships between economic statistics
and market movements. The rules are programmed
into computerized trading systems that are used
interactively to identify the relative
attractiveness of alternative markets.
Bridgewater Associates recognizes that its
fundamental systems cannot fully gauge all price
influences (e.g., shifts in sentiment and political
changes) and are not designed to identify the
optimal time and price for establishing and/or
liquidating positions. Technical analysis uses the
theory that a study of the markets themselves will
provide a means of anticipating future price
trends. Accordingly, Bridgewater Associates has
also developed technical systems to be used in
conjunction with its fundamental systems. The
signals generated by the technical systems are used
to confirm or rebut the buy and sell signals
generated by the fundamental systems.
Bridgewater Associates weights its fundamental
readings more heavily than its technical readings
in determining the sizes of its positions.
However, when fundamental readings are weak and
technical readings are strong it is possible for
the technical systems to have a greater influence
on the position size.
The Aggressive Pure Alpha Futures Only System
The Aggressive Pure Alpha Futures Only System is
substantially similar to Bridgewater Associates
Pure Alpha System. The principal differences are
(i) certain of the products traded and (ii) the
amount of leverage used. The Pure Alpha System
trades cash bonds, a product that a publicly
offered commodity pool cannot trade and largely
have been replaced by futures or forward contracts
which Bridgewater Associates believes mirror the
performance of the cash bonds used in the Pure
Alpha System. In addition, the Aggressive Pure
Alpha System is traded at 1.5 times the actual
funds allocated to trading, while the Pure Alpha
System uses different leverage. The Aggressive
Pure Alpha System focuses on futures and forward
contracts on financial instruments, interest
rates, stock indices, and metals, although other
markets may be traded. Bridgewater Associates
follows more than 25 markets worldwide and may take
a position for Series D in all, some or none of
these markets at any point in time. As applicable
regulatory authorities approve instruments or
additional items, such as other stock market
indices and sovereign debt instruments, Bridgewater
Associates expects to trade such instruments for
Series D.
Series D assets will be traded pursuant to the
Aggressive Pure Alpha Futures Only System, and will
be invested in futures markets utilizing leverage,
or margin. The margin-to-equity ratio tends to
fluctuate between 5% and 30%, typically being in
the range of 7.5% and 15%. See "RISK FACTORS --
Futures, Forward, And Options Trading Is Volatile
And Highly Leveraged."
28
<PAGE>
Allocation Among Markets Traded By Bridgewater Associates
Set forth below is a bar graph showing the market
sectors that are traded by Bridgewater Associates
as of June 30, 1999. As of June 30, 1999, investor
funds are exposed to these sectors in approximately
the percentage allocations stated; however, these
percentage allocations are subject to change at
Bridgewater Associates' discretion. Actual
allocations change as market conditions and trading
opportunities change, and it is likely that the
targeted risk allocations may vary for Series D
during future periods, although the focus will
remain on the financial instruments markets.
Market Sector Percentage
Financials 50%
Stock Indices 8
Metals 2
Currencies 40
Total 100%
(GRAPH)
29
<PAGE>
Bridgewater Associate's Past Performance For All Of Its Clients
Capsule summaries D(1) and D(3) contain actual
performance information for the periods indicated.
Capsule summary D(2) is a pro forma presentation of
representative accounts in Capsule Summary D(1).
Aggressive Pure Alpha Futures Only System
The following is a capsule summary of the past
performance for the Aggressive Pure Alpha Futures
Only System as of June 30, 1999, the trading
strategy which will be used to trade Series D.
Name of commodity
trading advisor: Bridgewater Associates
Program: Aggressive Pure Alpha Futures Only System
Start Date: June 1, 1985 (All trading by
Bridgewater Associates)
August 26, 1998 (Aggressive Pure
Alpha Futures Only System)
No. Accounts: 1
Aggregate $$ In All
Programs: $ 6,600,000,000 (All Programs
excluding Notional)
$ 7,700,000,000 (All Programs
including Notional)
$$ In This Program: $ 16,600,000 (Aggressive Pure
Alpha Futures Only System excluding Notional)
$ 16,600,000 (Aggressive Pure Alpha Futures
Only System including Notional)
Largest monthly draw-
down: (1.91)% March 1999
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due to losses
sustained by the program on a composite basis for
any particular month or an individual account for
any particular month.
Largest peak-to-valley
draw-down: (2.59)% March 1999 to April 1999
"Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline in month-end
net asset value due to losses sustained by the
program 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 net asset value.
Closed accounts: Profitable = 0
Unprofitable = 0
CAPSULE D(1) -- AGGRESSIVE PURE ALPHA FUTURES ONLY SYSTEM
MONTHLY/ANNUAL RATES OF RETURN*
Month 1999 1998
Jan 0.69%
Feb 3.79
Mar (1.91)
Apr (0.66)
May 2.13
Jun 0.57
July 1.25<DAG>
Aug (0.56)%
Sept 2.78
Oct 10.18
Nov 2.19
Dec 5.83
YTD/Annual 4.59% 21.77%
(5 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
* All annual rates of return are computed on a
compounded monthly basis.
<DAG> Estimate.
30
<PAGE>
CAPSULE D(2)
Bridgewater Associates Pro Forma
Set forth in Capsule D(2) is pro forma information
prepared by the managing owner using Bridgewater's
actual trading results of representative accounts
included in Capsule D(1). Capsule D(2) reflects
the performance of these accounts traded under a
fee structure identical to the fee structure of
Series D, which includes brokerage fees of 6.0%,
advisory management fees of 2%, incentive fees of
22%, and an interest income credit of approximately
4.68%. For the period prior to August 1998, these
accounts also were adjusted to reflect the proposed
leverage structure of Series D. No such adjustment
was necessary for the period from and after August
1998. 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 D, the performance information
presented in this capsule should by no means be
taken as an indication of how Series D or how
limited owners' individual investments will perform
or would have performed over the same time period.
Prospective investors are referred to the
Aggressive Pure Alpha Futures Only System's actual
performance in Capsule D(1) in this Prospectus.
(In August 1998, Bridgewater Associates began
trading the Aggressive Pure Alpha Futures Only
System, the system pursuant to which Series D
assets will be traded. The Aggressive Pure Alpha
Futures Only System is a modification of the Pure
Alpha System, a system that has been trading since
December 1991. The Aggressive Pure Alpha Futures
Only System, as distinct from The Pure Alpha
Strategy, will (i) trade only futures contracts on
currencies, instead of futures and forward
contracts on currencies, unless a forward contract
is executed through Prudential Securities or its
affiliates, (ii) trade the Trust's assets at 1.5
times the normal Pure Alpha Strategy level and
(iii) exclude cash bonds from the portfolio mix
which Bridgewater Associates began trading in their
portfolio on August 1, 1997. Capital normally
allocated to cash bonds will be reallocated to the
other markets the Advisor trades in an attempt to
realize the same overall portfolio return as the
strategy would have if it used cash bonds. The Pro
Forma shown below utilizes historical information
from the Pure Alpha Strategy from the period from
January 1, 1994 through July 31, 1998 and the
Aggressive Pure Alpha Futures Only System from
August 1, 1998 through July 1999.)
Rates of Return
(Computed on a Monthly Basis)
Month 1999 1998 1997 1996 1995 1994
January 0.57% 4.54% 0.81% 7.84% (2.98)% (2.64)%
February 3.66 5.50 4.57 (4.13) (6.42) (7.01)
March (1.83) 4.09 (5.14) (3.74) (6.40) (1.78)
April (0.74) (0.89) 5.29 6.95 (3.44) (2.62)
May 2.09 (4.50) (0.23) (1.85) (1.46) (2.70)
June 0.48 (3.46) 4.43 4.09 (2.52) (2.86)
July 1.13* (1.97) 2.06 3.95 5.49 (1.97)
August (0.94) (0.20) (1.23) 0.50 (0.53)
September 3.09 1.80 9.98 (5.70) (0.55)
October 12.05 (3.75) 0.68 5.62 0.60
November 2.04 7.08 14.67 3.79 10.84
December 5.60 1.18 (3.67) 2.69 1.94
YTD/Annual 5.37% 26.80% 18.62% 36.55% (11.29)% (9.78)%
* Estimate
Compound Annual Return: 10.34%
Average Positive Monthly Return: 4.33%
Average Monthly Return: 0.92%
Average Negative Monthly Return: (2.81)%
Monthly Standard Deviation Annualized(1): 4.56%
# of Months with a Positive Return: 35
Largest Peak-to-Valley Draw-down: (28.90)%
# of Months with a Negative Return: 32
Recovery Time(2): 35 months
1 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).
2 Recovery Time is the number of months it took
to make up the losses that occurred during the
Largest Peak-to-Valley Draw-down period.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
31
<PAGE>
SUPPLEMENTAL INFORMATION
CAPSULE D(3)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY
BRIDGEWATER ASSOCIATES AND ITS AFFILIATES THAT WILL
NOT BE USED TO TRADE SERIES D ASSETS
<TABLE>
<CAPTION>
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began (in thousands) (in thousands)
Trading Began Trading Number (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bridgewater
Associates Pure Alpha3,4 6/85 12/91 4 6,600,000 7,700,000 216,000 302,000
Pure Alpha
Bond and
Bridgewater Currency
Associates Only3 6/85 7/97 2 6,600,000 7,700,000 31,000 201,000
Bridgewater Constrained
Associates Pure Alpha3 6/85 1/89 3 6,600,000 7,700,000 161,000 189,000
Global
Bridgewater Bond and
Associates Currency3 6/85 2/90 16 6,600,000 7,700,000 4,100,000 4,700,000
Bridgewater Global Bond
Associates Overlay3 6/85 5/95 0 6,600,000 7,700,000 0 0
Short-Term
Bridgewater Emerging
Associates Markets3 6/85 4/97 0 6,600,000 7,700,000 0 0
Inflation
Indexed
Linked
Bond
Bridgewater Accounts-
Associates Leveraged3 6/85 4/94 0 6,600,000 7,700,000 0 0
<CAPTION>
ANNUAL RATES OF RETURN(1)
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 1999
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 6/30/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(16.31)
Bridgewater (4.49) 1/94--
Associates Pure Alpha3,4 2/94 6/95 1 1 7.19 25.88 15.07 24.37 (4.55) (3.43)
Pure Alpha
Bond and (1.87)
Bridgewater Currency (0.68) 4/98-
Associates Only3 7/98 7/98 0 0 1.82 9.04 1.94 - - -
(43.89)
Bridgewater Constrained (17.51) 2/94-
Associates Pure Alpha3 2/94 10/94 11 3 3.66 8.80 5.41 4.21 5.05 (5.88)
Global (41.99)
Bridgewater Bond and (13.26) 1/94-
Associates Currency3 2/94 9/94 9 2 (2.79) 17.35 8.94 12.02 19.23 (17.83)
(2.44)
Bridgewater Global Bond (1.68) 12/96-
Associates Overlay3 3/97 3/97 1 0 - 0.50 0.40 4.87 1.07 -
Short-Term (17.58)
Bridgewater Emerging (4.30) 7/97-
Associates Markets3 8/97 1/98 0 1 - 4.61 (11.55) - - -
Inflation
Indexed
Linked
Bond (13.21)
Bridgewater Accounts- (7.15) 4/94-
Associates Leveraged3 2/96 9/94 3 0 - 4.00 11.84 15.21 23.09 (8.73)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began (in thousands) (in thousands)
Trading Began Trading Number (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional
Account with
Global Bond
Bridgewater and Equity
Associates Benchmark3 6/85 3/94 1 6,600,000 7,700,000 591,000 591,000
Global Bond
Bridgewater and
S.A., Inc. Currency3 6/85 7/97 0 6,600,000 7,700,000 0 0
Bridgewater U.S. Bond
Associates Group 6/85 8/90 0 6,600,000 7,700,000 0 0
Bridgewater Diversified
Associates Global Bond3 6/85 3/96 2 6,600,000 7,700,000 585,000 585,000
Inflation
Bridgewater Linked
Associates Bonds3 6/85 1/97 0 6,600,000 7,700,000 0 0
Inflation
Linked Bonds
and Nominal
Bridgewater Bonds
Associates Unleveraged3 6/85 8/97 9 6,600,000 7,700,000 464,000 464,000
Global Asset
Bridgewater Allocation
S.A., Inc. Speculative5 6/85 1/89 1 6,600,000 7,700,000 2,000 2,000
Bridgewater Aggressive
S.A., Inc. Pure Alpha3 6/85 7/97 1 6,600,000 7,700,000 7,000 7,000
Pure Alpha
Bridgewater Futures
Associates Only3,6 6/85 1/98 8 6,600,000 7,700,000 115,300 115,300
<CAPTION>
ANNUAL RATES OF RETURN(1)
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 1999
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 6/30/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional
Account with
Global Bond (7.09)
Bridgewater and Equity (6.36) 5/98-
Associates Benchmark3 3/97 8/98 0 0 3.30 54.74 32.43 35.98 12.36 5.82
Global Bond
Bridgewater and (0.76) (0.76)
S.A., Inc. Currency3 2/99 2/99 1 0 1.51 18.84 7.11 - - -
Bridgewater U.S. Bond (8.06) (8.06)
Associates Group 2/95 2/95 3 1 - - - - (7.88) 4.37
Bridgewater Diversified (4.03) (4.03)
Associates Global Bond3 3/97 3/97 0 0 (2.78) 10.68 14.77 18.52
Inflation (4.56)
Bridgewater Linked (2.54) 2/97-
Associates Bonds3 8/97 4/97 2 0 - 8.80 8.25 - - -
Inflation
Linked Bonds
and Nominal (8.44)
Bridgewater Bonds (2.75) 1/99-
Associates Unleveraged3 4/99 6/99 0 0 (2.69) 14.36 9.23 - - -
Global Asset (50.82)
Bridgewater Allocation (21.64) 1/95-
S.A., Inc. Speculative5 3/95 4/95 13 33 5.27 19.04 10.99 17.64 7.00 (7.73)
(21.52)
Bridgewater Aggressive (15.02) 5/98-
S.A., Inc. Pure Alpha3 8/98 8/98 0 0 7.63 66.67 14.58 - - -
Pure Alpha (5.13)
Bridgewater Futures (2.01) 4/98-
Associates Only3,6 7/98 7/98 0 0 1.53 19.71(6) - - - -
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began (in thousands) (in thousands)
Trading Began Trading Number (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long
Duration
Bridgewater Global
Associates Bond3 6/85 8/95 2 6,600,000 7,700,000 267,000 267,000
Long-Term
Bridgewater Emerging
Associates Markets3 6/85 5/96 1 6,600,000 7,700,000 52,000 52,000
Bridgewater Index
Associates Overlay7 6/85 7/98 1 6,600,000 7,700,000 11,100 107,000
Bridgewater Hedge
S.A. AccountI9 6/85 6/91 0 6,600,000 7,700,000 0 0
Global
Bridgewater Tactical Asset
Associates Allocation 6/85 5/99 1 6,600,000 7,700,000 6,000 106,000
<CAPTION>
ANNUAL RATES OF RETURN(1)
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 1999
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 6/30/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long
Duration (24.47)
Bridgewater Global (16.11) 2/96-
Associates Bond3 2/96 5/96 0 0 (13.12) 50.31 34.74(5) 11.85(5) 34.03(5) -
Long-Term (24.48)
Bridgewater Emerging (25.55) 5/98-
Associates Markets3 8/98 8/98 1 0 5.53 (0.13)5 17.41(5) 21.77(5) - -
(20.97)
Bridgewater Index (15.03) 7/98- (5.96)(8)
Associates Overlay7 8/98 9/98 0 0 (6.38) 6-mths - - - -
Bridgewater Hedge
S.A. AccountI9 N/A N/A 1 0 NO RATES OF RETURN ARE AVAILABLE
Global
Bridgewater Tactical Asset 0.10
Associates Allocation N/A N/A 0 0 2-mths - - - - -
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
* The CFTC accepts three different methods of showing
the composite rate of return achieved by accounts, some of
which are traded at different degrees of leverage. These
methods are: the fully funded subset method, the time-
weighted method and the only accounts traded method.
Although each method uses a different approach, all methods
are intended to produce substantially the same rate of return.
All annual rates of return are computed on a compounded
monthly basis.
1 "Largest monthly draw-down" means the greatest decline
in month-end net asset value due to losses sustained by the
program on a composite basis for any particular month
or any particular account for any particular month.
2 "Largest peak-to-valley draw-down" means the greatest
cumulative percentage decline in month-end net asset value
due to losses sustained by the program 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 net asset value.
3 Each of these programs represents a variation of
Bridgewater Associates' Pure Alpha Strategy. There are three
principal differences among these accounts: (a) the amount of
leverage used to trade the account, (b) the nature of the
products traded, e.g., emerging market bonds, 10 year bonds, currency
only, etc. and (c) the manner in which cash in the account is
invested, T-bills or stock indices. Certain programs are
offered by both Bridgewater Associates and its affiliate
Bridgewater Associates, S.A.
4 For period January 1994 to April 1998, there were no fully
funded accounts, therefore, rates of return are based on the
subset at nominal account size.
5 This is a program that had been offered to retain
accounts that is no longer being offered. It was not based on
the Pure Alpha Strategy.
6 Rates of return are calculated by dividing net
performance by beginning equity.
7 This is a passive equity strategy that is not based on the
Pure Alpha Strategy.
8 Rates of return are calculated by dividing net
performance by nominal account size of the account.
9 This is a program that is intended to hedge interest rate
exposure.
34
<PAGE>
The first seven programs listed in Capsule D(3) are
based on the Fully Funded Subset method for
computing the rate of return. The monthly rates of
return for accounts excluded from the Fully Funded
Subset, that is those which are partially funded,
will often be different from the rate of return for
the Fully Funded Subset. Accounts not included in
the Fully Funded Subset for any particular period
may include: accounts open or closed during the
period; accounts which have material additions or
withdrawals during the period; and the accounts
which are being phased in to the program and,
consequently, do not have a complete set of
positions that the other accounts in the program
have. The rates of return for these excluded
accounts may be significantly higher or lower than
the rate of return for the Fully Funded Subset.
The following chart is provided so that you can
determine the rate of return which was received at
different funding levels. This chart does not
apply to Series D and the Aggressive Pure Alpha
Futures System.
ACTUAL RATE
OF RETURN (1) RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS (3)
20.00% 26.67% 40.00% 80.00% N/A
15.00 20.00 30.00 60.00 N/A
10.00 13.33 20.00 40.00 N/A
5.00 6.67 10.00 20.00 N/A
3.00 4.00 6.00 12.00 N/A
1.00 1.33 2.00 4.00 N/A
(1.00) (1.33) (2.00) (4.00) N/A
(3.00) (4.00) (6.00) (12.00) N/A
(5.00) (6.67) (10.00) (20.00) N/A
(10.00) (13.33) (20.00) (40.00) N/A
100.00% 75.00% 50.00% 25.00% 0.00%
LEVEL OF FUNDING (2)
Footnotes to Rate Conversion Chart:
(1) This column represents the range of actual
rates of return for fully-funded accounts reflected
in the accompanying performance table.
(2) This represents the percentage of actual funds
divided by the fully-funded trading level.
(3) This represents the rate of return experienced
by a customer at various levels of funding traded
by the trading advisor. The raters of return for
accounts that are not fully-funded are inversely
proportional to the actual rates of return based on
the percentage level of funding.
35
<PAGE>
SERIES E
Graham Capital will be allocated 100% of the Series
E assets. In its trading for Series E, Graham
Capital will utilize its Global Diversified Program
trading strategy initially.
Graham Capital And Its Principals
Graham Capital was organized as a Delaware limited
partnership in May 1994. The general partner of
Graham Capital is KGT, Inc., a Delaware corporation
of which Kenneth G. Tropin is the president and
sole shareholder. The limited partner of Graham
Capital is KGT Investment Partners, L.P., a
Delaware limited partnership of which KGT, Inc. is
also a general partner and in which Mr. Tropin is
the principal investor. Graham Capital became
registered as a commodity pool operator and
commodity trading advisor under the Commodity
Exchange Act on July 27, 1994, and it became a
member of the National Futures Association on the
same date. Graham Capital maintains its only
business office at Stamford Harbor Park, 333 Ludlow
Street, Stamford, CT 06902; telephone (203) 975-
5700.
Kenneth G. Tropin is the president, the founder,
and a principal of Graham Capital. As president of
Graham Capital, Mr. Tropin is responsible for the
investment management strategies of the
organization. He has developed Graham Capital's
core trading programs.
Prior to organizing Graham Capital, Mr. Tropin
served as the president, the chief executive
officer and a Director of John W. Henry & Co. Inc.
from March 1989 to September 1993. Mr. Tropin was
formerly senior vice president and Director of
Managed Futures and Precious Metals at Dean Witter
Reynolds Inc. He joined Dean Witter Reynolds Inc.
from Shearson in February 1982 to run the Managed
Futures Department, and in October 1984 Mr. Tropin
assumed responsibility for Dean Witter Precious
Metals as well. In November 1984, Mr. Tropin was
appointed president of Demeter Management
Corporation, an affiliate of Morgan Stanley Dean
Witter & Co., which functions as the general
partner to and the manager of Morgan Stanley Dean
Witter futures funds.
In February 1986, Mr. Tropin was instrumental in
the foundation of the Managed Futures Trade
Association. Mr. Tropin was elected Chairman of
the Managed Futures Trade Association in March 1986
and held this position until 1991. In June 1987,
Mr. Tropin was appointed president of Dean Witter
Futures and Currency Management Inc., an affiliate
of Dean Witter Reynolds Inc.
Thomas P. Schneider is an executive vice president,
the chief trader, and a principal of Graham
Capital. He is responsible for managing Graham
Capital's trading operations, including order
execution, policies and procedures and maintaining
relationships with independent executing brokers
and futures commission merchants.
Mr. Schneider graduated from the University of
Notre Dame in 1983 with a B.B.A. in Finance, and he
received his M.B.A. from the University of Texas at
Austin in 1994. From June 1985 through September
1993, Mr. Schneider was employed by ELM Financial,
Inc., a commodity trading advisor in Dallas, Texas.
While employed at ELM Financial, Inc., Mr.
Schneider held positions of increasing
responsibility and was ultimately chief trader,
vice president, and principal of ELM Financial,
Inc., responsible for 24-hour trading execution,
compliance, and accounting. In January 1994, Mr.
Schneider began working as chief trader for Chang
Crowell Management Corporation, a commodity trading
advisor in Norwalk, Connecticut. He was
responsible for streamlining operations for more
efficient order execution and for maintaining and
developing relationships with over 15 futures
commission merchants on a global basis.
In addition to his responsibilities as chief
trader, Mr. Schneider serves on the Board of the
New York Futures Exchange, has served on the
Managed Futures Association's Trading and Markets
Committee, and has been a National Futures
Association arbitrator since 1989.
Robert G. Griffith is a senior vice president, the
director of research, the chief technology officer
and a principal of Graham Capital, and he is
responsible for the management of all research
activities and technology resources of Graham
Capital, including portfolio management, asset
allocation and trading system development.
36
<PAGE>
Mr. Griffith is in charge of the day to day
administration of Graham Capital's trading systems
and the management of Graham Capital's database of
price information on more than 100 markets. Mr.
Griffith also assists Mr. Tropin in numerous
research initiatives as well as various
administrative responsibilities. Prior to joining
Graham Capital, Mr. Griffith's company, Veridical
Methods, Inc., provided computer programming and
consulting services to such firms as GE Capital,
Lehman Brothers and Morgan Guaranty Trust. He
received his B.B.A. in Management Information
systems from the University of Iowa in 1979.
Jerome L. Raffaldini, II is a managing director and
principal of Graham Capital and is responsible for
risk management, new product development and
strategic planning. Prior to joining Graham
Capital in January 1999, Mr. Raffaldini was
president of Fuji Alternative Asset Management, a
commodity pool operator and wholly owned subsidiary
of Fuji Bank. From 1990 to 1997, Mr. Raffaldini
was a vice president at Nippon Credit Bank, Ltd. in
charge of proprietary trading of derivative
products. While at Nippon Credit Bank, Mr.
Raffaldini helped found and acted as president and
chief executive officer of Nippon Credit Asset
Management, a commodity pool operator and wholly
owned subsidiary of Nippon Credit Bank. From 1987
to 1990, Mr. Raffaldini worked as vice president of
Quantitative Investment Products for First Union
National Bank.
Mr. Raffaldini serves as an adjunct lecturer to the
Federal Reserve, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision and
to banking departments of various states on risk
management and performance measurement topics. He
received his M.B.A. in Finance from New York
University in 1987 and his B.A. in Economics from
Georgetown University in 1984.
Anthony Bryla is a vice president, the controller,
and a principal of Graham Capital and is
responsible for the management of all accounting
and finance activities at Graham Capital. Mr.
Bryla is in charge of the daily and monthly
performance reporting, company accounting and
treasury functions, as well as policies and
procedures. Prior to joining Graham Capital in
September 1995, Mr. Bryla was an assistant
accounting manager at OMR Systems Corp. where he
provided back-office and accounting services for
such clients as Merrill Lynch and Chase Manhattan
Bank and where he held positions of increasing
responsibility since February 1989. Mr. Bryla is a
C.P.A. and is a member of the New Jersey Society of
C.P.A.'s, and he graduated from Rutgers University
with a B.A. in Business Administration in 1982.
Paul Sedlack is a vice president, the general
counsel, and a principal of Graham Capital, and he
is responsible for legal and compliance matters.
Mr. Sedlack began his career at the law firm of
Coudert Brothers in New York in 1986 and was
resident in Coudert Brothers' Singapore office from
1988 to 1989. Prior to joining Graham Capital in
June 1998, Mr. Sedlack was a partner at the law
firm of McDermott, Will & Emery in New York,
focusing on securities and commodities laws
pertaining to the investment management and related
industries. Mr. Sedlack received a JD from Cornell
Law School in 1986 and an M.B.A. in Finance in 1983
and a BS in Engineering in 1982, both from State
University of New York at Buffalo.
Kevin O'Connor is a vice president, senior trader,
and principal of Graham Capital. Mr. O'Connor is a
senior member of the trading staff responsible for
executing trades in accordance with Graham
Capital's systems, and he works closely with Mr.
Schneider in managing the firm's daily trading
operations. Prior to joining Graham Capital, from
June 1992 until June 1995, Mr. O'Connor was a vice
president and controller for Luck Trading Company,
a commodity trading advisor in New York City. From
January 1981 until June 1992, Mr. O'Connor was a
controller and senior trader for Futures Investment
Company, a commodity trading advisor based in
Greenwich, CT. Mr. O'Connor graduated from
Providence College in 1980 with a BS in Accounting.
Barry F. Cronin is a senior discretionary trader
and principal of Graham Capital specializing in the
global macro markets with particular emphasis on
foreign exchange and fixed income. Prior to
joining Graham Capital in February 1998, Mr. Cronin
was employed by Tudor Investment Corporation,
initially in various capacities at the Chicago
Mercantile Exchange from 1990 to 1992 and then as a
proprietary trader from 1992 to 1998. Prior to
that Mr. Cronin worked for Merrill Lynch & Co. at
the Chicago Board of Trade. Mr. Cronin received a
M.B.A. and an M.A. in international relations from
Boston University in 1989 and a B.A. from Colby
College in 1984.
37
<PAGE>
Dominic M. Napolitano is a senior discretionary
trader and principal of Graham Capital whose
primary activities are in the global foreign
exchange and fixed income markets. Prior to
joining Graham Capital in February 1998, Mr.
Napolitano was employed by Tudor Investment
Corporation as a proprietary trader from 1992 to
1998. From 1988 to 1992, he was employed by Refco
Inc. Mr. Napolitano received a B.A. in Economics
from Middlebury College in 1987.
Graham Capital's Trading Strategy
Graham Capital has both systematic and
discretionary trading programs. Graham Capital
uses systematic trading programs or models to
produce trading signals on a largely automated
basis when applied to market data. Graham Capital
also uses a discretionary trading program for which
trades are determined subjectively on the basis of
its traders' assessments of market conditions,
rather than through application of an automated
system. The investment objective of each Graham
Capital trading strategy is to provide clients with
significant potential for capital appreciation in
both rising and falling markets during expanding
and recessionary economic cycles.
Systematic Trading
Graham Capital's trading systems rely primarily on
technical rather than fundamental information as
the basis for their trading decisions. Graham
Capital's systems are based on the expectation that
they can over time successfully anticipate market
events using quantitative mathematical models to
determine their trading activities, as opposed to
attempting properly to forecast price trends using
subjective analysis of supply and demand.
Graham Capital's core trading systems are primarily
very long term in nature and are designed to
participate selectively in potential profit
opportunities that can occur during periods of
sustained price trends in a diverse number of U.S.
and international markets. The primary objective
of the core trading systems is to establish
positions in markets where the price action of a
particular market signals the computerized systems
used by Graham Capital that a potential trend in
prices is occurring. The systems are designed to
analyze mathematically the recent trading
characteristics of each market and statistically
compare such characteristics to the long-term
historical trading pattern of the particular
market. As a result of this analysis, the systems
will utilize proprietary risk management and trade
filter strategies that are intended to benefit from
sustained price trends while reducing risk and
volatility exposure.
Graham Capital utilizes discretion in connection
with its systematic trading programs in determining
which markets warrant participation in the
programs, market weighting, leverage and timing of
trades for new accounts. Graham Capital also may
utilize discretion in establishing positions or
liquidating positions in unusual market conditions
where, in its sole discretion, Graham Capital
believes that the risk-reward characteristics have
become unfavorable.
Discretionary Trading
The Discretionary Trading Group (referred to as the
DTG) was established at Graham Capital in February
1998. Unlike Graham Capital's systematic trading
programs, which are based almost entirely on
computerized mathematical models, the DTG
determines its trades subjectively on the basis of
personal assessment of trading data and trading
experience. One of the significant advantages
Graham Capital's traders benefit from is Graham
Capital's experience in systematic trading and
trend identification. This experience has proven
helpful in enabling the DTG to take advantage of
significant market trends when they occur and,
equally important, the DTG has the potential to
profit from trend reversals as well. Additionally,
Graham Capital makes available extensive technical
and fundamental research resources to the DTG in an
effort to improve its competitive performance edge
over time. The DTG's performance results generally
are not correlated to the results of other
discretionary traders or Graham Capital's
systematic trading programs. Importantly, the DTG
can generate successful performance results in
trading range type markets where there are few
long-term trends.
38
<PAGE>
Graham Capital's Trading Programs
The various futures interests markets that are
traded pursuant to each Graham Capital systematic
trading program are identified on the following
pages. Graham Capital conducts ongoing research
regarding expanding the number of futures interests
markets each program trades to further the
objective of portfolio diversification. Particular
futures interests markets may be added to or
deleted from a program at any time without notice.
Portfolios may be rebalanced with respect to the
weighting of existing markets at any time without
notice. Additions, deletions and rebalancing
decisions with respect to each program are made
based on a variety of factors, including
performance, risk, volatility, correlation,
liquidity and price action, each of which factors
may change at any time.
Initially, Series E will be traded pursuant to the
Global Diversified Program described below.
Global Diversified Program. The Global Diversified
Program, the trading program which will be used
initially by Graham Capital, utilizes multiple
computerized trading models which are designed to
participate in the potential profit opportunities
during sustained price trends in approximately 80
global markets. This program features broad
diversification in both financial and non-financial
markets.
The strategies that are utilized are primarily long
term in nature and are intended to generate
significant returns over time with an acceptable
degree of risk and volatility. On a daily basis,
the computer models analyze the recent price
action, the relative strength and the risk
characteristics of each market and compare
statistically the quantitative results of this data
to years of historical data on each market.
Graham Capital will initially trade 100% of the
Series E assets pursuant to its Global Diversified
Program, as described above, at 1.5 times the
leverage it normally applies for such program.
Margin requirements over time normally are expected
to average about 15% to 20% of equity for accounts
traded pursuant to the Global Diversified Program;
thus, margin requirements for Series E over time
are expected to average about 20% to 30% of Series
E's net assets. Increased leverage will alter risk
exposure and may lead to greater profits and losses
and trading volatility. See "RISK FACTORS-Futures,
Forwards And Options Trading Is Volatile And Highly
Leveraged." Subject to the prior approval of the
managing owner, Graham Capital may, at any time,
trade a portion of the Series E assets pursuant to
one or more of Graham Capital's other systematic
programs and/or its discretionary trading program,
and at an increased or reduced rate of leverage.
Graham Selective Trading Program. The Graham
Selective Trading Program (referred to as the GST)
was developed in 1997 and utilizes a completely
different trading system than the other Graham
Capital programs. The GST uses a mathematical
model to identify certain price patterns that have
very specific characteristics indicating that there
is a high probability that a significant
directional move will occur. Although the system
does not trade against the market trend, it is not
a true trend-following system inasmuch as it will
only participate in very specific types of market
moves that meet the very restrictive criteria of
the model. In general, the GST will participate
only in market moves that are characterized by a
substantial increase in volatility. As a result,
it frequently will not participate in market trends
in which virtually all other trend-following
systems would have a position. The program trades
in approximately 55 markets with approximate
weightings, as of June 1999, of 37% in global
interest rates, 31% in foreign exchange, 15% in
agricultural futures, 8% in metal futures, 6% in
stock index futures and 3% in energy futures. Due
to the extremely selective criteria of the GST
model, the program will normally maintain a neutral
position in approximately 50% to 60% of the markets
in the portfolio.
Discretionary Trading Group Program. Unlike Graham
Capital's systematic trading programs, which are
based almost entirely on computerized mathematical
models, Graham Capital's DTG (described above)
determines trades for the Discretionary Trading
Group Program subjectively on the basis of personal
judgment and trading experience. The Discretionary
Trading Group Program generally utilizes
fundamental information as well as certain
technical data as the basis for its trading
strategies. Fundamental considerations relate to
the underlying economic and political forces that
ultimately determine the true value of a particular
financial instrument or commodity. Fundamental
analysis of the DTG may involve a short or long-
term time horizon. Technical data considered by
the DTG include price patterns, volatility, trading
volumes and level of open interest.
39
<PAGE>
The Discretionary Trading Group Program trades
global fixed income, foreign exchange and other
futures and forward markets. The Discretionary
Trading Program may trade call or put options in
these markets.
Non-Trend Based Program. Today's markets include
many trend-following and counter-trend traders
attempting to identify major trends and reversals
thereof. Graham Capital's Non-Trend Program (NTB)
utilizes multiple computerized trading models that
for the most part do not rely on price trends. The
NTB program forecasts market direction based on
changes in fundamental data, such as supply and
demand data, inflation rates, interest rates and
shifts in the business cycle. By using non-trend-
following methods it is possible to trade with
considerable success in markets irrespective of the
existence of price trends. As of June 1999, the
NTB had approximately 50% weighting in currency
forwards, 25% weighting in energy futures, 10%
weighting in futures contracts based on interest
rates, 10% in metal futures and 5% stock index
futures.
The NTB program seeks to capture currency gains
based on the momentum of interest rate
expectations, absolute levels of the interest rate
differentials and relative shapes of yield curves.
The NTB program forecasts energy market direction
from changes in supply/demand, the commitment of
traders' report and other factors.
For trading fixed income markets, the NTB program
creates a macroeconomic index based on economic
release data, inflation data and interest rate
sensitive stocks. For base metal trading, the NTB
program seeks to identify shifts in supply/demand
that are consistent with the current business cycle
to anticipate market direction relying on inputs
such as cost of carry, supply/demand measures,
inflation, currency movement and interest rate
sensitive stocks. For equities, the NTB program
creates a composite indicator that positions the
system long or short the S&P 500 relying on stock
market fundamental indicators such as
price/earnings ratios, dividend yields, inflation,
currency movement and interest rates.
K4 Program. Like the GST program, the K4 program
uses a mathematical model to identify certain price
patterns that have very specific characteristics
indicating that there is a high probability that a
significant directional move will occur. The K4
program differs from the GST program in many
respects, including a tendency to enter markets at
different times and it uses significantly different
parameters. The K4 program will normally enter or
exit a position only when a significant price and
volatility spike takes place and is designed to
have a high percentage of winning trades. K4 will
normally maintain a neutral position in 50% of the
markets in the portfolio.
The K4 program trades in approximately 65 markets
with weightings, as of June 1999, of about 33% in
foreign exchange, 27% in global interest rates, 15%
in stock index futures, 11% in agricultural
futures, 9% in metals and 5% in energy futures.
40
<PAGE>
Allocation Among Markets Traded By Graham Capital
Set forth below is a bar graph showing the market
sectors that are traded by Graham Capital pursuant
to its Global Diversified Program as of July 31,
1999. As of July 31, 1999, investor funds are
exposed to these sectors in approximately the
percentage allocations stated; however, these
percentage allocations are subject to change at
Graham Capital's discretion. Actual allocations
change as market conditions and trading
opportunities change, and it is likely that the
targeted risk allocations may vary for Series E
during future periods, although the focus will
remain on a diversified portfolio:
Market Sector Percentage
Currencies 38%
Interest Rates 27
Stock Index Futures 13
Agricultural Products/Softs 11
Metals 8
Energy Products 3
Total 100%
(GRAPH)
PLEASE TURN TO THE FOLLOWING PAGE
41
<PAGE>
Graham Capital's Past Performance For All Of Its Clients
Capsule summaries E(1), E(2) and E(4) contain
actual performance information for the periods
indicated. Capsule summary E(3) is a pro forma
presentation of a representative account in Capsule
Summary E(1).
Global Diversified Program
The following is a capsule summary of the past
performance for Graham Capital's Global Diversified
Program as of July 31, 1999, the trading strategy
which initially will be used to trade Series E
(although at 150% leverage).
Name of commodity
trading advisor: Graham Capital
Program: Global Diversified Program
Start Date: February 2, 1995 (All trading by Graham Capital)
February 2, 1995 (Global Diversified Program)
No. Accounts: 7
Aggregate $$ In All Programs: $ 553,030,000 (All Programs including Notional)
$$ in this Program: $ 148,161,000 (Global Diversified Program
including Notional)
Largest monthly draw-down: (6.93%) February 1996
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due to losses
sustained by the program on a composite basis for
any particular month or an individual account for
any particular month.
Largest peak-to-valley
draw-down: (13.74%) April 1998 to July 1998
"Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline in
month-end net asset value due to
losses sustained by the program 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 net asset
value.
Closed Accounts: Profitable = 6
Unprofitable = 1
RATES OF RETURN INFORMATION IS ON FOLLOWING PAGE
42
<PAGE>
CAPSULE E(1) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
MONTHLY/ANNUAL RATES OF RETURN*
1999
(through
MONTH 7/31/99) 1998 1997 1996 1995
Jan (0.08)% 1.65% 4.19% 7.43%
Feb 0.95 1.41 (1.53) (5.69) 6.48%
Mar (5.09) 4.56 0.90 1.25 11.89
Apr 2.63 (3.02) (4.71) 3.47 2.81
May (4.14) (0.82) (1.35) (0.31) 4.49
Jun 5.65 (5.95) (0.84) 1.26 1.62
Jul (1.86) (3.49) 3.72 (0.45) (1.06)
Aug 11.01 (2.64) (1.62) (4.83)
Sep 6.93 2.11 1.21 (3.62)
Oct 3.24 4.14 5.71 (1.55)
Nov (2.80) 0.50 3.26 3.14
Dec 0.09 1.85 (1.05) 5.81
YTD/
Annual (2.34)% 12.20% 6.04% 14.70% 26.83%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
*The rate of return percentage for each month is
obtained by dividing the net income for the month
by the net asset value as of the beginning of the
month (including contributions made at the start of
the month). In months where asset changes are made
mid-month, rates of return are calculated for each
segment of the month and compounded. For this
purpose, "net income" represents the gross income
for the month in question, net of all expenses and
performance allocations. The rate of return
percentage for each year is determined by
calculating the percentage return on an investment
made as of the beginning of each year.
Specifically, a running index is calculated
monthly, compounded by the rate of return, the
annual percentage being the change in this index
for the year divided by the year's initial index.
Graham Capital advises exempt accounts for
qualified eligible clients the performance of which
is not included in the composite performance
record.
43
<PAGE>
The following is a capsule summary of the past
performance for Graham Capital's Global Diversified
Program Traded at 150% Leverage as of July 31,
1999, the trading strategy which initially will be
used to trade Series E.
Name of commodity
trading advisor: Graham Capital
Program: Global Diversified Program Traded at 150% Leverage
Start Date: February 2, 1995 (All trading by Graham Capital)
May 1, 1997 (Global Diversified Program at 150%
leverage)
No. Accounts: 11
Aggregate $$ In All
Programs: $ 553,030,000 (All Programs including Notional)
$$ in this Program: $ 130,416,000 (Global Diversified Program including
Notional)
Largest monthly
draw-down: (9.84%) June 1998
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due to losses
sustained by the program on a composite basis for
any particular month or an individual account for
any particular month.
Largest peak-to-
valley draw-down: (20.01%) April 1998 to July 1998
"Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline in month-end
net asset value due to losses sustained by the
program 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 net asset value.
Closed Accounts: Profitable = 7
Unprofitable = 0
RATES OF RETURN INFORMATION IS ON FOLLOWING PAGE
44
<PAGE>
CAPSULE E(2) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
TRADED AT 150% LEVERAGE
MONTHLY/ANNUAL RATES OF RETURN*
1999
(through
MONTH 7/31/99) 1998 1997
Jan (0.62)% 2.14%
Feb 1.35 1.71
Mar (7.79) 6.52
Apr 4.02 (4.42)
May (6.25) (1.08) (1.62)%
Jun 8.05 (9.21) (1.12)
Jul (2.63) (5.22) 5.04
Aug 17.07 (3.79)
Sep 9.34 2.93
Oct 4.97 5.72
Nov (3.40) 1.30
Dec 0.12 2.94
YTD/Annual (4.70)% 17.00% 11.56%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
*The rate of return percentage for each month is
obtained by dividing the net income for the month
by the net asset value as of the beginning of the
month (including contributions made at the start of
the month). In months where asset changes are made
mid-month, rates of return are calculated for each
segment of the month and compounded. For this
purpose, "net income" represents the gross income
for the month in question, net of all expenses and
performance allocations. The rate of return
percentage for each year is determined by
calculating the percentage return on an investment
made as of the beginning of each year.
Specifically, a running index is calculated
monthly, compounded by the rate of return, the
annual percentage being the change in this index
for the year divided by the year's initial index.
Graham Capital advises exempt accounts for
qualified eligible clients the performance of which
is not included in the composite performance
record.
45
<PAGE>
CAPSULE E(3)
Graham Capital Pro Forma
Set forth in Capsule E(3) is pro forma information
prepared by the managing owner using Graham
Capital's actual trading results of a
representative account selected by Graham Capital
and included in Capsule E(1). Capsule E(3)
reflects the performance of the account traded
under a fee and leverage structure identical to the
structure of Series E, which includes brokerage
fees of 6.0%, advisory management fees of 2.0%,
incentive fees of 22%, and an interest income
credit of approximately 4.68%. 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 E, the
performance information presented in this capsule
should by no means be taken as an indication of how
Series E or how limited owners' individual
investments will perform or would have performed
over the same time period. Prospective investors
are referred to the Global Diversified Program's
actual performance in Capsules E(1) and E(2) in
this Prospectus.
Rates of Return
(Computed on a Monthly Basis)
Month 1999 1998 1997 1996 1995
January (0.27)% 2.50% 5.97% 12.13%
February 0.96 1.64 (2.31) (9.89) 9.51%
March (8.17) 6.17 0.99 1.99 17.11
April 3.61 (4.85) (7.43) 5.99 3.99
May (6.56) (1.64) (2.23) (0.78) 6.37
June 8.19 (9.34) (1.50) 1.66 2.25
July (3.35) (5.58) 5.25 (1.17) (2.16)
August 16.63 (4.58) (2.87) (7.60)
September 10.69 2.89 1.48 (5.75)
October 4.95 6.57 8.57 (2.55)
November (3.62) 0.42 4.61 4.43
December (0.22) 3.09 (1.81) 8.86
YTD/Annual -6.40% 15.46% 6.25% 19.67% 36.93%
Compound Annual Return: 15.08%
Average Positive Monthly Return: 5.65%
Average Monthly Return: 1.36%
Average Negative Monthly Return: (4.01)%
Monthly Standard Deviation Annualized(1): 6.11%
# of Months with a Positive Return: 30
Largest Peak-to-Valley Draw-down: (19.88)%
# of Months with a Negative Return: 24
Recovery Time(2): 6 months
1 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).
2 Recovery Time is the number of months it took
for the rate of return to equal or exceed the rate
of return at the beginning of the Largest Peak-to-
Valley Draw-down.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
46
<PAGE>
SUPPLEMENTAL INFORMATION
CAPSULE E(4)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY GRAHAM CAPITAL
THAT WILL NOT INITIALLY BE USED TO TRADE SERIES E ASSETS
<TABLE>
<CAPTION>
Date
Name of Date CTA Aggregate Dollars
Commodity CTA Began in All Programs Dollars in This Program
Trading Began Trading Number (Including (Including
Advisor Program Trading Program Accounts Notional) Notional)
<S> <C> <C> <C> <C> <C> <C>
Selective
Graham Trading
Capital Program 2/2/95 1/7/98 2 $553,030,000 $94,804,000
Selective
Trading
Program at
Graham 150%
Capital Leverage 2/2/95 6/1/99 3 $553,030,000 $17,857,000
Discretionary
Graham Trading
Capital Program 2/2/95 1/4/99 1 $553,030,000 $12,871,000
Discretionary
Trading
Program at
Graham 150%
Capital Leverage 2/2/95 6/1/99 3 $553,030,000 $17,719,000
Non-Trend
Graham Based
Capital Program 2/2/95 1/4/99 1 $553,030,000 $25,198,000
Non-Trend
Based
Program at
Graham 150%
Capital Leverage 2/2/95 6/1/99 2 $553,030,000 $8,208,000
Graham
Capital K4 Program 2/2/95 1/4/99 2 $553,030,000 $37,010,000
K4 Program
Graham at 150%
Capital Leverage 2/2/95 6/1/99 2 $553,030,000 $5,623,000
Graham Global FX
Capital Program 2/2/95 5/21/97 1 $553,030,000 $4,673,000
International
Graham Financial
Capital Program 2/2/95 1/2/96
Natural
Graham Resource
Capital Program 2/2/95 9/27/96
<CAPTION>
ANNUAL RATES OF RETURN(1)
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 1999
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 7/31/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selective
Graham Trading 3.00 4.42
Capital Program 6/98 3/98-7/98 0 0 (3.98) 25.86 - - - -
Selective
Trading
Program at
Graham 150% 2.34 2.34
Capital Leverage 7/99 7/99 0 0 0.03 - - - - -
Discretionary
Graham Trading 1.22 2.01
Capital Program 7/99 6/99-7/99 0 0 0.11 - - - - -
Discretionary
Trading
Program at
Graham 150% 2.72 3.93
Capital Leverage 6/99 6/99-7/99 0 0 (3.82) - - - - -
Non-Trend
Graham Based 2.92 3.32
Capital Program 1/99 5/99-6/99 0 0 5.24 - - - - -
Non-Trend
Based
Program at
Graham 150% 5.27 5.27
Capital Leverage 6/99 6/99 0 0 (2.87) - - - - -
Graham 3.66 3.66
Capital K4 Program 3/99 3/99 0 0 0.04 - - - - -
K4 Program
Graham at 150% 2.40 2.40
Capital Leverage 7/99 7/99 0 0 0.42 - - - - -
Graham Global FX 3.97 7.79
Capital Program 7/99 4/98-7/99 - - (4.93) (3.52) 5.19 - - -
International
Graham Financial 8.41 18.07
Capital Program 6/98 4/98-6/98 - - - 8.15 5.14 13.98 - -
Natural
Graham Resource 6.68 19.22
Capital Program 10/97 2/97-11/97 - - - 4.71 (15.22) 2.80 - -
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
1 The rate of return percentage for each month is obtained by
dividing the net income for the month by the net asset value as of
the beginning of the month (including contributions made at the
start of the month). In months where asset changes are made mid-month,
rates of return are calculated for each segment of the month
and compounded. For this purpose, "net income" represents the gross
income for the month in question, net of all expenses and
perforamnce allocations. The rate of return percentage for
each year is determined by calculating the percentage return on an
investment made as of the beginning of each year. Specifically,
a running index is calculated monthly, compounded by the
rate of return, the annual percentage being the change in
this index for the year divided by the year's initial index.
Graham Capital advises exempt qualified eligible clients the
performance of which is not included in the composite
performance record.
2 "Largest monthly draw-down" means the greatest decline
in month-end net asset value due to losses sustained by the
program on a composite basis for any particular month
or an individual account for any particular month.
3 "Largest peak-to-valley draw-down" means the greatest
cumulative percentage decline in month-end net asset value
due to losses sustained by the program 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 net asset value.
47
<PAGE>
SERIES F
Campbell & Company will be allocated 100% of the
Series F assets. In its trading for Series F,
Campbell & Company initially will utilize the FME
Small Portfolio, one of its systematic trading
programs.
Campbell & Company And Its Principals
Campbell & Company is a Maryland corporation
organized in April 1978 as a successor to a
partnership originally formed in January 1974.
Campbell & Company became registered as a commodity
trading advisor in May 1978 and as a commodity pool
operator in September 1982, and Campbell & Company
is a member of the National Futures Association.
Campbell & Company's main business office is
located at 210 West Pennsylvania Avenue, Suite 770,
Towson, Maryland 21204; telephone (410) 296-3301.
D. Keith Campbell, 57, has served as the Chairman
of the Board of Directors of Campbell & Company
since it began operations, and he was President
until January 1, 1994 and Chief Executive Officer
until January 1, 1998. Mr. Campbell is the
majority voting stockholder. From 1971 through
June 1978 he was a registered representative of a
futures commission merchant. Mr. Campbell has
acted as a commodity trading advisor since January
1972 when, as general partner of the Campbell Fund,
a limited partnership engaged in commodity futures
trading, he assumed sole responsibility for trading
decisions made on behalf of the Fund. Since then
he has applied various technical trading models to
numerous discretionary commodity trading accounts.
Mr. Campbell is registered with the CFTC and the
National Futures Association as a commodity pool
operator and is registered as an Associated Person
of Campbell & Company.
Bruce L. Cleland, 52, joined Campbell & Company in
January 1993. Mr. Cleland serves as President,
Chief Executive Officer and a Director of Campbell
& Company. Prior to 1994, he was Executive Vice
President. From May 1986 through December 1992,
Mr. Cleland served in various principal roles with
various firms, including the following: President,
Institutional Brokerage Corp., a floor broker;
President, Institutional Advisory Corp., a
commodity trading advisor and commodity pool
operator; President, F&G Management, Inc., a
commodity trading advisor; and President, Hewlett
Trading Corporation, a commodity pool operator.
Prior to this, Mr. Cleland was employed by Rudolf
Wolff Futures Inc., a futures commission merchant,
until April 1986. Mr. Cleland graduated in 1969
from Victoria University in Wellington, New Zealand
where he received a Bachelor of Commerce and
Administration degree. Mr. Cleland is registered
as an Associated Person of Campbell & Company
Richard M. Bell, 46, began his employment with
Campbell & Company in May 1990 and serves as a
Senior Vice President - Trading. His duties
include managing daily trade execution for the
assets under Campbell & Company's management. From
September 1986 through May 1990, Mr. Bell was the
managing general partner of several partnerships
registered as broker-dealers involved in market
making on the floor of the Philadelphia Stock
Exchange and Philadelphia Board of Trade. From
July 1975 through September 1986, Mr. Bell was a
stockholder and executive vice-president of Tague
Securities, Inc., a registered broker-dealer. Mr.
Bell owns a Philadelphia Stock Exchange seat and a
Philadelphia Currency Participation, which is
leased to him. Mr. Bell graduated from Lehigh
University with a B.S. in Finance.
William C. Clarke, III, 48, joined Campbell &
Company in June 1977. He is Executive Vice
President - Research and a Director of Campbell &
Company. Mr. Clarke holds a B.S. in Finance from
Lehigh University where he graduated in 1973. Mr.
Clarke currently oversees all aspects of research
which involves the development of proprietary
trading models and portfolio management methods.
Mr. Clarke is registered as an Associated Person of
Campbell & Company.
48
<PAGE>
Xiaohua Hu, 35, serves as a Vice President -
Research. He has been employed by Campbell &
Company since 1994 in the Research Department,
where he has a major role in the ongoing research
and development of Campbell & Company's trading
systems. From 1992 to 1994, he was employed in
Japan by Line System as a software engineer, where
he participated in the research and development of
computer software, including programs for
production systems control and software
development. Mr. Hu received his B.A. in
Manufacturing Engineering from Changsha University
of Technology in China in 1982. He went on to
receive an M.A. and Ph.D. in Systems and
Information Engineering from the Toyohashi
University of Technology, in Japan, in 1987 and
1992, respectively. During his studies at
Toyohasi, Xiaohua was also a Visiting Researcher in
Computer Science and Operations Research and
published several research papers.
Phil Lindner, 45, serves as Vice President -
Information Technology. He has been employed by
Campbell & Company since October 1994, became the
IT Director in March 1996 and Vice President in
January 1998. He oversees Campbell & Company's
computer and telecommunications systems. Prior to
joining Campbell & Company, Mr. Lindner worked as a
programmer and manager for Amtote, a provider of
race-track computer systems.
James M. Little, 53, joined Campbell & Company in
April 1990 and serves as Executive Vice President -
Marketing and as a Director of Campbell & Company.
Mr. Little holds a B.S. in Economics and Psychology
from Purdue University. From March 1989 through
April 1990 Mr. Little was a registered
representative of A.G. Edwards & Sons, Inc. From
January 1984 through March 1989, he was the chief
executive officer of James Little & Associates,
Inc., a registered introducing broker, commodity
pool operator and registered broker-dealer. Mr.
Little has extensive experience in the futures
industry having worked in the areas of hedging,
floor trading and managed futures. He is the co-
author of The Handbook of Financial Futures, and he
is a frequent contributor to investment industry
publications. Mr. Little is registered as an
Associated Person of Campbell & Company.
Theresa D. Livesey, 36, joined Campbell & Company
in 1991 and serves as the Chief Financial Officer,
Secretary, Treasurer and a Director of Campbell &
Company. In addition to her role as CFO, Ms.
Livesey also oversees administration and compliance
at Campbell & Company. From December 1987 to June
1991, she was employed by Bank Maryland Corp, a
publicly held company. When she left she was vice
president and chief financial officer. Prior to
that time, she worked with Ernst & Young. Ms.
Livesey is a C.P.A. and has a B.S. in Accounting
from the University of Delaware. Ms. Livesey is
registered as an Associated Person of Campbell &
Company.
V. Todd Miller, 37, serves as a Vice President -
Research. He has been employed by Campbell &
Company's Research Department since 1994, and he
has a major role in the ongoing research and
development of Campbell & Company's trading
systems. From 1993 to 1994, Mr. Miller was an
assistant professor in the department of Computer
Information Science at the University of Florida,
where he taught classes in object-oriented
programming, numerical analysis and programming in
C, C++ and LISP. Mr. Miller holds a variety of
degrees from the University of Florida, beginning
with an Associates degree in architecture. He
followed that in 1986 with a B.A. in Business with
a concentration in computer science. In 1988 he
received his M.A. in Engineering with a
concentration in artificial intelligence. He
completed his education in 1993 with a Ph.D. in
Engineering with a concentration in computer
simulation.
Albert Nigrin, 37, serves as a Vice President -
Research. He has been employed by Campbell &
Company's Research Department since 1995, and he
has a major role in the ongoing research and
development of Campbell & Company's trading
systems. From 1991-1995, Mr. Nigrin was an
assistant professor in the department of Computer
Science and Information Systems at American
University in Washington D.C., where he taught
graduate and undergraduate classes in artificial
intelligence, computer programming and algorithms.
While teaching at the American University, he also
wrote and published a book with MIT Press called
Neural Networks for Pattern Recognition. Mr.
Nigrin received a B.A. in Electrical Engineering in
1984 from Drexel University. He then proceeded
directly to a Ph.D. program and received his degree
in Computer Science in 1990 from Duke University,
where his doctoral studies concentrated in the
areas of artificial intelligence and neural
networks.
49
<PAGE>
Markus Rutishauser, 38, serves as Vice President -
Trading, and has been employed by Campbell &
Company since October 1993, with responsibility for
day-to-day foreign exchange trading. Prior to
joining Campbell, Mr. Rutishauser worked for two
years at the Maryland National Bank in Baltimore as
an Assistant Vice President in Foreign Exchange
trading. Prior to that he was employed by Union
Bank of Switzerland, spending four years in their
Zurich office and four years in their New York
office, in the Foreign Exchange Department. Mr.
Rutishauser graduated from the University of
Fairfield with a degree in Finance. He
subsequently completed his M.B.A. at the University
of Baltimore in January 1996.
C. Douglas York, 41, has been employed by Campbell
& Company since November 1992. He is a Senior Vice
President - Trading for Campbell & Company. His
duties include managing daily trade execution for
foreign exchange markets and forward contracts on
precious metals and energy markets. Prior to
joining Campbell & Company, Mr. York was the Global
Foreign Exchange Manager for Black & Decker. He
holds a B.A. in Government from Franklin and
Marshall College. Mr. York is registered as an
Associated Person of Campbell & Company.
Principals of Campbell & Company may trade futures
interests for their own accounts. In addition,
Campbell & Company manages proprietary accounts for
its deferred compensation plan for certain
principals. Campbell & Company and its principals
reserve the right to trade for their own accounts.
There are no written procedures that govern
proprietary trading by principals. Trading records
for all proprietary trading are available for
review by the Trust upon reasonable notice.
Campbell & Company's Trading Strategy
Campbell currently offers seven distinct trading
portfolios, including (i) the Global Diversified
Large Portfolio, (ii) the Global Diversified Small
Portfolio, (iii) the Financial, Metal & Energy
Large Portfolio (sometimes referred to as the FME
Large Portfolio), (iv) the Financial, Metal &
Energy Small Portfolio (sometimes referred to as
the FME Small Portfolio), (v) the Foreign Exchange
Portfolio, (vi) the Interest Rates, Stock Indices
and Commodities Portfolio and (vii) the Ark
Portfolio. The managing owner and Campbell &
Company have agreed that Campbell & Company
initially will trade on behalf of Series F
utilizing only the FME Small Portfolio, which is
described below.
All Campbell & Company trading portfolios employ
the following trading models. Campbell & Company's
trading models are designed to detect and exploit
medium-term to long-term price trends and to apply
proven risk management and portfolio management
principles. The concepts on which the trading
models are based were originally developed in 1976,
but since that time they have continued to evolve
as a result of Campbell & Company's continuing
commitment to creative research.
Campbell & Company believes that utilizing multiple
trading models for the same client account provides
an important level of diversification and is most
beneficial when multiple contracts of each market
are traded. More or fewer trading models than are
currently used may be used in the future. Every
trading model may not trade every market. It is
possible that one trading model may establish a
long position while another trading model
establishes a short position in the same market.
Since it is unlikely that both positions would
prove profitable, in retrospect one or both trades
will appear to have been unnecessary. It is
Campbell & Company's policy to follow trades
signaled by each trading model independent of what
the other models may be recommending.
Over the course of a long-term trend, there are
times when the risk of the market does not appear
to be justified by the potential reward. In such
circumstances some of Campbell & Company's trading
models may exit the position prior to the end of
the trend. While there is some risk to this method
(for example, being out of the market during a
significant portion of a trend), Campbell &
Company's research indicates that this is well
compensated for by decreased volatility of
performance.
Over the past several years, Campbell & Company's
research has resulted in several model changes and
portfolio enhancements that have increased the
quality of returns (i.e., decreased variability or
volatility of performance, while still maintaining
attractive returns).
50
<PAGE>
Campbell & Company expects to develop additional
trading models and to modify models currently in
use and to employ such models for Series F. The
models currently in use by Campbell & Company may
be eliminated from use if Campbell & Company
believes such action is warranted.
While Campbell & Company normally follows a
disciplined systematic approach to trading, on
occasion it may override the signals generated by
the models. Such modifications may not necessarily
be beneficial to the results achieved.
Campbell & Company applies risk management and
portfolio management strategies to measure and
manage overall portfolio risk. These strategies
includes portfolio structure, balance, capital
allocation and risk limitation. One objective of
portfolio management is to determine periods of
relatively high and low portfolio risk, and when
such points are reached, Campbell & Company may
reduce or increase position size accordingly. It
is possible, however, that during periods of
reduction in position size the return that would
have been realized had the account been fully
invested would be reduced.
Campbell & Company may, from time to time, add or
delete contracts from Series F's portfolio, or
increase or decrease the total number of contracts
held, based on increases or decreases in the assets
in an account, changes in market conditions,
perceived changes in portfolio-wide risk factors or
other factors that Campbell & Company deems
relevant.
Financial, Metal & Energy Portfolios
Currently, two versions of the Financial Metal &
Energy Portfolio are offered by Campbell & Company,
the FME Small Portfolio and the FME Large
Portfolio. The FME Small Portfolio trades in
foreign currencies, precious and base metals,
energy products, stock indices and interest rates.
The FME Large Portfolio is the same as the FME
Small Portfolio but adds certain contracts that
trade in the forward foreign currency markets which
do not have futures equivalents. The FME Large
Portfolio is appropriate for accounts greater than
$10 million. Prior to February 1995, all
Financial, Metal & Energy accounts were traded
together in the FME Large Portfolio. The FME Small
Portfolio began in February 1995, when accounts
smaller than $10 million were transferred from the
FME Large Portfolio to the FME Small Portfolio.
Since Series F may commence trading with $5
million, it has selected initially to trade the
Series F assets pursuant to the FME Small
Portfolio. The FME Large Portfolio may by utilized
to trade Series F assets at a later date.
51
<PAGE>
Allocation Among Markets Traded By Campbell & Company
Set forth below is a bar graph showing the market
sectors that are traded by the FME Small Portfolio,
as of July 31, 1999. As of July 31, 1999, investor
funds are exposed to these sectors in approximately
the percentage allocations stated; however, these
percentage allocations are subject to change at
Campbell & Company's discretion. Actual
allocations change as market conditions and trading
opportunities change, and it is likely that the
targeted risk allocations may vary for Series F
during future periods, although the focus will
remain on a diversified portfolio:
Market Sector Percentage
Currencies 34%
Interest Rate Instruments 32
Stock Indices 19
Precious and Base Metals 4
Energy 11
Total 100%
(GRAPH)
52
<PAGE>
Campbell & Company's Past Performance For All Of Its Clients
Capsule summaries F(1) F(3) and F(4) contain actual
performance information for the periods indicated.
Capsule summary F(2) is a pro forma presentation of
a representative account in Capsule Summary F(1).
FME Small Portfolio
The following is a capsule summary of the past
performance for Campbell & Company's FME Small
Portfolio as of July 31, 1999, the trading strategy
which will be used to trade Series F.
Name of commodity
trading advisor: Campbell & Company
Program: FME Small Portfolio
Start Date: January 1972 (All trading by Campbell & Company)
February 1995 (FME Small Portfolio)
No. Accounts: 35
Aggregate $$ In $ 1,650,000,000 (All Programs including Notional)
All Programs:
$$ in this Account: $ 190,000,000
Largest monthly
draw-down: (5.99%) April 1998
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due to losses
sustained by the program on a composite basis for
any particular month or an individual account for
any particular month.
Largest peak-to-valley
draw-down: (7.61%) February 1997 to May 1997
"Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline in month-end
net asset value due to losses sustained by the
program 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 net asset
value.
Closed accounts: Profitable = 47
Unprofitable = 42
RATES OF RETURN INFORMATION IS ON FOLLOWING PAGE
53
<PAGE>
CAPSULE F(1) -- COMPOSITE OF ALL THE FME SMALL PORTFOLIO ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN*
1999
(through
MONTH 7/31/99) 1998 1997 1996 1995
Jan (4.61)% 2.80% 3.85% 8.80%
Feb 1.34 (2.34) 1.63 (5.20) 4.92%
Mar 1.60 5.81 (1.75) 4.33 9.75
Apr 5.20 (5.99) (3.03) 2.57 1.01
May (3.15) 4.21 (3.01) (2.11) (1.42)
Jun 4.95 1.51 3.62 1.41 (2.46)
Jul (0.64) (4.04) 8.81 (1.71) (2.76)
Aug 9.95 (5.94) 3.52 7.12
Sep 3.68 4.53 1.92 (5.78)
Oct 5.52 2.32 12.85 1.54
Nov (0.91) 0.59 12.11 0.15
Dec 1.10 5.41 (4.12) 7.81
YTD/
Annual 4.35% 22.16% 17.30% 37.83% 20.34%
* Campbell & Company has adopted a 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. To qualify for the 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 the 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
The rate of return is calculated by dividing net
performance of the Fully-Funded Subset by the
beginning net assets (plus additions, less
withdrawals for that month) of the Fully-Funded Subset,
except in periods of significant additions or
withdrawals to the accounts in the Fully-Funded
Subset. In such instances, the Fully-Funded Subset
is adjusted to exclude accounts with significant
additions or withdrawals which would materially
distort the rate of return pursuant to the Fully-
Funded Subset method.
PAST PERFORMANCE IS NOT NECESSARY INDICATIVE OF FUTURE RESULTS
54
<PAGE>
CAPSULE F(2)
Campbell & Company Pro Forma
Set forth in Capsule F(2) is pro forma information
prepared by the managing owner using Campbell &
Company's actual trading results of a
representative account included in Capsule F(1).
Capsule F(2) reflects the performance of the
account traded under a fee structure identical to
the fee structure of Series F, which includes
brokerage fees of 6.0%, advisory management fees of
2.0%, incentive fees of 22%, and an interest income
credit of approximately 4.68%. 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 F, the
performance information presented in this capsule
should by no means be taken as an indication of how
Series F or how limited owners' individual
investments will perform or would have performed
over the same time period. Prospective investors
are referred to the FME Small Portfolio's actual
performance in Capsule F(1) in this Prospectus.
Month 1999 1998 1997 1996 1995
January -4.90% 2.40% 3.33% 6.99%
February 1.09 -2.42 1.44 -4.38 3.95%
March 1.36 5.36 -1.69 3.64 7.67
April 5.25 -6.35 -3.40 1.99 0.76
May -3.43 3.94 -3.28 -2.10 -1.42
June 4.94 1.40 3.39 1.38 -2.49
July -0.93 -4.38 8.53 -1.91 -2.89
August 9.99 -6.08 3.30 6.96
September 3.44 4.59 1.77 -5.86
October 5.01 2.01 11.56 1.35
November -1.05 0.43 11.05 0.71
December 0.92 4.95 -3.73 7.57
YTD/Annual 3.00% 18.55% 14.09% 31.99% 16.40%
Compound Annual Return: 18.42%
Average Positive Monthly Return: 4.13%
Average Monthly Return: 1.51%
Average Negative Monthly Return: -3.30%
Monthly Standard Deviation Annualized(1): 4.44%
# of Months with a Positive Return: 35
Largest Peak-to-Valley Draw-down: -8.17%
# of Months with a Negative Return: 19
Recovery Time(2): 5 months
1 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).
2 Recovery Time is the number of months it took
for the rate of return to equal or exceed the rate
of return at the beginning of the Largest Peak-to-
Valley Draw-down.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
55
<PAGE>
FME Large Portfolio
The following is a capsule summary of the past
performance for Campbell & Company's FME Large
Portfolio as of July 31, 1999. Although series F
will initially be traded pursuant to the FME Small
Portfolio strategy, the FME Large Portfolio
strategy may be used in the future to trade Series
F assets.
<TABLE>
<S> <C>
Name of commodity trading advisor: Campbell & Company
Program: FME Large Portfolio
Start Date: January 1972 (All trading by Campbell & Company)
April 1993 (FME Large Portfolio)
No. Accounts: 8
Aggregate $$ In All Programs: $ 1,650,000,000 (All Programs including Notional)
$$ in this Account: $ 1,290,000,000
Largest monthly draw-down: (17.68%) June 1986
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due to losses
sustained by the program on a composite basis for
any particular month or an individual account for
any particular month.
Largest peak-to-valley draw-down: (41.94%) March 1986 to November 1986
"Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline in month-end
net asset value due to losses sustained by the
program 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 net asset
value.
Closed accounts: Profitable = 80
Unprofitable = 187
</TABLE>
RATES OF RETURN INFORMATION IS ON FOLLOWING PAGE
56
<PAGE>
CAPSULE F(3) -- COMPOSITE OF ALL THE FME LARGE PORTFOLIO ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN*
<TABLE>
<CAPTION>
1999 (through
MONTH 7/31//99) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Jan (4.83)% 3.25% 5.26% 5.46% (4.53)%
Feb 1.45 (2.38) 2.26 (5.63) 5.85
Mar 0.87 4.95 (2.08) 5.62 9.58
Apr 5.60 (5.88) (3.84) 3.49 2.08
May (3.20) 4.34 (1.84) (1.71) 0.88
Jun 4.63 2.04 2.23 1.29 (0.90)
Jul (0.14) (3.68) 9.27 0.01 (4.05)
Aug 9.23 (5.14) 1.78 5.83
Sep 2.97 4.23 2.47 (3.47)
Oct 4.41 2.39 12.06 1.20
Nov (0.50) 0.57 12.22 (0.24)
Dec 0.64 4.95 (4.29) 6.82
YTD/Annual 3.95% 20.07% 18.75% 35.96% 19.46%
</TABLE>
* Campbell & Company has adopted a 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. To qualify for the 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 the 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
The rate of return is calculated by dividing net
performance of the Fully-Funded Subset by the
beginning net assets (plus additions, less
withdrawals for that month) of the Fully-Funded Subset,
except in periods of significant additions or
withdrawals to the accounts in the Fully-Funded
Subset. In such instances, the Fully-Funded Subset
is adjusted to exclude accounts with significant
additions or withdrawals which would materially
distort the rate of return pursuant to the Fully-
Funded Subset method.
PAST PERFORMANCE IS NOT NECESSARY INDICATIVE OF FUTURE RESULTS
57
<PAGE>
SUPPLEMENTAL INFORMATION
CAPSULE F(4)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY CAMPBELL & COMPANY AND ITS
AFFILIATES THAT WILL NOT BE USED TO TRADE SERIES F ASSETS
<TABLE>
<CAPTION>
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began (in thousands) (in thousands)
Trading Began Trading Number (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign
Campbell Exchange
& Company Portfolio 4/72 11/90 3 1,609,209 1,645,808 7,800 30,086
Global
Campbell Diversified
& Company Large Portfolio 4/72 2/86 1 1,609,209 1,645,808 106,698 106,698
Global
Campbell Diversified
& Company Small Portfolio 4/72 6/97 6 1,609,209 1,645,808 15,425 16,500
Campbell
& Company ARK Portfolio 4/72 9/96 14 1,609,209 1,645,808 2,719 3,117
Interest Rates,
Stock Indices &
Campbell Commodities
& Company Portfolio 4/72 2/96 1 1,609,209 1,645,808 12,637 12,637
<CAPTION>
ANNUAL RATES OF RETURN*
Largest
Largest Peak-to-
Monthly Valley 1999
Draw- Draw- Closed Accounts (through
Down(1) Down(2) Profitable Unprofitable 7/31/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(8.45) (25.21)
11/94 1/94-1/95 6 14 (0.52) 4.25 18.19 43.04 26.36 (21.19)
(11.66) (26.05)
2/94 7/93-2/94 7 2 3.16 12.47 14.95 26.78 6.52 9.61
(5.92) (5.92)
4/98 4/98 5 0 1.08 17.51 13.85(D) -- -- --
(11.86) (11.86)
7/98 7/98 6 0 21.4 2.48 20.49 19.94(D)(D) -- --
(6.75) (9.94)
10/98 12/96-4/97 0 0 6.09 27.08 20.15 25.73(D)(D)(D) -- --
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
* The CFTC accepts three different methods of showing
the composite rate of return achieved by accounts, some of
which are traded at different degrees of leverage. These
methods are: the fully funded subset method, the time-
weighted method and the only accounts traded method.
Although each method uses a different approach, all methods
are intended to produce substantially the same rate of return.
All annual rates of return are computed on a compounded
monthly basis.
1 "Largest monthly draw-down" means the greatest decline
in month-end net asset value due to losses sustained by the
program on a composite basis for any particular month
or any particular account for any particular month.
2 "Largest peak-to-valley draw-down" means the greatest
cumulative percentage decline in month-end net asset value
due to losses sustained by the program 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 net asset value.
(D) June 1997 to December 1997
(D)(D) September 1996 to December 1996
(D)(D)(D) February 1996 to December 1996
58
<PAGE>
TRADING LIMITATIONS AND POLICIES
The following limitations and policies will be
applicable to each series. 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
additional restrictions upon the activities of any
trading advisor (through modification of the
limitations and policies) as it deems appropriate
and in the best interests of each series.
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).
- - May, without obtaining approval from the limited
owners, impose additional limitations on the
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 (i) would be necessary to assure that
90% of the series' income is qualifying income or
(ii) would be in the best interests of a series.
Trading Limitations
A series will not:
- - 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
a series may take into account open trading equity
on existing positions in determining whether to
acquire additional commodities positions.
- - 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).
- - 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.
- - Permit any trading advisor to share in any portion
of the commodity brokerage fees paid by a series.
- - Commingle its assets, except as permitted by law.
- - Permit the churning of its commodity accounts.
59
<PAGE>
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:
- - 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.
- - 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, there can be no assurance 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.
- - 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 will not apply to forward and cash market
transactions.
- - A series may occasionally make or accept delivery
of a commodity including, without limitation,
currencies; a series also may engage in an exchange
of futures for physicals transaction, as permitted
on the relevant exchange, involving currencies and
metals and other commodities.
- - A series may employ trading techniques such as
spreads; an example of a spread position is when a
series owns a futures contract which expires in one
month and sells a futures contract for the same
commodity in a later month.
- - 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 66.67%
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.
- - If a series engages in transactions in forward
currency contracts other than with or through
Prudential Securities and/or Prudential-Bache
Global Markets, Inc., 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 million and through other
broker-dealer firms whose aggregate balance in
their capital, surplus, and related accounts is at
least $50 million; if transactions are effected for
a series in the forward markets, the only forward
markets that will be permitted to be utilized
without the managing owner's consent are the
interbank foreign currency markets and the London
Metal Exchange; the utilization of other forward
markets will require the consent of the managing
owner.
60
<PAGE>
DESCRIPTION OF THE TRUST,
TRUSTEE, MANAGING OWNER AND AFFILIATES
The Prudential Insurance
Company of America
|
| Indirect 100%
---------------- Prudential Securities
| Group Inc.
100%
| |
| | 100%
Prudential-Bache Prudential Securities Wilmington Trust
Global Markets Inc. ----- Incorporated Company
Affiliate |
|
| 100% |Trustee
| |
|
Prudential Securities ------- Trust
Futures Mangement, Inc. Managing
Owner
The Trust was formed on April 22, 1999 under the
Delaware Business Trust Act. The sole trustee of
the Trust is Wilmington Trust Company, which
delegated its duty and authority for the management
of the Trust to the managing owner. The managing
owner is a wholly-owned subsidiary of Prudential
Securities, the Trust's commodity broker and
selling agent, which in turn is wholly-owned by
Prudential Securities Group Inc., an indirect
wholly-owned subsidiary of The Prudential Insurance
Company of America.
Prudential Securities Group Inc., Prudential
Securities and the managing owner may each be
deemed to be, and the trustee is not deemed to be,
a "promoter" of the Trust within the meaning of the
Securities Act of 1933. None of the foregoing
persons is an "affiliate" (as that term is used for
purposes of the Securities Act of 1933) of any of
the trading advisors. Prudential Securities Group
Inc. 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, Prudential
Securities Group Inc., Prudential Securities, the
managing owner and the officers and directors of
the managing owner follows.
61
<PAGE>
The Trustee
Wilmington Trust Company, a Delaware banking
corporation, is the sole trustee of the Trust. Its
principal offices are located at Rodney Square
North, 1100 North Market Street, Wilmington,
Delaware 19890-0001. Wilmington Trust Company is
not affiliated with Prudential Securities Group
Inc., Prudential Securities, the managing owner, or
the trading advisors. It has delegated its duty
and authority for the management of the business
and affairs of the Trust to the managing owner.
Wilmington Trust Company will accept service of
legal process upon the Trust in the State of
Delaware. The managing owner will notify the
limited owners of any change of the trustee.
Prudential Securities Group Inc.
Prudential Securities Group Inc. acts solely as a
holding company. Its principal subsidiary is
Prudential Securities, the Trust's selling agent,
and commodity broker. Prudential Securities Group
Inc. is an indirect wholly owned subsidiary of The
Prudential Insurance Company of America, a major
mutual insurance company.
Prudential-Bache Global Markets Inc.
Prudential-Bache Global Markets Inc. is a foreign
exchange dealer which engages in over-the-counter,
spot, forward and foreign exchange transactions
with, among others, Prudential Securities. It is
an affiliate of Prudential Securities, and it is
wholly owned by Prudential Securities Group Inc.
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 under the Commodity Exchange
Act as a commodity pool operator since June 1989
and as a commodity trading advisor since November
1990 and is a member of the National Futures
Association. The managing owner's main business
office is located at One New York Plaza, 13th
floor, New York, New York 10292-2013; phone (212)
778-7866.
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, described in alphabetical order, are as
follows:
Thomas T. Bales, born 1959, is a Vice President of
the managing owner. He is also a First Vice
President of Futures Administration in the Futures
Division for Prudential Securities, and he 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 of 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.
Alan J. Brody, born 1952, has been a Director of
the managing owner since May 1999. Mr. Brody has
also been a Director of Seaport Futures since May
1999. Mr. Brody has been a Senior Vice President
and Director of International Sales and Marketing
for Prudential Securities since 1996. Based in
London, Mr. Brody is currently responsible for the
marketing and sales of all Prudential Securities
products and services to international clientele
throughout the firm's global branch system, which
includes the development of product ideas and
strategy, coordination of distribution efforts and
flow of products to the international sales force.
Additionally, Mr. Brody has overall responsibility
for the Managed Futures Department. From 1990 to
1996, Mr. Brody was an executive Director and
Senior Vice President with Lehman Brothers'
Financial Services Division in London and President
of Lehman Brothers Futures Asset Management Corp.
Prior to joining Lehman Brothers, Mr. Brody served
as President and Chief Executive Officer of
Commodity Exchange, Inc., from 1980 to 1989.
Earlier in his career, Mr. Brody was associated
with the law firm of Baer Marks & Upham from 1977
to 1980.
62
<PAGE>
Barbara J. Brooks, born 1948, became the Treasurer
and Chief Financial Officer of the managing owner
in May 1990, at which time she also became the
Treasurer and Chief Financial Officer of Seaport
Futures Management, Inc. (referred to as Seaport
Futures), an affiliate of the managing owner. In
1998, she relinquished her position as Treasurer of
the managing owner and Seaport Futures. She is a
Senior Vice President of Prudential Securities and
is the Vice President-Finance and the Chief
Financial Officer 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 the Secretary
of both the managing owner and Seaport Futures
since October 1996. Mr. Buchalter is a Senior Vice
President and is 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 & Co., 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 position with Seaport Futures since such date.
In 1998, Mr. Carlino also assumed the office of
Treasurer of the managing owner and Seaport
Futures. Mr. Carlino is a First Vice President of
Prudential Securities and also serves in various
capacities for other affiliated companies. Prior
to joining Prudential Securities in October 1992,
he was employed by Ernst & Young LLP for six years.
Mr. Carlino is a certified public accountant.
Joseph A. Filicetti, born 1962, has been a Director
of the managing owner and Seaport Futures since
April 1999. Mr. Filicetti has been the President
of the managing owner since April 1999 and an
Executive Vice President of Seaport Futures since
April 1999. Prior to April 1999, Mr. Filicetti was
a Vice President of the managing owner since
October 1998 and also had held such position with
Seaport Futures since October 1998. Mr. Filicetti
is a Vice President of Prudential Securities and
the Director of Sales and Marketing in the Managed
Futures Department. Prior to joining Prudential
Securities in September 1998, he was with Rotella
Capital Management as the Director of Sales and
Marketing from September 1996 through September
1998, and he was employed by Merrill Lynch from
July 1992 through August 1996 trading U.S.
government bonds as a market maker.
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 a Senior Vice President of
Prudential Securities. She has managed a variety
of departments with increasing levels of
responsibility within Prudential Securities, most
recently as the 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 has also been a Vice President of
Seaport Futures since October 1994. Prior to
joining Prudential Securities in 1986, Ms. Morgan,
a certified public accountant, was employed by
Arthur Andersen & Company for five years.
A. Laurence Norton, Jr., born 1939, has been a
Director of the managing owner since October 1994.
Mr. Norton has also been a Director of Seaport
Futures since March 1994. Mr. Norton has been an
Executive Vice President of Prudential Securities
since October 1991, and he is currently the
Director of its Futures and International
Divisions, responsible for managed futures, global
strategy, international expansion, sales, trading
desk operations and administration. Mr. Norton is
also a member of Prudential Securities' Operating
Committee. Prior to joining Prudential Securities
in October 1991, Mr. Norton was the branch manager
of 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 Futures 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 he is
currently a First Vice President of the Futures
Division.
63
<PAGE>
Eleanor L. Thomas, born 1954, has been a Director
of the managing owner and Seaport Futures since
April 1999. Ms. Thomas has been an Executive Vice
President of the managing owner since April 1999
and the President of Seaport Futures since April
1999. Prior to April 1999, Ms. Thomas was a Vice
President of the managing owner since April 1993
and a First Vice President since October 1998, and
she also had held such positions with Seaport
Futures since October 1998. She is primarily
responsible for origination, asset allocation and
due diligence for Managed Futures. Ms. Thomas is a
First Vice President of Prudential Securities.
Prior to joining Prudential Securities in March
1993, she was with MC Baldwin Financial Company
from June 1990 through February 1993 and Arthur
Anderson & Co. from 1986 through May 1990. She
graduated Summa Cum Laude from Long Island
University with a B.A. in English Literature, and
she graduated from Baruch College in 1986 with an
M.B.A. in Accounting. Ms Thomas is a certified
public accountant.
Tamara B. Wright, born 1959, has been a Vice
President of the managing owner and Seaport Futures
since October 1998 and a Director of the managing
owner since December 1998. She is also a Senior
Vice President and the Chief Administrative Officer
for the International and Futures Group. In this
capacity, her responsibilities include financial
management, risk management, systems
implementation, employment matters and internal
control policies and procedures. Previously, Mrs.
Wright served as Director of Consumer Markets Risk
Management, where she led the Domestic and
International Branch efforts in ensuring the timely
resolution of audit, compliance and legal concerns.
Prior to joining the firm, Mrs. Wright was a
manager with PricewaterhouseCoopers LLP in its
Management Consulting division in New York, New
York.
64
<PAGE>
Description And Past Performance Of Other Pools
Sponsored By The Managing Owner And Its Affiliate
A description of the various funds sponsored by the
managing owner and its affiliate, Seaport Futures.
The January 1994 through July 1999 trading record
for the various funds is provided in the
performance table and the explanatory notes on the
following pages.
<TABLE>
<CAPTION>
Type of Fund Name of Fund
<S> <C>
Public commodity funds for which
the managing owner is the general
partner (or managing owner) and the
commodity pool operator: Prudential-Bache Capital Return Futures Fund 2, L.P. (PBCRFF2)
Prudential Securities Optimax Fund 2 L.P. (PBOFF2) (g)
Prudential Securities Aggressive Growth Fund, L.P. (PSAGF)
Diversified Futures Trust I (DFT)
Prudential Securities Strategic Trust (PRUST) (i)
World Monitor Trust - Series A (WMTA), Series B (WMTB) and
Series C (WMTC)
Non-public commodity funds for which
the managing owner is the general
partner (or the managing owner) and
the commodity pool operator: Signet Partners II, L.P. (SPLP2) (f)
Diversified Futures Trust II (DFTII)
Prudential Securities Foreign Financials Fund, L.P. (PSFFF) (j)
Prudential Securities Financial Futures Fund L.P. (PSFNF) (e)
Offshore investment funds for which
the managing owner is investment
manager (k) Devonshire Multi-Strategy Fund (l)
Prudential-Bache International Futures Fund A, PLC (PBIFFA)
Prudential-Bache International Futures Fund B, PLC (PBIFFB)
Prudential-Bache International Futures Fund C, PLC (PBIFFC)
Prudential-Bache International Futures Fund D, PLC (PBIFFD)
Prudential-Bache International Futures Fund E, PLC (PBIFFE)
Prudential-Bache International Futures Fund F, PLC (PBIFFF)
Public commodity funds for which
Seaport Futures is general partner
and commodity pool operator: Prudential-Bache Futures Growth Fund, L.P. (PBFG) (d)
Prudential-Bache Diversified Futures Fund L.P. (PBDFF)
Prudential-Bache Capital Return Futures Fund L.P. (PBCRFF)
Prudential-Bache Capital Return Futures Fund 3 L.P. (PBCRFF3)
Prudential-Bache Optimax Fund L.P. (PBOFF)
See Notes to performance table on page 67.
</TABLE>
The past performance information in the performance
table has not been audited. However, the managing
owner represents and warrants that the performance
table and the explanatory notes are complete and
accurate in all material respects.
65
<PAGE>
PERFORMANCE OF OTHER POOLS OPERATED BY PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC. AND AFFILIATES [a]
(SEE ACCOMPANYING NOTES)
<TABLE>
<CAPTION>
ANNUAL RATE OF RETURN(m)
(COMPUTED ON A COMPOUNDED DAILY
BASIS)
WORST WORST YEAR
MONTHLY PEAK TO TO
PERCENT VALLEY DATE
TYPE INCEPTION AGGREGATE CURRENT DRAW- DRAW- 1999
OF OF SUBSCRIPTIONS TOTAL NAV DOWN DOWN (7
NAME OF POOL POOL TRADING ($ X 1,000) ($ X 1,000) [b] [c] 1994 1995 1996 1997 1998 mo.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRUDENTIAL-
BACHE
FUTURES
GROWTH
FUND,
L.P. [d] -14.38% -24.48%
(PBFG) 3,5,6,8,10 3/88 24,961 - 10/89 12/88 - 1/93 1.57% -9.54% - - - -
PRUDENTIAL-
BACHE
DIVERSIFIED
FUTURES
FUND L.P. -18.37% -36.63%
(PBDFF) 3,5,6,8,10 10/88 29,747 16,139 1/92 1/92 - 5/92 -10.05% 33.95% 24.81% 9.03% 1.96% 0.74%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND L.P. -10.30% -24.43%
(PBCRFF) 1a,3,5,7,8,10 5/89 137,705 13,521 11/98 9/93 - 1/95 -21.43% 23.97% 8.58% 7.93% -1.09% 0.01%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND 2 L.P. -11.36% -24.24%
(PBCRFF2) 1a,3,5,7,8,9 10/89 100,000 21,639 1/92 1/92 - 5/92 -8.08% 27.26% 19.10% 11.40% -7.44% -0.58%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND
3 L.P. -11.77% -23.66%
(PBCRFF3) 1a,3,5,7,8,10 5/90 64,863 11,409 4/98 12/96 - 4/98 10.41% 16.64% 16.79% -7.97% -10.29% 1.95%
PRUDENTIAL
- -BACHE
OPTIMAX
FUND L.P. -
OPTIMAX -6.39% -11.32%
(PBOFF) 3,5,7,8,10,11 4/96 69,603 15,085 8/97 5/96-8/96 - - 11.68% 17.49% 17.54% -1.78%
PRUDENTIAL-
BACHE
OPTIMAX
FUND L.P.
- A -6.00% -10.72%
(PBOFF) 1,3,5,7,10,11 2/91 63,356 - 1/92 8/93 - 2/95 -6.42% 7.18% -0.41% - - -
PRUDENTIAL-
BACHE
OPTIMAX
FUND L.P.
- B -9.90% -20.26%
(PBOFF) 3,5,7,8,10,11 2/91 6,247 - 1/92 8/93 - 2/95 -10.66% 7.59% -1.59% - - -
PRUDENTIAL
SECURITIES
OPTIMAX
FUND 2 L.P.
- - OPTIMAX
2 [g] -9.08% -16.58%
(PBOFF2) 3,5,7,8,9,12 4/97 17,416 - 4/98 8/97-5/98 - - - -3.67% -9.97% -
PRUDENTIAL
SECURITIES
OPTIMAX
FUND 2 L.P.
- A -5.82% -13.53%
(PBOFF2) 1,3,5,7,9,12 1/92 15,197 - 9/93 9/93 - 1/95 -5.51% 13.93% 3.88% 0.86% - -
PRUDENTIAL
SECURITIES
OPTIMAX
FUND 2 L.P.
- B -9.49% -20.94%
(PBOFF2) 3,5,7,8,9,12 1/92 2,219 - 9/93 6/95-7/96 -6.57% 18.44% 5.24% 0.68% - -
PRUDENTIAL
SECURITIES
FINANCIAL
FUTURES FUND
L.P. [e] -8.39% -40.23%
(PSFNF) 2,4,6,8,9 1/93 3,557 - 11/94 8/93 - 1/95 -24.46% -2.05% - - - -
PRUDENTIAL
SECURITIES
FOREIGN
FINANCIALS
FUND L.P. [j] -17.68% -25.96%
(PSFFF) 2,4,6,8,9 1/93 4,198 - 9/93 9/93-1/94 16.01% 20.38% 6.65% -1.35% 36.68% -11.00%
PRUDENTIAL
SECURITIES
AGGRESSIVE
GROWTH FUND
L.P. -9.71% -32.68%
(PSAGF) 3,5a,7,8,9 8/93 20,335 3,973 9/93 8/93 - 1/95 -13.51% 29.51% 7.89% -2.31% 13.11% -12.00%
DIVERSIFIED
FUTURES
TRUST I -9.38% -12.88%
(DFT) 3,5a,6,8,9 1/95 65,908 55,006 11/98 1/98 - 7/98 - 42.65% 23.49% 8.82% 4.80% 2.52%
SIGNET
PARTNERS
II, LP
[f] -6.37% -8.41%
(SPLP2) 2,4,7,8,9 2/96 1,531 - 8/97 8/97 - 1/98 - - 9.70% 6.10% -0.70% -
PRUDENTIAL
SECURITIES
STRATEGIC
TRUST [i] -15.84% -33.98%
(PRUST) 3,5a,6,8,9 5/96 63,403 35,924 4/98 8/97-7/98 - - 3.47% -0.49% 20.25% -8.75%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES FUND
A PLC [k] -15.39% -31.52%
(PBIFA) 2,4,6,9,13 6/96 34,991 14,192 4/98 8/97-7/98 - - 12.30% -0.36% 34.14% -5.53%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES FUND
C PLC [k] -9.30% -20.08%
(PBIFC) 2,4,6,9,13 6/96 28,886 10,834 2/99 12/96-4/97 - - 22.70% -3.59% 35.42% 2.91%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES FUND
B PLC [k] -8.84% -19.97%
(PBIFB) 2,4,6,9,13 7/96 96,497 64,107 5/97 1/98-7/98 - - 28.50% 13.77% 3.49% -12.42%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES FUND
D PLC [k] -7.80% -10.31%
(PBIFD) 2,4,7,9,13 10/96 27,125 17,508 4/98 2/98-4/98 - - -1.10% 14.36% 23.87% -3.57%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES FUND
E PLC [k] -9.41% -17.24%
(PBIFE) 2,4,6,9,13 1/97 19,129 9,904 8/97 10/98-7/99 - - - 2.20% 12.23% -16.74%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES FUND
F PLC [k] -9.50% -11.09%
(PBIFF) 2,4,6,9,13 9/97 26,281 23,158 10/97 10/97-11/97 - - - -4.60% 47.90% -2.91%
DIVERSIFIED
FUTURES
TRUST II -9.66% -11.77%
(DFTII) 2,5,6,8,9 3/97 47,630 32,381 11/98 1/98 - 7/98 - - - 6.26% 6.82% 1.21%
DEVONSHIRE
MULTI-
STRATEGY FUND
[k] [l] -3.88% -8.55%
(DEVON) 2,4,8,9,14 2/98 13,552 - 4/98 4/98-8/98 - - - - -7.70% -1.19%
WORLD
MONITOR
TRUST -
SERIES A -7.57% -14.06%
(WMTA) 3,4,6,8,9 6/98 18,393 15,026 7/99 5/99-7/99 - - - - -1.69% -8.55%
WORLD
MONITOR
TRUST -
SERIES B -3.63% -5.77%
(WMTB) 3,4,6,8,9 6/98 18,923 21,297 7/98 6/98-7/98 - - - - 11.98% 12.95%
WORLD
MONITOR
TRUST -
SERIES C -6.70% -7.45%
(WMTC) 3,4,6,8,9 6/98 17,146 17,897 11/98 10/98-11/98 - - - - 4.22% 7.45%
</TABLE>
PLEASE SEE FOLLOWING PAGE FOR ACCOMPANYING KEY AND NOTES
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
66
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Key to type of pool Notes:
1 - Principal-protected pool currently [a] All performance is presented as of July 1999.
1a - Principal-protected pool initially,
but not currently [b] "Worst monthly percent draw-down" means
2 - Privately offered pool 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.
3 - Publicly offered pool [c] "Worst peak to valley draw-down" means greatest cumulative percentage
4 - Open ended pool decline in month-end net asset value due to losses sustained by a pool,
5 - Closed ended 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
5a - Initially open ended, currently closed ended subsequent month-end net asset value. "Draw-down" means losses
experienced by the pool over a specified period.
6 - Single advisor pool [d] Liquidated February 1995
7 - More than one advisor [e] Liquidated December 1995
8 - Non-principal protected pool [f] Liquidated April 1998.
9 - CPO is Prudential Securities Futures
Management Inc. [g] Liquidated May 1998.
10 - CPO is Seaport Futures Management, Inc. [h] Liquidated May 1998.
11 - Following the expiration of the [i] Name change from Willowbridge Strategic Trust to Prudential
principal-protected feature of the A Units on Securities Strategic Trust during August 1998
March 31, 1996, the A & B Units merged into [j] Liquidated March 1999.
OptiMax Units on April 1, 1996. [k] These are non-U.S. investment funds, which are available only to non-U.S.
residents. They are organized as investment companies incorporated in
non-U.S. jurisdictions. Eligibility notices under CFTC Rule 4.7
has been filed in connection with these funds.
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. [l] Liquidated May 1999.
13 - Offshore pool offered to Non-U.S. persons
authorized and supervised by the Central Bank
of Ireland. [m] Rate of return is calculated each week by
dividing net performance by beginning equity.
The weekly returns are then compounded to arrive at the rate of
return for the month, which is in turn compounded to arrive at
the annual rate of return.
14 - Offshore fund-of-funds offered to
Non-U.S. persons
</TABLE>
NOTES TO PERFORMANCE TABLE CONTINUED ON FOLLOWING PAGE
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
67
<PAGE>
Notes To Performance Table Continued:
(1) Management Fees, Incentive Fees And Brokerage Commissions
<TABLE>
<CAPTION>
Name of Fund Management Fee Incentive Fee Brokerage Commission
<S> <C> <C> <C>
PBFG 2% 18% 9%
PBDFF 4% 15% 8%(1)
PBCRFF 4% 15% 8%
PBCRFF2 2-4% 15-20% 8%(2)
PBCRFF3 2% 17% 7.5% (plus transaction costs)
PBOFF 2-3% 17-23% 8% (plus transaction costs)
PBOFF2 2-3% 15-20% 8% (plus transaction costs)
PSFNF 1.9-3% 20% (3)
PSFFF 1.9% 20% (4)
PSAGF 2% 15-23% 8% (plus transaction costs)
DFT 4% 15% 7.75%
DFTII 4% 15% 6.75%
SPLP2 2.5% 20% $10 per round-turn
PBIFA 3% 20% 5.75% (plus transaction costs)
PBIFB 4% 15% 5.75% (plus transaction costs)
PBIFC 2% 20% 5.75% (plus transaction costs)
PBIFD 2-3% 20% 5.75% (plus transaction costs)
PBIFE 2% 20% 5.75% (plus transaction costs)
PSIFF 2% 25% 5.75% (plus transaction costs)
PRUST .9756%-3% 20% 7.5% (5)
DEVON 1%(6) 3.75%(6) (6)
WMTA 2% 23% 7.75%
WMTB 2% 20% 7.75%
WMTC 2% 23% 7.75%
</TABLE>
(1) Decreased from 9% to 8% during August 1998.
(2) Decreased from 8.5% to 8% during August 1998.
(3) Prior to April 1, 1994, PSFNF was charged on a per transaction basis at the
rate of $35 per round-turn. From April 1, 1994 until its liquidation in
December 1995, PSFNF was charged a flat annual 8% brokerage fee.
(4) Prior to April 1, 1994, PSFFF was charged on a per transaction basis at the
rate of $35 per round-turn. From April 1, 1994 through July 25, 1997, PSFFF
was charged a flat annual 8% fee, plus general and administrative costs.
From July 26, 1997 until its liquidation, PSFFF was charged a flat annual
8.8% fee.
(5) Decreased from 7.75% to 7.5% during September 1998.
(6) DEVON only invests in other funds. Accordingly, it does not have a direct
brokerage commission expense. However, as an investor in other funds, DEVON
pays its pro rata share of management and incentive fees and brokerage
commissions paid by those funds. The management and incentive fees shown in
this chart only represent the fees paid directly to the managing owner and do
not reflect DEVON's pro rata portion of the management and incentive fees in
the funds in which it invests.
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<PAGE>
Prudential Securities
Prudential Securities, a Delaware corporation
formed in March 1981, is the selling agent and the
commodity broker for the Trust. 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. It is also
registered as a futures commission merchant under
the Commodity Exchange Act and is a member of the
National Futures Association. Prudential
Securities is a clearing member of the Chicago
Board of Trade, Chicago Mercantile Exchange,
Commodity Exchange, Inc. and all other major U.S.
commodity exchanges. Prudential Securities' main
business office is located at One Seaport Plaza,
New York, New York 10292-2013; telephone (212)
214-1000.
Prudential Securities Litigation And Settlements
From time to time, Prudential Securities and its
principals are involved in legal actions, some of
which individually and all of which in the
aggregate seek significant or indeterminate
damages. However, except for the actions described
below, during the five years preceding the date of
this prospectus, there has been no administrative,
civil or criminal action against Prudential
Securities or any of its principals which is
material, in light of all the circumstances, to an
investor's decision to invest in the Trust.
On 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: (i) to maintain and make available to
the Missouri Division of Securities all customer
and regulatory complaints concerning any Prudential
Securities employee working in a branch located in
Missouri or any security sold by such employees;
(ii) 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; (iii) 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
NYMEX 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
NYMEX that it had violated NYMEX Rule 8.55(A)(18)
relating to conduct substantially detrimental to
the interest of the welfare of NYMEX, 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 allegations
against Prudential Securities were that the firm
failed to supervise certain employees in connection
with securities and options trading activities
entered into on behalf of Idaho clients, in
violation of the Idaho Securities 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: (i) installation of a
new branch manager in the Prudential Securities
Boise branch office, who is to function in a
supervisory capacity only, (ii) designation of a
regional quality review officer to review all
securities options accounts and options trading
activities of Idaho customers in three Prudential
Securities offices, (iii) implementation of
procedures reasonably designed to ensure compliance
with regulations concerning the timely delivery of
prospectuses and (iv) cooperation in Idaho's
ongoing investigation and compliance with all
provisions of the Idaho Securities Act. In
addition, Prudential Securities has agreed to pay a
fine to the State of Idaho in the amount of
$300,000 and has voluntarily reimbursed certain
customers for losses suffered in their accounts in
the amount of $797,518.49.
</R.
On October 27, 1994, Prudential Securities and
Prudential Securities Group Inc. entered into an
agreement with the Office of the U.S. Attorney for
the Southern District of New York 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 terms of the
agreement were complied with in full, and
accordingly, the complaint was dismissed without
prejudice in October 1997.
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<PAGE>
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) payment of 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 conduct a
review of certain of the firm's commodity
compliance and supervisory policies and procedures
and requiring the submission of a report to the
CFTC, as well as the submission of a report to the
CFTC on the actions taken as a result of the
review.
On February 29, 1996, the State of New Mexico
Securities Division issued a final order, subject
to a settlement whereby Prudential Securities
neither admitted nor denied allegations that
Prudential Securities failed to supervise two
former employees and a Branch Office Manager of its
Phoenix branch. The allegations included
misrepresentation, fraud, unsuitability, 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 as well as investigative fees in
the amount of $2,000.
Stemming from final settlement agreements and
consent orders in a U.S. District Court for the
Southern District of Florida, on December 10, 1996,
the Department of Labor issued a final order
imposing a statutory civil penalty against
Prudential Securities in the amount of $61,250.
The Department of Labor assessed the above
referenced automatic penalty under section 502(l)
of the Employee Retirement Income Security Act of
1974, as amended, referred to as ERISA, based upon
allegations that Prudential Securities acted as a
fiduciary under such Act with respect to the
Metacor, Inc. Profit Sharing and Retirement Savings
Plan and knowingly facilitated certain transfers of
funds out of the Plan's account to a corporate
account that Metacor, Inc. maintained in one or
more banks. Prudential Securities neither admitted
nor denied the Department of Labor's allegations.
On May 20, 1997, the CFTC filed a complaint against
Prudential Securities, Kevin Marshburn (a former
Prudential Securities 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)
Prudential Securities, by failing to have policies
and procedures in place to detect and deter the
alleged allocation scheme, did not properly
supervise Marshburn and (iii) Prudential Securities
failed to maintain and produce records with respect
to transactions during the period in issue. The
complaint seeks several forms of relief against
Prudential Securities, including a cease and desist
order, suspension or revocation of registration,
restitution and civil penalties of up to $100,000
for each alleged violation. Prudential Securities
has denied the operative allegations against it and
is vigorously defending the action.
On December 23, 1998, Prudential Securities was one
of twenty-eight market making firms that reached a
settlement with the SEC in the matter titled In the
Matter of Certain Market Making Activities on
NASDAQ. As part of the global settlement of that
matter, Prudential Securities, without admitting or
denying the factual allegations, agreed to an order
which requires that: (i) it cease and desist from
committing or causing any violations of Sections
15(c)(1) and (2) of the Securities Exchange Act of
1934 and Rules 15C1-2 and 15C2-7 thereunder, (ii)
pay a civil penalty of $1 million and disgorgement
of $1,361 and (iii) submit certain policies and
procedures to an independent consultant for review.
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<PAGE>
DUTIES AND COMMITMENTS OF THE MANAGING OWNER
Management Of The Trust
The managing owner will be responsible for the
management of each series' business and affairs but
will not (except in certain limited, and
essentially emergency, situations) direct the
trading activities for any series. This
responsibility will include:
- - Renewing the advisory agreements with the trading
advisors, as well as selecting additional and/or
substitute trading advisors; provided, however,
that in no event will the managing owner retain a
commodity trading advisor affiliated with
Prudential Securities.
- - Determining whether to retain or replace the
trustee.
- - 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.
- - Calculating the net asset value of each series and
all fees and expenses, if any, to be paid by each
series.
- - Providing suitable facilities and procedures for
handling and executing redemptions, exchanges,
transfers and distributions (if any) and the
orderly liquidation of each series.
- - Selecting and monitoring the Trust's commodity
clearing broker and its foreign exchange counter
parties.
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.
- - 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 the
responsibility of Prudential Securities or one of
its other affiliates.
Notification Of Decline In Net Asset Value
If the estimated net asset value per interest of
your investment in the Trust 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 you within seven
business days of such decline. The notice will
include a description of your voting and redemption
rights.
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<PAGE>
Maximum Contract Term
The Trust or any series of the Trust will be
prohibited from entering into any contract with the
managing owner or its affiliates which (i) has a
term of more than one year and (ii) is not
terminable by the Trust without penalty upon 60
days' prior written notice.
The managing owner will participate 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
will receive no fees or other remuneration from a
series.
Managing Owner's Financial Commitments
Minimum Purchase Commitment The managing owner
will contribute funds to each series in order to
have a 1% interest in the capital, profits and
losses of each series, and in return it will
receive general interests in each series. The
managing owner will be required to keep its
investment in each series at an amount that gives
the managing owner 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.
The managing owner may purchase limited interests
in any series and thereby become a limited owner.
All interests purchased by the managing owner will
be held for investment purposes only and not for
resale. No principal of the managing owner will
own any beneficial interest in the Trust.
Net Worth Commitment The managing owner's net
worth is set forth in its statement of financial
condition at page 125 and is significantly in
excess of the minimum net worth requirements under
the NASAA guidelines. The managing owner and
Prudential Securities Group, Inc., the company
which owns Prudential Securities, 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 regulatory-required amounts.
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<PAGE>
FIDUCIARY RESPONSIBILITIES
Accountability
Pursuant to the Delaware Business Trust Act, 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 any 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 Delaware Business Trust Act and to the
accepting of service of process on behalf of the
Trust in the State of Delaware. It will owe no
other duties to the Trust, to any series or to you.
The managing owner will be accountable to you as a
fiduciary and must exercise good faith and fairness
in all dealings affecting the Trust. Under the
Delaware Business Trust Act, if you, the trustee or
the managing owner have duties to the Trust or to
you and liabilities arise 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 you believe that the managing owner violates its
obligations to you, you may bring a law suit
against the managing owner. If a law suit is
brought, you may look (i) to recover damages from
the managing owner, (ii) to require "accounting" --
the right to specific and/or complete financial
information concerning the series and (iii) to seek
any other action from or by the managing owner as a
court permits. A law suit can be based on various
claims, including that the managing owner breached
its fiduciary duties, that it violated the federal
securities or commodity laws or that it committed
fraud.
Reparations And Arbitration Proceedings
You also will 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 Commodity
Exchange Act and the rules promulgated thereunder,
as well as the right to initiate arbitration
proceedings in lieu thereof.
Basis For Liability
You 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 (i)
each advisory agreement gives broad discretion to
each trading advisor and (ii) each advisory
agreement and the trust agreement contain
provisions which will result in a trading advisor
not being liable for certain conduct and/or another
party indemnifying a trading advisor, which means
that the other party is required to reimburse a
trading advisor for money it has lost as the result
of a law suit if the trading advisor is not
responsible for the damage caused. 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.
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<PAGE>
THE OFFERING
The Initial Offering
The interests will be offered for sale, pursuant to
Rule 415 of Regulation C under the Securities Act
of 1933, 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 120
days after the date of this prospectus (referred to
as the initial offering period), 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. Each series may
commence operations at any time after the series
sells its subscription minimum and has at least 150
investors.
The subscription minimums that must be accepted
before each series will break escrow and commence
trading are as follows:
- - Series D -- $5 million
- - Series E -- $5 million
- - Series F -- $5 million
The managing owner, Prudential Securities, the
Trustee, the trading advisors and their respective
principals, stockholders, directors, officers,
employees and affiliates may subscribe for
interests as limited owners, and any such interests
in a series subscribed for 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 SEC (referred to as
the subscription maximum) are issued, either
through initial sale or exchange, the net proceeds
to each series will be:
- - Series D -- $50 million
- - Series E -- $50 million
- - Series F -- $50 million
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.
Escrow Of Funds
During the initial offering period, within two
business days of receipt by the managing owner of
accepted final subscription documents, funds in the
full amount of your subscription will be
transferred from your 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 Chase Manhattan Bank, New York, New
York (referred to as the escrow agent), where the
funds will be held during the initial offering
period until all accepted subscription funds are
turned over to the Trust's series for trading
purposes or until this offering is terminated, in
which event subscription amounts will be refunded
to you, with interest. The managing owner will
direct the escrow agent to invest the funds held in
escrow in U.S. Treasury Obligations or any other
investment specified by the managing owner that is
consistent with the provisions of Rule 15c2-4 of
the Securities Exchange Act of 1934.
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<PAGE>
If the subscription minimum for a series is met,
the interest earned on your escrowed subscription
funds will be contributed to the series and you
will receive a commensurate number of additional
interests (or fractions of interests) therefore
(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 business days thereafter, the purchase
price paid by you 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 you. Interest will be
distributed to you via check from the escrow agent.
In the case of IRA accounts, interest will be
transmitted to Prudential Securities (or an
additional seller) for deposit into the IRAs
account. In the event that the return of
subscription funds and/or interest cannot be
distributed within the prescribed ten business day
time period, it will be paid as soon thereafter as
practicable.
Continuous Offering Period
After a series' subscription minimum is sold and
trading commences in that series, interests in that
series will be sold once each week until the
series' subscription maximum has been issued
(referred to as 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, and 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.
Your subscription agreement (Exhibit D) must be
submitted to the managing owner at its principal
office at least five business days before a given
dealing day, and sufficient funds must be in your
Prudential Securities account (or your account at
an additional seller) on a timely basis. After the
five business day waiting period (two business days
if you are a limited owner 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 your subscription
application is submitted, and the net asset value
of an interest may fluctuate between the date of
submission and the valuation date on which your
subscription price is finalized.
You will be admitted as a limited owner as of the
same dealing day on which your subscription becomes
effective. A confirmation of an accepted
subscription will be sent to you. In the event
that funds in your 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 your
subscription in whole or in part. Funds from
accepted subscriptions will be transferred from
your Prudential Securities account (or from your
subscriber's account at an additional seller) and
deposited in the applicable series' trading
account.
Purchases Of Additional Interests In A Series
If you are an existing limited owner in a
particular series and wish to purchase additional
interests in the same series, you must submit a
subscription agreement (Exhibit D) at least two
business days before any given dealing day, and
your subscription for additional interests must be
approved by the managing owner. After the two
business day waiting period and the managing
owner's approval of your 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. Your subscription will
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 you submit your subscription, and
the net asset value of the interests may fluctuate
between the date of your submission and the
valuation date on which the subscription price is
finalized.
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<PAGE>
Exchange Of Interests
You may exchange interests in one series, without
charge, for interests of equivalent value of any
other series for as long as the interests of the
series for which the exchange is being made are
offered for sale. You must submit an exchange
request (Exhibit C) at least five business days
before any given dealing day, and the exchange must
be approved by the managing owner. After the five
business day waiting period and the managing
owner's approval of the exchange request, 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
subscription price per interest will then be
finalized. Your exchange will become effective on
the immediately following dealing day. Because of
the five business day waiting period, the net asset
value of the interests being exchanged will not be
fixed on the date you submit your exchange request
(Exhibit C), 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 your 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 and a simultaneous purchase
of interests in another series. Your exchange will
be subject to satisfying the conditions governing
redemption on the applicable dealing day (see the
section entitled "Redemption Of Interests" in this
section), as well as the requirement that interests
of the series being exchanged into are then being
offered for sale. Although an exchange will be
treated, in part, as a redemption, you will not be
subject to any redemption charges for the exchange.
You may, however, realize a taxable gain or loss in
connection with any exchange you make.
Redemption Of Interests
You may redeem all or any portion of your interests
(including interests held by your assignees) on the
first dealing day to occur at least two business
days after the date the managing owner receives
your Redemption Request (Exhibit B) in proper order
(as noted above, each such dealing day is referred
to as a 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. Your redemption is
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. If you redeem an interest on or before
the end of the first and second successive six-
month periods after the effective dates of your
purchase, you will be subject to a redemption fee
of 4% and 3%, respectively, of the net asset value
at which the interest is redeemed unless the
redemption is (i) part of an exchange for interests
in another series offered in the trust or (ii)
invested concurrently in another fund sponsored by
the managing owner. If at the time of redemption
your aggregate interests in all series, when added
to your aggregate interests in the various series
of World Monitor Trust, another public futures fund
sponsored by the managing owner, total at least $5
million, the redemption fee, if applicable, may be
waived. See the section in this prospectus
entitled "FEES AND EXPENSES -- Charges To Be Paid By
Limited Owners -- Redemption Fees" for a more
complete explanation of holding period
requirements. All redemption fees will be paid to
the managing owner.
If your redemption request is timely and in proper
form, it will be honored and the applicable series'
commodity positions will be liquidated to the
extent necessary to effect your redemption. The
managing owner may suspend temporarily redemptions
if the effect of any redemption request, either
alone or in conjunction with other redemption
requests, would be to impair any series' ability to
operate in pursuit of its objectives. Your 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 by
you to the managing owner.
In the event that the estimated net asset value per
interest of your 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 that series as of the last
valuation point (i.e., Friday of the immediately
preceding week), you will be given notice of such
event within seven business days of such
occurrence, and the notice includes instructions on
the redemption of interests.
The net asset value per interest upon redemption of
your interest on any date also reflects 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 is
reduced by your interest's pro rata portion of any
expenses or losses incurred by the series resulting
from your actions, if unrelated to the series'
business, as well as your liabilities for certain
series taxes, if any, or for liabilities resulting
from your violations of the transfer provisions in
the trust agreement. You will be notified in
writing within ten business days following the
redemption
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<PAGE>
date whether or not your interests shall
be redeemed, unless payment for the redeemed
interests is made within that ten-day period, in
which case notice will not be required or provided.
Except as otherwise provided in the trust
agreement, in the case of extraordinary
circumstances, payment generally will be made
within ten business days following the redemption
date. You may revoke your 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 days' prior notice, interests you hold if
(i) the managing owner determines that your
continued participation in the Trust might cause
the Trust or you to be deemed to be managing "Plan
Assets" under ERISA, (ii) there is an unauthorized
assignment or transfer pursuant to the trust
agreement or (iii) in the event that any
transaction would or might violate any law or
constitute a prohibited transaction under ERISA or
the Internal Revenue 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 Department of Labor (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 you 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 does reserve the right, to retain
certain selected brokers or dealers that are
members of the National Association of Securities
Dealers, Inc. (referred to as NASD) (these brokers
or dealers are sometimes referred to as additional
sellers) and/or certain foreign securities firms,
(collectively the domestic additional sellers and
the foreign additional sellers are sometimes
referred to simply as additional sellers). No
interests will be sold to any account over which
Prudential Securities has discretionary control
without the prior written approval of the owner of
the account.
At no additional cost to the Trust, Prudential
Securities will grant, at the time of a sale, a
per-interest sales credit to the Prudential
Securities branch office that sells an interest to
you (unless you are an employee of Prudential
Securities purchasing interests for your IRA).
From this sales credit, normally not more than 2%
of the net asset value per interest 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 will be
paid by Prudential Securities, at no cost to the
Trust, at rates that will not generally exceed 2%
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 NASD.
Beginning 12 months after the month in which the
sale of each interest is effective, Prudential
Securities, again at no additional cost to the
Trust, will compensate its employees who render
certain on-going, additional services to limited
owners (other than an IRA of an employee of
Prudential Securities). Employees eligible for
this compensation are those who have sold interests
and who are registered under the Commodity Exchange
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 with whom it no longer associates but
may compensate employees who, although not
responsible for the initial sale of an interest,
continue to provide on-going services in place of
an individual who was responsible for the initial
sale. Any employee compensated in this manner will
need to 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 will need to be
registered and qualified in the same manner as
Prudential Securities employees.
Prudential Securities, as the selling agent for
this offering of interests, will be an
"underwriter" within the meaning of the Securities
Act of 1933. Trading advisors will not be
underwriters, promoters or organizers of the Trust.
77
<PAGE>
Use of Proceeds
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 separate
trading accounts called, segregated trading
accounts, for each series at Prudential Securities,
unless they are used as margin to maintain a
series' forward currency contract positions or a
position on a non-U.S. exchange. 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
as either segregated funds or secured accounts, as
applicable, in accordance with requirements of the
Commodity Exchange 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.
It is anticipated that funds will be maintained in
cash and that cash will be used as margin. On the
last day of each month, each series will receive
interest income on 100% of its average daily equity
maintained in cash in the series' account with
Prudential Securities during that month at a 13-
week (91-day) Treasury bill rate. This rate will
be determined weekly by Prudential Securities and
will be the rate awarded to all bidders during that
week based on the results of that week's auction of
13-week (91-day) Treasury bills. The weekly
interest rate may be found on the Internet at
www.publicdebt.treas.gov. While it is anticipated
that funds will be maintained in cash, in the event
that funds are maintained in Treasury bills instead
of cash, the series will receive the interest
income paid on such Treasury bills. If you redeem
or purchase interests of a series on a day other
than the last day of a month, the interest income
will be pro rated through the date of purchase or
redemption for purposes of determining net asset
value.
The managing owner will not combine the property of
any series with the property of another person, nor
will the Trust combine 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 given to another series.
78
<PAGE>
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 you based
on information you provide regarding your financial
situation and investment objective.
A purchase of the interests should be made only if
your financial condition permits you to bear the
risk of a total loss of your investment in the
Trust. An investment in the interests should be
considered only as a long-term investment.
You should not purchase interests with the
expectation of tax benefits in the form of losses
or deductions. If losses accrue to a series, your
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 you have no capital gains, capital losses can
be used only to a very limited extent as a
deduction from ordinary income.
If you are an IRA or other benefit plan investor,
no one associated with the Trust is representing to
you that this investment meets any or all of the
relevant legal requirements for investments by you
or that this investment is appropriate for you.
You should consult with your attorney and financial
advisors as to the propriety of this investment in
light of your circumstances and in light of current
tax law.
Subscriptions for the purchase of the interests by
you are subject to the following conditions:
Fundamental Knowledge
You should make sure that you understand, 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 you will invest, (iii) that
transferability of the interests is restricted,
(iv) that the managing owner manages and controls
each series' and the Trust's business operations,
(v) the tax consequences of the investment, (vi)
the liabilities you will assume, (vii) the
redemption and exchange rights that apply to your
purchase and (viii) the Trust's structure,
including each series' fees. In addition, the
managing owner must consent to your subscription,
and the managing owner's consent may be withheld in
whole or in part for any reason.
Ineligible Investors
If you are a benefit plan investor, you may not
purchase interests in any series if the trustee,
the managing owner, Prudential Securities, the
trading advisors or any of their respective
affiliates (i) is an employer maintaining or
contributing to your plan or (ii) has investment
discretion over the investment of the assets of
your plan. An investment in any series of the
Trust is not suitable for charitable remainder
annuity trusts or charitable remainder unit trusts.
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<PAGE>
Net Worth, Income And Liquidity Requirements
The following requirements may be higher under the
securities laws of the state of your residency.
The requirements of each state are set forth in the
subscription agreement (Exhibit D) under the
caption "State Suitability Requirements." The
managing owner also may impose greater requirements
on you if you propose to purchase more than the
minimum number of interests in a series.
<TABLE>
<CAPTION>
Subscriber Category Requirements
<S> <C>
Individual, joint tenant or entities (such as Have a net worth (exclusive of home, home
corporations or trusts) must: 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
Beneficiaries of IRAs or Keogh plans covering no Have a net worth (exclusive of home, home
common law employees must: 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
Group retirement plans (for example, qualified Have net assets of at least $150,000
pension, profit sharing plans, stock bonus plans, AND
welfare benefit plans, such as group insurance Have an aggregate investment in any series or in
plans, or other fringe benefit plans and government all series combined that does not exceed 10% of its assets
plans) must:
</TABLE>
The fiduciary of a retirement plan should
consider, among other things, whether the
investment is prudent, considering the nature of
the Trust and the Trust's series.
Employee Benefit Plan Considerations
If you are a fiduciary of an "employee benefit
plan" as defined in and subject to ERISA or of a
"plan" as defined in of the Internal Revenue Code
and you have investment discretion, you should
consider the following consequences under ERISA and
the Internal Revenue Code before deciding to invest
the plan's assets in any series of the Trust.
You must give appropriate consideration to the
facts and circumstances that are relevant to an
investment in a series of the Trust, including the
role that an investment in a series of the Trust
plays or would play in the plan's overall
investment portfolio. You must also give
appropriate consideration to 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."
In addition, before deciding to invest in the
Trust, you must be satisfied that such investment
is prudent for the plan, that the investments of
the plan, including in a series of the Trust, are
diversified so as to minimize the risk of large
losses and that an investment in a series of the
Trust complies with the terms of the plan and
related trust.
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<PAGE>
You should understand that the acceptance of a
subscription by the managing owner from your plan
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.
The Trust Should Not Be Deemed To Hold "Plan Assets"
A regulation issued under ERISA (referred to as the
ERISA regulation) contains rules for determining
when an investment by a plan in a series of the
Trust will result in the underlying assets of such
series being assets of the plan for purposes of
ERISA and the Internal Revenue Code (i.e., "plan
assets"). Those rules provide in pertinent part
that underlying assets of the series will not be
plan assets of a plan which purchases an interest
in the series if the interest purchased is a
"publicly-offered security" (this is referred to as
the publicly-offered security exception). If the
underlying assets of a series of the Trust are
considered to be assets of any plan for purposes of
ERISA or the Internal Revenue Code, the operations
of such series would be subject to and, in some
cases, limited by, the provisions of ERISA and the
Internal Revenue Code.
The publicly-offered security exception applies if
the interest to be purchased by a plan is an equity
security that is:
- - "Freely transferable" (determined based on the
applicable facts and circumstances).
- - Part of a class of securities that is owned by 100
or more investors independent of the issuer and of
each other.
- - Either (i) part of a class of securities registered
under the Securities Exchange Act of 1934 or (ii)
sold to the plan as part of a public offering
pursuant to an effective registration statement
under the Securities Act of 1933 and the class of
which such security is a part is registered under
the Securities Exchange Act of 1934.
It appears that all of the conditions described
above will be satisfied with respect to the
interests and, therefore, the interests should
constitute publicly-offered securities and the
underlying assets of the series in the Trusts
should not be considered to constitute assets of
any plan which purchases interests in the series.
In general, interests may not be purchased with the
assets of your plan if Prudential Securities, any
of its respective affiliates or any of their
respective employees either:
- - Has investment discretion with respect to the
investment of your plan's assets.
- - Has authority or responsibility to give or
regularly gives investment advice with respect to
your plan's 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 your plan's assets and that such
advice will be based on the particular investment
needs of your plan.
- - Is an employer maintaining or contributing to your plan.
Neither Prudential Securities nor the trading
advisor makes any representation that this
investment meets the relevant legal requirements
with respect to investments by your plan or that
this investment is appropriate for your plan. The
person with investment discretion for your plan
should obtain appropriate legal and financial
advice as to the propriety of an investment in the
Trust in light of the circumstances of your plan.
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<PAGE>
HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS
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 entire subscription amount.
- - Send the subscription agreement to a Prudential
Securities financial advisor (or an additional
selling agent) in a timely manner.
- - Meet established suitability standards.
- - Subscribe for at least the subscription minimums.
Minimum Purchases
Minimum Initial Purchase $5,000 or $2,000 (for IRA accounts only)
in one or more series
Minimum Per Series $1,000 for any series
Minimum Additional Purchase
for existing limited owners $100 per series
Special Purchases
If you purchase an aggregate of at least $5 million
of interests in one or more series, you may receive
a discount on the purchase price. If you receive a
discount on the purchase price of your interests, a
dollar amount equal to the discount you receive
will be paid to the Trust at the time of the sale
by Prudential Securities and deducted from the
compensation payable to the Prudential Securities
employee responsible for the sale. You should
consult with your tax advisors concerning the tax
consequences to you of receiving a discount.
In addition to, or instead of, the discount, if you
redeem during the first twelve months following the
effective date of your purchase, all or a portion
of the redemption fees may be waived if, at the
time of a redemption, your aggregate interests in
all series, when added to your aggregate interests
in the various series of World Monitor Trust,
another public futures fund sponsored by the
managing owner, total at least $5 million. For
this purpose, the effective date of your purchase
will be the applicable dealing day for the
interests being redeemed.
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<PAGE>
Subscription Categories
- - 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 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 or the Uniform Transfers to
Minors Act.
- - Trust The subscribing trust must be established
before an account can be opened.
- - Business or other organization Corporations, partnerships, limited liability
companies or partnerships, associations
or other groups.
- - Benefit Plans Individual Retirement Funds, Non-ERISA Plans
or ERISA Plans.
When A Subscription Becomes Final
- - New subscribers to a series Your subscription will not be final or
binding until at least five business days
after the date you submit your subscription
agreement. You may revoke a subscription
only within five business days after you
submit a subscription agreement. Thereafter,
all subscriptions are irrevocable.
- - 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 business days
after the date you submit your subscription
agreement (Exhibit D). You may revoke a
subscription only within two business days
after you submit a subscription agreement.
Thereafter, all subscriptions are
irrevocable.
The managing owner may, at its discretion, reject any subscription in
whole or in part. If your subscription is rejected
by the managing owner, in whole or in part, for any
reason, or if you determine to revoke your
subscription within five business days, the
subscription funds, or the applicable portion
thereof, will be promptly returned to you, along
with any interest earned thereon. If your
subscription is accepted, you will receive written
confirmation of acceptance into the applicable
series of the Trust.
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<PAGE>
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.
- - Send the exchange request to a Prudential Securities financial advisor (or
an additional seller).
When An Exchange Becomes Final
- - Existing limited owners exchanging
interests in Your exchange will be effective on
one series for interests in another the dealing date that occurs at
series currently owned least two business days after the
date you submit your exchange
request.
- - Existing limited owners exchanging Your exchange is effective on the
interests in one series for interests dealing date that occurs at least
in another series not currently owned. five days after the date you submit
your exchange request.
To Redeem Interests You Must:
- - Complete a redemption request (Exhibit B).
- - Submit the redemption request to a Prudential Securities financial advisor
in a timely manner.
When An Redemption Becomes Final
- - Existing limited Your redemption will be effective on the
owners redeeming dealing date that occurs at least two
their currently business days after the date you submit your
owned interests redemption request.
84
<PAGE>
FEES AND EXPENSES
Charges To Be Paid By The Trust
Brokerage Fee To Prudential Securities
For commodity brokerage and other administrative
services, each series will pay Prudential
Securities a fixed brokerage fee and actual
transaction costs, such as exchange fees, National
Futures Association fees, and other pit brokerage
charges. The brokerage fee will be 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,
6% of each series' net asset value.
Each Series will pay all of the floor brokerage
expenses and give-up charges, as well as the
National Futures Association fees, the exchange
fees and the clearing fees incurred in connection
with each series' futures trading activities.
These costs are expected to equal the following
percentages of each series' net asset value:
- - Series D: 1.46% per annum
- - Series E: 0.81% per annum
- - Series F: 0.50% per annum
No material change related to the brokerage fee
will be made except upon 20 business days' prior
notice to limited owners, and no increase in the
brokerage fees will 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 (over 50%) of the limited
owners of the affected series. The fixed brokerage
fee to be paid to Prudential Securities plus
trading transaction costs discussed above is
estimated to equate to the following round-turn
amounts:
- - Series D: $23
- - Series E: $38
- - Series F: $78
From its fixed brokerage fee, Prudential Securities
will be 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% 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 will
be paid by Prudential Securities and will be at no
additional cost to the Trust.
Forward Transactions Through Prudential-Bache
Global Markets Inc.
Any series, acting through its trading advisor, may
execute over-the-counter, spot, forward and option
foreign exchange transactions with Prudential
Securities. Prudential Securities will engage in
back-to-back trading with an affiliate, Prudential
Bache Global Markets, which will attempt to earn a
profit on such transactions. Prudential Bache
Global Markets will keep its prices on foreign
currency competitive with other interbank currency
trading desks. All over-the-counter currency
transactions will be conducted between Prudential
Securities and each series pursuant to a line of
credit. Prudential Securities may require that
collateral be posted against the current market
value of any position of any series.
85
<PAGE>
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.
In no event will the management and incentive fees
paid to the trading advisors exceed any limitations
imposed by the NASAA guidelines.
Management Fee
The series will pay their trading advisors a
management fee at the annual rate of the series'
net asset value as follows:
- - Series D -- 1.25%
- - Series E -- 2%
- - Series F -- 2%
For each series, 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 will pay its trading advisor an
incentive fee equal to 22% 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 (these Fridays are referred
to as the incentive measurement dates).
The incentive fee will be accrued weekly but will be
paid quarterly.
Basic Computation. 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) (this
period is referred to as 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, transaction charges, operating
expenses for which the series is responsible 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 reduced to reflect
extraordinary expenses (e.g., litigation, costs or
damages) particular to a series' trading advisor
paid during an incentive measurement period.
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<PAGE>
Losses Must be Recouped. New high net trading
profits will be generated only to the extent that a
trading 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 in the next sentence, any net losses
from prior quarters will need to be recouped before
new high net trading profits can again be
generated. Losses, if any, associated with assets
allocated away from an advisor through redemptions,
reallocation or deleveraging, if applicable, by the
Trust or the managing owner during the incentive
measurement period and prior to the incentive
measurement date will not have to be recouped.
Effect Of Redemptions, Distributions and Capital
Contributions. If a redemption occurs at any date
that is not an incentive measurement date, the date
of the redemption 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
will be adjusted to exclude capital contributions
to a series in an incentive measurement period, as
well as distributions or redemptions payable by a
series during an incentive measurement period.
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. A trading advisor will not
have to earn back any incentive fees previously
paid to it before it can generate additional new
high net trading profits. Once paid, 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 will be paid within
15 business days following the end of the period
for which they are payable.
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<PAGE>
Example Of Incentive Fee
Following is a simple numerical example with
respect to the net asset value of the interests.
This example illustrates how the quarterly
incentive fee will be calculated.
<TABLE>
<S> <C> <C>
A. Assumptions
(1) A series commences trading activities at the
beginning of a quarter with $10 million 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 117,000 (Assumes Annual Interest of 4.50%)
(4) NAV Subtotal 11,317,500
----------
(5) Fees for Brokerage Services,
Transaction Fees and Routine
Operating Expenses <236,243> (Brokerage Fee of 6% annually, Transaction Fees of
.81% annually (e.g., for Series E) and Routine
Operating Costs of 1.50% annually)
(6) Advisory Management Fee <56,585> (Less the Management Fee: 2% Annually
(e.g., for Series E))
(7) Ending NAV $11,024,172 (Item (4) less Items (5) and (6), before computation of advisory
incentive fee)
(8) Interest Income Adjustment <117,000>
(9) NAV on which Incentive Fee
is computed $10,907,172
(10) Net Trading Profit (Loss) $907,172 (Item (9) minus Item (1))
</TABLE>
C. Incentive Fee Calculation
$907,172 [Item (10)] x 22% = $199,578
If in the next quarter, the trading advisor were to
experience 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 (and assuming
no subsequent redemptions), the trading
advisor must achieve net trading profits
in excess of $500,000 and then would be
paid an incentive fee only on the excess -- that is,
only on the new high net trading profits over
$500,000.
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<PAGE>
Routine Operating Expenses.
All of the Trust's routine operating expenses
including, without limitation, legal, auditing,
accounting, cash management, computer services,
printing, mailing and duplication costs for each
series, will be paid by each series and may include
payments to affiliated service providers at
competitive (or below market) rates. During the
initial 12 months of operations, these operating
expenses are expected to be approximately $125,000
to $150,000 per series, but in no event will a
series be responsible to pay more than 1.50% of
that series' net asset value each year.
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.
Charges To Be Paid By Prudential Securities Or Its Affiliates
Prudential Securities or an affiliate will be
responsible for the payment of the following
charges and will not be reimbursed by the Trust
therefor:
Organization And Offering Expenses
Expenses incurred in connection with the
organization of the Trust and the offering of
interests in each series are expected to be
approximately $250,000 per series. Ongoing
offering expenses are estimated to be approximately
$75,000 per series each year.
Routine Operating Expenses
If at any time the actual routine operating
expenses exceed 1.50% of a series' net asset value
(or if such expenses, excluding legal and audit
charges, exceed 0.5% of Series E's or Series F's,
and 1.25% of Series D's, net asset value),
Prudential Securities or its affiliates will pay
such excess. For example if a series' net asset
value is $7 million, then the maximum amount which
that series will pay is $105,000 for that year.
Prudential Securities or its affiliates will pay
the difference between the $105,000 and actual
expenses incurred. Based on the estimated
expenses, Prudential Securities or its affiliates
pay between $20,000 and $45,000 for that series.
Charges To Be Paid By Limited Owners
Redemption Fees
If you redeem an interest during the first 12
months following the effective date of its purchase
you will be subject to the following redemption
fees: (i) interests redeemed on or before the end
of the first six months after their effective date
will be charged a redemption fee of 4% of the net
asset value at which they are redeemed and
(ii) interests redeemed after six months, but on or
before the end of 12 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 will be paid to the managing owner.
Redemption fees will be waived if you exchange your
interests for interests in another series or if
your redemption proceeds are used to purchase
interests in another fund sponsored by the managing
owner. Redemption fees may be waived if your
aggregate interests in all series, when added to
your aggregate interests in the various series of
World Monitor Trust, another futures fund sponsored
by the managing owner, total at least $5 million.
If you acquire your interests at more than one
closing date and continue to hold them or an
equivalent number of interests in other funds
sponsored by the managing owner, each interest will
be treated on a "first-in, first-out" basis for
redemption purposes (i.e., determining the amount
of any applicable redemption charge). In addition,
if you redeem interests on or before the end of the
12th month from the effective date of purchase
and you simultaneously purchase interests in the
various series of World Monitor Trust, then,
solely for the purpose of assessing any
applicable redemption fees, the effective date
of your initial purchase will carry over to
your subsequent purchase. For example,
assume you purchase interests on January 1, 2000
and on June 30, 2000 you redeem those interests and
simultaneously purchase interests in one or more of
the various series of World Monitor Trust; assume
further that you redeem those interests on February
1, 2001; since the effective date of your initial
purchase carries forward for purposes of assessing
any redemption fees, you will be deemed to have
held the World Monitor Trust interests for a period
of 13 months, and you will not be charged any
redemption fees. Redemption fees will not reduce
net asset value or new high net trading profit for
any purpose and will only affect the amount you
will receive upon your redemption of an interest.
Projected Twelve-Month Break-Even Analysis
Projected twelve-month break-even analyses 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, are set forth at
page 15 and are expressed as a dollar amount and as
a percentage of a minimum $5,000 initial
subscription.
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SUMMARY OF AGREEMENTS
Advisory Agreements
There is an advisory agreement among the Trust, the
managing owner and each series' trading advisor by
which the managing owner delegated to each trading
advisor sole trading responsibility for a series.
All trading will be subject to the Trust's trading
limitations and policies. Each trading advisor
will be allocated 100% of the proceeds from the
offering of interests for the series for which it
has trading responsibility.
The advisory agreements are not exclusive and,
except for the initial term, are effective for one
year terms, with the first term ending 15 months
after trading commences. They are renewable
thereafter automatically for additional one-year
terms unless terminated. After the end of the
first term, each trading advisor has the right to
terminate its respective advisory agreement upon 90
days' prior written notice. During subsequent
terms, each trading advisor has the right, upon
prior written notice, to terminate its respective
advisory agreement as of the end of the then-
current term. Each advisory agreement 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 40% from the series' net asset
value as of beginning of the first day of that
calendar year, 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 commodity
trading advisor under the Commodity Exchange Act or
membership as a commodity trading advisor with the
National Futures Association 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.
Each trading advisor also has the right to
terminate its 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 counsel satisfactory to the
trading advisor and the Trust that by reason of the
trading advisor's activities with respect to the
Trust, the trading advisor is required to register
as an investment adviser under the Investment
Advisers Act of 1940 and it is not so registered;
(ii) that the registration of the managing owner as
a commodity pool operator under the Commodity
Exchange Act or membership as a commodity pool
operator with the National Futures Association is
revoked, suspended, terminated or not renewed;
(iii) that 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) that the assets
allocated to the trading advisor decrease, for any
reason, to less than $4 million for each of Series
D, Series E and Series F; (v) the managing owner
elects to have the trading advisor use a different
trading approach and the trading advisor objects;
(vi) there is an unauthorized assignment of the
advisory agreement by the Trust or the managing
owner; or (vii) other good cause is shown and the
written consent of the managing owner is obtained
(which consent shall not unreasonably be withheld).
It is anticipated that all three of the trading
advisors will accept additional capital to trade
for other clients. The managing owner does not
anticipate that this will have a negative effect on
any trading advisor's ability to implement its
strategy. In the event that the acceptance of
additional capital is anticipated to have or does
have such negative affect, the managing owner has
authority to replace the advisor.
Each trading advisor will, upon reasonable request,
permit the managing owner to review its personal
trading records for the purpose of confirming that
the Trust has been treated equitably with respect
to advice rendered by the trading advisor to other
accounts managed by the trading advisor.
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None of the trading advisors nor their employees or
affiliates will be liable to the managing owner,
its employees or its 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.
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 referred to as 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.
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
Problem. The managing owner has similarly
represented 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 Problem. The Year 2000
Problem 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.
Brokerage Agreement
Prudential Securities and the Trust will enter into
a brokerage agreement. As a result, Prudential
Securities (i) will act as the Trust's executing
and clearing broker, (ii) will act as custodian of
the Trust's assets, (iii) will assist with foreign
currency, (iv) will assist the managing owner in
the performance of its administrative functions for
the Trust and (v) will perform 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 will receive
each trading advisor's orders for trades.
Prudential-Bache Global Markets Inc., an affiliate
of Prudential Securities, will assist 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 will
engage in back-to-back principal trades with
Prudential Securities and its affiliate,
Prudential-Bache Global Markets Inc., in order to
carry out the trading advisor's instructions. In
back-to-back currency transactions, Prudential
Securities, as principal, will arrange bank lines
of credit and contracts with Prudential-Bache
Global Markets Inc. to make or to take future
delivery of specified amounts of the currency at
the negotiated price. Prudential Securities, again
as principal, in turn will contract 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 will
act in the best interests of the Trust.
Confirmations of all executed trades for each
series will be given to the Trust by Prudential
Securities. The brokerage agreement will
incorporate 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 are 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 will be 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 to be provided by Prudential Securities for each
series will include, but will not be 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 U.S. and abroad.
- - Furnishing all of the information from time to time in its possession which
the managing owner is required to furnish to limited owners.
Many of these services will be performed on behalf
of Prudential Securities by financial advisors who
are registered under the Commodity Exchange Act and
who satisfy all applicable proficiency requirements
(i.e., have passed the Series 3 or Series 31
examinations or are exempt therefrom) and who have
all of the appropriate federal and state securities
registrations.
The brokerage agreement will not be exclusive and
will run for successive one-year terms to be
renewed automatically each year unless terminated.
The brokerage agreement will be terminable by a
series (including by a vote of a majority-in-
interest of the interest-holders of that series) or
by 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 you 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 Problem.
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 key features of the
trust agreement which are not discussed elsewhere
in the prospectus are outlined below, but you
should refer to the complete trust agreement for
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 is compensated by the managing owner or
its affiliates, and the trustee will be indemnified
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by the managing owner against any expenses (as
defined in the trust agreement) it incurs relating
to or arising out of the formation, operation or
termination of the Trust or the performance of its
duties pursuant to the trust agreement, except to
the extent that such expenses result from the gross
negligence or willful misconduct of the trustee.
The managing owner has the discretion to retain the
trustee or replace the trustee with a new trustee.
Only the managing owner has signed the registration
statement of which this prospectus is a part, and
the assets of the trustee are not subject to issuer
liability under the federal securities laws for the
information contained in this prospectus and under
federal and state law with respect to the issuance
and sale of the interests. Under such laws,
neither the trustee, either in its capacity as
trustee or in its individual capacity, nor any
director, officer or controlling person of the
trustee is, or has any liability as, the issuer or
a director, officer or controlling person of the
issuer of the interests. The trustee's liability
in connection with the issuance and sale of the
interests and with respect to the Trust's
obligations under the interests is limited solely
to the express obligations of the trustee set forth
in the trust agreement.
Management Responsibilities Of The Managing Owner
Under the trust agreement, the trustee 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, and the trustee has no
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 Internal Revenue Code. The limited
owners have no voice in the operations of the
Trust, other than certain limited voting rights
which are set forth in the trust agreement. 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 you within seven days from the
date of any material change (i) in the series'
advisory agreement, (ii) in the calculation of the
incentive fee paid to the series' trading advisor
and (iii) which affects 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 laws, state "blue
sky" laws and the rules of other governmental
authorities, your interests may be assigned by you
upon notice to the managing owner on a form
acceptable to the managing owner. The managing
owner shall refuse to recognize an assignment if
necessary, in its judgment, to maintain the
treatment of any series as a partnership for U.S.
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. Notwithstanding the
foregoing, and except for certain situations set
forth in the trust agreement, no assignment may be
made by you if such assignment would result in:
- - A contravention of the NASAA guidelines, as adopted in any state where the
proposed assignor and assignee reside.
- - The aggregate total of interests transferred in a twelve-month period
equaling 49% or more of the outstanding interests (taking into account
applicable attribution rules and excluding transfers by gift, bequest, or
inheritance); the trust agreement provides that the managing owner will
incur no liability to any investor or prospective investor for any action or
inaction by it in connection with the foregoing, provided it acted in good
faith.
Assignments by you to (i) your ancestors or
descendants, (ii) your personal representative or
heir, if you are deceased, (iii) the trustee of a
trust for which you are a beneficiary or another
person to whom a transfer could otherwise be made
or (iv) the shareholders, partners or beneficiaries
of a corporation, partnership, limited liability
company or trust upon its termination or
liquidation will be effective as of the dealing day
immediately following the week in which the
managing owner receives your written instrument of
assignment. Assignments or transfers of interests
by you to any other person will be effective on the
dealing day of the next succeeding week, provided
the managing owner shall have been in receipt of
your written instrument of assignment for at least
five business days.
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Your assignee may become a substituted limited
owner only upon consent of the managing owner,
which consent may be withheld by the managing owner
only (i) if the proposed assignee does not meet the
established suitability requirements, or (ii) to
avoid adverse legal consequences to any series in
the Trust. A permitted assignee who does not
become a substituted limited owner will be entitled
to receive your share of the profits or the return
of capital to which you would otherwise be
entitled, but will 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, as an assigning
limited owner released from any liability you may
have to the Trust for any amounts for which you may
be liable under the trust agreement whether or not
the assignee to whom you have assigned interests
becomes a substituted limited owner. You also will
be responsible for all costs relating to the
assignment or transfer of your interests.
Termination The Trust or, as the case may be, any
series, will also dissolve upon the occurrence of
any of the following events:
- - 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 is
referred to as 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 interest-holders 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 (referred to as the
reconstituted trust) on the same terms and
provisions set forth in the trust agreement ; any
such election must also provide for the election of
a managing owner to the reconstituted trust; if
such election is made, all limited owners will be
bound thereby and continue as limited owners of the
reconstituted trust.
- - The occurrence of any event that makes the
continued existence of the Trust or any series in
the Trust unlawful.
- - The suspension, revocation or termination of the
managing owner's registration as a commodity pool
operator under the Commodity Exchange Act or
membership as a commodity pool operator with the
National Futures Association, unless at the time
there is at least one remaining managing owner
whose registration or membership has not been
suspended, revoked or terminated.
- - The Trust or any series becomes insolvent or bankrupt.
- - 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.
- - The limited owners of a series holding interests
representing at least a majority (over 50%) of the
net asset value of that series (excluding interests
held by the managing owner or an affiliate) vote to
dissolve that series with 90 days' prior written
notice to the managing owner.
- - 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.
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A series may also be dissolved, 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
of 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
interest-holders. 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 trust agreement provides that your death,
legal disability, bankruptcy or withdrawal will not
terminate or dissolve the series (unless you happen
to be the sole limited owner of the series) and
that your legal representative will have no right
to withdraw or value your interest except by
redemption of interests pursuant to the trust
agreement .
Reports And Accounting The Trust will maintain its
books on the accrual basis in accordance with
generally accepted accounting principles. The
financial statements of each series in the Trust
will be audited at least annually in accordance
with generally accepted auditing standards by
independent accountants designated by the managing
owner in its sole discretion. As a limited owner,
you will be furnished with unaudited monthly and
audited annual reports containing such information
as the CFTC and National Futures Association
requires. The CFTC requires that an annual report
be provided to you not later than 90 days after the
end of each fiscal year or the permanent cessation
of the Trust's trading as defined in the Commodity
Exchange Act, whichever is earlier, and the annual
report must set forth, among other matters:
- - The net asset value of the series and the net asset value per interest per
series or the total value of your interest in the Trust, in either case, as
of the end of the year in question and the preceding year.
- - A statement of financial condition as of the close of the fiscal year and,
if applicable, the preceding fiscal year.
- - Statements of income (loss) and changes in limited owners' capital during
the fiscal year and, to the extent applicable, the previous fiscal year.
- - 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 you within 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 makes 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:
- - The total amount of realized net gain or loss on commodity interest
positions liquidated during the month.
- - The change in unrealized net gain or loss on commodity interest positions
during the month.
- - The total amount of net gain or loss from all other transactions in which a
series is engaged.
- - 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.
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The statement of changes in net asset value must itemize the following:
- - The net asset value of the series as of the beginning and end of the month.
- - The total amount representing additions of interests during the month.
- - The total amount representing redemptions of interests during the month.
- - The total net income or loss of the series during the month.
- - The net asset value per interest or the total value of your 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.
You also will be furnished with such additional
information as the managing owner, in its sole
discretion, deems appropriate, as well as any other
information required to be provided by any
governmental authority having jurisdiction over the
Trust.
Net asset value will be calculated on each business
day as required. Upon request, the managing owner
will make available to you the net asset value per
interest for a series. You will be notified of any
decline in the net asset value per interest of a
series you own to less than 50% of the net asset
value per interest as of the last valuation point.
This notification will contain a description of
your voting and redemption rights.
In addition, the managing owner will furnish you
with tax information in a form which may be
utilized by you in the preparation of your U.S.
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 at its principal office for eight fiscal
years. You will have the right to obtain
information about all matters affecting the Trust
if it is for a purpose reasonably related to your
interest as a beneficial owner of the Trust. You
also will have access at all times during normal
business hours to the Trust's books and records in
person or by your authorized attorney or agent and
to examine such books and records in compliance
with CFTC rules and regulations. Information
maintained will be made available to you at
reasonable times and during ordinary business hours
for inspection and copying by you or your
representative for any purpose reasonably related
to your interest as a beneficial owner of the
Trust. The managing owner will furnish you with a
copy of the list of limited owners within ten days
of a request by you for any purpose reasonably
related to your interest as a limited owner in the
Trust and upon payment by you of the reasonable
cost of reproduction and mailing. If you want such
information, you must give written assurances that
it will not be used for commercial purposes.
Subject to applicable law, you must give the
managing owner at least ten business days' prior
written notice of an inspection or copying request.
You will be notified of any material change in the
advisory agreements or in the compensation of any
party within seven business days thereof, and you
will be provided with a description of any material
effect on the interests such changes may have.
Distributions Other than as limited by the trust
agreement, the managing owner will have sole
discretion in determining the amount and frequency
of distributions to you. In the event any type of
distribution is declared, you will receive a
distribution in proportion to your interest in the
series held by you as of the record date of
distribution.
Sharing Of Profits And Losses Each interest in a
series will have 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 will be credited or charged
against the book capital account of each interest
for that series.
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At the end of each fiscal year of the Trust, all
items of ordinary income and deduction of each
series will be allocated pro rata among the
interests in such series outstanding on the last
day of each week. After such allocation is made,
each series' net capital gain, if any (including
capital gain required to be recognized under
certain mark-to-market rules provided in the
Internal Revenue Code) realized during each week
will 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 interest-holders that
were interest-holders 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 Internal Revenue 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 interest-holders that were
interest-holders 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. You,
as a limited owner, will not be subject to the
losses or liabilities of any series in which you
have not invested. In the event that any creditor
or you as a 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 you 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
referred to as claims) incurred, contracted for or
otherwise existing solely with respect to a
particular series are enforceable only against that
particular series and the assets of that series and
against the managing owner and its assets but 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 the Delaware Business Trust Act, 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 you as a limited
owner, 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 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 (Exhibit D) 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 U.S. 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 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.
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The Trust will obtain 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 will opine that if the Trust complies with
Section 3804(a) of the Delaware Business Trust Act,
then the inter-series limitation on liability will
be enforceable. Delaware counsel's opinion will
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 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 will opine that, although the matter is not
free from doubt, in a case under the 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 Your capital contribution
is subject to the risks of each series' trading and
business. The Delaware Business Trust Act provides
that, except to the extent otherwise provided in
the trust agreement, you will 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 you as a limited owner are
subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law and
may thereby subject you to liability.
To guard against this risk, the trust agreement
(i) provides for indemnification to the extent of
the Trust's assets of you as a 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 interest-holder. Thus, subject
to the exceptions set forth in the trust agreement
and described below, the risk of you incurring
financial loss beyond your 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 is 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 you, as a limited owner in the
Trust, generally cannot lose more than your
investment and your share of the Trust's profits,
the trust agreement provides that you as a limited
owner may incur liability (i) in the event the
Trust is required to make payments to any federal,
state, local or foreign taxing authority in respect
of your allocable share of Trust income, in which
case you would 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 your obligations or
liabilities unrelated to the Trust's business,
(iii) to indemnify the Trust against any losses or
damages (including tax liabilities or loss of tax
benefits) arising as a result of any transfer or
purported transfer of your interest in violation of
the trust agreement and (iv) if your subscription
agreement delivered in connection with your
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 you as a
limited owner with respect to amounts distributed
to you or amounts received by you upon redemption
of interests unless under Delaware law you are
liable to repay such amounts. Except as set forth
above, assessments of any kind shall not be made
against you as a limited owner. Except as provided
under Delaware law and by the trust agreement, each
interest, once issued, is fully paid and
non-assessable. Except as indicated above, losses
in excess of the Trust's assets are 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 trust
agreement provides that the managing owner may
voluntarily withdraw as managing owner of the Trust
if it gives the limited owners 120 days' prior
written notice and if 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 trust agreement provides that if the managing
owner elects to withdraw as managing owner to the
Trust while 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 will pay all
expenses incurred as a result of its withdrawal.
The trust agreement also provides that in the
event of the withdrawal of the managing owner, the
managing owner will 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.
Alternatively, the trust agreement provides that
if the Trust is dissolved as a result of an event
of withdrawal (as defined in Article XIII of the
trust agreement) of a managing owner, then within
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 trust 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
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, and any such change
will not be effective without such approval. In
addition, limited owners holding interests
representing in excess of 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 trust agreement proposed
by the managing owner or by limited owners holding
interests representing at least ten percent of the
net asset value of a series. 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 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 (on 60 days' prior written notice),
(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 (on 60 days' prior written
notice) and (vi) approve a material change in the
trading policies of the Trust or a series.
Indemnification The trust agreement provides that
with respect to any action in which the managing
owner or any of its affiliates (including
Prudential Securities only when it is 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 fullest 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 (i) the
managing owner was acting on behalf of or
performing services for the Trust and has
determined, in good faith, that such course of
conduct was in the best interests of the Trust and
such liability or loss was not the result of
negligence, misconduct or a breach of the trust
agreement on the part of the managing owner or its
affiliates and (ii) any such indemnification will
only be recoverable from the assets of each series
of the Trust. All rights to indemnification
permitted by the trust agreement and payment of
associated expenses will not be affected by the
dissolution or other cessation to exist of the
managing owner or by the withdrawal, adjudication
of bankruptcy or insolvency of the managing owner.
The trust agreement also 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 trust
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
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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 of 1933 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 such 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
trust 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 will indemnify and hold harmless the
managing owner.
Amendments And Meetings The trust 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 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 10% of the net asset value of each affected
series. Limited owners will be supplied with a
verbatim copy of any proposed amendment that
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 your consent, make
amendments to the trust 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 trust agreement which may be
inconsistent with any other provision of the trust
agreement or this prospectus or (iv) make any other
provisions with respect to matters or questions
arising under the trust agreement that the
managing owner deems advisable; provided, however,
that no such amendment will be adopted unless the
amendment is not adverse to the interests of the
limited owners, is consistent with the managing
owner's management of the Trust pursuant to Section
3806 of the Delaware Business Trust Act, 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 U.S.
federal income tax purposes). The managing owner
further may, without the consent of the limited
owners, amend the provisions of the trust 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 U.S.
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 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 15 days after such receipt,
of such meeting and its purpose. Such meeting must
be held at least 30 but not more than 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 begins on
January 1 on each year and ends on December 31 of
each year, except that (i) the first fiscal year of
the Trust commenced on April 22, 1999, the date the
Certificate of Trust was filed and (ii) the fiscal
year in which the Trust terminates will end on the
date of termination of the Trust.
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THE FUTURES MARKETS
To understand the nature of the investments each
series makes, subscribers should familiarize
themselves with the following information.
Futures And Forward Contracts
Futures contracts in the U.S. can be traded only on
approved exchanges and call for the future delivery
of various commodities. These contractual
obligations may be satisfied either by taking or
making physical delivery or by making an offsetting
sale or purchase of a futures contract on the same
exchange. In certain instances, the S&P 500
contract for example, delivery is made through a
cash settlement.
Forward currency contracts are traded off-exchange
through banks or dealers. In such instances, the
bank or dealer generally acts as principal in the
transaction and charges "bid-ask" spreads.
Futures and forward trading is a "zero-sum" risk
transfer economic activity. For every gain, there
is an equal and offsetting loss.
Options On Futures Contracts
An option on a futures contract gives the purchaser
of the option the right but not the obligation to
take a position at a specified price (the
"striking," "strike" or "exercise" price) in a
futures contract. A "call" option gives the
purchaser the right to buy the underlying futures
contract, and the purchaser of a "put" option
acquires the right to take a sell position in the
underlying contract. The purchase price of an
option is referred to as its "premium." The seller
(or "writer") of an option is obligated to take a
position at a specified price opposite to the
option buyer if the option is exercised. Thus, in
the case of a call option, the seller must be
prepared to sell the underlying futures contract at
the strike price if the buyer should exercise the
option. A seller of a put option, on the other
hand, stands ready to buy the underlying futures
contract at the strike price.
A call option on a futures contract is said to be
"in-the-money" if the strike price is below current
market levels and "out-of-the-money" if that price
is above market. Similarly, a put option on a
futures contract is said to be "in-the-money" if
the strike price is above current market levels and
"out-of-the-money" if the strike price is below
current market levels.
Hedgers And Speculators
The two broad classifications of persons who trade
futures are "hedgers" and "speculators." Hedging
is designed to minimize the losses that may occur
because of price changes, for example, between the
time a producer contracts to sell a commodity and
the time of delivery. The futures and forward
markets enable the hedger to shift the risk of
price changes to the speculator. The speculator
risks capital with the hope of making profits from
such changes. Speculators, such as the Trust,
rarely take delivery of the physical commodity but
rather close out their futures positions through
offsetting futures contracts.
Exchanges; Position And Daily Limits; Margins
Each of the commodity exchanges in the U.S. 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 U.S. 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 U.S. exchanges limit the maximum change in
futures prices during any single trading day. Once
the "daily limit" has been reached, it becomes very
difficult to execute trades. Because these limits
apply on a day-to-day basis, they do not limit
ultimate losses, but may reduce or eliminate
liquidity.
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When a position is established, "initial margin" is
deposited. On most exchanges, at the close of each
trading day, "variation margin," representing the
unrealized gain or loss on the open positions, is
either credited to or debited from a trader's
account. If variation margin payments cause a
trader's initial margin to fall below "maintenance
margin" levels, a "margin call" is made, requiring
the trader to deposit additional margin or have his
position closed out.
Each series trades on a number of foreign commodity
exchanges. Foreign commodity exchanges differ in
certain respects from their U.S. counterparts.
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 is subject to the risk of
fluctuations in the exchange rate between the
native currencies of any foreign exchange on which
it trades and the U.S. dollar (which risks may be
hedged) and the possibility that exchange controls
could be imposed in the future.
No U.S. agency regulates trading outside of the
U.S., which generally involves 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.
There is no limitation on daily price moves on
forward contracts in foreign currencies traded
through banks, brokers or dealers. While margin
calls are not required by foreign exchanges,
Prudential Securities may be subject to daily
margin calls in foreign markets.
Trading Methods
Managed futures strategies are generally classified
as either (i) technical or fundamental or (ii)
systematic or discretionary.
Technical And Fundamental Analysis
Technical analysis operates on the theory that
market prices, momentum and patterns at any given
point in time reflect all known factors affecting
the supply and demand for a particular commodity.
Consequently, technical analysis focuses on market
data as the most effective means of attempting to
predict future prices.
Fundamental analysis, in contrast, focuses on the
study of factors external to the markets, for
example: weather, the economy of a particular
country, government policies, domestic and foreign
political and economic events and changing trade
prospects. Fundamental analysis assumes that
markets are imperfect and that market mispricings
can be identified.
Systematic And Discretionary Trading Approaches
A systematic trader relies on trading programs or
models to generate trading signals. Discretionary
traders make trading decisions on 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 that would have been
signaled by a system.
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Trend Following
Trend-following advisors try to take advantage of
major price movements, while traders 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 large losses.
Risk Control Techniques
Trading managers often adopt risk management
principles. Such principles typically restrict the
size or positions taken as well as establish stop-
loss points at which losing positions must be
liquidated. No risk control technique can assure
that large losses will be avoided.
The programs used by each series' trading advisors are technical,
systematic and trend following.
Regulation Of Markets
Commodity Exchange Act
The U.S. Congress enacted the Commodity Exchange
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 U.S.
Commodity Futures Trading Commission
The CFTC is an independent governmental agency that
administers the Commodity Exchange Act and that is
authorized to promulgate rules thereunder.
Functions of the CFTC include the implementation of
the objectives of the Commodity Exchange Act in
preventing price manipulation and excessive
speculation and the promotion of orderly and
efficient commodity futures markets. The CFTC has
adopted regulations covering, among other things,
(i) the designation of contract markets; (ii) the
monitoring of U.S. commodity exchange rules; (iii)
the establishment of speculative position limits;
(iv) the registration of commodity brokers and
brokerage houses, floor brokers, introducing
brokers, leverage transaction merchants, commodity
trading advisors, commodity pool operators and
their principal employees engaged in non-clerical
commodities activities referred to as associated
persons and (v) 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 Commodity Exchange 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
Commodity Exchange Act (reparations), (ii) seek
injunctions and restraining orders, (iii) issue
cease and desist orders, (iv) initiate disciplinary
proceedings, (v) revoke, suspend or not renew
registrations and (vi) levy substantial fines. The
Commodity Exchange Act also provides for certain
other private rights of action and the possibility
of imprisonment for violations.
The CFTC has adopted extensive regulations
affecting commodity pool operators (such as the
managing owner) and commodity trading advisors
(such as the trading advisors) and their associated
persons which, among other things, (i) require the
giving of disclosure documents to new customers and
the retention of current trading and other records,
(ii) prohibit pool operators from commingling pool
assets with those of the operators or their other
customers and (iii) require pool operators to
provide their customers with periodic account
statements and an annual report. Upon the CFTC's
request, the managing owner also will furnish the
CFTC with the names and addresses of the limited
owners, along with copies of all transactions with,
and reports and other communications to, the
limited owners. The CFTC has recently amended its
regulations relating to the disclosure,
recordkeeping and reporting obligations affecting
commodity pool operators. These regulations, as
adopted, streamline the disclosure documents and
increase from six to nine months the time period
after which such documents must be updated.
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U.S. Commodity Exchanges
U.S. 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 commodity pool operators,
commodity trading advisors, futures commission
merchants, introducing brokers and their associated
persons are members or associated members of the
National Futures Association. The National Futures
Association's principal regulatory operations
include (i) auditing the financial condition of
futures commission merchants, introducing brokers,
commodity pool operators and commodity trading
advisors, (ii) arbitrating commodity futures
disputes between customers and National Futures
Association members, (iii) conducting disciplinary
proceedings and (iv) registering futures commission
merchants, commodity pool operators, commodity
trading advisors, introducing brokers and their
respective associated persons, and floor brokers.
The regulation of commodities transactions in the
U.S. is a rapidly changing area of law and the
various regulatory procedures described herein are
subject to modification by U.S. Congressional
action, changes in CFTC rules and amendments to
exchange regulations and National Futures
Association regulations.
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HOW MANAGED FUTURES FIT INTO A PORTFOLIO
Systematic risk, also known as market risk, is the
risk common to all securities in a particular asset
class. Systematic risk cannot be eliminated
through diversification among securities within the
same class. However, an investor can diversify a
portfolio's exposure to systematic risk by adding
asset classes which have little or no correlation
to each other. As an alternative asset class,
managed futures exhibits low or non-correlation to
traditional asset classes such as stocks and bonds
and as such makes an excellent tool to help
diversify a portfolio's exposure to systematic
risk.
Managed futures is a sector of the futures industry
made up of professionals, known as commodity
trading advisors who, on behalf of their clients,
manage portfolios of futures and forward contracts
traded on exchanges around the world. Utilizing
extensive resources, markets can be monitored
around the world 24 hours a day. For over 20
years, institutions and individuals have made
managed futures part of their well diversified
portfolios. In that time period, the industry has
grown to nearly $40 billion in assets under
management as of December 31, 1998. As the
industry has grown, so has the number, liquidity
and efficiency of the futures markets globally.
Managed futures encompasses over 50 markets
worldwide and, as a result, 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 four benefits to an
investor's overall portfolio:
- - Diversification.
- - Potential for both reduced portfolio volatility and enhanced returns.
- - Ability to profit in many economic environments.
- - Access to global markets.
Diversification
A managed futures fund may invest in more than 50
markets worldwide in both financial and non-
financial futures contracts, thereby broadening a
portfolio's scope of opportunity and lessening the
impact of any single market.
Potential For Both Reduced Portfolio Volatility And
Enhanced Returns
Modern Portfolio Theory 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. Managed futures investments exhibit low
to non-correlation to traditional asset classes
such as stocks and bonds and thus, managed futures
investments can improve a portfolio's return-to-
risk profile.
Ability To Profit In Many Economic Environments
With stocks and bonds, investors typically buy
securities which they believe will increase in
value, but may have no strategy 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, both rising and declining
markets represent opportunities for managed
futures.
Access To Global Markets
As the futures markets matured, they have expanded
to include global opportunities in stock and bond
indices, currencies, precious and base metals,
agricultural products and so forth. Investors can
easily and inexpensively gain access to a variety
of markets around the globe through an investment
in managed futures.
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Performance Comparisons
The tables below compare pro forma returns and
statistics for Series D, Series E and Series F with
three asset classes, U.S. Stocks, U.S. Bonds and
International Stocks, in order to highlight the
particular performance characteristics of each
series versus traditional asset classes. Of
course, past performance is not necessarily
indicative of future results.
Series D -- Bridgewater Associates
Aggressive Pure Alpha Futures Only --Pro Forma
January 1994 through July 1999
Summary Performance Statistics
<TABLE>
<CAPTION>
January 1994 through July 1999 U.S. U.S. Int'l. Series D
Stocks1 Bonds2 Stocks3 Pro Forma4
<S> <C> <C> <C> <C>
Value of $1000 $3,199 $1,386 $1,689 $1,732
Compound Annual Return 23.15% 6.03% 9.84% 10.34%
Monthly Standard Deviation Annualized 13.73% 4.53% 13.77% 15.80%
Maximum Draw-down -15.36% -5.76% -15.03% -28.90%
Months to Recovery 5 15 5 35
Correlation to U.S. Stocks 1.00 0.37 0.67 0.29
</TABLE>
Performance Summary
January 1994 through July 1999
<TABLE>
<CAPTION>
U.S. Stocks1 U.S. Bonds2 Int'l. Series D
Annual Stocks3 Pro Forma4
<S> <C> <C> <C> <C>
1994 1% -4% 8% -10%
1995 38% 19% 12% -11%
1996 23% 3% 6% 37%
1997 33% 10% 2% 19%
1998 29% 10% 20% 27%
1999 (Jan. - Jul.) 9% -3% 7% 5%
</TABLE>
Series E -- Graham Capital
Global Diversified Program --Pro Forma (1.5 leverage)
February 1995 through July 1999
Summary Performance Statistics
<TABLE>
<CAPTION>
February 1995 through July 1999 U.S. U.S. Int'l. Series E
Stocks1 Bonds2 Stocks3 Pro Forma5
<S> <C> <C> <C> <C>
Value of $1000 $3,078 $1,410 $1,625 $1,882
Compound Annual Return 28.38% 7.93% 11.39% 15.08%
Monthly Standard Deviation Annualized 14.23% 4.33% 13.99% 21.17%
Maximum Draw-down -15.36% -3.78% -15.03% -19.88%
Months to Recovery 5 9 5 6
Correlation to U.S. Stocks 1.00 0.27 0.68 0.02
</TABLE>
Performance Summary
February 1995 through July 1999
<TABLE>
<CAPTION>
U.S. Stocks1 U.S. Bonds2 Int'l. Series E
Stocks3 Pro Forma5
<S> <C> <C> <C> <C>
1995 (Feb.- Dec.) 34% 17% 16% 37%
1996 23% 3% 6% 20%
1997 33% 10% 2% 6%
1998 29% 10% 20% 15%
1999 (Jan. - Jul. 9% -3% 7% -6%
</TABLE>
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<PAGE>
Series F -- Campbell & Company
FME Small Portfolio --Pro Forma
November 1994 through July 1999
Summary Performance Statistics
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
November 1994 through July 1999 U.S. U.S. Int'l. Series F
Stocks1 Bonds2 Stocks3 Pro Forma6
Value of $1000 $3,078 $1,410 $1,625 $2,145
Compound Annual Return 28.38% 7.93% 11.39% 18.48%
Monthly Standard Deviation Annualized 14.23% 4.33% 13.99% 15.19%
Maximum Draw-down -15.36% -3.78% -15.03% -8.17%
Months to Recovery 5 9 5 5
Correlation to U.S. Stocks 1.00 0.27 0.68 0.11
</TABLE>
Performance Summary
November 1994 through July 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. Stocks1 U.S. Bonds2 Int'l. Pro Forma
Stocks3 Series F6
1995 (Feb.-Dec.) 34% 17% 16% 16%
1996 23% 3% 6% 32%
1997 33% 10% 2% 14%
1998 29% 10% 20% 19%
1999 (Jan.-Jul.) 9% -3% 7% 3%
</TABLE>
1. U.S. Stocks -- Standard & Poor's 500 Stock Index (dividends reinvested) an
unmanaged weighted index of 500 stocks.
2. International Stocks -- Morgan Stanley's EAFE Index (dividends reinvested).
3. U.S. Bonds -- Lehman Brothers' Government/Corporate Bond Index (coupons
reinvested).
4. Series D Pro Forma -- Representative accounts showing the actual results
obtained by utilizing Bridgewater Associates' Pure Alpha Strategy under
the proposed fee structure and leverage policies and Aggressive Pure Alpha
Futures Only System under the proposed fee structure, as detailed in the
section in this prospectus entitled "SERIES D."
5. Series E Pro Forma -- A representative account showing the actual results
obtained by utilizing Graham Capital's Global Diversified Program under
the proposed fee structure, as detailed in the section in this prospectus
entitled "SERIES E."
6. Series F Pro Forma -- A single representative account showing the actual
results obtained by utilizing Campbell & Company's FME Small Portfolio
under the proposed fee structure, as detailed in the section in this
prospectus entitled "SERIES F."
(Sources: Standard & Poor's, Lehman Brothers and Lipper Analytical Associates.)
THESE INDICES ARE REPRESENTATIVE OF EQUITY AND DEBT SECURITIES
AND ARE NOT TO BE CONSTRUED AS AN ACTIVELY MANAGED PORTFOLIO.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summarizes the material U.S. federal
income tax consequences to individual investors in
the Trust. We have obtained an opinion of Rosenman
& Colin LLP, tax counsel to the Trust, that the
summary below correctly describes the material U.S.
federal income tax consequences as of the date
hereof to the Trust and to a U.S. individual who
invests in the Trust. The summary is based on
current U.S. federal income tax law, which is
subject to change. Rosenman & Colin LLP's opinion
is based on the facts described in this prospectus
and on the accuracy of factual representations made
by the managing owner. Rosenman & Colin LLP's
opinion represents only its legal judgment and does
not bind the Internal Revenue Service or the
courts.
The Partnership Tax Status Of A Series In The Trust
Because it is expected that each series in the
Trust will be classified as a partnership for U.S.
federal income tax purposes, it is not anticipated
that the Trust will pay any federal corporate
income tax. It may be that the various series in
the Trust (or the Trust itself) would constitute a
so-called "publicly traded partnership." In that
event, such series (or the Trust itself) generally
would be subject to U.S. federal income tax as a
corporation, and distributions to limited owners
would be taxable as dividends, unless at least 90%
of such series' (or the Trust's) annual gross
income consists of "qualifying income" as defined
in the Internal Revenue Code. The managing owner
believes that it is likely, but not certain, that
each series will satisfy the 90% test.
Taxation Of Limited Owners On Profits And Losses Of
A Series Of The Trust
Assuming that each series will be treated as a
partnership for U.S. federal income tax purposes,
each limited owner must pay tax on his share of the
series' annual income and gains as determined for
income tax purposes, if any, even though the series
does not intend to make current cash distributions.
The income tax effects of a series' transactions
may differ from the economic consequences of such
transactions.
Losses Allocated To Limited Owners
A limited owner may deduct series' losses only to
the extent of his tax basis in his interest.
Generally, a limited owner's tax basis is the
amount paid for the interest reduced (but not below
zero) by his share of any series' distributions,
losses and expenses and increased by his share of
the series' income and gains. However, a limited
owner who is subject to "at-risk" limitations
(generally, non-corporate taxpayers and closely-
held corporations) can only deduct losses to the
extent he is at-risk. The at-risk amount is
similar to tax basis, except that it does not
include any amount borrowed on a nonrecourse basis
by the series or from someone with an interest in
the series.
"Passive-Activity Loss Rules" And Its Effect On The
Treatment Of Income And Loss
The trading activities of each series will not be
"passive activities," and therefore the passive
activity loss rules will not result in series'
losses being nondeductible (but such losses may of
course be subject to other deductibility
limitations described in this summary). Similarly,
a series' income and gains will not be treated as
passive activity income and cannot be offset by a
limited owner's passive activity losses from other
investments.
Cash Distributions And Partial Redemptions
A limited owner who receives cash from the Trust,
either through a distribution or a partial
redemption, will not pay tax on that cash until
distributions exceed his tax basis in his interest.
A limited owner cannot recognize a loss with
respect to a partial redemption until his entire
interest is fully redeemed. An exchange of
interests in one series for interests in another
series will be treated as a redemption of the
interests being exchanged.
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Gain Or Loss On Section 1256 Contracts And Non-Section 1256 Contracts
"Section 1256 Contracts" include futures contracts,
most options traded on U.S. commodity exchanges and
certain foreign currency contracts. For tax
purposes, Section 1256 Contracts that remain open
at year-end are treated as if they were sold at
year-end. The gain or loss on Section 1256
Contracts is characterized as 60% long-term capital
gain or loss and 40% short-term capital gain or
loss, regardless of how long the contracts are
held.
"Non-Section 1256 Contracts" include, among other
things, certain foreign currency transactions. A
series' gain and loss from Non-Section 1256
Contracts generally would be short-term capital
gain or loss, but certain of these transactions may
generate ordinary income.
Capital Gains And Losses
For individuals, long-term capital gains (i.e., net
gain on capital assets held more than one year and
60% of the gain on Section 1256 Contracts) are
taxed at a maximum U.S. federal income tax rate of
20%, and short-term capital gains (i.e., net gain
on capital assets held one year or less and 40% of
the gain on Section 1256 Contracts) are subject to
tax at the same rates as ordinary income, with a
maximum U.S. federal income tax rate of 39.6%.
Individual taxpayers can deduct capital losses only
to the extent of their capital gains plus $3,000.
Accordingly, a series could suffer significant
capital losses, and a limited owner could still be
required to pay taxes on, for example, his share of
the series' interest income.
An individual taxpayer can carry back net capital
losses on Section 1256 Contracts three years to
offset earlier gains on Section 1256 Contracts. To
the extent the taxpayer cannot offset past Section
1256 Contract gains, he can carry forward such
losses indefinitely.
Limited Deduction For Certain Expenses
The managing owner intends to cause each series to
report management and trading advisory fees as
trade or business expenses that are not subject to
deductibility limitations applicable to investment
advisory expenses. The Internal Revenue Service
could contend otherwise. If expenses of a series
are recharacterized as investment expenses, the
deductible amount of these expenses would be
reduced (and would not be deductible at all for
alternative minimum tax purposes) to the extent
allocable to limited owners who are individuals.
The Internal Revenue Service could also take the
position that a portion of the brokerage fees paid
by a series is a non-deductible syndication
expense.
Interest Income
Interest received by a series will be taxed as
ordinary income and generally cannot be offset by
capital losses. See the section above entitled
"Capital Gains And Losses."
Investment Interest Deductibility Limitations
Individual taxpayers can deduct investment interest
(i.e., interest on indebtedness allocable to
property held for investment) only to the extent
that it does not exceed their net investment
income. Net investment income does not include net
long-term capital gain absent an election by an
individual taxpayer to pay tax on such gain at
regular income tax rates but not at the lower 20%
rate.
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<PAGE>
Unrelated Business Taxable Income
The managing owner anticipates that tax-exempt
limited owners will not be required to pay tax on
their share of income or gains of the Trust,
provided that such limited owners do not purchase
interests with borrowed funds.
Foreign Individual Limited Owners
The managing owner anticipates that a foreign
individual limited owner who files with the Trust
all requested certifications and documentation
should not be required to pay or be subject to U.S.
federal income or withholding tax with respect to
his ownership of an interest. However, if such
limited owner holds the interest at the time of his
death, his estate may be subject to U.S. federal
estate taxation with respect to such interest.
Internal Revenue Service Audits Of The Trust And Its Limited Owners
Audits of series-related items are conducted at the
Trust level rather than at the limited owner level.
The managing owner will act as "tax matters
partner" with the authority to determine the
Trust's responses to an audit. If an audit results
in an adjustment, all limited owners of one or more
given series may be required to pay additional
taxes, interest and penalties. Interest on tax
deficiencies generally is not deductible by non-
corporate limited owners.
Foreign, State And Local And Other Taxes
In addition to the U.S. federal income tax
consequences described above, a series and the
limited owners may be subject to various foreign,
states, local and other taxes. Prospective
investors should consult their tax advisors as to
the state and local tax consequences of investing
in the Trust.
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 a series'
transactions are complex, and certain of these
consequences would vary significantly with the
particular situation of a limited owner.
Accordingly, prospective investors are strongly
urged to consult their own tax advisors regarding
the possible federal, state and local tax
consequences of an investment in the Trust,
including, for example, the potential impact on an
investor's liability for alternative minimum tax of
deriving long-term capital gain from this
investment.
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<PAGE>
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.
Rosenman & Colin LLP also represents Prudential
Securities and certain of its affiliates from time
to time in various matters, and it is expected it
will continue to do so in the future.
ADDITIONAL INFORMATION
The Trust has filed with the SEC a registration
statement for each series of interests on Form S-1
(the three registration statements are referred to
collectively as the registration statements) with
respect to the securities offered hereby. This
prospectus does not contain all of the information
set forth in the registration statements, certain
portions of which have been omitted pursuant to the
rules and regulations of the SEC, including,
without limitation, certain exhibits thereto (e.g.,
the selling agreement, the escrow agreement and the
brokerage agreement). A copy of each registration
statement has also been provided to the CFTC. 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 SEC, 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 SEC. In
addition, all of the SEC's public filings,
including the public filings of each series, are
available at the SEC's Web Site at www.sec.gov.
EXPERTS
The statements of financial condition of the Trust
as of September 9, 1999 and of the managing owner and
Diversified Futures Trust I as of December 31, 1998
included in this prospectus have been so included
in reliance on the reports of
PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as
experts in accounting and auditing.
The statements referred to under "U.S. FEDERAL
INCOME TAX CONSEQUENCES" have been reviewed by
Rosenman & Colin LLP and are included in reliance
upon its authority as experts in U.S. tax law.
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GLOSSARY OF TERMS
The following glossary may assist prospective
investors in understanding certain 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 NASD.
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 $$: (All Programs excluding Notional)
and Aggregate $$: (All Proforma 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 $$: (All programs including Notional)
and Aggregate $$: (All Proforma 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.
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.
Commodity. Goods, wares, merchandise, produce and
in general everything that is bought and sold in
commerce. Out of this large class, certain
commodities, because of their wide distribution,
universal acceptance, and marketability in
commercial channels, have become the subject of
trading on various national and international
exchanges located in principal marketing and
commercial areas. Traded commodities are sold in
predetermined lots and quantities.
Commodity 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 ("CFTC"). An
independent regulatory commission of the U.S.
government empowered to regulate commodity futures
transactions and other commodity transactions under
the Commodity Exchange Act.
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<PAGE>
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 U.S., these
limits, including changes thereto, are subject to
CFTC approval. These limits generally are not
imposed on option contracts or outside the U.S.
Dealing Day. Means the first business day after a
valuation point occurs.
Delivery. Means the process of satisfying a
commodity futures contract, an option on a physical
commodity or a 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.
ERISA. Means Employee Retirement Income Security
Act of 1974, as amended.
ERISA Plans. Means employee benefit plans governed
by the Employee Retirement Income Security Act of
1974, as amended, usually referred to as ERISA.
Forward contract. Means 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. Means a contract providing for
the delivery or receipt at a future date of a
specified amount and grade of a traded commodity at
a specified price and delivery point or for cash
settlement. Such contracts are uniform for each
commodity on each exchange and vary only with
respect to price and delivery time. A commodity
futures contract should be distinguished from the
actual physical commodity, which is termed a "cash
commodity." It is important to note that trading
in commodity futures contracts involves trading in
contracts for future delivery of commodities and
not the buying and selling of particular lots of
commodities. A contract to buy or sell may be
satisfied either by making or taking delivery of
the commodity and payment or acceptance of the
entire purchase price therefor, or by offsetting
the contractual obligation with a countervailing
contract on the same on a linked exchange prior to
delivery.
Individual Retirement Fund. Means an Individual
Retirement Account (referred to as an IRA) or a
Keogh Plan, both of which are vehicles to save
money for use during retirement.
IRA. Means Individual Retirement Account.
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Interests. Means the beneficial interest of each
interest-holder 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.
Internal Revenue Code. Means the Internal Revenue
Code of 1986, as amended.
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. Means 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. Means 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
(i.e., to 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. Means a good faith deposit with a broker
to assure fulfillment of a purchase or sale of a
commodity futures, or, in certain cases, forward or
option contract. Commodity margins do not usually
involve the payment of interest.
Managing Owner. Means Prudential Securities
Futures Management Inc. or any substitute therefor
as provided in the trust agreement .
Margin call. 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.
Monthly Rate of Return. Means net performance for
the month, in general, computed on a weekly basis
and then compounds.
NASD. Means the National Association of Securities
Dealers, Inc.
NASAA. Means the North American Securities
Administrators Association, Inc.
NASAA Guidelines. Means the guidelines for the
Registration of Commodity Pool Programs imposed by
the NASAA.
Net Asset Value. (sometimes referred to as NAV)
See Section 1.1 of the trust agreement .
New High Net Trading Profits. See "FEE AND
EXPENSES - Charges To Be Paid By The Trust -
Management And Incentive Fees To The Trading
Advisors."
Net Worth. See Section 4.3(i) of the trust
agreement. Insofar as net worth relates to
investor suitability, see the heading entitled
"State Suitability Requirements" in the
subscription agreement (Exhibit D).
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Notional Funds. Means 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 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.
NYMEX. Means the New York Mercantile Exchange.
Open Position. Means 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. Means 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 for a more
particular enumeration of such expenses, all of
which will be paid by Prudential Securities or an
affiliate.
Parent. Means a company that owns all or the
majority of the outstanding equity of a trust,
corporation, partnership, or a limited liability
company.
Parameters. Means a value that can be freely
assigned in a trading system in order to vary the
timing of signals.
Pattern recognition. Means the ability to identify
patterns that appeared to act as precursors of
price advances or declines in the past.
Promoter. Means any person who directly or
indirectly organizes an investment opportunity in a
trust, corporation, partnership, or limited
liability company.
Pyramiding. Means 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 business days after the date the
managing owner has received a Redemption Request
(Exhibit B) 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.
Resistance. Mean a previous high. A price level
over the market where selling pressure overcomes
buying pressure and a price advance is turned back.
Secular trend. Means 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 Act, the interests of which
shall be beneficial interests in the Trust estate
separately identified with and belonging to such
series.
115
<PAGE>
Short contract. Means a contract to make delivery
of (sell) a specified amount of a commodity at a
future date at a specified price.
Speculative Position Limit. Means the maximum
number of speculative futures or option contracts
in any one commodity (on one contract market),
imposed by the CFTC or a U.S. 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 U.S.
Spot contract. Means 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. Means 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 or 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).
Stop-loss order. Means 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. Means 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. Means a previous low. A price level
under the market where buying interest is
sufficiently strong to overcome selling pressure.
Systematic technical charting systems. Means a
system that is technical in nature and based on
chart patterns as opposed to pure mathematical
calculations.
Trading Advisor. Means any entity or entities
acting in its capacity as a commodity trading
advisor to the Trust and any substitute(s) therefor
as provided herein.
Trustee. Means Wilmington Trust Company or any
substitute therefor as provided in the trust
agreement .
Underwriter. Means a broker-dealer that attempts
to sell interests issued directly by a trust, a
corporation, a partnership, or a limited liability
company in a public or private offering.
Unrealized profit or loss. Means the profit or
loss that 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. Means the close of business on
Friday of each week or such other day as may be
determined by the managing owner.
116
<PAGE>
INDEX TO
CERTAIN FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
WORLD MONITOR TRUST II-- Series D, Series E and Series F
Report of Independent Accountants 118
Statement of Financial Condition as of September 9, 1999 119
Notes to Statement of Financial Condition 120
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants 124
Audited Statement of Financial Condition as of December 31, 1998 125
Unaudited Statement of Financial Condition as of June 30, 1999 125
Notes to Statement of Financial Condition 126
DIVERSIFIED FUTURES TRUST I
Report of Independent Accountants 129
Audited Statement of Financial Condition as of December 31, 1998 130
Unaudited Statement of Financial Condition as of June 30, 1999 130
Notes to Statement of Financial Condition 131
</TABLE>
117
<PAGE>
PricewaterhouseCoopers LLP (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596 8000
Facsimile 212 596 8910
Report of Independent Accountants
September 14, 1999
To the Interest Holders of
Series D, Series E, and Series F of
World Monitor Trust II
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Series D, Series E
and Series F of World Monitor Trust II (the 'Trust') at September 9, 1999, 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 financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by the managing owner, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
118
<PAGE>
WORLD MONITOR TRUST II
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
September 9, 1999
ASSETS
<TABLE>
<CAPTION>
Series D Series E Series F
-------- -------- --------
<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 D, E and F, respectively).................................. $ 1,000 $ 1,000 $ 1,000
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
119
<PAGE>
WORLD MONITOR TRUST II
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
September 9, 1999
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust II (the 'Trust') is a business trust organized under the
laws of Delaware on April 22, 1999. The Trust has not yet commenced operations.
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 D, E and F. The assets of each Series will be
segregated from the other Series, separately valued and independently managed.
Up to $50,000,000 of Interests for each Series will be offered (totalling
$150,000,000) unless the Managing Owner, in its sole discretion, exercises
its over-subscription option to offer additional Interests ('Subscription
Maximum'). Interests 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 $5,000,000 for each Series. 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 Bridgewater Associates,
Inc., Graham Capital Management, L.P. and Campbell & Company, Inc.
(each a 'Trading Advisor') to make the trading decisions for Series D, E and F,
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.
120
<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
50% or more since the commencement of trading activities or the first day of a
fiscal year, the Series will terminate.
B. Summary of Significant Accounting Policies
Basis of accounting
The 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 and offering costs
PSI or its affiliates will pay the costs of organizing each Series and
offering their Interests.
General and administrative costs
Routine legal, audit, postage, and other routine third party administrative
costs will be paid by each Series. Additionally, each Series will pay the
administrative costs incurred by the Managing Owner or its affiliates for
services it performs for each Series which include, but are not limited to,
those costs discussed in Note D below. However, all of these general and
administrative costs incurred by each Series will be limited to 1.5% annually of
the net asset value of the Series.
Management and incentive fees
Each Series will pay its Trading Advisor a management fee at an annual rate
of 1.25% for Series D, 2% for Series E and 2% for Series F of such 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 22% of such
Trading Advisor's 'New High Net Trading Profits' (as defined in each Advisory
Agreement). The incentive fee will also accrue weekly.
121
<PAGE>
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 6% of each Series' net asset value. The fee will be determined
weekly and the sum of such weekly amounts will be paid monthly. Each Series will
also be obligated to pay all floor brokerage expenses, give-up charges and NFA,
clearing and exchange fees incurred in connection with each Series' commodity
trading activities.
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.
All of the proceeds of this offering will be received in the name of each
Series and will be deposited in trading or cash accounts maintained for each
Series at PSI. Once trading commences, 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. Each Series will receive interest
income on 100% of its average daily equity maintained in cash in the Series'
accounts with PSI during each month at the 13-week Treasury bill rate. This rate
is determined weekly by PSI and represents the rate awarded to all bidders
during each week's auction of 13-week Treasury bills (e.g., 4.495% for the
13-week Treasury bill auction on May 24, 1999). Currently, this rate is
estimated to be approximately 4.50% annually, but that rate may change from time
to time.
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
marked-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 or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in 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.
122
<PAGE>
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 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.
123
<PAGE>
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596 8000
Facsimile 212 596 8910
Report of Independent Accountants
January 26, 1999
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, 1998 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/ PricewaterhouseCoopers LLP
124
<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Statements of Financial Condition
June 30, 1999 December 31, 1998
(unaudited)
Assets
Cash $ 3,483 $ 5,096
Investments in partnerships 2,276,397 2,246,483
Receivables from partnerships 20,467 71,997
Other receivables 100 10,100
Total assets $2,300,447 $ 2,333,676
Liabilities and Stockholder's Equity
Liabilities
Due to Parent and affiliates, net $2,284,596 $2,279,360
Accrued expenses 8,125 14,375
Total liabilities 2,292,721 2,293,735
Commitments and contingencies
Stockholder's equity
Common stock (no par value, 2,000
shares authorized, 100
shares issued and outstanding) 100 100
Additional paid-in capital 6,500,000 9,100,000
Retained earnings
7,626 39,841
6,507,726 9,139,941
Less: Noninterest-bearing
demand notes due
from Prudential
Securities Group Inc. (6,500,000) (9,100,000)
Total stockholder's equity 7,726 39,941
Total liabilities and
stockholder's equity $2,300,447 $ 2,333,676
The accompanying notes are an integral part of this financial statement.
Purchasers of Limited Interests have no interest in this Trust.
125
<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to Statements of Financial Condition
June 30, 1999 (unaudited) and December 31, 1998
1. 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
options contracts pursuant to trading systems developed
by independent commodity trading advisors. The Company
also serves as an investment advisor to a Cayman Islands
trust fund organized to invest in "hedge funds." 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.
2. 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 statements. 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 June 30, 1999, the Company's federal and state income
tax payables were $14,546 and $4,907, respectively,
($24,769 and $8,355, respectively, at December 31, 1998)
and were included in Due to Parent and affiliates.
126
<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to Statements of Financial Condition
June 30, 1999 (unaudited) and December 31, 1998
3. Investments in Partnerships
The Company's investments in partnerships are carried at
its share of the underlying equity in the Partnerships'
net assets. The Company's investments in partnerships
and its percentage ownership in those partnerships are
as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
<S> <C> <C>
Diversified Futures Trust I $ 569,374 1.0% $ 589,470 1.0%
Diversified Futures Trust II 416,847 1.2 458,394 1.2
Prudential Securities Strategic Trust 407,100 1.0 450,172 1.0
World Monitor Trust - Series B 223,578 1.1 151,173 1.3
Prudential-Bache Capital Return
Futures Fund 2, L.P. 220,330 1.0 240,340 1.0
World Monitor Trust - Series C 208,841 1.2 141,739 1.3
World Monitor Trust - Series A 184,794 1.2 137,620 1.3
Prudential Securities Aggressive
Growth Fund L.P. 42,533 1.0 56,097 1.0
World Monitor Trust II - Series D 1,000 100 - -
World Monitor Trust II - Series E 1,000 100 - -
World Monitor Trust II - Series F 1,000 100 - -
Prudential Securities Foreign
Financials Fund, L.P. 0 0 21,478 1.2
$2,276,397 $2,246,483
</TABLE>
The following represents combined condensed financial
information for the Partnerships in which the Company has an
investment:
June 30, 1999 December 31, 1998
Assets $220,620,080 $216,537,082
Liabilities $ 8,134,668 $ 8,427,987
Partners' Capital 212,485,412 208,109,095
Total $220,620,080 $216,537,082
127
<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to Statements of Financial Condition
June 30, 1999 (unaudited) and December 31, 1998
4. Related Parties
The Company has an interest-bearing loan payable to PSGI
in the amount of $2,274,013 at June 30, 1999 ($2,196,411
at December 31, 1998) which bears interest at PSGI's
effective borrowing rate (6.3% at June 30, 1999 and 5.7%
at December 31, 1998) 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 $0 and $104,403 at
June 30, 1999 and December 31, 1998, respectively, and
is included in Due to Parent and affiliates). The amount
due from the Partnerships related to these services
($20,467 at both June 30, 1999 and December 31, 1998) is
included in Receivable from partnerships.
The Company's officers and directors are also officers
of PSI.
5. 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 $6,500,000 at June
30, 1999 ($9,100,000 at December 31, 1998). These notes
receivable are classified as a reduction of
Stockholder's Equity as they represent capital
subscribed but not funded. The demand notes are
partially collateralized by U.S. Government security
reverse repurchase agreements which contract amounts
plus accrued interest approximate $5,200,000 at June 30,
1999 ($7,000,000 at December 31, 1998).
6. Commitments and Contingencies
As a general partner or managing owner, the Company may
be contingently liable for costs and liabilities
incurred by the Partnerships.
128
<PAGE>
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
January 26, 1999
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, 1998 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/ PricewaterhouseCoopers LLP
129
<PAGE>
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Equity in commodity trading accounts:
Cash $55,311,542 $ 55,481,234
Net unrealized gain on open commodity positions 4,574,666 6,197,212
------------- -------------
Net equity 59,886,208 61,678,446
Other receivable 20,145 8,874
------------- -------------
Total assets $59,906,353 $ 61,687,320
------------- -------------
------------- -------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 2,525,176 $ 2,543,697
Incentive fee payable 252,445 --
Management fee payable 199,688 205,624
------------- -------------
Total liabilities 2,977,309 2,749,321
------------- -------------
Commitments
Trust capital
Limited interests (264,390.094 and 290,423.624 interests
outstanding) 56,359,670 58,348,534
General interests (2,671 and 2,934 interests outstanding) 569,374 589,465
------------- -------------
Total trust capital 56,929,044 58,937,999
------------- -------------
Total liabilities and trust capital $59,906,353 $ 61,687,320
------------- -------------
------------- -------------
Net asset value per limited and general interests $ 213.17 $ 200.91
------------- -------------
------------- -------------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
Purchasers of Limited Interests have no interest in this Trust.
130
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 (unaudited) and December 31, 1998
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 & Company, Inc.
(the 'Trading Manager'), an independent commodity trading manager. The Trading
Manager trades the Trust's assets pursuant to four of its trading programs: the
Financial and Metals Portfolio; the Global Financial Portfolio; the Original
Investment Program; and the G-7 Currency Portfolio. The Managing Owner retains
the authority to override trading instructions that violate the Trust's trading
policies.
B. Summary of Significant Accounting Principles
Basis of accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
Income taxes
The Trust is treated as a partnership for Federal income tax purposes. As
such, the Trust is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are 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 to all Interest holders on a
pro rata basis based on each Interest holder's number of Interests outstanding
during the month.
<PAGE>
131
<PAGE>
Distributions (other than 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 at the then current NAV
per Interest.
New Accounting Guidance
In June 1999, the Financial Accounting Standards Board ('FASB') issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of FASB Statement No. 133, which delayed the effective date of FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities ('SFAS
133'). The Trust does not believe the effect of adoption of SFAS 133, now
required effective January 1, 2001, will be material.
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 among 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 (including 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 its routine operational, administrative, legal and
auditing fees as well as costs paid to organize the Trust and offer its
Interests.
The Trust's assets are maintained either in trading or cash accounts at PSI,
the Trust's commodity broker, 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 Trust's 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.
As of June 30, 1999 and December 31, 1998, a non-U.S. affiliate of the
Managing Owner owns 2,117.885 and 2,463.953 Limited Interests of the Trust.
<PAGE>
132
<PAGE>
E. Income Taxes
There have been no differences between the tax basis and book basis of
Interest holders' capital since inception of the Trust.
F. Credit and Market Risk
Since the Trust's business is to trade futures and forward (including foreign
exchange transactions) 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 and forward contracts involve varying degrees of off-balance sheet
risk; and changes in the level or volatility of interest rates, foreign currency
exchange rates or the market values of the contracts (or commodities underlying
the contracts) frequently result in changes in the Trust's unrealized gain
(loss) on open commodity positions reflected in the statements of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
Futures 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 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 statements of financial condition
because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust and its 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. Additionally, the
Managing Owner may terminate the Trading Manager if the net asset value
allocated to the Trading Manager declines by 33 1/3% during any year or since
the commencement of trading activities. Furthermore, the Trust Agreement
provides that the Trust will liquidate its positions, and eventually dissolve,
if the Trust experiences a decline in the net asset value of 50% in any year or
since the commencement of trading activities. In each case, the decline in the
net asset value is after giving effect for distributions and redemptions. 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 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 trading and is not to commingle such assets with other assets
of PSI. At June 30, 1999 and December 31, 1998, such segregated assets
totalled $44,123,728 and $47,295,189, respectively. Part 30.7 of the CFTC
regulations also requires PSI to secure assets of the Trust related
to foreign futures trading which totalled $15,606,408 and $14,585,018
at June 30, 1999 and December 31, 1998, respectively. There
are no segregation requirements for assets related to forward trading.
As of June 30, 1999 and December 31, 1998, the Trust's open futures
and forward contracts mature within one year.
<PAGE>
133
<PAGE>
At June 30, 1999 and December 31, 1998, gross contract amounts of open
futures and forward contracts are:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Financial Futures Contracts:
Commitments to purchase $ 7,889,658 $241,713,301
Commitments to sell 857,291,259 450,175,973
Currency Futures Contracts:
Commitments to purchase -- 29,926,525
Commitments to sell 73,792,487 22,716,988
Other Futures Contracts:
Commitments to purchase 8,515,329 2,666,083
Commitments to sell 18,804,634 15,300,056
Currency Forward Contracts:
Commitments to purchase 3,426,055 464,787
Commitments to sell 29,612,358 7,297,275
</TABLE>
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or forward contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the value of the contracts. As such, the
Trust considers the 'fair value' of its futures and forward contracts to be the
net unrealized gain or loss on the contracts. Thus, the amount at risk
associated with counterparty nonperformance of all contracts is the net
unrealized gain included in the statements of financial condition. The market
risk associated with the Trust's commitments to purchase commodities is limited
to the gross contract amounts involved, while the market risk associated with
its commitments to sell is unlimited since the Trust's potential involvement is
to make delivery of an underlying commodity at the contract price; therefore, it
must repurchase the contract at prevailing market prices.
The following table presents the average fair value of futures and forward
contracts during the six months ended June 30, 1999 and the related fair value
at June 30, 1999:
<TABLE>
<CAPTION>
Average Fair Value Fair Value
------------------------------------- -------------------------------------
Assets Liabilities Assets Liabilities
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 390,184 $ 135,499 $ 678,565 $ 57,025
Currencies 899,684 149,001 390,264 83,650
Other 541,338 198,257 1,083,122 149,580
Foreign exchanges
Financial 3,026,749 285,904 2,583,119 36,004
Other 107,222 45,349 124,714 114,931
Forward Contracts:
Currencies 747,900 210,537 272,020 115,948
----------------- ----------------- ----------------- -----------------
$ 5,713,077 $ 1,024,547 $ 5,131,804 $ 557,138
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>
134
<PAGE>
The following table presents the average fair value of futures and forward
contracts during the year ended December 31, 1998 and the related fair value at
December 31, 1998:
<TABLE>
<CAPTION>
Average Fair Value Fair Value
------------------------------------- -------------------------------------
Assets Liabilities Assets Liabilities
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 744,665 $ 152,149 $ 59,531 $ 607,294
Currencies 74,591 21,197 969,688 187,500
Other 832,436 231,205 589,283 134,120
Foreign exchanges
Financial 2,557,314 319,871 5,991,154 385,014
Other 74,156 26,229 114,259 11,014
Forward Contracts:
Currencies 1,813,641 1,709,484 5,365 207,126
----------------- ----------------- ----------------- -----------------
$ 6,096,803 $ 2,460,135 $ 7,729,280 $ 1,532,068
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>
135
<PAGE>
OTHER INFORMATION
Year 2000 Risk
Investment funds, like financial and business organizations and individuals
around the world, depend on the smooth functioning of computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way in which dates are encoded. This is
commonly known as the 'Year 2000 Problem.' The Trust could be adversely affected
if computer systems used by it or any third party with whom it has a material
relationship do not properly perform date comparisons and calculations
concerning dates on or after January 1, 2000, which in turn could have a
negative impact on the handling or determination of trades and prices and the
services provided to the Trust.
The Trust has engaged third parties to perform primarily all of the services
it needs. Accordingly, the Trust's Year 2000 Problems, if any, are not its own
but those that center on the ability of the Managing Owner, Prudential
Securities Incorporated, its Trading Manager and any other third party with whom
the Trust has a material relationship (individually, a 'Service Provider,' and
collectively, the 'Service Providers') to address and correct problems that may
cause their systems not to function as intended as a result of the Year 2000
Problem.
The Trust has received assurances from its Managing Owner and Prudential
Securities Incorporated that they anticipate being able to continue their
operations without any material adverse impact from the Year 2000 Problem.
Although other Service Providers, such as the Trust's Trading Manager, have not
made similar representations to the Trust, the Trust has no reason to believe
that these Service Providers will not take steps necessary to avoid any material
adverse impact on the Trust, though there can be no assurance that this will be
the case. The costs or consequences of incomplete or untimely resolution of the
Year 2000 Problem by the Service Providers, or by governments, exchanges,
clearinghouses, regulators, banks and other third parties, are unknown to the
Trust at this time, but could have a material adverse impact on the operations
of Trust. The Managing Owner will promptly notify the Trust's limited owners in
the event it determines that the Year 2000 Problem will have a material adverse
impact on the Trust's operations.
The Trust has considered various alternatives as a contingency plan. If the
Year 2000 Problems are systemic, for example, the federal government, the
banking system, exchanges or utilities are affected materially, there may be no
adequate contingency plan for the Trust to follow other than to suspend
operations. If the Year 2000 Problems are related to one or more of the other
Service Providers selected by the Trust, the Trust believes that each such
Service Provider is prepared to address any Year 2000 Problems which arise that
could have a material adverse impact on the Trust's operations.
135
<PAGE>
WORLD MONITOR TRUST II
The date of this prospectus is September 15, 1999.
The Trust will file annual, quarterly and current
reports and other information with the SEC. You
may read and copy any reports, statements or other
information we file at the SEC's public reference
room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee,
by writing the SEC. Please call the SEC at 1-800-
SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings are
also available to the public on the SEC's internet
site at www.sec.gov.
(PRUDENTIAL SECURITIES LOGO)
<PAGE>
EXHIBIT A
FIRST AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST II
Dated as of May 15, 1999
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. . . . . . . . . . . 7
SECTION 1.6 Tax Treatment. . . . . . . . . . . . . . 8
SECTION 1.7 General Liability of the Managing Owner. 8
SECTION 1.8 Legal Title. . . . . . . . . . . . . . . 9
SECTION 1.9 Series Trust. . . . . . . . . . . . . . 9
ARTICLE II
THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.1 Term; Resignation. . . . . . . . . . . . 9
SECTION 2.2 Powers . . . . . . . . . . . . . . . . . 10
SECTION 2.3 Compensation and Expenses of the Trustee 10
SECTION 2.4 Indemnification . . . . . . . . . . . . 10
SECTION 2.5 Successor Trustee. . . . . . . . . . . . 10
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. . . . . . . . . . . . . . . . 14
SECTION 3.2 Establishment of Series of Interests.. 14
SECTION 3.3 Establishment of Classes. . . . . . . 14
SECTION 3.4 Limited Interests. . . . . . . . . . . 14
SECTION 3.5 Assets of Series. . . . . . . . . . . 22
SECTION 3.6 Liabilities of Series. . . . . . . . . 22
SECTION 3.7 Dividends and Distributions. . . . . . . 24
SECTION 3.8 Voting Rights. . . . . . . . . . . . . . 25
SECTION 3.9 Equality . . . . . . . . . . . . . . . . 25
SECTION 3.10 Exchange of Interests . . . . . . . . . 25
(i)
<PAGE>
ARTICLE IV
THE MANAGING OWNER . . . . . . . . . . . . . . . . . . 26
SECTION 4.1 Management of the Trust. . . . . . . . 26
SECTION 4.2 Authority of Managing Owner. . . . . . 29
SECTION 4.3 Obligations of the Managing Owner. . . 29
SECTION 4.4 General Prohibitions . . . . . . . . . 31
SECTION 4.5 Liability of Covered Persons . . . . . 32
SECTION 4.6 Indemnification of the Managing Owner. 32
SECTION 4.7 Expenses and Limitations Thereon . . . 34
SECTION 4.8 Compensation to the Managing Owner . . 35
SECTION 4.9 Other Business of Interestholders. . . 35
SECTION 4.10 Voluntary Withdrawal of the Managing
Owner. . . . . . . . . . . . . . . . . . . 35
SECTION 4.11 Authorization of Registration
Statements . . . . . . . . . . . . . . . . 35
SECTION 4.12 Litigation. . . . . . . . . . . . . . 36
ARTICLE V
TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . 36
SECTION 5.1 General Prohibition. . . . . . . . . . 36
SECTION 5.2 Transfer of Managing Owner's General
Interests. . . . . . . . . . . . . . . . . 36
SECTION 5.3 Transfer of Limited Interests. . . . . 37
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS . . . . . . . . . . . . . 40
SECTION 6.1 Capital Accounts . . . . . . . . . . . 40
SECTION 6.2 Weekly Allocations . . . . . . . . .. 40
SECTION 6.3 Allocation of Profit and Loss for United
States Federal Income
Tax Purposes. . . . . . . . . . . . . . . 41
SECTION 6.4 Allocation of Distributions. . . . . . 42
SECTION 6.5 Admissions of Interestholders; Transfers42
SECTION 6.6 Liability for State and Local and Other
Taxes. . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.1 Redemption of Interests. . . . . . . . 43
SECTION 7.2 Redemption by the Managing Owner . .. 45
SECTION 7.3 Redemption Fee . . . . . . . . . . . 45
SECTION 7.4 Exchange of Interests. . . . . . . . 45
(ii)
<PAGE>
ARTICLE VIII
THE LIMITED OWNERS . . . . . . . . . . . . . . . . . . 45
SECTION 8.1 No Management or Control; Limited
Liability. . . . . . . . . . . . . . . . . 45
SECTION 8.2 Rights and Duties. . . . . . . . . . . 46
SECTION 8.3 Limitation on Liability. . . . . . . . 47
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS . . . . . . . . . . . . . 48
SECTION 9.1 Books of Account . . . . . . . . . . . 48
SECTION 9.2 Annual Reports and Monthly Statements. 48
SECTION 9.3 Tax Information. . . . . . . . . . . . 48
SECTION 9.4 Calculation of Net Asset Value of a
Series . . . . . . . . . . . . . . . . . 48
SECTION 9.5 Other Reports. . . . . . . . . . . . . 48
SECTION 9.6 Maintenance of Records . . . . . . . . 49
SECTION 9.7 Certificate of Trust . . . . . . . . . 49
SECTION 9.8 Registration of Interests. . . . . . . 49
ARTICLE X
FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.1 Fiscal Year . . . . . . . . . . . . . 49
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS . . . . . . . . 50
SECTION 11.1 Amendments to the Trust Agreement . . 50
SECTION 11.2 Meetings of the Trust . . . . . . . . 51
SECTION 11.3 Action Without a Meeting. . . . . . . 52
ARTICLE XII
TERM . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 12.1 Term. . . . . . . . . . . . . . . . . 52
ARTICLE XIII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . 52
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. . . . . . . . . . . . 52
SECTION 13.2 Distributions on Dissolution. . . . . 54
SECTION 13.3 Termination; Certificate of
Cancellation . . . . . . . . . . . . . . 54
(iii)
<PAGE>
ARTICLE XIV
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 55
SECTION 14.1 Power of Attorney Executed Concurrently55
SECTION 14.2 Effect of Power of Attorney . . . . . 55
SECTION 14.3 Limitation on Power of Attorney . . . 56
ARTICLE XV
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 15.1 Governing Law . . . . . . . . . . . . . 56
SECTION 15.2 Provisions In Conflict With Law or
Regulations. . . . . . . . . . . . . . . . 57
SECTION 15.3 Construction. . . . . . . . . . . . . 57
SECTION 15.4 Notices . . . . . . . . . . . . . . . 57
SECTION 15.5 Counterparts. . . . . . . . . . . . . 57
SECTION 15.6 Binding Nature of Trust Agreement . . 57
SECTION 15.7 No Legal Title to Trust Estate. . . . 58
SECTION 15.8 Creditors . . . . . . . . . . . . . . 58
SECTION 15.9 Integration . . . . . . . . . . . . . 58
EXHIBIT A
CERTIFICATE OF TRUST
OF WORLD MONITOR TRUST II . . . . . . . . . . . . . . . 60
(iv)
<PAGE>
WORLD MONITOR TRUST II
FIRST AMENDED AND RESTATED DECLARATION OF TRUST AND TRUST
AGREEMENT
This FIRST AMENDED AND RESTATED DECLARATION OF TRUST AND
TRUST AGREEMENT of WORLD MONITOR TRUST II ("Trust Agreement")
is made and entered into as of the 15th day of May,
1999, 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 April 22, 1999 (the
"Initial Trust Agreement");
WHEREAS, the parties hereto desire to amend
certain provisions of the Initial 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.
"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.
<PAGE>
"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 3.4(f) are sold.
"Corporate Trust Office" means the principal office at
which at any particular time the corporate trust business
of the Trustee is administered, which office at the date
hereof is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate
Trust Administration.
"Dealing Day" shall have the meaning set forth in the
Prospectus.
"Disposition Gain" means, for each Fiscal Year of the
Trust, the Series' aggregate recognized gain (including the
portion thereof, if any, treated as ordinary income)
resulting from each disposition of Series assets during
such Fiscal Year with respect to which gain or loss is
recognized for federal income tax purposes, including,
without limitation, any gain or loss required to be
recognized by the Series for federal 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
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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 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.
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"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 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.
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(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 meaining
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).
"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
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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 Bridgewater Associates,
Inc. for the Series D Interests, Graham Capital
Management, Inc., for the Series E Interests, and Campbell
& Company, Inc. for the Series F 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 II formed pursuant
to this Trust Agreement.
"Trust Agreement" means this Declaration of Trust and
Trust Agreement as the same may at any time or from time to
time be amended.
"Trustee" means Wilmington Trust Company or any
substitute therefor as provided herein, acting not in its
individual capacity but solely as trustee of the Trust.
"Trust Estate" means, with respect to a Series, any
cash, commodity futures, forward and option contracts, all
funds on deposit in the Series' accounts, and any other
property held by the Series, and all proceeds therefrom,
including any rights of the Series pursuant to any
Subscription Agreement and any other agreements to which
the Trust or a Series thereof is a party.
"Valuation Date" means the date as of which the Net
Asset Value of a Series is determined.
"Valuation Period" means a regular period of time
between Valuation Dates.
"Valuation Point" shall have the meaning set forth in
the Prospectus.
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SECTION 1.2 Name.
The name of the Trust is "World Monitor Trust II"
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 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
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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 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
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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 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
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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
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
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outgoing Trustee. Any successor Trustee must satisfy
the requirements of Section 3807 of the Business Trust
Statute. Any resignation or removal of the Trustee and
appointment of a successor Trustee shall not become
effective until a written acceptance of appointment is
delivered by the successor Trustee to the outgoing Trustee
and the Managing Owner and any fees and expenses due to the
outgoing Trustee are paid. Following compliance with the
preceding sentence, the successor Trustee shall become
fully vested with all of the rights, powers, duties and
obligations of the outgoing Trustee under this Trust
Agreement, with like effect as if originally named as
Trustee, and the outgoing Trustee shall be discharged of
its duties and obligations under this Trust Agreement.
SECTION 2.6 Liability of Trustee. Except as
otherwise provided in this Article II, in accepting the
trust created hereby, Wilmington Trust Company acts solely
as Trustee hereunder and not in its individual capacity,
and all Persons having any claim against the Trustee by
reason of the transactions contemplated by this Trust
Agreement and any other agreement to which the Trust is a
party shall look only to the Trust Estate in accordance
with Section 3.6 hereof for payment or satisfaction
thereof; provided, however, that in no event is the
foregoing intended to affect or limit the liability of the
Managing Owner as set forth in Section 1.7 hereof. The
Trustee shall not be liable or accountable hereunder or
under any other agreement to which
the Trust is a party, except for its own gross
negligence or willful misconduct.
In particular, but not by way of limitation:
(a) The Trustee shall have no liability or
responsibility for the validity or sufficiency of this
Trust Agreement or for the form, character, genuineness,
sufficiency, value or validity of the Trust Estate;
(b) The Trustee shall not be liable for any
actions taken or omitted to be taken by it in accordance
with the instructions of the Managing Owner;
(c) The Trustee shall not have any liability for
the acts or omissions of the Managing Owner;
(d) The Trustee shall not be liable for its
failure to supervise the performance of any obligations of
the Managing Owner, any commodity broker, selling agent or
any Trading Advisor(s);
(e) No provision of this Trust Agreement shall
require the Trustee to expend or risk funds or otherwise
incur any financial liability in the performance 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,
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order or direction of the Managing Owner or any
Interestholders unless the Managing Owner or such
Interestholders have offered to the Trustee security or
indemnity satisfactory to it against the costs, expenses
and liabilities that may be incurred by the Trustee
(including, without limitation, the reasonable fees and
expenses of its counsel) therein or thereby; and
(h) Notwithstanding anything contained herein to
the contrary, the Trustee shall not be required to take any
action in any jurisdiction other than in the State of
Delaware if the taking of such action will (i) require the
consent or approval or authorization or order of or the
giving of notice to, or the registration with or taking of
any action in respect of, any state or other governmental
authority or agency of any jurisdiction other than the
State of Delaware, (ii) result in any fee, tax or other
governmental charge under the laws of any jurisdiction or
any political subdivision thereof in existence as of the
date hereof other than the State of Delaware becoming
payable by the Trustee or (iii) subject the Trustee to
personal jurisdiction, other than
in the State of Delaware, for causes of action arising
from personal acts unrelated
to the consummation of the transactions by the Trustee, as
the case may be, contemplated hereby.
SECTION 2.7 Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may
conclusively rely upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this
Trust Agreement in determining the truth of the statements
and the correctness of the opinions contained therein, and
shall incur no liability to anyone in acting on any
signature, instrument, notice, resolutions, request,
consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed
by it to be signed by the proper party or parties and need
not investigate any fact or matter pertaining to or in any
such document; provided, however, that the Trustee shall
have examined any certificates or opinions so as to
determine compliance of the same with the requirements of
this Trust Agreement. The Trustee may accept a certified
copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such
body and that the same is in full force and 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.
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ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS
SECTION 3.1 General.
(a) The Managing Owner shall have the power and
authority, without Limited Owner approval, to issue
Interests in one or more Series from time to time as it
deems necessary or desirable. Each Series shall be
separate from all other Series in respect of the assets and
liabilities allocated to that Series and shall represent a
separate investment portfolio of the Trust. The Managing
Owner shall have exclusive power without the requirement of
Limited Owner approval to establish and designate such
separate and distinct Series, as set forth in Section 3.2,
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 3.3. 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 3.4, 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 3.4. During the
Continuous Offering Period, if any, the Managing
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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 3.4 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.
(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 Establishment of Series of Interests.
(a) Without limiting the authority of the Managing
Owner set forth in Section 3.2(b) to establish and designate any
further Series, the Managing Owner hereby establishes and designates
three initial Series, as follows:
Series D, Series E, and Series F
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 3.2(b).
(b) The establishment and designation of any Series of
Interest 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.
SECTION 3.3 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 3.4 Limited Interests.
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(a) Offer of Series D Limited Interests.
(i) Series D 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 D
Limited Interest, a maximum of 500,000 Limited
Interests ($50,000,000). 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
50,000 Series D Interests. In the event that at least
50,000 Series D Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series D 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 D 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 D of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series D Interests, as soon as practicable
after the termination of the Series D Initial Offering
Period. Such accepted subscribers will be deemed
Series D Limited Owners at such time as such admission
is reflected on the books and records of Series D of
the Trust.
(iii) Paid-In Capital if at least 50,000
Series D Interests Are Sold. In the event that at
least 50,000 Series D Limited Interests are sold
during the Initial Offering Period, Series D shall
have paid-in capital of not less than $5,050,500
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.4(a)(v) hereof).
(iv) Effect of the Sale of Less than
50,000 Series D Interests. In the event that at least
50,000 Series D Limited Interests are not sold during
the Initial Offering Period for the Series D
Interests, all proceeds of the sale of Series D
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 D Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series D.
(v) Managing Owner's Required Contribution.
In the event that 50,000 or more of the Series D
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series D Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series D an amount, which, when added to the total
contributions to Series D by all Series D
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $50,500
(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 D an amount not less than 1.01% of any
additional Capital
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<PAGE>
Contributions received from the
Series D Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series D Initial
or Continuous Offering Periods. The Managing Owner
will receive Series D General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series D Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series D 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 D) in each material item of Series D 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 D Limited Interests
After Initial Offering Period. In the event that
50,000 or more of the Series D Limited Interests are
sold during the Initial Offering Period for the
Series D Interests, the Trust may continue to offer
Series D Limited Interests and admit additional Series
D Limited Owners and/or accept additional
contributions from existing Series D Limited Owners
pursuant to the Prospectus.
Each additional Capital Contribution to
Series D during the Series D Continuous Offering
Period by an existing Series D Limited Owner must be
in a denomination which is an even multiple of $100.
During the Series D Continuous Offering Period, each
newly admitted Series D Limited Owner, and each
existing Series D Limited Owner that makes an
additional Capital Contribution to Series D, shall
receive Series D Limited Interests in an amount equal
to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the
Series D Net Asset Value per Series per Interest
calculated as of the Valuation Point immediately prior
to the Dealing Day on which such Capital Contribution
will become effective.
A Subscriber (including existing Series D
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 D Interests shall be admitted to the
Trust and deemed a Series D 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 D Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series D 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
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<PAGE>
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 D Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Chase Manhattan
Bank, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series D Interests.
In the event subscriptions for at least 50,000 of the
Series D Interests are received and accepted during
the Initial Offering for the Series D Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series D Limited Interests
during its Initial Offering Period will be
contributed to Series D, for which the Series D
Limited Owners will receive additional Series D
Interests on a pro rata basis (taking into account
time and amount of deposit).
(ix) Optional Purchase of Series D
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 D Limited Interests and will be
treated as Series D Limited Owners with respect to
such Interests. In addition to the Series D Interests
required to be purchased by the Managing Owner under
Section 3.4(a)(v), the Managing Owner also may
purchase any number of Series D Limited Interests as
it determines in its discretion.
(b) Offer of Series E Limited Interests.
(i) Series E 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 E
Limited Interest, a maximum of 500,000 Series E
Limited Interests ($50,000,000). 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 E
Limited Interests as it deems appropriate.
(ii) Effect of the Sale of at least
50,000 Series E Interests. In the event that at least
50,000 Series E Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series E 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 E 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 E of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series E Interests, as soon as practicable
after the termination of the Series E Initial Offering
Period. Such accepted subscribers will be deemed
Series E Limited Owners at such time as such admission
is reflected on the books and records of Series E of
the Trust.
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<PAGE>
(iii) Paid-In Capital if at least 50,000
Series E Interests Are Sold. In the event that at
least 50,000 Series E Limited Interests are sold
during the Initial Offering Period, Series E shall
have paid-in capital of not less than $5,050,500
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.4(b)(v) hereof).
(iv) Effect of the Sale of Less than
50,000 Series E Interests. In the event that at least
50,000 Series E Limited Interests are not sold during
the Initial Offering Period for the Series E
Interests, all proceeds of the sale of Series E
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 E Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series E.
(v) Managing Owner's Required Contribution.
In the event that 50,000 or more of the Series E
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series E Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series E an amount, which, when added to the total
contributions to Series E by all Series E
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $50,500
(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 E an amount not less than 1.01% of any
additional Capital Contributions received from the
Series E Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series E Initial
or Continuous Offering Periods. The Managing Owner
will receive Series E General Interests as provided in
Section 3.1(b). The Managing Owner shall, with
respect to any Series E Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series E 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 E) in each material item of Series E 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 E Limited Interests
After Initial Offering Period. In the event that
50,000 or more of the Series E Limited Interests are
sold during the Initial Offering Period for the
Series E Interests, the Trust may continue to offer
Series E Limited Interests and admit additional Series
E Limited Owners and/or accept additional
contributions from existing Series E Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series E during the Series E Continuous Offering
Period by an existing Series E Limited Owner must be
in a denomination which is an even multiple of $100.
During Series E Continuous Offering
A-18
<PAGE>
Period, each newly
admitted Series E Limited Owner, and each existing
Series E Limited Owner that makes an additional
Capital Contribution to Series E, shall receive Series
E Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series E 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 E
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 E Interests shall be admitted to the
Trust and deemed a Series E 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 E Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series E 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 E Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Chase Manhattan
Bank, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series E Interests.
In the event subscriptions for at least 50,000 of the
Series E Interests are received and accepted during
the Initial Offering for the Series E Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series E Limited Interests
during its Initial Offering Period will be
contributed to Series E, for which the Series E
Limited Owners will receive additional Series E
Interests on a pro rata basis (taking into account
time and amount of deposit) .
(ix) Optional Purchase of Series E
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 E Limited Interests and will be
treated as Series E Limited Owners with respect to
such Interests. In addition to the Series E Interests
required to be purchased by the Managing Owner under
Section 3.4(b)(v), the Managing Owner also may
purchase any number of Series E Limited Interests as
it determines in its discretion.
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<PAGE>
(c) Offer of Series F Limited Interests.
(i) Series F 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 F
Limited Interest, a maximum of 500,000 Series F
Limited Interests ($50,000,000). 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
50,000 Series F Interests. In the event that at least
50,000 Series F Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series F 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 F 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 F of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series F Interests, as soon as practicable
after the termination of the Series F Initial Offering
Period. Such accepted subscribers will be deemed
Series F Limited Owners at such time as such admission
is reflected on the books and records of Series F of
the Trust.
(iii) Paid-In Capital if at least 50,000
Series F Interests Are Sold. In the event that at
least 50,000 Series F Limited Interests are sold
during the Initial Offering Period, Series F shall
have paid-in capital of not less than $5,050,500
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.4(c)(v) hereof).
(iv) Effect of the Sale of Less than
50,000 Series F Interests. In the event that at least
50,000 Series F Limited Interests are not sold during
the Initial Offering Period for the Series F
Interests, all proceeds of the sale of Series F
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 F Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series F.
(v) Managing Owner's Required Contribution.
In the event that 50,000 or more of the Series F
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series F Interests, the Managing Owner shall be
required to contribute in cash to the capital of
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<PAGE>
Series F an amount, which, when added to the total
contributions to Series F by all Series F
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $50,500
(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 F an amount not less than 1.01% of any
additional Capital Contributions received from the
Series F Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series F Initial
or Continuous Offering Periods. The Managing Owner
will receive Series F General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series F Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series F 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 F) in each material item of Series F 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 F Limited Interests
After Initial Offering Period. In the event that
50,000 or more of the Series F Limited Interests are
sold during the Initial Offering Period for the
Series F Interests, the Trust may continue to offer
Series F Limited Interests and admit additional Series
F Limited Owners and/or accept additional
contributions from existing Series F Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series F during the Series F Continuous Offering
Period by an existing Series F Limited Owner must be
in a denomination which is an even multiple of $100.
During Series F Continuous Offering Period, each newly
admitted Series F Limited Owner, and each existing
Series F Limited Owner that makes an additional
Capital Contribution to Series F, shall receive Series
F Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series F 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 F
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 F Interests shall be admitted to the
Trust and deemed a Series F 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 F Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series F 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
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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 F Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Chase Manhattan
Bank, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series F Interests.
In the event subscriptions for at least 50,000 of the
Series F Interests are received and accepted during
the Initial Offering for the Series F Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series F Limited Interests
during its Initial Offering Period will be
contributed to the Series F, for which the Series F
Limited Owners will receive additional Series F
Interests on a pro rata basis (taking into account
time and amount of deposit) .
(ix) Optional Purchase of Series F
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 F Limited Interests and will be
treated as Series F Limited Owners with respect to
such Interests. In addition to the Series F Interests
required to be purchased by the Managing Owner under
Section 3.4(c)(v), the Managing Owner also may
purchase any number of Series F 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 3.5 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.
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(a) The Trust Estate belonging to each particular
Series shall be charged with the liabilities of the Trust
in respect of that Series and only that Series; and all
expenses, costs, charges and reserves attributable to that
Series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series, shall
be allocated and charged by the Managing Owner to and among
any one or more of the Series Established and designated
from time to time in such manner and on such basis as the
Managing Owner in its sole discretion deems fair and
equitable. Each allocation of liabilities, expenses,
costs, charges and reserves by the Managing Owner shall be
conclusive and binding upon all Interestholders for all
purposes. The Managing Owner shall have full discretion,
to the extent not inconsistent with applicable law, to
determine which items shall be treated as income and which
items as capital, and each such determination and
allocation shall be conclusive and binding upon the
Interestholders. Every written agreement, instrument or
other undertaking made or 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) (1) 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
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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;
(i) 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;
(ii) 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;
(iii) 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
(iv) 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
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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 Series or in the case of a class,
belonging to such Series and allocable to such class. Each
Interestholder in a Series or a class shall be entitled to
receive its pro rata share of distributions of income and
capital gains made with respect to such Series or such
class. Upon reduction or withdrawal of its Interests or
indemnification for liabilities incurred by reason of being
or having been a holder of Interests in a Series or a
class, such Interestholder shall be paid solely out of the
funds and property of such Series or in the case of a
class, the funds and property of such Series and allocable
to such class of the Trust. Upon liquidation or
termination of a Series of the Trust, Interestholders in
such Series or class shall be entitled to receive a pro
rata share of the Trust Estate belonging to such Series or
in the case of a class, belonging to such Series and
allocable to such class.
SECTION 3.8 Voting Rights. Notwithstanding any other
provision hereof, on each matter submitted to a vote of the
Interestholders of a Series, each Interestholder shall be
entitled to a proportionate vote based upon the product of
the Net Asset Value of a Series per Interest multiplied by
the number of Interests, or fraction thereof, standing in
its name on the books of such Series. As to any matter
which affects the Interests of more than one Series, the
Interestholders of each affected Series shall be entitled
to vote, and each such Series shall vote as a separate
class.
SECTION 3.9 Equality. Except as provided herein or
in the instrument designating and establishing any class or
Series, all Interests of each particular Series shall
represent an equal proportionate beneficial interest in the
assets belonging to that Series subject to the liabilities
belonging to that Series, and each Interest of any
particular Series or classes shall be equal to each other
Interest of that Series or class; but the provisions of
this sentence shall not restrict any distinctions
permissible under Section 3.7 that may exist with respect
to dividends and distributions on Interests of the same
Series or class. The Managing Owner may from time to time
divide or combine the Interests of any particular Series or
class into a greater or lesser number of Interests of that
Series or class without thereby changing the proportionate
beneficial interest in the assets belonging to that Series
or in any way affecting the rights of Interestholders of
any other Series or class.
SECTION 3.10 Exchange of Interests. Subject to
compliance with the requirements of applicable law, the
Managing Owner shall have the authority to provide that
Interestholders of any Series shall have the right to
exchange said Interests into one or more other Series in
accordance with such requirements and procedures as may be
established by the Managing Owner. The Managing Owner
shall also have the authority to provide that
Interestholders of any class of a particular Series shall
have the right to exchange said Interests into one or more
other classes of that particular Series or any other Series
in accordance with such requirements and procedures as may
be established by the Managing Owner.
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ARTICLE IV
THE MANAGING OWNER
SECTION 4.1 Management of the Trust. Pursuant to
Section 3806 of the Business Trust Statute, the Trust shall
be managed by the Managing Owner and the conduct of the
Trust's business shall be controlled and conducted solely
by the Managing Owner in accordance with this Trust
Agreement.
SECTION 4.2 Authority of Managing Owner. In addition
to and not in limitation of any rights and powers conferred
by law or other provisions of this Trust Agreement, and
except as limited, restricted or prohibited by the express
provisions of this Trust Agreement or the Business Trust
Statute, the Managing Owner shall have and may exercise on
behalf of the Trust or any Series in the Trust, all powers
and rights necessary, proper, convenient or advisable to
effectuate and carry out the purposes, business and
objectives of the Trust, which shall include, without
limitation, the following:
(a) To enter into, execute, deliver and maintain
contracts, agreements and any or all other documents and
instruments, and to do and perform all such things, as may
be in furtherance of Trust purposes or necessary or
appropriate for the offer and sale of the Interests and the
conduct of Trust activities, including, but not limited to,
contracts with third parties for:
(i) commodity brokerage services,
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 May 15, 1999; 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 plus administrative
expenses set forth in the first proviso to
(B) below below 6% of a
Series' Net Asset Value, Incentive Fees
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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
notwithstanding any other provision of this
Agreement, 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, third party legal and audit charges 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 May 15, 1999;
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 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
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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 50%) of the
outstanding Interests of all Series (not including
Interests owned by the Managing Owner) is not obtained;
(j) To override any trading instructions: (i)
that the Managing Owner, in its sole discretion, determines
in good faith to be in violation of any trading policy or
limitation of the Trust, including as set forth in Section
4.2(k) below; (ii) as and to the extent necessary, upon the
failure of any Trading Advisor to comply with a request to
make the necessary amount of funds available to the Trust
within five (5) days of such request, to fund
distributions, redemptions (including special redemptions),
or reapportionments among Trading Advisors or to pay the
expenses of any Series in the Trust; and provided further,
that the Managing Owner may make Commodities trading
decisions at any time at which any Trading Advisor shall
become incapacitated or some other emergency shall arise as
a result of which such Trading Advisor shall be unable or
unwilling to act and a successor Trading Advisor has not
yet been retained;
(k) Monitor the trading activities of the Trading
Advisor so that:
(i) Any Series does not establish new
Commodities positions for any one contract month or
option if such additional Commodities positions would
result in a net long or short position for that
Commodities position requiring as margin or premium
more than fifteen percent (15%) of the Trust Estate of
a Series.
(ii) Any Series does not acquire
additional Commodities positions in any commodities
interest contract or option if such additional
Commodities positions would result in the aggregate
net long or short Commodities positions requiring as
margin or premium for all outstanding Commodities
positions more than sixty-six and two-thirds percent
(66 2/3%) of the Trust Estate of a Series. Under
certain market conditions, such as an abrupt increase
in margins required by a commodity exchange or its
clearinghouse or an inability to liquidate open
Commodities positions because of daily price
fluctuation limits or both, a Series may be required
to commit as margin in excess of the foregoing limit.
In such event the Managing Owner will cause each
Trading Advisor to reduce its open futures or options
positions to comply with the foregoing limit before
initiating new Commodities positions.
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SECTION 4.3 Obligations of the Managing Owner. In
addition to the obligations expressly provided by the
Business Trust Statute or this Trust Agreement, the
Managing Owner shall:
(a) Devote such of its time to the business and
affairs of the Trust as it shall, in its discretion
exercised in good faith, determine to be necessary to
conduct the business and affairs of the Trust for the
benefit of the Trust and the Limited Owners;
(b) Execute, file, record and/or publish all
certificates, statements and other documents and do any and
all other things as may be appropriate for the formation,
qualification and operation of the Trust and each Series of
the Trust and for the conduct of its business in all
appropriate jurisdictions;
(c) Retain independent public accountants to
audit the accounts of each Series in the Trust;
(d) Employ attorneys to represent the Trust or a
Series thereof;
(e) Use its best efforts to maintain the status
of the Trust as a "business trust" for state law purposes,
and of each Series of the Trust as a "partnership" for
federal income tax purposes;
(f) Monitor the trading policies and limitations
of each Series, as set forth in the Prospectus, and the
activities of the Trust's Trading Advisor(s) in carrying
out those policies in compliance with the Prospectus;
(g) Monitor the brokerage fees charged to each
Series, and the services rendered by futures commission
merchants to each Series, to determine whether the fees
paid by, and the services rendered to, each Series for
futures brokerage are at competitive rates and are the best
price and services available under the circumstances, and
if necessary, renegotiate the brokerage fee structure to
obtain such rates and services for each Series. In making
this determination the Managing Owner shall not rely solely
on the brokerage rates paid by other major commodity pools.
No material change related to brokerage fees shall be made
except upon (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
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Managing Owner shall at all times act
with integrity and good faith and exercise due diligence in
all activities relating to the conduct of the business of
each Series and in resolving conflicts of interest. The
Trust shall not permit any Limited Owner to contract away
the fiduciary duty owed to the Limited Owners by the
Managing Owner under this Agreement or the Delaware
Business Trust Act. To the extent that, at law or in
equity, the Managing Owner or any officer, director,
employee or agent thereof or any Affiliate of the Managing
Owner (collectively, the "Covered Persons"), has duties
(including fiduciary duties) and liabilities relating
thereto to any Series, any other Interestholder or Covered
Person or the Trustee, such Covered Person acting under the
Trust Agreement shall not be liable to the Series, any
other Interestholder or Covered Person or the Trustee for
such Covered Person's good faith reliance on the provisions
of the Trust Agreement; and the duties and liabilities of
such Covered Person may be expanded or restricted by the
provisions of this Trust Agreement.
(i) Agree that, at all times from and after the
sale of at least the Subscription Minimum (as defined in
the Prospectus), for so long as it remains a Managing Owner
of the Trust, it shall have a minimum "net worth" (as
defined below) 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 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 3.4 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.
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(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
(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;
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(f) Permit rebates to be received by the Managing
Owner or any Affiliate of the Managing Owner, or permit the
Managing Owner or any Affiliate of the Managing Owner to
engage in any reciprocal business arrangements which would
circumvent the foregoing prohibition;
(g) Permit the Trading Advisor(s) to share in any
portion of brokerage fees related to commodity brokerage
services paid by a Series with respect to its commodity
trading activities;
(h) Enter into any contract with the Managing
Owner or an Affiliate of the Managing Owner (except for
selling agreements for the sale of Interests) (i) which has
a term of more than one year and which does not provide
that it may be canceled by the Trust without penalty on
sixty (60) days prior written notice or (ii) for the
provision of goods and services, except at rates and terms
at least as favorable as those which may be obtained from
third parties in arms-length negotiations;
(i) Permit churning of its Commodity trading
account(s) for the purpose of generating excess brokerage
commissions;
(j) Enter into any exclusive brokerage contract;
and
(k) Operate the Trust in any manner so as to
contravene section 3804 of the Business Trust Statute.
SECTION 4.5 Liability of Covered Persons. A Covered
Person shall have no liability to the Trust or to any
Interestholder or other Covered Person for any loss
suffered by the Trust which arises out of any action or
inaction of such Covered Person if such Covered Person, in
good faith, determined that such course of conduct was in
the best interest of the Trust and such course of conduct
did not constitute negligence or misconduct of such Covered
Person. Subject to the foregoing, neither the Managing
Owner nor any other Covered Person shall be personally
liable for the return or repayment of all or any portion of
the capital or profits of any Limited Owner or assignee
thereof, it being expressly agreed that any such return of
capital or profits made pursuant to this Trust Agreement
shall be made solely from the assets of the Trust without
any rights of contribution from the Managing Owner or any
other Covered Person.
SECTION 4.6 Indemnification of the Managing Owner.
(a) The Managing Owner shall be indemnified by
the Trust or a Series thereof against any losses,
judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by it in connection with
its activities for a particular Series of the Trust,
provided that (i) the Managing Owner was acting on behalf
of or performing services for the relevant Series and has
determined, in good faith, that such course of conduct was
in the best interests of the Series and such liability
or loss was not the result of negligence, misconduct, or a
breach of this Trust Agreement on the 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
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U.S. Code by or against the Managing Owner. Any
indemnification under this Section 4.6(a), unless
ordered by a court, shall be made by the Trust
only as authorized in the specific case
and only upon a determination by independent legal counsel
in a written opinion that indemnification of the Managing
Owner is proper in the circumstances because it has met the
applicable standard of conduct set forth hereunder, it
being understood that the source of payments made in
respect of indemnification under this Trust Agreement shall
be the assets of each Series on a pro rata basis, as the
case may be.
(b) Notwithstanding the provisions of Section
4.6(a) above, the Managing Owner and any Person acting as
broker-dealer for each Series shall not be indemnified
for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws
unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law
violations as to the particular indemnitee and the court
approves the indemnification of such expenses (including,
without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs) or (iii)
a court of competent jurisdiction approves a settlement of
the claims against a particular indemnitee and finds that
indemnification of the settlement and related costs should
be made.
(c) In any claim for indemnification for federal
or state securities law violations, the party seeking
indemnification shall place before the court the position
of the Securities and Exchange Commission, the position of
the Massachusetts Securities Division, the Pennsylvania
Securities Commission, the Tennessee Securities Division
and the position of any other applicable state securities
division which requires disclosure with respect to the
issue of indemnification for securities law violations.
(d) The Trust shall not incur the cost of that
portion of any insurance which insures any party against
any liability, the indemnification of which is herein
prohibited.
(e) Expenses incurred in defending a threatened
or pending civil, administrative or criminal action suit or
proceeding against the Managing Owner shall be paid by the
Trust in advance of the final disposition of such action,
suit or proceeding, if (i) the legal action relates to the
performance of duties or services by the Managing Owner on
behalf of the Trust or a particular Series of the Trust;
(ii) the legal action is initiated by a third party who is
not a Limited Owner or the legal action is initiated by a
Limited Owner and a court of competent jurisdiction
specifically 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 and Limitations Thereon.
(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) Subject to Section 4.2(a), 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 and independent accountants; (v) routine accounting
and bookkeeping services, whether performed by an outside
service provider or by Affiliates of the Managing Owner;
(vi) postage and insurance; (vii) client relations
and services; (viii) computer equipment and system
maintenance; (ix) the fixed fee to be paid to
Prudential Securities Incorporated, the Trust's Commodity
Broker; (x) required payments to the Trust's Trading Advisors;
and (xi) extraordinary expenses (including, but not
limited to, legal claims and liabilities and
litigation costs and any indemnification
related thereto) shall be billed to and/or paid by the
appropriate Series of the Trust, subject to such
other limitations as are set forth herein concerning the
limitations on the Series' liability for the liabilities of
another Series. provided, however, the aggregate annual
expenses set forth in subsections 4.7(b)(i), (ii),
(iii), (iv), (v), (vi), (vii), and (viii), above
incurred by each Series, shall in no event exceed,
1.5% annually of
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the Net Asset Value of that Series.
Any expenses incurred by a Series in excess of this amount
is not the responsibility of that 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 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
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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
statute, 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 or
liquidator for itself or of all or any substantial part of
its properties.
(b) To the full extent permitted by law, nothing
in this Trust Agreement shall be deemed to prevent the
merger of the Managing Owner with another corporation, the
reorganization of the Managing Owner into or with any other
corporation, the transfer of all the capital stock of the
Managing Owner or the assumption of the Interests, rights,
duties and liabilities of the Managing Owner by, in the
case of a merger, reorganization or consolidation, the
surviving corporation by operation of law.
(c) Upon assignment of all of its Interests, the
Managing Owner shall not cease to be a Managing Owner of
the Trust, or to have the power to exercise any rights or
powers as a Managing Owner, or to have liability for the
obligations of the Trust under Section 1.7
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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 by the Managing Owner
(x) if the proposed assignee does not meet the
established suitability requirements, or (y)
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.
(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;
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(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 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
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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
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.
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(f) The Managing Owner, in its sole discretion,
may cause any Series to make, refrain from making, or once
having made, to revoke, the election referred to in Section
754 of the Code, and any similar election provided by state
or local law, or any similar provision enacted in lieu
thereof.
(g) The Managing Owner, in its sole discretion,
may cause any Series to make, refrain from making, or once
having made, to revoke the election by a qualified fund
under Section 988(c)(1)(E)(V), and any similar election
provided by state or local law, or any similar provision
enacted in lieu thereof.
(h) Each Limited Owner hereby agrees to indemnify
and hold harmless the Trust and each Interestholder against
any and all losses, damages, liabilities or expense
(including, without limitation, tax liabilities or loss of
tax benefits) arising, directly or indirectly, as a result
of any transfer or purported transfer by such Limited Owner
in violation of any provision contained in this Section
5.3.
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS
SECTION 6.1 Capital Accounts. A capital account
shall be established for each Interestholder on the books
of the Series in which an Interest is owned (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.
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SECTION 6.3 Allocation of Profit and Loss for United
States Federal Income Tax Purposes. As of the end of each
Fiscal Year of each Series, the Series' recognized profit
and loss shall be allocated among the Interestholders
pursuant to the following subparagraphs for federal income
tax purposes. Except as otherwise provided herein, such
allocations of profit and loss shall be pro rata from
Disposition Gain (or Disposition Loss) and Profits (or
Losses).
(a) First, the Profits or Losses of the Series
shall be allocated pro rata among the Interestholders based
on their respective book capital accounts as of the last
day of each week in which such Profits or Losses accrued.
(b) Next, Disposition Gain or Disposition Loss
from the Series' trading activities for each Fiscal Year of
the Trust shall be allocated among the Interestholders as
follows:
(i) There shall be established a tax capital
account with respect to each outstanding Interest.
The initial balance of each tax capital account shall
be the amount paid by the Interestholder to the
Series for the Interest. Tax capital accounts shall
be adjusted as of the end of each Fiscal Year as
follows: (A) Each tax capital account shall be
increased by the amount of income (Profits or
Disposition Gain) which shall have been allocated to
the Interestholder who shall hold the Interest
pursuant to Section 6.3(a) above and Sections
6.3(b)(ii) and 6.3(b)(iii) below; (B) Each tax
capital account shall be decreased by the amount of
expense or loss (Losses or Disposition Losses) which
shall have been allocated to the Interestholder who
shall hold the Interest pursuant to Section 6.3(a)
above and Sections 6.3(b)(iv) and 6.3(b)(v) below and
by the amount of any distribution which shall have
been received by the Interestholder with respect to
the Interest (other than on redemption of Interests);
and (C) If an Interest is redeemed, the tax capital
account with respect to such Interest shall be
eliminated on the Redemption Date.
(ii) Disposition Gain realized during
any week shall be allocated first among all
Interestholders whose book capital accounts shall be
in excess of their Interests' tax capital accounts
(after making the adjustments, other than adjustments
resulting from the allocations to be made pursuant to
this Section 6.3(b)(ii) for the current week,
described in Section 6.3(b)(i) above) in the ratio
that each such Interestholder's excess shall bear to
all such Interestholder's excesses.
(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,
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described in Section 6.3(b)(i) above) in the ratio
that each such Interestholder's excess shall bear to
all such Interestholders' excesses.
(v) Disposition Loss realized during any
week that remains after the allocation pursuant to
Section 6.3(b)(iv) above shall be allocated to those
Interestholders who were Interestholders during such
week in the ratio that each such Interestholder's
book capital account bears to all such
Interestholders' book capital accounts for such
calendar week.
(c) The tax allocations prescribed by this
Section 6.3 shall be made to each holder of an Interest
whether or not the holder is a substituted Limited Owner.
For purposes of this Section 6.3, tax allocations shall be
made to the Managing Owner's Interests on an Interest--
equivalent basis.
(d) The allocation of income and loss (and items
thereof) for federal income tax purposes set forth in this
Section 6.3 is intended to allocate taxable income and loss
among Interestholders generally in the ratio and to the
extent that net profit and net loss shall be
allocated to such Interestholders under Section 6.2 so as to
eliminate, to the extent possible, any disparity between an
Interestholder's book capital account and his tax capital
account, consistent with the principles set forth in
Sections 704(b) and (c)(2) of the Code.
(e) Notwithstanding this Section 6.3, if after
taking into account any distributions to be made with
respect to such Interest for the relevant period pursuant
to Section 6.4 herein, any allocation would produce a
deficit in the book capital account of an Interest, the
portion of such allocation that would create such a deficit
shall instead be allocated pro rata to the book capital
accounts of the other Interests held by the same
Interestholder (subject to the same limitation) and, as to
any balance, shall be allocated pro rata to the book
capital accounts of all the remaining Interestholders
(subject to the same limitation).
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
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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 3.4(b) shall be deemed
admitted on the date determined pursuant to such Section.
Any Interestholder to whom an Interest had been transferred
shall succeed to the tax and book capital accounts
attributable to the Interest transferred.
SECTION 6.6 Liability for State and Local and Other
Taxes. In the event that any Series shall be separately
subject to taxation by any state or local or by any foreign
taxing authority, the Series shall be obligated to pay such
taxes to such jurisdiction. In the event that the Series
shall be required to make payments to any Federal, state or
local or any foreign taxing authority in respect of any
Interestholder's allocable share of Series income, the
amount of such taxes shall be considered a loan by the
Series to such Interestholder, and such Interestholder
shall be liable for, and shall pay to the Series, any taxes
so required to be withheld and paid over by the Series
within ten (10) days after the Managing Owner's request
therefor. Such Interestholder shall also be liable for
(and the Managing Owner shall be entitled to redeem
additional Interests of the foreign Interestholder as
necessary to satisfy) interest on the amount of taxes paid
over by the Series to the IRS or other taxing authority,
from the date of the Managing Owner's request for payment
to the date of payment or the redemption, as the case may
be, at the rate of two percent (2%) over the prime rate
charged from time to time by Citibank, N.A. The amount, if
any, payable by the Series to the Interestholder in respect
of its Interests so redeemed, or in respect of any other
actual distribution by the Series to such Interestholder,
shall be reduced by any obligations owed to the Series by
the Interestholder, including, without limitation, the
amount of any taxes required to be paid over by the Series
to the IRS or other taxing authority 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
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Interest calculated as of the Valuation Point immediately
preceding the applicable Redemption Date. If an Interestholder
(or permitted assignee thereof) is permitted to redeem any or
all of his Interests as of a date other than a Redemption
Date, such adjustments in the determination and allocation
among the Interestholders of Disposition Gain, Disposition
Loss, Profits, Losses and items of income or deduction for
tax accounting purposes shall be made as are necessary or
appropriate to reflect and give effect to the redemption.
(b) The value of an Interest for purposes of
redemption shall be the book capital account balance of
such Interest at the Valuation Point immediately preceding
the Redemption Date, less any amount owing by such Limited
Owner (and his permitted assignee, if any) to the Trust
pursuant to Sections 4.6(g), 5.3(h) or 6.6 of this Trust
Agreement. If redemption of an Interest shall be requested
by a permitted assignee, all amounts which shall be owed to
the Trust under Sections 4.6(g), 5.3(h) or 6.6 hereof by
the Interestholder of record, as well as all amounts which
shall be owed by all permitted assignees of such Interests,
shall be deducted from the Net Asset Value of a Series of
such Interests upon redemption.
(c) The effective date of redemption shall
be the Redemption Date, and payment of the value of the
redeemed Interests (except for Interests redeemed as 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.
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Limited Owners requesting
redemption shall be notified in writing within five (5)
Business Days following the Redemption Date whether or not
their Interests will be redeemed, unless payment for the
redeeming Interests is made within that five (5) Business
Day period, in which case the notice of acceptance of the
redemption shall not be required.
(e) The Managing Owner may suspend
temporarily any redemption if the effect of such
redemption, either alone or in conjunction with other
redemptions, would be to impair the Trust's ability to
operate in pursuit of its objectives. In addition, the
Managing Owner may mandatorily redeem Interests pursuant to
Section 4.2(h).
(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. The redemption fees
may be waived by the Managing Owner in other circumstances
as set forth in the Prospectus.
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 own
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an Interest and profits remaining in the Series, if any.
Except as provided in Section 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,
(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,
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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 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
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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 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
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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 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 1999. The Fiscal
Year in which any Series in the Trust shall terminate shall
end on the date of termination of the Series.
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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 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
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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 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.
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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.
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 terminate
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 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,
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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.
(b) The occurrence of any event which would make
unlawful the continued existence of the Trust or any Series
thereof, as the case may be.
(c) 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.
(d) 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.
(e) The Trust or, as the case may be, any Series
becomes insolvent or bankrupt.
(f) 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.
(g) 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.
(h) 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.
(i) 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,
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custodian or personal representative shall have no right to
withdraw or value such Limited Owner's Interests except as
provided in Section 7.1 hereof. Each Limited Owner (and
any assignee thereof) expressly agrees that in the event of
his death, he waives on behalf of himself and his estate,
and he directs the legal representative of his estate and
any person interested therein to waive the furnishing of
any inventory, accounting or appraisal of the assets of the
Series in which they own an Interest and any right to an
audit or examination of the books of the Series in which
they own an Interest, except for such rights as are set
forth in Article IX hereof relating to the Books of Account
and reports of the Series.
SECTION 13.2 Distributions on Dissolution. Upon the
dissolution of the Trust or any Series, the Managing Owner
(or in the event there is no Managing Owner, such person
(the "Liquidating Trustee") as the majority in interest of
the Limited Owners may propose and approve) shall take full
charge of the Series assets and liabilities. Any
Liquidating Trustee so appointed shall have and may
exercise, without further authorization or approval of any
of the parties hereto, all of the powers conferred upon the
Managing Owner under the terms of this Trust Agreement,
subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers, and
provided that the Liquidating Trustee shall not have
general liability for the acts, omissions, obligations and
expenses of the Trust. Thereafter, the business and
affairs of the Trust or Series shall be wound up and all
assets shall be liquidated as promptly as is consistent
with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following
order of priority: (a) to the expenses of liquidation and
termination and to creditors, including Interestholders who
are creditors, to the extent otherwise permitted by law, in
satisfaction of liabilities of the Series of the Trust
(whether by payment or the making of reasonable provision
for payment thereof) other than liabilities for
distributions to Interestholders, and (b) to the Managing
Owner and each Limited Owner pro rata in accordance with
his positive book capital account balance, less any amount
owing by such Interestholder to the Series, after giving
effect to all adjustments made pursuant to Article VI and
all distributions theretofore made to the Interestholders
pursuant to Article VI. After the distribution of all
remaining assets of the Series, the Managing Owner will
contribute to the Series an amount equal to the lesser of
(i) the deficit balance, if any, in its book capital
account, and (ii) the excess of 1.01% of the total Capital
Contributions of the Limited Owners over the capital
previously contributed by the Managing Owner. Any 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
(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
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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)
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
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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 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
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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.
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IN WITNESS WHEREOF, the undersigned have duly executed
this Declaration of Trust and Trust Agreement as of the day
and year first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By:___________________________
Name:
Title:
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:________________________
Name: Eleanor L. Thomas
Title: Executive Vice 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: PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:________________________
Name: Eleanor L. Thomas
Title: Executive Vice President
A-59
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF TRUST
OF
WORLD MONITOR TRUST II
This Restated Certificate of Trust of World Monitor Trust
II (the "Trust") is being duly executed and filed on behalf of the Trust
by the undersigned, as trustee, to amend and restate the original
Certificate of Trust of the Trust which was filed on April 22, 1999
under the Delaware Business Trust Act (12 Del. C.
Section 3801 et seq.) (the "Act").
The Certificate of Trust is hereby amended and restated in its
entirety to read as follows:
1. Name. The name of the trust formed hereby is World
Monitor Trust II.
2. Delaware Trustee. The name and the business address of the
trustee of the Trust in the State of Delaware is Wilmington
Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attention: Corporate
Trust Administration.
3. Series. Pursuant to Section 3806(b)(2) of the Act,
the Trust shall issue one or more series of beneficial
interests having the rights, powers and duties
as set forth in the governing instrument of the Trust,
as the same may be amended from time to time (each a "Series").
4. Notice of Limitation of Liability of each
Series. Pursuant to Section 3804 of the 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.
5. Effective Date. This Restated Certificate of Trust
shall be effective upon filing.
WILMINGTON TRUST COMPANY, as Trustee
By_______________________________
Name:
Title:
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EXHIBIT B
WORLD MONITOR TRUST II
REDEMPTION REQUEST
(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 D:
Series E:
Series F:
(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 (as such term is
defined in Section 1.1 of the Trust Agreement) on the Friday
immediately preceding the dealing day, assuming that this
Redemption Request 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. 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%, respectively of the Series' Net Asset Value
at which they are redeemed. I understand that 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
means the applicable dealing date for
subscriptions made during the continuous offering period.
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
Redemption Request 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
Redemption Request 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 Number or Taxpayer ID Number
- --------------------------------------------------------------------------
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 REDEMPTION REQUEST 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 II
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 II dated September --, 1999. 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 D $____________ or All Interests
Series E $____________ or All Interests
Series F $____________ or All Interests
C-1
<PAGE>
Amount to be Purchased Upon Exchange
Series D $____________
Series E $____________
Series F $____________
<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 Number or Taxpayer ID Number
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 D Interests: Amount $
Series E Interests: Amount $
Series F Interests: Amount $
Total $
Interests to be Purchased:
Series D Interests: Amount $
Series E Interests: Amount $
Series F Interests: Amount $
Total $
C-4
<PAGE>
<PAGE>
EXHIBIT D
WORLD MONITOR TRUST II
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-3 through D-4 as directed herein:
CHECK THE APPROPRIATE BOX
Boxes (i) NEW SUBSCRIBER(S)
(ii) EXISTING OWNER(S) OF SERIES D, SERIES E AND/OR
SERIES F 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, 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-13.
Number 2 SOCIAL SECURITY NUMBER 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).
D-1
<PAGE>
Number 5 CLIENT NAME, ADDRESS AND BUSINESS PHONE NUMBER. FOR IRA OR
TRUST ACCOUNT INCLUDE: "FOR THE BENEFIT OF _____________."
INSERT NET WORTH AND ANNUAL GROSS INCOME.
Number 6 ADDRESS REQUIRED IF #5 IS A P.O. BOX OR IS NOT THE INVESTOR'S
RESIDENCE ADDRESS OR THE ENTITY'S PLACE OF FORMATION.
Number 7 TO BE COMPLETED AND SIGNED BY THE FINANCIAL ADVISOR
(SOMETIMES REFERRED TO AS THE "FA"). 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 PLAN 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 on file with Prudential Securities
and non-U.S. subscribers must have W-8s on file with
Prudential Securities.
WORLD MONITOR TRUST II
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 or (b) if
information has changed, follow
instructions for new subscriber(s).
D-2
<PAGE>
1. Total Dollar Amount of Subscription:
Series D Interests.....................$
Series E Interests.....................$
Series F 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 (we) 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,
// Custodian Partnership Pension, Profit Sharing,
Keogh plan
with employees)
// Trust // Individual Retirement
Account (Non-PSI employees)
// UGMA or UTMA // Individual Retirement
Account (PSI employees)
5. Full Name of Account, Joint Owners, Trustee, if trust account,
Custodian, if custodian account or other Authorized Person, if
Partnership, Corporation or Institutional Trustee or Plan fiduciary
(no initials).
__________________________________________________________________
Mailing Address. If trust or custodian account, address of
Trustee, Custodian or Plan Fiduciary.
__________________________________________________________________
City State Zip Code Country Business Telephone No.
or if none, Home No.
New Worth of Subscriber (exclusive of home, home furnishings and
automobiles): $______________
Annual Gross Income of Subscriber: $_______________
6. The following information must be provided if the above address is
a P.O. Box or is not the investor's residence address or the
entity's place of formation.
------------------------------------------------------------------
Residence Address (P.O. Box alone not acceptable).
------------------------------------------------------------------
City State Zip Code Country
D-3
<PAGE>
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 overall 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.
------------------------------------------------------------------
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 I 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
D-4
<PAGE>
SUBSCRIBERS -- DO NOT SIGN WITHOUT READING THE "REPRESENTATIONS AND
WARRANTIES" AT PARAGRAPH 11, THE "SUBSCRIBER(S)
CONSENT AND SUBORDINATION AGREEMENT AT PARAGRAPH 12
AND THE "RISKS" AT PARAGRAPH 13 OR WITHOUT
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) THE FACT 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) THE
FACT THAT ANY PERFORMANCE AND PROFORMA TABLES, IF
ANY, INCLUDED IN THE PROSPECTUS
MUST BE READ ONLY IN CONJUNCTION WITH THE
NOTES THERETO, IF ANY, (VII) THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE TRUST; (VIII) THE LIMITATIONS ON
LIMITED LIABILITY; (IX) THE FACT 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-5
<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
---------------------- ----------------------------------------------
(Signature of Subscriber) (Signature of Joint Owner, if any) Date
---------------------- ----------------------------------------------
(Print or Type Name (Print or Type Name of Signatory) Date
of Signatory)
9. IRA AND KEOGH PLAN (WITHOUT COMMON LAW EMPLOYEES) SUBSCRIPTION
--------------------------------------------------------------------
(Signature of IRA beneficiary or plan participants) Date
--------------------------------------------------------------------
(Print or Type Name of Signatory)
10. ENTITY (CUSTODIAN, CORPORATION, PARTNERSHIP, TRUST OR EMPLOYEE
BENEFIT PLAN) SUBSCRIPTION
The undersigned corporate officer, partner or trustee custodian or
fiduciary hereby certifies and warrants that he or she 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
participant 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)
--------------------------------------------------------------------
(Signature of Authorized Corporate Date
Officer, Partner, Trustee
Custodian or Fiduciary)
--------------------------------------------------------------------
(Print or Type Name of Signatory)
D-6
<PAGE>
11. REPRESENTATIONS AND WARRANTIES
I(we) hereby represent and warrant to Prudential Securities Futures
Management Inc. (sometimes referred to as the managing owner) and the
Trust as follows (please initial each applicable representation and
warranty):
____ (1) I (we) satisfy one or more of the following financial standards
outlined below for subscription in the Trust (initial in the
space provided only those requirements that apply):
____ (A) I (we) am (are) not acting on behalf of an Employee Benefit
Plan and I (we) have either
____ (i) a net worth (exclusive of home, home furnishings, and
automobiles) of at least $150,000 or
____ (ii) 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 or
____ (iii) if I (we) am (are) a resident(s) of one of those states
listed under "State Suitability Requirements on page D-13, 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.
____ (B) 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 the IRA or Keogh Plan meets the net worth
and gross income requirement in (i), (ii) or (iii)
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.
____ (C) 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 Plan meets the net worth and
suitability requirements in (i) or (iii) above,
and its investment in the Trust does not exceed 10%
of the assets of the Plan at the time of investment.
____ (2) The address set forth above in Items 5 and 6
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 in those Items 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 I (we) 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.
D-7
<PAGE>
____ (5) I (we) have received a prospectus of each Series which
constitutes its Commodity Futures Trading Commission
Disclosure Document.
____ (6) I (we) am (are) purchasing the limited interests for our
own account.
____ (7) 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.
In furtherance of the Consent, I (we) agree that (i) any
debts, liabilities, obligations, indebtedness, expenses and claims of
any nature and of all kinds and descriptions (collectively, "Claims")
incurred, contracted for or otherwise existing and (ii) any
Limited Interests, and any other interests, beneficial
interests or equity ownership of any kind (collectively, "Equity
Ownership"), 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 Equity Ownership, if any, of the subscriber
(collectively, the "Subordinated Claims and Equity Ownership") shall be
expressly subordinate and junior in right of payment to any and all
other Claims against and Equity Ownership 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 Equity Ownership (if any) in the Contracting Series
shall not be considered Subordinated Claims and Equity
Ownership 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
Equity Ownership, if any, in the Contracting Series shall
be pari passu and equal in right of repayment and distribution
with all other Equity Ownership 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 Equity Ownership;
(b) the Claims and Equity Ownership 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 Equity Ownership shall not be
asserted or enforceable for any reason whatsoever against
any other Series, the Trust generally or any of their respective assets;
D-8
<PAGE>
(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 U.S. 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 Equity Ownership 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 or that the Equity Ownership is
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 or its cash
distributions; (v) substantial charges will be imposed on each Series
and each Series' break-even point is described in the Prospectus;
(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 conflicts of interests
exist. See the section entitled "Risk Factors" in the prospectus.
D-9
<PAGE>
14. SUBSCRIPTIONS
The minimum subscription amount is $5,000 or ($2,000 for IRAs),
except in the case of certain states (see State Suitability
Requirements on page D-13). 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
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.
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 the 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-10
<PAGE>
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND POWER
OF ATTORNEY ACCOMPANIES THIS PROSPECTUS AS A SEPARATE DOCUMENT
WORLD MONITOR TRUST II
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 II
Prudential Securities Futures
Management Inc.
One New York Plaza, 12th Floor
Specialty Finance 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 D, Series E and/or Series F of World Monitor Trust II
(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.
3. Power of Attorney. In connection with my purchase of Limited
Interests, I do hereby irrevocably constitute and appoint
Prudential Securities Futures Management Inc. (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, (i) to
file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust and Series and (ii) to 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
First Amended and Restated 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 and shall survive and shall not be affected by, my subsequent
death, incapacity,
D-11
<PAGE>
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. I hereby acknowledge and agree that
this Subscription Agreement and Power of Attorney shall be governed by
and shall be interpreted in accordance with the laws of the State of
Delaware, without regard to principles of conflicts of laws.
PLEASE CAREFULLY COMPLETE THE SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY SIGNATURE PAGE WHICH ACCOMPANIES THIS
PROSPECTUS.
D-12
<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 ($2,000 for IRAs).
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 U.S.
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.
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-13
<PAGE>
WORLD MONITOR TRUST II - SERIES E
The date of this Part II is September 15, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses to be incurred in connection with the
offering are as follows:
Description Amount
Securities and Exchange Commission filing fee $13,900
NASD filing fee 5,500
Printing 60,000
Legal fees and expenses 90,000
Accounting fees 10,000
Blue Sky registration fees and expenses 41,938.33
Advertising and Sales 6,000
Miscellaneous (Escrow) 10,000
Total $237,338.33
Item 14. Indemnification of Directors and Officers.
Reference is made to Section 4.6 of Article IV at
pages 32 to 34 of the Registrant's Declaration of
Trust and Trust Agreement dated May 15, 1999,
annexed to the Prospectus as Exhibit A, which
provides for indemnification of the Managing Owner
and Affiliates of the Managing Owner under certain
circumstances.
Item 15. Recent Sales of Unregistered Securities.
On April 29, 1999, the Registrant sold 10 Interests
to the Managing Owner for $1,000 to effect the
formation of Series D of the Trust. No
underwriting discount or sales commission was paid
or received with respect to this sale. The
Registrant claims an exemption from registration
for this transaction based on Section 4(2) of the
Securities Act of 1933, as amended, as a sale by an
issuer not involving a public offering.
<PAGE>
Item 16. Exhibits and Financial Statements 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 First 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 Graham Capital Management, L.P.
* Previously filed.
<PAGE>
*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 Graham Capital Management, L.P.
*10.5 Form of Net Worth Agreement between
Prudential Securities Futures Management Inc. and
Prudential Securities Group Inc.
23.1 Consent of PricewaterhouseCoopers
23.2 Consent of Rosenman & Colin LLP
23.3 Consent of Richards, Layton & Finger
* Previously filed
The following financial statements are included in
the Prospectus:
1. World Monitor Trust II -- Series D, Series E and
Series F
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as of
September 9, 1999.
(iii) Notes to 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, 1998.
(iii) Unaudited Statement of Financial Condition
(iv) Notes to Statement of Financial Condition.
3. Diversified Futures Trust I
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as of
December 31, 1998.
(iii) Unaudited Statement of Financial Condition
(iv) Notes to 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.
<PAGE>
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 First Amended and Restated
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 Registrant will be
governed by the final adjudication of such issue.
<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 14th
day of September, 1999.
WORLD MONITOR TRUST II - SERIES E
By: Prudential Securities Futures
Management Inc., Managing Owner
By: /s/ Eleanor L. Thomas
--------------------------------------------
Eleanor L. Thomas, Executive Vice 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/ Joseph A. Filicetti President September 14, 1999
Joseph A. Filicetti Director
/s/ Eleanor L. Thomas Executive Vice President September 14, 1999
Eleanor L. Thomas Director
Director September , 1999
A. Laurence Norton, Jr.
/s/ Guy S. Scarpaci Director September 14, 1999
Guy S. Scarpaci
/s/ Barbara J. Brooks Chief Financial September 14, 1999
Barbara J. Brooks Officer
/s/ Steven Carlino Chief Accounting September 14, 1999
Steven Carlino Officer, Treasurer
And Vice President
/s/ Tamara B. Wright Senior Vice President September 14, 1999
Tamara B. Wright Director
/s/ Alan J. Brody Director September 14, 1999
Alan J. Brody
(Being the executive officers and a majority of the directors of
Prudential Securities Futures Management Inc.)
<PAGE>
As filed with the Securities and Exchange Commission on September 14, 1999
Registration No. 333-83015
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
EXHIBITS
FILED WITH
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
WORLD MONITOR TRUST II - SERIES E
(Exact Name of Registrant as Specified in Trust Certificate)
<PAGE>
INDEX TO EXHIBITS
Exhibits
*1.1 Form of Underwriting Agreement among the
Registrant, Prudential Securities Futures
Management Inc. and Prudential Securities Incorporated
3.1
and
4.1 Declaration of Trust and Trust Agreement of the
Registrant (annexed to the Prospectus as Exhibit A)
4.2 Form of Request for Redemption (annexed to the
Prospectus as Exhibit B)
4.3 Form of Exchange Request (annexed to the
Prospectus as Exhibit C)
4.4 Form of Subscription Agreement (annexed to the
Prospectus as Exhibit D)
5.1 Opinion of Rosenman & Colin LLP as to legality
5.2 Opinion of Richards, Layton & Finger as to
legality and inter-Series liability under Delaware Law
5.3 Opinion of Rosenman & Colin LLP as to federal
bankruptcy issues
8.1 Opinion of Rosenman & Colin LLP as to income
tax matters
*10.1 Form of Escrow Agreement among the
Registrant, Prudential Securities Futures
Management Inc., Prudential Securities Incorporated
and The Bank of New York
*10.2 Form of Brokerage Agreement between the
Registrant and Prudential Securities Incorporated
*10.3 Form of Advisory Agreement among the
Registrant, Prudential Securities Futures
Management Inc. and Graham Capital Management, L.P.
*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 Graham Capital Management, L.P.
* Previously filed.
<PAGE>
Exhibits
*10.5 Form of Net Worth Agreement between
Prudential Securities Futures Management Inc. and
Prudential Securities Group Inc.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Rosenman & Colin LLP
23.3 Consent of Richards, Layton & Finger
* Previously filed.
<PAGE>
September 14, 1999
Prudential Securities Futures Management Inc.
Managing Owner
World Monitor Trust II
One New York Plaza
New York, New York 10292-2013
Re: World Monitor Trust II - Series D, Series E and Series F
Gentlemen:
We have acted as your counsel in connection with
the organization of World Monitor Trust II, a
Delaware business trust (the "Trust"), and the
preparation and filing with the Securities and
Exchange Commission ("SEC") under the Securities
Act of 1933 (the "Act"), of Registration Statements
on Form S-1 (Registration Nos. 333-83011, 333-
83015, and 333-83017, respectively) filed with the
SEC on July 16, 1999, as well as each Pre-Effective
Amendment No. 1 to such Registration Statements
expected to be filed with the SEC on September 14,
1999 (the "Registration Statements"), relating to
the registration under the Act of $50,000,000 of
Series D Interests, $50,000,000 of Series E
Interests, and $50,000,000 of Series F Interests in
the Trust (individually, the "Series D Interests,"
the "Series E Interests," and the "Series F
Interests," and collectively, the "Interests").
Capitalized terms used herein and not otherwise
defined are used as defined in, or by reference to,
the First Amended and Restated Declaration of Trust
and Trust Agreement dated May 15, 1999 (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, 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
A Partner
<PAGE>
September 14, 1999
World Monitor Trust II
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 II
Ladies and Gentlemen:
We have acted as special Delaware counsel to World
Monitor Trust II, a Delaware business trust (the "Trust"),
in connection with the transactions contemplated by
the First Amended and Restated Declaration of Trust
and Trust Agreement, dated as of May 15, 1999 (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 Interest-
holders 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 April 22, 1999;
<PAGE>
World Monitor Trust II
Prudential Securities Futures Management Inc.
September , 1999
Page 2
(c) The three registration statements on Form S-1, filed
by the Trust with the Securities and Exchange Commission on
July 16, 1999 (the "Registration Statements"), each
including a preliminary prospectus (the "Prospectus")
relating to the Series D, Series E and Series F
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
September , 1999, 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 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 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
<PAGE>
World Monitor Trust II
Prudential Securities Futures Management Inc.
September , 1999
Page 3
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 Interests to be issued by the Trust will be validly issued
and, subject to the qualifications set forth herein, will be
fully paid and nonassesable 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 Statements and the Trust Agreement,
the dollar amount of the Interest 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
<PAGE>
World Monitor Trust II
Prudential Securities Futures Management Inc.
September , 1999
Page 4
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 transfer 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. 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.
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.
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
<PAGE>
World Monitor Trust II
Prudential Securities Futures Management Inc.
September , 1999
Page 5
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>
September 14, 1999
World Monitor Trust II
Prudential Securities Futures Management Inc.
One New York Plaza
13th Floor
New York, New York 10292-2013
Re: World Monitor Trust II-Series D, Series E and Series F
Gentlemen:
We have acted as your counsel in connection with
the organization of World Monitor Trust II, a
Delaware business trust (the "Trust"), and the
preparation and filing with the Securities and
Exchange Commission ("SEC") under the Securities
Act of 1933 (the "Act") of Registration Statements
on Form S-1 (Registration Nos. 333-83011, 333-83015
and 333-83017, respectively, filed with the SEC on
July 16, 1999, as amended from time to time
(collectively, the "Registration Statements"))
relating to the registration under the Act of
$50,000,000 of Series D Interests, $50,000,000 of
Series E Interests and $50,000,000 of Series F
Interests in the Trust (the Series D Interests,
Series E Interests and Series F 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 First Amended and Restated Declaration of Trust
and Trust Agreement of the Trust, dated as of May
15, 1999 (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 assets of such Contracting Series (the
<PAGE>
"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 Contracting
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,
Richards, Layton & Finger dated the date hereof and
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
- ---------------------
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 or any other series thereof, and, unless
otherwise provided in the governing instrument of
the trust, none of the debts of the trust generally
or any other series thereof is enforceable against
the assets of such series, 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.
2
<PAGE>
Eleanor L. Thomas, Executive 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 person and entity (including, without
limitation, each Limited Owner, creditor, the
Trustee and all persons or entities providing goods
or services to the Trust generally, 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 (collectively, 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. Each Written Consent 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
- ------------------
2 Where the context so requires, references
herein to the "Trust generally" refer to Claims
against the Trust where the claimant has no direct
recourse to the assets of any Contracting Series.
3
<PAGE>
operative documents relating
to the Trust, including, without limitation, the
Prospectus, which is a part of each Registration
Statement, 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 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 held and 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, inter alia, 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, inter alia, look solely to the assets
of a particular Series for repayment of any Claims
and not 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
4
<PAGE>
will not transact business with one another and
(xvii) any financial statements of the Trust which
consolidate the financial information 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, which
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.
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.
5
<PAGE>
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 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 that 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 the facts set forth herein,
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 the assets of the
other
6
<PAGE>
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 agreements
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.
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
A Partner
7
<PAGE>
OFFICER'S CERTIFICATE
The undersigned, Eleanor L. Thomas, hereby
certifies as follows:
1. She is Executive Vice President of Prudential
Securities Futures Management Inc., a Delaware
corporation ("PSFMI"). She is duly authorized to
execute and deliver this officer's certificate (the
"Certificate") on behalf of PSFMI. PSFMI is the
managing owner of the World Monitor Trust II, a
Delaware business trust (the "Trust").
2. This Certificate is executed and delivered with the
intention that it be relied upon by Rosenman &
Colin LLP ("Rosenman") in connection with the
issuance by Rosenman of the attached legal opinion
(the "Opinion") to be delivered on the date hereof
by Rosenman to the Trust and PSFMI, which Opinion
addresses certain issues relating to "substantive
consolidation" under federal bankruptcy law and the
limitation on liability of various series (the
"Series") of the Trust in the event that the Trust
is a debtor in a case under title 11 of the United
States Code.
3. The undersigned is fully familiar with the Trust,
the Series and the transactions relating to the
Trust and the Series (the "Transactions") and the
documents and other factual matters and assumptions
described in the Opinion, and has made such
investigations and inquiries, including, without
limitation, of personnel and employees or other
representatives of the Trust, the Series and PSFMI
having familiarity with the Trust and the
Transactions and such documents and such factual
matters, as may be necessary to enable the
undersigned to execute and deliver this
Certificate.
4. The undersigned has carefully reviewed the Opinion
and, with respect to the factual matters and
assumptions set forth therein in the paragraphs
preceding the discussion section of the Opinion
entitled "Law and Conclusions", hereby certifies
that (i) each factual statement contained therein
relating to the Trust, the Series and PSFMI is, to
the best of her knowledge after due inquiry, and to
the extent such factual statements relate to future
conduct, will be, true and correct and does not
fail to state a material fact the omission of which
makes the statement as it appears incomplete or
misleading and (ii) with respect to factual
statements contained therein that relate to parties
to the Transactions discussed other than the Trust,
the Series and PSFMI, while the undersigned
expressly disclaims any certification hereby as to
the truth, correctness or completeness of such
other statements, based on the undersigned's
participation in the subject Transactions, the
undersigned does not have actual knowledge that the
statements contained therein relating to parties
other than the Trust, the Series and PSFMI are
untrue, incorrect or incomplete so as to be
misleading and such statements are believed to be
true.
IN WITNESS WHEREOF, I have executed this
Certificate as of the 14th day of September, 1999.
By: /s/ Eleanor L. Thomas
------------------------
Name: Eleanor L. Thomas
Title: Executive Vice President
<PAGE>
September 14, 1999
World Monitor Trust II
Prudential Securities Futures Management Inc.
One New York Plaza, 13th Floor
New York, New York 10292-2013
Re: World Monitor Trust II -- Series D, Series E and Series F
Gentlemen:
You have requested our opinion as to the status of
World Monitor Trust II, 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 First Amended and
Restated Declaration of Trust and Trust Agreement
of the Trust dated as of May 15, 1999 (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 ("Interests") of one or more of three
separate and distinct series (each, a "Series") of
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 such
Registration Statements) under the Securities Act
of 1933 with respect to the Trust filed with the
Securities and Exchange Commission ("SEC") on July
16, 1999, as amended (the "Registration
Statements"); (d) the exhibits to such Registration
Statements; (e) Pre-Effective Amendment No. 1 to
each Registration Statement; and (f) such other
documents as we have deemed necessary or
appropriate to review in rendering this opinion.
Capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned
to them in the Trust Agreement.
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.
<PAGE>
World Monitor Trust II
September 14, 1999
Page 2
2. The primary business and purpose of each Series
is to engage in the speculative trading of
commodity futures, forward and option contracts.
The objective of the business of each Series is the
appreciation of its assets on a long-term basis.
3. Interests in the Trust will be offered in
accordance with the Trust Agreement and the
Prospectus.
4. A principal activity of each Series will
consist of buying and selling futures, forwards and
options with respect to commodities.
5. None of the Series will make an election to be
taxed as a corporation under Treasury Regulation
section 301.7701-3.
Under the terms of the advisory agreement between
eachTrading Advisor and the corresponding Series,
each Trading Advisor has agreed that at least 90%
of the gains and income, if any, of the applicable
Series will be from buying and selling 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" ("Qualifying Income") as
defined in Section 7704(d) of the Internal Revenue
Code of 1986, as amended (the "Code").
In rendering this opinion, we have relied, without
independent investigation or verification, on the
Managing Owner's representations set forth above,
the facts and information set forth in the
documents referred to above and the opinion of even
date of Delaware counsel to the Trust.
On the basis of our review of the aforementioned
documents, the representations set forth above, the
opinion of Delaware counsel and 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, provided that at least 90% of
each Series' annual gross income consists of
Qualifying Income, each Series will be classified
as a partnership and not as a corporation for
federal income tax purposes, and accordingly, the
Limited Owners in each Series will be subject to
the federal income tax treatment applicable to
limited partners in a partnership.
In addition, we have reviewed the discussion
relating to tax matters under the heading "U.S.
Federal Income Tax Consequences" in each
Prospectus. In our opinion, such discussion
correctly describes the material U.S. federal
income tax consequences, as of the date hereof, to
the Trust and to a U.S. individual who invests in
the Trust.
* * *
<PAGE>
World Monitor Trust II
September 14, 1999
Page 3
We hereby consent to the use of this opinion as an
exhibit to each of the Registration Statements and
to the use of our name under the heading "U.S.
Federal Income Tax Consequences".
Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ Jill E. Darrow
A Partner
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in the Prospectus
constituting part of this Pre-Effective Amendment
No. 1 to the Registration Statements on Form S-1
(Nos. 333-83011, 333-83015, and 333-83017) of our
reports dated September 14, 1999 relating to the
statement of financial condition of Series D,
Series E, and Series F of World Monitor Trust II,
and our reports dated January 26, 1999 related the
statements of financial condition of Prudential
Securities Futures Management, Inc. and of
Diversified Futures Trust I, which appear in the
Prospectus. We also consent to the reference to our
firm under the heading "Experts" in such
Prospectus.
New York, New York
September 14, 1999
<PAGE>
EXHIBIT 23.2
Consent of Rosenman & Colin LLP
We hereby consent to the reference to us in the Prospectus constituting
part of this Registration Statement on Forms S-1 (333-83011, 333-83015
and 333-83017) under the headings "Federal Income Tax Consequences,"
"Legal Matters" and "Experts".
/s/ Rosenman & Colin LLP
- ---------------------------
Rosenman & Colin LLP
New York, New York
September 14, 1999
<PAGE>
EXHIBIT 23.3
Consent of Richards, Layton & Finger
We hereby consent to the reference to us in the Prospectus constituting
part of this Registration Statements on Form S-1 (333-83011, 333-83015
and 333-83017) under the heading "Legal Matters." In giving the
foregoing consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ Richards, Layton & Finger
- ---------------------------------
Richards, Layton & Finger
Wilmington, Delaware
September 14, 1999
